UK's Stablecoin Rules Spark Debate: Innovation vs. Stability in Race to Match US

The Bank of England has taken a decisive step toward regulating stablecoins, unveiling a framework aimed at balancing innovation with financial stability. The central bank plans to impose temporary holding limits of £20,000 for individuals and £10 million for businesses on systemic stablecoins, while requiring issuers to back 60% of their reserves in UK government debt and 40% in non-interest-bearing accounts at the BoE . These measures, part of a public consultation open until February 10, 2026, are designed to mitigate risks from sudden redemptions and ensure liquidity during financial stress . Final rules are expected by late 2026, aligning with the UK's ambition to match the speed of U.S. regulatory developments UK Stablecoin Rules Will Be in Place 'as Quickly as the U.S.,' BOE Says: Bloomberg.

Deputy Governor Sarah Breeden emphasized the urgency of the reforms, noting that the UK's mortgage market—reliant on commercial bank lending—heightens the risk of destabilization if stablecoins siphon deposits en masse UK Stablecoin Rules Will Be in Place 'as Quickly as the U.S.,' BOE Says: Bloomberg. The BoE's approach diverges from the U.S. model, which currently lacks holding caps but is guided by the recently enacted GENIUS Act. While the UK's stricter requirements have drawn criticism from industry players, such as Fireblocks' Varun Paul, who warned of unviable business models, the BoE argues the limits are temporary and will ease as systemic risks diminish .

Reserve requirements for stablecoin issuers represent a key compromise. Initially, new entrants can allocate up to 95% of their backing assets in government securities, phasing down to 60% as they scale. This flexibility aims to support innovation while ensuring robust liquidity buffers. The BoE also highlighted concerns about the UK's current bond market, which may struggle to absorb large demand from stablecoin reserves, prompting plans to enhance access to central bank liquidity .

The regulatory framework will be enforced through a collaborative approach. His Majesty's Treasury will classify stablecoins as systemic based on their scale and impact, while the Financial Conduct Authority (FCA) will oversee non-systemic tokens and consumer protections . Non-sterling stablecoins, such as USDT and USDC, remain outside the BoE's direct purview but are under review .

Industry reactions have been mixed. Major stablecoin issuers, including Circle and Tether, are positioning for UK entry as the 7 million crypto users in the country represent a significant market UK Floats £20000 Stablecoin Limit in Tougher Regime .... However, critics argue the 40% unremunerated reserve requirement could disadvantage UK issuers against U.S. counterparts, where such restrictions are absent . The BoE's consultation process, which follows a softened stance from its 2023 proposals, seeks to refine these rules with industry feedback .

With the UK's crypto user base surging 204% since 2021, the BoE's framework aims to position the nation as a competitive hub for digital assets while safeguarding financial stability. As Deputy Governor Breeden stated, the goal is to "ensure our regime is up and running just as quickly as the U.S." UK Stablecoin Rules Will Be in Place 'as Quickly as the U.S.,' BOE Says: Bloomberg. The outcome will likely influence global standards, given London's status as a financial center.