Bank of England Softens Stablecoin Rules, Sets £40 Billion Cap

What to Know

• The Bank of England has scrapped its plan to cap stablecoin holdings for individual users and companies.
• Instead, regulators will temporarily cap the circulation of any single systemic stablecoin at £40 billion.
• The central bank lowered the required share of reserves kept in non-interest-bearing central bank deposits to 30%.
• Stablecoin issuers may now place up to 70% of reserves in short-term U.K. government debt.
• Issuers will still be barred from paying interest to stablecoin holders.
• The policy shift follows pushback from industry participants and scrutiny from a House of Lords committee.
• The framework is designed to support competitiveness and may be phased out as the market matures.
• The U.K. aims to have full crypto rules in place by 2027.

Bank of England changes course on stablecoins

The Bank of England has eased its stance on stablecoin oversight, dropping an earlier proposal that would have placed strict limits on how much stablecoin individuals and companies could hold. In a notable policy reversal, the central bank said it will instead use a temporary aggregate circulation cap of £40 billion for any single systemic stablecoin.

The move marks a meaningful shift in tone from one of caution to one of measured accommodation. Rather than restricting access at the user level, regulators appear more focused on limiting system-wide exposure while preserving room for innovation and commercial growth in the U.K. digital asset market.

Why regulators stepped back

The decision follows sustained criticism from industry players who argued that hard holding limits would make it difficult for stablecoins to scale and compete with existing payment and settlement systems. According to the source material, the Bank of England also faced pressure from a House of Lords committee, which added momentum to the reconsideration of the original proposal.

For policymakers, the challenge has been balancing financial stability with the need to avoid driving activity offshore. By softening the rules, the central bank is signaling that it wants the U.K. to remain competitive as other jurisdictions continue to build out their own digital asset frameworks.

Reserve rules loosen to support issuers

Alongside the circulation cap, regulators also reduced the amount of backing that must be held as non-interest-bearing central bank deposits. Under the revised approach, stablecoin issuers will need to hold only 30% of reserves in those deposits, while up to 70% can be invested in short-term U.K. government debt.

This adjustment could improve business economics for issuers, many of whom rely on reserve income to cover operating costs and maintain profitability. The rule still stops short of allowing stablecoins to behave like yield-bearing products for consumers, however, because issuers remain barred from paying interest directly to coin holders.

That distinction matters. Regulators are trying to preserve the payments utility of stablecoins without turning them into deposit-like instruments that compete too aggressively with bank savings products.

What the temporary cap means for the market

The £40 billion cap is designed as a guardrail rather than a permanent feature of the regime. Authorities indicated that the limit is expected to be phased out as the market becomes more established, suggesting that regulators want to start conservatively and then relax the framework if stability concerns prove manageable.

In practical terms, the cap means that a major stablecoin could reach a significant scale before any additional restrictions are triggered, but the central bank still retains a tool to prevent excessive concentration. For the market, that strikes a balance between growth potential and systemic oversight.

Analysts and issuers will likely view the move as more constructive than the earlier draft rules. It preserves the possibility of large-scale issuance while avoiding an approach that could have fragmented liquidity or limited adoption among businesses and institutions.

U.K. crypto policy heads toward 2027

The revised stablecoin framework fits into a broader timeline for U.K. digital asset regulation, with full crypto rules expected by 2027. That longer runway gives lawmakers and regulators time to refine how stablecoins, trading platforms, custody providers, and payment firms will be supervised under a unified regime.

For the Bank of England, the latest changes suggest a willingness to calibrate rules in response to market feedback rather than set policy in stone. The central bank still appears committed to tight oversight, but the new approach gives issuers more flexibility to operate within the U.K. while maintaining safeguards meant to protect the financial system.

The outcome is likely to be watched closely by global regulators. Stablecoins sit at the intersection of payments, banking, and digital assets, and the U.K.’s revised stance may influence how other jurisdictions think about reserve rules, issuer economics, and concentration limits.

As the framework develops, the key question will be whether the lighter-touch reserve model can encourage healthy growth without introducing new risks. For now, the Bank of England has chosen to back away from its most restrictive proposal and replace it with a structure that is more likely to keep the stablecoin market onshore.

Frequently Asked Questions (FAQs)

What did the Bank of England change?

The Bank of England dropped proposed individual and corporate stablecoin holding limits and replaced them with a temporary £40 billion cap on the total circulation of any single systemic stablecoin.

Does the new rule allow stablecoin holders to earn interest?

No. The revised framework still prohibits issuers from paying interest directly to stablecoin holders.

How much of stablecoin reserves must stay in central bank deposits?

Regulators now require 30% of reserves to be held in non-interest-bearing central bank deposits.

What can issuers do with the remaining reserves?

Up to 70% of reserves may be invested in short-term U.K. government debt under the revised rules.

Why did regulators soften the original proposal?

The change was driven by pushback from the industry and feedback from a House of Lords committee, both of which argued the earlier approach could hurt competitiveness and viability.

Is the £40 billion cap permanent?

No. The cap is intended to be temporary and may be phased out as the stablecoin market matures.

How does this affect the U.K. crypto market?

The move could make the U.K. a more attractive place for stablecoin issuers by giving them more operating flexibility while still preserving regulatory safeguards.

When will full U.K. crypto rules arrive?

The source indicates that full U.K. crypto rules are expected by 2027.

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