UK's Cautious Stablecoin Rules Risk Falling Behind Global Rivals

The UK is under pressure to develop a robust framework for pound-denominated stablecoins as it seeks to maintain its competitive edge in global finance. With regulators proposing stringent limits on stablecoin holdings and backing assets, industry leaders warn that the country risks falling behind jurisdictions like the U.S. and Singapore, which are advancing more accommodating regimes. The Bank of England (BoE) has unveiled plans to impose temporary caps of £20,000 for individual stablecoin holdings and £10 million for businesses, while allowing up to 60% of backing assets to be held in short-term UK government debt. These measures aim to mitigate financial stability risks but have drawn criticism for potentially stifling innovation and deterring investment.

The BoE's proposals, which evolved from initial 2023 discussions, reflect a cautious approach to managing the risks posed by systemic stablecoins-digital assets widely used in payments that could disrupt traditional banking. Deputy Governor Sarah Breeden emphasized the need for a "fit for a future" regime, acknowledging the potential of stablecoins to streamline payments but stressing the importance of safeguards. However, critics argue that the 40% requirement for unremunerated central bank deposits will render existing stablecoin models unviable and put UK issuers at a disadvantage compared to U.S. counterparts, where no such limits exist. Varun Paul of Fireblocks, a former BoE fintech hub head, called the proposals a "missed opportunity" to be world-leading, highlighting the tension between regulatory caution and innovation.

The UK's regulatory hesitancy contrasts with rapid advancements elsewhere. The U.S. Senate's pending GENIUS Act, which aims to normalize stablecoins, and the EU's MiCAR framework, fully implemented in late 2024, underscore the urgency for the UK to finalize its approach. Industry stakeholders, including Agant CEO Andrew MacKenzie, argue that while the UK lacks a first-mover advantage, it can learn from global models to craft a high-quality regime. Meanwhile, the BoE's consultation process, closing in February 2026, seeks feedback on balancing risk mitigation with usability, particularly for businesses reliant on large stablecoin balances.

Amid these debates, the UK's broader financial landscape is evolving. Coinbase's recent launch of UK savings accounts-offering 3.75% interest and FSCS protection-exemplifies the blurring lines between crypto and traditional finance. The platform, now the first crypto-native exchange to offer a regulated savings product in the UK, positions itself as a one-stop financial hub. Such initiatives highlight the growing demand for integrated services, yet the BoE's proposed limits could constrain adoption for both consumers and businesses.

The economic context adds urgency to the stablecoin discussion. Recent GDP data revealed a slower-than-expected 0.1% quarterly growth, with manufacturing and industrial production contracting sharply. As the Bank of England contemplates further rate cuts, stablecoins could offer an alternative to traditional banking, particularly for SMEs. However, Pathos Communications' meteoric rise-ranked 6th in the 2025 Deloitte Technology Fast 50 with 2,842% growth-demonstrates the UK's potential to innovate in digital finance.

Innovate Finance CEO Janine Hirt and Parliament's Crypto and Digital Assets APPP co-chair Lord Vaizey have both urged regulators to strike a balance between safety and ambition. While temporary limits may be necessary, the absence of a clear timeline for their removal raises concerns about long-term competitiveness. With global adoption of stablecoins accelerating, the UK's ability to harmonize regulatory rigor with innovation will determine its role in the future of digital money.