Bank of England Softens Stablecoin Rules With £40B Issuance Cap

TLDR

• The Bank of England softened its proposed stablecoin rules.
• Individual and corporate stablecoin holding limits were dropped.
• Each systemic stablecoin may face a temporary £40B issuance cap.
• Issuers may hold up to 70% of reserves in short-term U.K. government debt.
• Regulated U.K. stablecoin activity is expected to begin in 2027.

The Bank of England has softened parts of its proposed stablecoin framework, dropping planned individual and corporate holding limits in favor of a temporary issuance cap for systemic sterling-backed stablecoins.

The central bank published its final policy direction and draft rules on Monday, marking a major step in the United Kingdom’s effort to regulate stablecoins used for payments. The revised approach removes earlier proposals that would have limited individuals to £20,000 in holdings and businesses to £10 million.

Instead, the Bank of England plans to apply a temporary aggregate issuance cap of £40 billion, or about $52.8 billion, per systemic stablecoin. The change responds to feedback from industry groups and lawmakers who warned that wallet-level limits could restrict adoption and weaken the commercial case for sterling stablecoin issuers.

Bank of England Drops Wallet-Level Stablecoin Limits

The earlier proposal had drawn criticism because it would have placed direct restrictions on how much consumers and businesses could hold, transfer or use in systemic stablecoins. Industry participants argued that such limits could make sterling stablecoins less practical for payroll, merchant settlement, institutional payments and corporate treasury use.

The Bank of England said it reviewed concerns raised during the consultation process and adjusted the framework. The new model focuses on limiting the total circulation of each systemic stablecoin issuer rather than restricting each user’s balance.

The temporary £40 billion cap is intended to manage risks to the wider financial system while allowing stablecoin products to develop. The central bank has previously warned that stablecoins could draw deposits away from banks, which may affect lending and the cost of credit if adoption grows too quickly.

The Bank said the issuance guardrail may be reduced or removed over time once the market matures and authorities gain more information about usage, flows and financial stability risks.

Reserve Rules Eased for Stablecoin Issuers

The Bank of England also relaxed its proposed reserve requirements for stablecoin backing assets. Issuers would be allowed to hold up to 70% of backing reserves in short-term U.K. government debt, up from the earlier 60% proposal.

The remaining 30% must be held in non-interest-bearing deposits at the central bank. This structure gives issuers some ability to earn yield from short-term government securities while maintaining a liquidity buffer for redemptions.

The change matters for issuer economics because stablecoin firms generally need reserve income to support operations, compliance costs and payment infrastructure. Requiring too much of the reserve base to sit in non-yielding central bank deposits could make issuance less viable.

At the same time, the Bank of England said stablecoin issuers will not be allowed to pay interest or dividends directly to users simply for holding the token. However, the framework permits activity-based incentives, including cashback or loyalty rewards linked to payment transactions.

Deputy Governor for Financial Stability Sarah Breeden said the framework is designed to support choice and innovation in U.K. payments while building trust in a new form of money. She said the rules are based on prompt redemption, strong protections and central bank support.

U.K. Stablecoin Launch Timeline Moves Toward 2027

The revised rules do not mean systemic sterling stablecoins are launching immediately. The framework remains part of a regulatory process, with a final feedback window expected to close in September before the rules are finalized.

Regulated stablecoin activity is expected to begin in 2027, when the wider U.K. crypto regulatory regime is due to come into effect. The Bank’s revised approach gives banks, payment firms and digital asset companies more clarity as they plan products.

The decision also comes as the U.K. seeks to remain competitive with other major jurisdictions, including the United States and European Union, where stablecoin rules are moving forward. The stablecoin market is still dominated by dollar-backed tokens, while sterling-denominated stablecoins remain small by comparison.

A more flexible framework could help regulated firms test sterling stablecoins for payments, tokenized settlement and financial market infrastructure. The final outcome will depend on how the Bank calibrates the issuance cap, redemption standards, reserve rules and compliance requirements before launch.

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