UK's Stablecoin Shift Aims to Curb Fintech Flight to US, EU

The United Kingdom's regulatory approach to stablecoins is undergoing a significant shift as the Bank of England (BoE) and the Financial Conduct Authority (FCA) respond to industry pressure and global competition. In July 2025, the BoE signaled a softened stance on stablecoin ownership limits, proposing exemptions for firms requiring larger reserves for liquidity and settlement purposes. Previously, the central bank had mandated strict caps-£20,000 for individuals and £10 million for businesses-on holdings of systemic stablecoins used for payments. However, these restrictions faced criticism for potentially stifling innovation and diverting growth to the United States or the European Union, where regulatory frameworks are more accommodatingUK Crypto Regulation Moves Forward With BoE’s New Stablecoin …^[2].

The FCA's May 2025 consultation paper, CP25/14, outlines a comprehensive regulatory framework for fiat-backed stablecoin issuance and custody. The proposals emphasize full reserve backing with high-quality, liquid assets held in statutory trusts for the benefit of stablecoin holders. Issuers must segregate assets per product, implement robust risk management systems, and ensure daily reconciliation of stablecoin balances with reserves. Redemption requirements mandate that all holders-retail and institutional-can redeem stablecoins at par value within one business day, with no minimum thresholds or onerous conditionsThe Proposed UK Regulatory Framework for Regulating Stablecoin …^[1]. These rules aim to mitigate risks from issuer failures, such as those seen in the 2022 TerraUSD collapse, by ensuring legal clarity and asset protectionThe Proposed UK Regulatory Framework for Regulating Stablecoin …^[1].

The BoE's evolving position aligns with broader efforts to integrate stablecoins into the UK's financial infrastructure. Governor Andrew Bailey, once a vocal skeptic of stablecoins, acknowledged their potential to coexist with traditional finance and announced plans to allow systemic stablecoins access to BoE accounts. This move would reinforce their status as a form of money and align the UK with U.S. and EU practices, where stablecoins are increasingly permitted to hold reserves in short-term government securitiesUK Crypto Regulation Moves Forward With BoE’s New Stablecoin …^[2]. The FCA also invited feedback on extending similar standards to multi-currency stablecoins, recognizing the added complexities of foreign exchange volatility and liquidity managementThe Proposed UK Regulatory Framework for Regulating Stablecoin …^[1].

Industry stakeholders have welcomed the regulatory flexibility, noting that overly restrictive rules risk undermining London's competitiveness in the global fintech ecosystem. The UK's stablecoin market remains nascent, with only $581,000 in sterling-pegged tokens in circulation compared to $468 million in euro-linked tokensUK Crypto Regulation Moves Forward With BoE’s New Stablecoin …^[2]. However, projections suggest stablecoins could facilitate over $50 trillion in payments by 2030, underscoring their growing significance in cross-border transactions and digital financeUK Crypto Regulation Moves Forward With BoE’s New Stablecoin …^[2].

Final regulations are expected in 2026, following consultations on prudential standards and disclosures. The BoE's upcoming consultation on systemic stablecoins will address requirements for accessing central bank facilities and managing risks associated with widespread adoptionThe Proposed UK Regulatory Framework for Regulating Stablecoin …^[1]. Meanwhile, the FCA's proposed regime for qualifying stablecoins will coexist with the Bank's oversight, creating a dual-regulatory framework for systemic issuersThe Proposed UK Regulatory Framework for Regulating Stablecoin …^[1].

The UK's approach reflects a balancing act between innovation and stability. While the FCA's rules prioritize consumer protection and transparency, critics argue the regulatory process remains slow compared to peers like Hong Kong and SingaporeUK Stablecoin Regulation: go further and faster^[5]. Nevertheless, the BoE's willingness to revise its stance and integrate stablecoins into the Digital Securities Sandbox signals a pragmatic shift toward embracing digital assets as part of the UK's financial futureUK Crypto Regulation Moves Forward With BoE’s New Stablecoin …^[2].