Regulators' Tight Grip Risks Sidelining UK in Global Stablecoin Race

Bank of England's proposed stablecoin regulatory framework has drawn criticism from UK crypto industry groups, who argue that the limits on stablecoin issuance and operational scope could hinder innovation and growth in the sector. The Bank of England, in a move to address potential risks associated with the fast-growing stablecoin market, has outlined a set of restrictions on the issuance and use of stablecoins, particularly those not backed by regulated entities or fully collateralized assets. Critics, however, believe these measures could create unnecessary barriers for emerging stablecoin projects and reduce the technology's utility in cross-border payments and financial inclusion.

The Bank of England’s approach emphasizes a cautious stance toward algorithmic and under-collateralized stablecoins, which have previously faced high-profile failures, such as the collapse of TerraUSD. The proposed framework requires all stablecoin issuers to maintain 100% reserves and to operate under the supervision of a licensed financial institution. Additionally, it restricts stablecoins from being used for direct payments outside of specified, regulated environments, effectively limiting their role as a medium of exchange in everyday transactions.

UK-based crypto trade associations, including the UK Cryptoasset Association and the London Blockchain and Fintech Association, have raised concerns that these restrictions may undermine the competitive advantage of the UK in the global stablecoin space. They argue that such a conservative approach could drive stablecoin development and adoption to more crypto-friendly jurisdictions, potentially weakening the UK’s position in the digital finance ecosystem. The associations have called for a more balanced regulatory model that supports innovation while ensuring consumer protection and financial stability.

Industry experts have noted that the Bank of England’s strategy aligns with broader international efforts to regulate stablecoins, including the U.S. Congress's proposed GENIUS Act and the Basel Committee’s guidance on digital currencies. However, they emphasize that the UK’s regulatory environment must remain adaptable to support the evolution of stablecoin technology without stifling its potential benefits. These include faster and cheaper cross-border transactions, enhanced financial inclusion, and the integration of stablecoins into decentralized finance (DeFi) platforms.

The debate over stablecoin regulation is particularly timely given the rapid expansion of the global stablecoin market. As of May 2025, the stablecoin market had surpassed $2.4 trillion in total value locked, with over 232 active stablecoin projects across various asset classes. This growth underscores the increasing demand for stable digital assets, particularly in emerging markets where traditional financial infrastructure is less developed. The UK’s regulatory decisions are expected to have a significant impact on the direction and pace of stablecoin adoption in the region.

While the Bank of England maintains that its proposed framework is necessary to mitigate systemic risks and protect consumer interests, it has yet to provide a detailed timeline for the implementation of these rules. In the absence of clarity, many industry stakeholders are calling for a collaborative approach involving regulators, technologists, and financial institutions to shape a regulatory environment that balances innovation with risk management. Until such an approach is adopted, the UK’s stance on stablecoin regulation may remain a point of contention between regulators and the crypto community.