The Bank of England said on May 14 that it is reconsidering key parts of its proposed regulatory regime for sterling stablecoins. BoE Deputy Governor Sarah Breeden told the Financial Times that the central bank is exploring alternatives to temporary holding caps and reviewing whether its requirement to keep 40% of reserves at the BoE is overly conservative. The shift came after widespread criticism of November 2025 proposals from across the digital assets industry.
The rethink was driven by pushback from potential issuers and law firms. They argued that overly strict conditions would make GBP stablecoin issuance uneconomical compared to the US and Eurozone. Pound-pegged tokens today hold a tiny share of the global stablecoin market, which stands at roughly $300 billion and is dominated by dollar-backed coins.
What the BoE Proposed in 2025
In November 2025, the Bank of England published the details of a regime for systemic sterling stablecoins, building on options from a 2023 discussion paper. Individuals would be restricted to holding a maximum of 20,000 pounds (about $27,000) in a single UK stablecoin. For businesses, the ceiling would be roughly $13.5 million during an initial transition period, after which the regulator planned to revisit the terms.
Separately, the BoE required that at least 40% of backing assets be held at the central bank as non-interest-bearing deposits, with the rest in government bonds and high-quality liquid securities. The rationale: prevent a sudden outflow of deposits from commercial banks into "tokenized" forms of money if a large stablecoin gained mass adoption quickly.
Breeden defended the approach in November 2025, arguing that stablecoins must be at least as safe as existing payments infrastructure. She backed strict liquidity requirements specifically to protect financial stability.
Industry Arguments Against the Caps
The market reaction was sharp. Law firms and potential issuers calculated that a structure forcing large portions of reserves into a central bank with zero yield would critically compress margins. US stablecoin issuers place reserves in Treasury bills with positive returns, while British issuers under the proposed conditions would earn nothing on 40% of their assets.
The operational problem proved equally serious. Holding caps are difficult to monitor across different platforms. A company building corporate payroll or cross-border settlement would need to continuously track client balances across all wallets.
"A cap on stablecoin holdings is a cap on innovation. The risks to UK competitiveness are real and significant."
- Katie Haries, head of policy for Europe at Coinbase, May 2026
The industry also pointed out that a $13.5 million limit for businesses during the transition period would block any meaningful corporate use of GBP stablecoins at scale. Large companies routinely settle far larger sums in daily operations.
The GBP Stablecoin Market in Numbers
Per BoE data, pound-pegged tokens hold a tiny slice of the market dominated by dollar coins. USDT from Tether and USDC from Circle together account for the vast majority of global stablecoin volume.
Competing Regimes: UK vs. US and EU
The US is advancing stablecoin legislation that would let non-bank issuers issue tokens without similar reserve restrictions. The EU has operated under MiCA since 2024: the rules require reserve backing but do not force issuers to park assets at the European Central Bank without any yield.
The challenge for the UK is that GBP tokens must compete with already-established dollar stablecoins in cross-border payments and corporate settlements. A regime that stays too strict risks missing the wave of institutional demand for tokenized payment instruments.
In January 2026, UK lawmakers opened an inquiry into regulating fiat-backed tokens, taking evidence from Coinbase and Innovate Finance. A final regime text from the BoE and Treasury has not yet been published.
Two Areas Under Consideration
The BoE is looking at two specific changes. First: replacing hard holding caps with more flexible mechanisms, such as phasing out restrictions after a transition period. Second: lowering the share of non-interest-bearing deposits required at the central bank, which would improve issuer profitability.
- Removing or raising caps would let companies build payroll systems and corporate settlement solutions on GBP tokens.
- A lower reserve requirement would make UK licensing more competitive alongside the US and EU.
- Broader institutional access would open sterling stablecoins to corporate treasuries and cross-platform settlement use cases.
Haries from Coinbase added that building a regime where stablecoins can succeed and benefit users is "exactly the right ambition" - and something both the crypto industry and everyday people are asking for.
Outlook for GBP Stablecoins
If the BoE softens holding limits and reserve requirements, GBP stablecoins stand a chance of breaking out of niche status and becoming a competitive tool in cross-border payments. Companies planning to use pound tokens for corporate payroll and international settlement would feel the impact first. The market is waiting for specific numbers: how far the caps will fall, and what share of reserves issuers will be allowed to hold outside the central bank. Those details will determine whether sterling tokens can build real competition against dollar stablecoins in the next two to three years.
Comments
Your email address will not be published. Required fields are marked *