BoE Proposes £20K Stablecoin Cap in New Regulatory Framework

The Bank of England’s proposed regulatory framework introduces significant but temporary restrictions on systemic stablecoin holdings, with individuals facing a £20,000 limit and businesses capped at £10 million. These measures are explicitly designed as transitional safeguards to prevent sudden deposit flight from traditional banking systems during the early stages of stablecoin adoption. The central bank emphasized that these limits would be progressively loosened and eventually removed entirely once the risks to financial stability subside, creating a phased approach to integration that prioritizes systemic protection.

Notably, the proposal specifically excludes stablecoins used for non-systemic purposes, such as the buying and selling of cryptoassets, which the Bank of England acknowledges remains “the predominant use of stablecoins today.” This distinction creates a bifurcated regulatory approach where only stablecoins recognized as “systemic”—those that could be widely used in everyday payments—fall under the Bank of England’s purview, while non-systemic tokens will be regulated separately by the Financial Conduct Authority.

The consultation paper outlines detailed reserve management requirements for stablecoin issuers, mandating that up to 60% of reserves could be held in short-term UK government debt, with the remainder held as unremunerated deposits at the central bank. This represents a significant softening from the Bank’s 2023 discussion paper, which recommended that all reserves be held as central bank deposits only. The current proposal reflects a more pragmatic approach that balances liquidity needs with stability concerns.

The Bank of England explicitly noted that allowing a greater share in interest-bearing instruments could affect trust and confidence in money by limiting liquidity during periods of stress. Additionally, the central bank acknowledged that the size and structure of the UK’s short-term debt market may not support large-scale stablecoin demand in its current form, highlighting potential infrastructure challenges that need addressing. The Bank is also considering providing recognized issuers access to its liquidity facilities to ensure they can meet redemption requests during market stress.

Cessiah Lopez, head of policy and research at Solana’s Superteam UK, told Decrypt that “The UK’s cautionary approach is aligned with how the government has been dealing with crypto regulation for quite some time now.” She noted that requiring systemic issuers to hold some reserves in central bank deposits could actually give GBP-backed stablecoins a structural advantage, since their reserves would be in central bank money rather than commercial bank deposits, potentially strengthening confidence and systemic resilience.

However, Lopez also warned that if the UK fails to “get the review process and transition right” it could negatively affect the country’s ambitions to be a leader in digital-asset payments. This reflects broader industry concerns about balancing regulatory caution with innovation leadership in the rapidly evolving crypto landscape.

The consultation period will remain open until February 10, 2026, providing extensive time for industry feedback and analysis. Following this input period, the Bank of England plans to finalize its rules for implementation later next year, setting the stage for a carefully calibrated regulatory framework that could shape the UK’s digital payments ecosystem for years to come.