UK Loosens Stablecoin Caps to Sustain Fintech Leadership

The Bank of England is preparing to introduce targeted exemptions to its proposed stablecoin holding limits, a shift that reflects growing industry pressure and the UK's desire to remain competitive in the evolving digital finance landscape. According to Bloomberg, the central bank will grant waivers to firms such as crypto exchanges that require larger stablecoin balances for operations, including settlement within its Digital Securities Sandbox Stablecoin News: BoE Reportedly Planning Waivers on Limits^[1]. The initial proposals, outlined in late 2024, had suggested caps of up to £20,000 for individual holdings and £10 million for corporate accounts, aiming to mitigate financial stability risks associated with digital assets Bank of England plans stablecoin cap exemptions as UK faces …^[2]. However, the industry has criticized these thresholds as overly restrictive, arguing they could hinder innovation and push activity to jurisdictions with more accommodating frameworks, such as the U.S. and China Hong Kong BoE signals flexibility on stablecoin holdings amid industry …^[3].

The revised approach, which balances prudential concerns with market needs, underscores the BoE's recognition of stablecoins' growing role in cross-border payments and financial infrastructure. The exemptions will allow eligible firms to hold larger amounts of stablecoins, particularly those used for trading, market-making, and settlement in regulated environments. This flexibility is expected to address operational challenges faced by exchanges and payment providers, which rely on substantial stablecoin reserves to facilitate liquidity and reduce transaction costs Stablecoin News: BoE Reportedly Planning Waivers on Limits^[1]. The BoE's Digital Securities Sandbox, a pilot program for testing tokenized assets, will also permit the use of stablecoins as settlement assets, signaling a pragmatic acceptance of their utility in regulated contexts Bank of England plans stablecoin cap exemptions as UK faces …^[2].

Industry stakeholders have welcomed the shift, with critics of the original caps warning that rigid limits could stifle the UK's fintech ecosystem and drive innovation offshore. Simon Jennings of the UK Cryptoasset Business Council highlighted the risk of regulatory arbitrage, emphasizing that stringent rules could deter firms from operating in the UK Bank of England plans stablecoin cap exemptions as UK faces …^[2]. Meanwhile, Reeve Collins, co-founder of Tether, stressed the importance of "workable rules" to ensure stablecoins continue to drive innovation in payments systems BoE signals flexibility on stablecoin holdings amid industry …^[3]. The BoE's recalibration aligns with broader global trends, as markets like the U.S. and China Hong Kong advance formal regulatory frameworks for stablecoins, including the Trump administration's GENIUS Act, which aims to clarify their legal status Bank of England plans stablecoin cap exemptions as UK faces …^[2].

Governor Andrew Bailey's recent statements further indicate a softening stance. In an op-ed for the Financial Times, he acknowledged the potential of stablecoins to enhance cross-border payments and innovation but emphasized the need for robust safeguards to maintain public trust Bank of England plans stablecoin cap exemptions as UK faces …^[2]. This marks a departure from his earlier skepticism, where he had warned against the systemic risks posed by stablecoins and urged caution in their adoption Stablecoin News: BoE Reportedly Planning Waivers on Limits^[1]. The BoE's updated approach reflects a nuanced strategy: imposing caps on retail users to protect vulnerable consumers while permitting institutional exemptions to foster market development.

The decision to introduce exemptions is also influenced by the relatively low systemic risk posed by pound-pegged stablecoins. Bloomberg reported that GBP-pegged tokens have minimal market capitalizations, limiting their potential to disrupt broader financial systems BoE signals flexibility on stablecoin holdings amid industry …^[3]. This contrasts with dollar-backed stablecoins, which dominate the $314 billion global market and are already subject to regulatory scrutiny in the U.S. and other jurisdictions. By tailoring its approach to the UK's specific market conditions, the BoE aims to strike a balance between innovation and stability.

The final details of the exemptions, including eligibility criteria and reporting requirements, are expected to be outlined in a consultation later this year Stablecoin News: BoE Reportedly Planning Waivers on Limits^[1]. Analysts suggest that the BoE will prioritize transparency, requiring firms to document their operational needs and justify the necessity of larger holdings. Stress testing and routine oversight will likely form part of the compliance framework, ensuring that the exemptions do not compromise financial resilience. The outcome of these consultations will shape the UK's regulatory landscape for stablecoins, influencing whether the country can maintain its position as a hub for digital finance or risk falling behind more aggressive competitors.