Bank of England Signals Softer Approach to Stablecoin Regulation
The Bank of England is reconsidering key parts of its proposed stablecoin framework after mounting pressure from financial firms and crypto companies, signaling a softer regulatory stance as policymakers attempt to balance financial stability concerns with the risk of driving innovation offshore.
Summary:
- Bank of England is reviewing strict reserve and holding requirements.
- Officials fear overly rigid rules could hurt U.K. competitiveness.
- Regulators remain concerned about financial stability and U.S. stablecoin influence.
The policy rethink marks a notable shift for U.K. regulators, who had previously championed some of the strictest proposed stablecoin safeguards among major financial centers.
Reserve Rules Face Industry Backlash
At the center of the debate is the Bank of England’s proposal requiring systemic sterling stablecoin issuers to hold 40% of reserves in non-interest-bearing accounts at the central bank.
Deputy Governor Sarah Breeden said on May 14 that policymakers are “looking very hard” at whether the requirement would make U.K.-issued stablecoins commercially unviable.
Industry groups have argued that forcing issuers to park large portions of reserves in zero-yield central bank accounts would sharply reduce profitability compared with U.S.-based stablecoin operators, which can generate income from Treasury bills and other liquid assets backing their tokens.
Executives warned the framework risked undermining London’s ambitions to become a major regulated hub for digital asset payments and tokenized finance.
The Bank is now exploring alternative reserve structures that could preserve financial safeguards while allowing issuers greater flexibility over reserve management.
Holding Caps May Be Scrapped
The BoE is also reconsidering proposed caps on how much stablecoin users could hold.
Earlier drafts suggested temporary limits of £20,000 for individuals and £10 million for businesses to reduce the risk of sudden deposit outflows from traditional banks into digital assets during periods of market stress.
Officials now acknowledge those restrictions may prove operationally difficult and overly restrictive for corporate treasury management and payment applications.
READ MORE: Regulated Yen Stablecoin to Power Cross-Border Transfers
Breeden said policymakers are evaluating “other ways” to achieve financial stability objectives without imposing hard transaction or holding limits that industry participants described as cumbersome.
The reassessment reflects growing concern inside government and regulatory circles that excessive restrictions could push stablecoin innovation toward jurisdictions with more commercially flexible frameworks.
U.K. and U.S. Regulatory Divide Widens
The review comes as Bank of England Governor Andrew Bailey intensifies criticism of the increasingly pro-growth U.S. approach toward stablecoins.
Bailey recently warned that some dollar-backed stablecoins lack reliable redemption mechanisms, forcing users to rely on secondary crypto exchanges rather than direct issuer redemptions during periods of stress.
He argued that fragmented global standards could create regulatory arbitrage, with firms gravitating toward looser jurisdictions while exporting financial risk internationally.
The governor described the situation as an emerging “wrestle” between competing U.S. and U.K. regulatory models for digital payments infrastructure.
The divergence has become more visible as Washington accelerates stablecoin integration through frameworks such as the GENIUS Act, while European and British regulators continue prioritizing bank-style safeguards and reserve oversight.
Treasury Pushes Ahead With Stablecoin Framework
Despite the potential softening from the Bank of England, the U.K. government continues advancing legislation aimed at formally integrating stablecoins into the country’s payments system.
HM Treasury is currently collecting feedback on draft “Cryptoasset Regulations 2026,” with consultations running through May 22.
The proposed framework would carve certain payment-focused stablecoin activities out of broader crypto trading restrictions, simplifying licensing requirements for firms using digital assets in payments and settlement operations.
Officials say the objective is to create a regime that supports innovation while preserving confidence in the broader banking system.
For now, markets interpret the BoE’s softer tone as evidence that regulators increasingly recognize stablecoins as a permanent component of modern financial infrastructure rather than a niche crypto experiment.
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Alexander Zdravkov
Reporter at CoinsPress
Alexander Zdravkov is a market analyst and crypto journalist with interests in economics, broader financial markets and digital assets. His journey into crypto began more than four years ago, driven by a fascination with the rapid evolution of blockchain technology and the transformative potential of decentralized finance. He began analyzing market cycles and identifying emerging trends before they reach the mainstream. He holds a degree in International Relations - a background that helped shape his broader perspective on global economics, geopolitics, and the interconnected nature of modern financial markets. Whether covering the latest developments in the crypto sector or exploring broader macroeconomic themes, Alexander focuses on giving readers context rather than simply repeating headlines. During his career, he has authored more than 10,000 articles covering cryptocurrencies, traditional finance, and global market developments. His work spans everything from Bitcoin and altcoins to macroeconomic trends influencing risk assets worldwide.
