Stablecoins are cryptocurrencies designed to maintain a fixed value, typically pegged to fiat currencies like the U.S. dollar or British pound, and backed by conventional financial assets such as government securities. Their increasing use for payments and settlements has attracted regulatory attention, particularly over concerns about financial stability and consumer protection.
A Shift From Stricter Proposals
The BoE’s latest consultation marks a departure from its 2023 proposal, which required stablecoin issuers to hold 100% of their reserves with the central bank—a rule that would have denied them any interest earnings on those holdings. The crypto industry sharply criticised that plan, warning it could stifle innovation and make UK-based issuers uncompetitive globally.
Responding to industry feedback, the new proposal reduces that requirement: 40% of reserves must still be held at the BoE, while the remaining 60% can be invested in highly liquid government securities.
“Today’s proposals mark a pivotal step towards implementing the UK’s stablecoin regime next year,” said Sarah Breeden, Deputy Governor for Financial Stability. “We’ve listened carefully to feedback and amended our proposals, including on how stablecoin issuers interact with the Bank of England.”
Temporary Regime and Oversight Structure
The central bank also outlined a temporary framework for stablecoin issuers currently regulated by the Financial Conduct Authority (FCA). Under this transitional arrangement, eligible issuers could invest up to 95% of their backing assets in government securities while the BoE finalises its long-term oversight model.
The BoE will directly supervise only stablecoins considered capable of becoming widely used for payments, while other types—such as those used mainly for crypto trading and investment—will remain under the FCA’s jurisdiction.
Controversial Holding Caps Remain
Despite the more flexible investment terms, the BoE maintained one of its most controversial measures: temporary caps on the value of stablecoins that individuals and businesses can hold. The central bank argues these limits are necessary to prevent systemic risks during the early stages of regulation, though it said some larger companies could be exempted “where operationally essential.”
Industry figures note that such holding limits are not mirrored in other major financial centres, such as the United States or the European Union, raising concerns about the UK’s competitiveness as a hub for digital asset innovation.
Liquidity Backstops and Market Stability
In a further sign of pragmatism, the BoE said it is considering offering central bank liquidity facilities to systemic stablecoin issuers during periods of market stress. Such access would serve as a safety net if issuers are unable to quickly liquidate their reserve assets in private markets—essentially treating them similarly to banks in times of financial turbulence.
A Measured Step Toward the UK’s Stablecoin Regime
The proposals form part of the UK’s broader effort to establish a comprehensive regulatory regime for digital assets by 2026. The government and regulators have framed this as a bid to balance innovation with financial stability, ensuring that the UK remains competitive while safeguarding consumers.
While the softened stance is being welcomed by parts of the crypto industry, analysts note that the BoE’s continued caution—particularly around systemic risks—underscores its determination to avoid the kind of instability seen in past crypto market crashes.
If approved, the new framework would mark a defining moment in the UK’s digital finance evolution, potentially setting the tone for how other major economies regulate stablecoins in the years ahead.