UK's Stablecoin Rules Aim to Curb Risks, Cement Post-Brexit Digital Finance Hub

The Bank of England has intensified its push for stricter regulation of stablecoins, aligning with the Financial Conduct Authority's (FCA) proposed framework to address risks associated with digital assets while fostering innovation. The FCA's consultation paper CP25/14 outlines a regulatory regime for qualifying stablecoin issuers, emphasizing full asset backing, segregation of reserves, and robust risk management. Under the proposal, stablecoins must be backed by secure, liquid assets held in a statutory trust, with a two-tier system for asset composition. Core assets include short-term deposits and government debt, while expanded backing may include longer-term instruments subject to additional safeguards. Issuers must maintain a minimum 5% liquidity buffer and calculate a dynamic Backing Asset Composition Ratio every 14 days to ensure redemption readiness The Proposed UK Regulatory Framework for Regulating Stablecoin …^[1].

The Bank of England has also proposed holding limits to mitigate systemic risks, capping individual stablecoin holdings between £10,000 and £20,000 and business holdings at £10 million. These caps aim to prevent liquidity crises from large-scale redemptions, though crypto exchanges and custodians will be exempt to preserve market liquidity and operational efficiency Bank of England Proposes Stablecoin Caps: Balancing Risk and …^[2]. This exemption, confirmed by Bloomberg, reflects industry feedback and a strategic shift to avoid stifling innovation Bank of England Plans Exemptions to Stablecoin Limits: Bloomberg^[3]. The Bank of England's Governor Andrew Bailey has signaled a more pragmatic approach, acknowledging stablecoins' potential while stressing the need for financial stability. In a Financial Times article, Bailey stated that systemic stablecoins should have access to Bank of England accounts to reinforce their status as money US And UK Move Toward Joint Crypto Regulatory Framework^[5].

The regulatory framework will impose stringent safeguards, including daily reconciliations of minted stablecoins and backing assets, with discrepancies resolved within one business day. Issuers must publish regular disclosures on asset composition, redemption policies, and third-party arrangements, subject to annual independent audits. Redemption rights will be guaranteed for all holders, with no minimum thresholds and fees tied to operational costs The Proposed UK Regulatory Framework for Regulating Stablecoin …^[1]. The FCA's regime will also introduce a dual-regulatory model, with issuers authorized by the FCA and subject to the Bank of England's oversight if operating at systemic scale.

International collaboration is emerging as a key theme. The U.S. and U.K. are advancing discussions on a joint regulatory framework, with Treasury Secretary Scott Bessent and Chancellor Rachel Reeves exploring harmonized rules for stablecoins, custody, and AML standards. A shared regulatory sandbox is under consideration to streamline cross-border compliance for crypto firms . This aligns with the Bank of England's broader goal to position the UK as a global hub for digital finance post-Brexit.

The FCA and Bank of England's proposals, expected to be finalized in 2026, aim to balance innovation with consumer protection. While the initial consultation period closed in July 2025, the Bank will separately consult on systemic stablecoin requirements, including access to central bank accounts. These measures seek to prevent stablecoins from becoming "too big to fail" and align with global standards like the EU's MiCA regulation .