Bank of England Reconsiders Strict Stablecoin Regime for UK Crypto

The Bank of England is actively reconsidering its proposed stablecoin regulatory framework after industry pushback on rules that participants called operationally burdensome, Deputy Governor Sarah Breeden has confirmed.

Breeden told the Financial Times that the central bank was “looking very hard” at alternatives to its proposed stablecoin rules. The comments signal that the Bank’s November 2025 consultation paper, which outlined strict requirements for systemic sterling stablecoin issuers, may be significantly revised before draft rules arrive.

What the Bank of England Originally Proposed

The Bank’s consultation paper laid out a two-part backing requirement for systemic sterling stablecoins. Issuers would need to hold at least 40% of reserves as unremunerated deposits at the Bank of England, with up to 60% in short-term sterling-denominated UK government debt.

The framework also included temporary per-coin holding limits: 20,000 pounds for individuals and 10 million pounds for businesses, with possible exemptions for certain business use cases.

That 40% unremunerated deposit requirement represented a shift from the Bank’s earlier position, which had contemplated 100% central-bank-deposit backing. The revision was intended as a compromise, but industry participants still found the combined package too restrictive.

Why Industry Pushed Back on the Holding Limits

Breeden was direct about the source of resistance. “What we have heard from industry is that the way we have proposed to implement limits is cumbersome operationally for a temporary measure,” she said.

“On holding limits, we are genuinely open to other ways of achieving the objective.”

Sarah Breeden, Deputy Governor, Bank of England, in oral evidence to the House of Lords, March 11, 2026

The criticism centered on a structural mismatch: the holding caps were designed as temporary safeguards during the early phase of the regime, but the compliance infrastructure required to enforce them would be permanent and expensive. Issuers and payment firms argued that building systems to monitor and enforce per-wallet caps across retail and institutional users was disproportionate for a measure the Bank itself described as transitional.

The stablecoin sector now carries a global market capitalization of roughly $293 billion, making the design of national frameworks a question with real commercial stakes. For UK-based issuers and firms exploring sterling-denominated stablecoins, the difference between workable and unworkable regulation could determine whether the market develops domestically or migrates offshore.

A Rethink Already Signaled in Parliament

The May 14 comments to the Financial Times were not the first indication that the Bank was open to changes. In oral evidence to a House of Lords committee on March 11, 2026, Breeden said the Bank was “genuinely open to other ways of achieving the objective” behind the holding limits.

During the same hearing, Breeden indicated that draft rules were scheduled for June 2026, with the regime intended to be finalized and accepting applications by the end of 2026. That timeline suggests the Bank has a narrow window to incorporate feedback before formalizing revised proposals.

The reconsideration is therefore better understood as part of an ongoing consultation process rather than a sudden policy reversal. The Bank is working within the framework established by the Financial Services and Markets Act 2023, which expanded its remit to cover systemic stablecoins used for payments. HM Treasury determines which stablecoin arrangements qualify as systemic, while the Bank and the Financial Conduct Authority share supervisory responsibilities.

What a Revised Approach Could Mean for UK Crypto Firms

If the Bank relaxes or redesigns the holding caps, the most immediate beneficiaries would be stablecoin issuers seeking to operate under a UK license. Lower compliance costs and fewer operational restrictions could make sterling stablecoins more viable as payment instruments, similar to how recent regulatory clarity in the United States, including the Senate’s confirmation of Kevin Warsh as Federal Reserve chair, has shaped expectations for crypto-friendly policy.

Banks and payment processors would also be affected. The original holding-limit design would have required intermediaries to build monitoring systems capable of tracking individual wallet balances against regulatory caps. A simpler alternative, such as aggregate issuer-level limits or enhanced disclosure requirements, could reduce that burden.

The stablecoin market’s trajectory makes this more than a niche regulatory question. With USDC alone carrying a market capitalization above $76.7 billion, institutional interest in stablecoin infrastructure continues to grow. UK firms watching the Bank’s next move include not only potential sterling stablecoin issuers but also exchanges, custodians, and fintech platforms that would integrate stablecoins into payment flows.

Stablecoin Regulation Sits at the Center of a Broader Policy Tension

The Bank of England’s reconsideration reflects a tension common to every major jurisdiction designing stablecoin rules: how to protect financial stability without making compliance so costly that innovation moves elsewhere. Stablecoins occupy a different regulatory space from speculative crypto assets because they function as payment instruments, making them relevant to monetary policy transmission and systemic risk.

The UK’s approach under the Financial Services and Markets Act 2023 treats systemic stablecoins as a payments regulation question rather than a securities question. That framing gives the Bank of England a central role but also means the regime must be practical enough for payment-system participants to adopt. The industry feedback Breeden acknowledged suggests the first draft did not fully meet that standard.

Other jurisdictions are grappling with similar questions. The EU’s Markets in Crypto-Assets regulation took a different approach to stablecoin reserves, and developments in U.S. policy, including how digital asset advocates like Michael Saylor frame crypto’s role in capital markets, continue to shape global expectations. The UK’s willingness to revise its framework mid-consultation could position it as more responsive to market realities than jurisdictions that finalize rules without iterating.

What to Watch Before June 2026

Several questions remain unanswered. The Bank has not disclosed which specific alternative mechanisms it is considering for the holding limits. It is also unclear whether the 40% unremunerated deposit requirement is under review alongside the caps, or whether the rethink is limited to the holding-limit design.

The June 2026 target for draft rules is the next concrete milestone. If the Bank publishes revised proposals that address industry concerns on operational complexity, the UK could move toward a functioning stablecoin licensing regime by year-end. If the revisions are incremental, the same pushback is likely to continue.

Key items to monitor: whether the Bank replaces per-wallet holding caps with an alternative mechanism, whether the reserve-backing ratio changes, and whether the timeline for accepting license applications holds at late 2026. Official statements from the Bank and further parliamentary testimony will provide the clearest signals.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making any investment decisions.