The UK's latest move on stablecoin regulation has been met with a mix of positive reception and significant concerns from the digital asset industry. The Bank of England (BoE) has released a consultation outlining its proposed framework for regulating sterling-denominated stablecoins, a development that many in the industry argue is still too stringent and could place Britain at a competitive disadvantage.
UK Stablecoin Regulation: Understanding the New Rules
The consultation paper, published on November 10, 2025, details the core components of the proposed systemic stablecoin framework. Issuers of recognized sterling-denominated stablecoins will face a set of demanding conditions. These include stipulations on the composition of assets against which their stablecoins must be backed, limits on holdings, and capital requirements.
The Bank of England currently permits issuers to hold 60% of their reserves in bills, with at least 40% held within the bank without remuneration. The consultation clarifies that only stablecoins widely used for payments in the UK will be considered 'systemic.'
Holding Caps Raise Eyebrows in the Crypto Industry
One of the most contentious aspects of the Bank of England's stablecoin proposals is the temporary imposition of limits on holdings. Under the proposed regime, individuals would be restricted to holding no more than £20,000 in recognized sterling-denominated stablecoins at any given time, while businesses would face a limit of £10 million.
Industry insiders suggest these limits will conflict with global norms and potentially diminish the UK's attractiveness as a jurisdiction for stablecoin creation. A cryptocurrency commentator expressed this sentiment on Reddit, stating:
“A £20k cap for the rest of us? Why do they think they should dictate to us where to invest our money?”
Critics argue that the UK should prioritize facilitating the issuance and use of stablecoins rather than implementing less efficient limits that could drive users to seek alternatives in other countries.
Backing-Asset Rules
The new UK framework for stablecoin regulation represents a shift from the BoE's earlier suggestion of requiring 100% unremunerated central bank deposits. Under the proposed rules, systemic issuers may not hold 50% of their backing assets in central bank deposits; instead, 60% must be in short-term government debt, with a maximum of 40% in deposits at the bank.
During a transitional period, companies identified as systemic at the outset will be permitted to invest up to 95% in government debt. Despite this welcomed flexibility, legal experts note that the overall regime remains significantly more restrictive than the non-systemic rules overseen by the Financial Conduct Authority (FCA).
Joint Oversight and Ongoing Consultation
Under the proposed systemic stablecoin regime, the Bank of England will be responsible for regulating prudential and financial-stability risks for recognized issuers. The FCA will retain its role in supervising conduct aspects.
The consultation period is open until February 10, 2026. Following its conclusion, the BoE and HM Treasury will publish Codes of Practice detailing how these arrangements will be fully implemented.
A Step Forward, but More Corrections Needed
The banking sector has indicated positive initial feedback to the Bank of England's stablecoin proposals, particularly noting the move away from its 2023 discussion paper. However, many stakeholders believe the UK's stablecoin regulation continues to prioritize risk reduction over growth and competitiveness.
“The holding limits being in place is definitely going to make pound-denominated stablecoins less competitive.”
stated one fintech legal head. Another observer pointed out that the practicalities of enforcing tracking of individual holdings and cross-platform flows remain unclear.
Strategic Implications for the UK
As other jurisdictions like the US and EU advance with their stablecoin and digital-money frameworks, the UK's approach to stablecoin regulation could significantly impact London's future as a hub for financial innovation. Lawyers emphasize that the timeline and clarity of the regime will be crucial; projects may relocate to jurisdictions offering greater certainty if implementation is delayed or oversight becomes muddled.
What's Next in the Rulebook for Stablecoins
The upcoming milestones in the sterling stablecoin regime include consultation, the development of codes, and licensing. Issuers and payment companies will be closely watching for the moment HM Treasury designates a coin as systemic, which will trigger the BoE's full regulatory framework.
The speed at which the Bank can establish a workable authorization process will be a key determinant of how UK stablecoin legislation translates into actual issuance, payment activity, and cross-border flows.
In summary, the UK's stablecoin regime has presented a credible and detailed model. However, the industry's perception of the Bank of England's proposals is one of both promise and constraint. The foundational architecture for sterling-denominated stablecoins is now in place; the critical question remains whether the regime will foster scalable issuance or ultimately prove too restrictive.
Summary
The BoE's latest proposals for UK stablecoin regulation detail close supervision over sterling-pegged stablecoins, including caps on holdings and requirements for backing assets. While the framework represents a step forward for a regulated system, the restrictions on who can own and how much owners can hold could present barriers to adoption and competitive challenges, according to industry players. Legal and policy experts highlight potential enforcement difficulties, undefined systemic thresholds, and concerns that slow regulation could lead stablecoin issuers to move offshore.
Glossary of Key Terms
Sterling-Denominated Stablecoin A stablecoin directly pegged to the British pound sterling. It can be utilized in payment systems in the UK, and the Bank of England has established unique rules regarding its usage.
Systemic Stablecoin Regime A regulatory framework primarily concerned with stablecoins that are widely used for payment purposes, where their usage could pose a risk to financial stability. This regime mandates rigorous supervision, reserves, and operational standards.
Backing Assets The reserves held by a stablecoin issuer to guarantee the token's value. Systemic issuers will be required to maintain a specific amount of government debt and central bank deposits.
Holding Limits A temporary cap imposed on the maximum amount a business or customer can hold in a statutory stablecoin. This measure is intended to prevent rapid deposit movements to and from traditional banks.
Financial Conduct Authority The UK's conduct regulator for non-systemic stablecoins. The FCA oversees consumer protection, market stability, and compliance for crypto-asset holders in the UK.
Prudential Oversight Regulation applied to systemic stablecoins as a measure to safeguard the broader economy. The BOE's oversight applies to both the systemic nature of the stablecoin and its issuer.
HM Treasury The UK government department responsible for financial affairs. HM Treasury's determination of which stablecoin is systemic will activate the regime at the Bank of England.
FAQs About UK Stablecoin Regulation
Why is the UK introducing new stablecoin regulation?
The new rules aim to mitigate financial stability risks by supervising systemic stablecoin issuers, establishing minimum reserve requirements, and authorizing payment systems relied upon across the wider UK economy.
What do the recommended holding limits mean for stablecoin users like you and me?
The BoE proposes a cap of £20,000 per person and £10 million per firm, though these caps are temporary. These restrictions on usage could lead some users to opt for other non-sterling stablecoins.
What are the benefits of the new backing-asset requirements for stablecoin issuers?
Issuers gain confirmation of reserve composition, are authorized to hold short-term UK government debt, and have the ability to maintain liquidity options with appropriate measures in place to safeguard payment system stability.
What are the obstacles for stablecoin firms to implement?
Firms may face challenges in tracking holding caps, obtaining editorial reserve approval, and navigating dual regulation by the BoE and FCA, particularly if systemic thresholds remain undefined or licensing timescales are prolonged.