BOE reviews £20K stablecoin cap and 40% reserve rule after industry warns of competitiveness hit. The rethink could determine if GBP stablecoins become viable.
Alpha Score of 33 reflects weak overall profile with poor momentum, poor value, weak quality, strong sentiment.
The Bank of England is reconsidering the £20,000 individual holding limit and 40% reserve requirement it proposed for sterling stablecoin issuers, after digital asset firms warned the rules would make pound-backed tokens uncompetitive. Deputy Governor Sarah Breeden confirmed the review in comments to the Financial Times, signalling that the central bank may soften two of the most contentious elements of its November 2025 consultation paper.
The rethink lands at a moment when the global stablecoin market has swelled to $317 billion, according to CoinGecko data cited by Reuters. Dollar-backed tokens dominate that total. For the UK, the question is whether a regulatory framework designed for safety ends up ensuring that sterling stablecoins never gain a meaningful foothold.
The original proposal would have restricted individuals to holding £20,000 of a single UK stablecoin during a transition phase. Corporate users faced a cap of roughly $13.5 million. The Bank of England’s stated rationale was straightforward: prevent a rapid migration of deposits out of commercial banks if stablecoins became widely used for payments.
Central bankers have long worried that a widely adopted stablecoin could disintermediate the banking system. If households and businesses move deposits into stablecoins, banks lose a cheap funding source. The cap was designed as a circuit breaker, giving regulators time to assess the stability risk before allowing unlimited holdings.
Digital asset firms and legal advisers told policymakers the cap would be nearly impossible to enforce across trading venues, self-custodied wallets, and decentralised finance protocols. A user could simply split holdings across multiple addresses or use non-UK issued stablecoins. The practical effect, industry argued, would be to push activity toward dollar stablecoins or offshore venues, defeating the purpose of a pound-denominated token.
The enforcement problem is not theoretical. Stablecoins move across borders and platforms with no central registry. Any limit that relies on issuer-level controls will leak. The BOE’s willingness to revisit the cap suggests it now recognises that a poorly designed limit could do more harm than good.
The second pillar under review is the requirement that issuers park at least 40% of reserves in non-interest-bearing deposits at the Bank of England. The remaining assets would be held in short-term UK government debt. For a stablecoin issuer, reserves are the asset side of the balance sheet. If 40% of those assets earn zero, the economics deteriorate quickly.
A stablecoin issuer generates revenue from the yield on its reserve assets. In a normal interest-rate environment, short-term gilts might yield 4–5%. If 40% of the portfolio earns nothing, the blended return drops by roughly 160–200 basis points. That is the difference between a viable product and one that cannot cover operating costs, compliance, and redemption infrastructure.
Industry participants told the BOE that forcing large reserve balances into zero-yield central bank deposits would make UK-issued stablecoins structurally less profitable than alternatives issued in jurisdictions with more flexible reserve rules. The result: issuers would either avoid the UK entirely or price the cost into fees, making sterling stablecoins unattractive for payments and treasury use.
Sarah Breeden has consistently argued that money-like digital instruments should meet safety standards comparable to traditional payment infrastructure. Her concern is that stablecoins could become a source of run risk if reserves are not held in the safest possible assets. The zero-yield deposit requirement was meant to ensure that a stablecoin issuer always has immediate access to central bank money for redemptions.
That safety-first logic collides with commercial reality. A stablecoin that cannot generate a return will not attract issuers. A stablecoin with no issuers will not exist. The BOE’s review is effectively a test of whether the central bank can design a framework that is both safe and commercially viable.
Governor Andrew Bailey added an international dimension earlier in the week when he warned that global regulators could face a difficult confrontation with the United States over stablecoin oversight. Speaking at a conference cited by Reuters, Bailey described future talks with Washington as a likely “coming wrestle” and repeated concerns that some stablecoins may not be easily redeemable during periods of market stress.
The Trump administration has backed stablecoin expansion through the GENIUS Act, which established a federal framework for issuers. That framework is designed to encourage dollar stablecoin issuance onshore. For the UK, the risk is that a more permissive US regime pulls stablecoin activity away from London, regardless of what the BOE does.
Bailey, who also chairs the Financial Stability Board, warned that countries such as the UK could face redemption pressure if dollar-backed stablecoins spread internationally without strong safeguards. His concern is that a run on a dollar stablecoin could spill into sterling markets if UK residents hold large balances. That is a systemic risk argument, not a competitiveness argument.
The global stablecoin market is overwhelmingly dollar-denominated. Sterling stablecoins account for a tiny share. If the BOE imposes rules that make GBP stablecoins even less attractive, that share will shrink further. The paradox is that the UK’s strict rules could increase the very redemption risk Bailey worries about, by pushing UK users into dollar stablecoins that are regulated elsewhere.
The BOE has not committed to any specific changes. Breeden’s comments indicate the central bank is actively reviewing the holding limits and reserve requirements. The next concrete step is likely a revised consultation or a policy statement that adjusts the parameters.
One possible outcome is the complete removal of the individual holding cap, with the BOE relying on broader systemic safeguards instead. Another is a tiered approach: higher limits for regulated entities, lower limits for retail users, or limits that phase out over a defined period. On reserves, the BOE could allow a portion of the 40% to be held in interest-bearing instruments or reduce the percentage.
In January, parliamentary committees gathered evidence from industry groups including Coinbase and Innovate Finance as officials worked on rules intended to operate alongside future crypto legislation and potential digital pound plans. That parallel track matters. If the UK eventually issues a digital pound, the role of private stablecoins changes. A strict framework for private issuers could be a deliberate choice to clear the path for a central bank digital currency.
The immediate exposure is concentrated in a narrow set of assets and entities. No large sterling stablecoin exists today, so the direct market impact is limited. The exposure is forward-looking: the rules will determine whether a GBP stablecoin market develops at all.
Any firm planning to issue a sterling stablecoin is directly exposed. That includes crypto-native firms and potentially traditional financial institutions exploring tokenised deposits. UK-based crypto exchanges that offer GBP trading pairs would benefit from a liquid, regulated sterling stablecoin as a settlement asset. If the rules remain too restrictive, those exchanges will continue relying on bank transfers or dollar stablecoins for settlement, adding cost and friction.
The BOE’s original concern about deposit flight was not unfounded. A successful sterling stablecoin would compete with bank deposits. If the BOE softens the rules enough to make GBP stablecoins viable, UK banks could see some deposit outflows, particularly from payment and treasury balances. That is a manageable risk in normal times. The larger risk for banks is that stablecoin activity moves entirely outside the UK regulatory perimeter, leaving them with no visibility into a growing payment rail.
The BOE’s review is a signal that the central bank is listening to industry. Whether it translates into a framework that can support a viable sterling stablecoin market depends on how far the central bank is willing to move on the two most restrictive elements of its proposal. The next few months will show whether the UK wants to be a stablecoin jurisdiction or a spectator.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.