Bank of England Eases Stablecoin Regulations, Sets £40B Issuance Limit

The Bank of England (BoE) recently released its final policy and draft rules regarding systemic stablecoins, easing regulations that industry stakeholders warned could hinder the development of a sterling-backed stablecoin market. The updated policy eliminates caps on individual holdings of a stablecoin and instead imposes a temporary issuance limit set at £40 billion (approximately $53 billion) per coin.

In addition, the BoE has increased the allowable percentage of reserves that issuers can hold in interest-bearing UK government debt from 60% to 70%. The remaining portion of backing assets must remain in non-interest-bearing deposits at the Bank of England. This adjustment may address industry concerns that earlier proposals would leave too much capital generating no return, although issuers had lobbied for an even higher yield-bearing allowance.

Sarah Breeden, the BoE's deputy governor for financial stability, described the updated framework as a "major milestone in delivering greater choice and innovation in UK payments." She emphasized that “innovation thrives on trust” and praised the new policy as a "world-leading regime" that offers protection, prompt redemption, and central bank support.

The decision to ease these regulations follows months of pressure from the crypto industry and reflects the bank's recognition that its previous proposals might have stifled the competitiveness of the UK's stablecoin market in comparison to those in the U.S. and Europe. Breeden acknowledged in May that the Bank may have been "overly conservative" and indicated that it was reviewing its existing caps and reserve requirements.

The Bank has framed the £40 billion issuance cap as a temporary measure designed to safeguard credit flow rather than a restriction on user access. It warns, however, that if stablecoins become widely adopted, they could potentially draw funds away from traditional deposits.