Bank of England Relaxes Stablecoin Limits, Sets £40 Billion Issuance Cap

The Bank of England (BoE) has introduced significant changes to its regulatory framework for sterling-denominated stablecoins, responding to extensive industry feedback. The central bank has scrapped its previously proposed individual and corporate stablecoin holding limits, opting instead for a temporary aggregate issuance cap of £40 billion (approximately $53 billion) per systemic stablecoin. This revision is intended to enhance the UK's competitiveness in digital assets and foster innovation within its payment systems.

In its initial proposals published in November 2025, the BoE had suggested individual stablecoin holding limits of £20,000 and business limits of £10 million. These stringent caps, however, met with strong criticism from the cryptocurrency industry. Industry stakeholders argued that these limits would create operational difficulties, put the UK at a disadvantage compared to other jurisdictions, and hinder the development of sterling-backed stablecoins. The House of Lords Financial Services Regulation Committee had also urged the BoE to reconsider these limits.

Under the updated regulations, the reserve requirements for stablecoin issuers have also been relaxed. The proportion of reserves previously mandated to be held in non-interest-bearing central bank deposits has been reduced from 40% to 30%. The remaining 70% can now be held in short-term UK government debt (gilts). This adjustment aims to enable issuers to develop more sustainable business models while simultaneously safeguarding market liquidity and financial stability. The BoE requires stablecoins to be redeemable for fiat currency at face value within 24 hours.

This development is seen as part of the UK's broader efforts to strengthen its position in the digital currency landscape. Sarah Breeden, the BoE's Deputy Governor for Financial Stability, stated that this framework marks a significant milestone in delivering greater choice and innovation in UK payments. Breeden emphasized that innovation thrives on trust, and they are laying the foundations of that trust for a new form of money. However, some industry representatives argue that the new rules still fall short of enabling a truly internationally competitive sector, particularly regarding the duration of the temporary issuance cap and whether stablecoins will be permitted for wholesale market settlement.

The Bank of England clarified that this temporary issuance cap is designed as a 'safeguard' to mitigate the risk of sudden deposit outflows from the banking system and disruptions to the UK credit market. It noted that as the market matures, this cap will be progressively reviewed and potentially removed entirely. Furthermore, the BoE plans to launch an emergency liquidity mechanism in 2027, allowing issuers to obtain loans from the central bank against government bonds as collateral.

The BoE, in collaboration with the Financial Conduct Authority (FCA), aims to finalize these regulations by the end of 2026, with the full framework expected to be operational by 2027. These steps are critical for the UK's objectives of achieving a leading position in digital assets while maintaining financial stability.