The Bank of England has moved forward with controversial plans to cap how many UK stablecoins individuals and businesses can hold, though the central bank partially walked back its initial proposals following pushback from the crypto industry.
Individual and Business Caps Announced
Under the new framework unveiled Monday, individual users will be restricted to holding a maximum of £20,000 in UK stablecoins that regulators deem systemically important. Most businesses face a stricter limit of £10 million in holdings.
The restrictions apply only to stablecoins that UK authorities classify as having systemic importance to the financial system—likely those with significant adoption and transaction volumes that could pose risks if they failed or experienced a run.
Key Exemptions for Retail and Exchanges
In a concession to industry concerns, the Bank of England said it would exempt certain categories of businesses from the £10 million cap. Specifically, retail businesses like supermarkets and crypto trading platforms that serve retail customers would not face the holding limits.
This exemption addresses a practical concern raised by the industry: merchants accepting stablecoin payments and exchanges facilitating trading could easily exceed the £10 million threshold in the normal course of business operations. Without the exemption, these businesses would be unable to operate effectively with UK stablecoins.
The Bank of England published these proposals in a consultation paper, indicating the rules are not yet final and the central bank is seeking feedback from industry stakeholders and the public.
Reserve Requirements and Central Bank Support
Beyond ownership limits, the Bank of England outlined strict requirements for how stablecoin issuers must back their tokens. Under the proposed framework, systemic stablecoin issuers would be required to hold 40% of their reserve assets as unremunerated deposits directly at the Bank of England.
This means stablecoin companies would not earn interest on that 40% portion. The remaining 60% of reserves would need to be held in short-term UK government debt instruments, such as Treasury bills.
These reserve requirements aim to ensure stablecoins maintain their 1:1 peg to the British pound and can always honour redemptions, even during periods of market stress.
In a notable development, the Bank of England also said it is “considering central bank liquidity arrangements to support systemic stablecoin issuers in times of stress.” This suggests the central bank may be willing to act as a lender of last resort for major stablecoin operators—similar to how it supports traditional banks during financial crises.
Understanding Stablecoins
Stablecoins are digital tokens pegged at a fixed one-to-one rate to traditional currencies like the US dollar or British pound. Each stablecoin is supposed to be backed by an equivalent amount of real currency or highly liquid assets held in reserve.
These tokens have become fundamental infrastructure in cryptocurrency markets. Traders use them to quickly move between different crypto assets and traditional currencies without going through banks. More recently, businesses have begun exploring stablecoins for international payments due to their speed and lower costs compared to conventional bank transfers.
However, stablecoins have sparked intense regulatory debate. Policymakers worry about consumer protection, financial stability risks, and whether issuers actually hold sufficient reserves to back their tokens.
Regulatory Context
The UK has been working to establish a comprehensive regulatory framework for stablecoins as adoption grows. The Bank of England’s proposals reflect concerns that widely used stablecoins could become so embedded in the payment system that their failure would threaten financial stability.
By imposing ownership limits, UK regulators appear to be trying to prevent stablecoins from becoming too concentrated in the hands of individual users or businesses—potentially reducing systemic risk if a stablecoin were to fail.
However, critics argue that ownership caps could stifle innovation and push stablecoin activity to jurisdictions with lighter regulation. The exemptions for retailers and exchanges suggest the Bank of England is trying to balance financial stability concerns with the practical needs of businesses operating in the digital asset space.
What Happens Next
The proposals are currently open for consultation, meaning the crypto industry, businesses, and the public can submit feedback before the rules are finalised. The final framework could differ from what was announced Monday based on the responses received.
As this is a developing story, we’ll continue monitoring the consultation process and any further changes to the Bank of England’s stablecoin regulatory framework.
This is a developing story and will be updated as more information becomes available.
