The Bank of England (BoE) has revised its proposed regulations for UK stablecoins, responding to criticism from industry experts. The central bank will now permit some assets backing these digital tokens to be invested in short-term government debt. Additionally, certain businesses will be exempt from ownership limits that were initially part of the proposed framework.
Stablecoins, digital tokens pegged to real currencies at a fixed rate, are a key component of the cryptocurrency market, which has ballooned to nearly $300 billion. While some regulators express concerns that stablecoins could jeopardize global financial stability by diverting deposits from banks, advocates argue they offer innovative solutions for making payments more efficient and cost-effective.
In its consultation paper released on Monday, the BoE indicated that it is considering central bank liquidity arrangements to support stablecoin issuers during periods of market stress. The new regulations marked a shift from the BoE’s previous, more stringent stance. Earlier proposals had mandated that systemic stablecoins be fully backed by non-interest-bearing deposits at the central bank, a condition that many considered commercially unviable for new entrants in the UK market. Under the new framework, systemic stablecoins can allocate up to 60% of their assets to short-term UK government bonds. Those transitioning to systemic status may hold as much as 95% in such bonds to promote their growth.
“Our objective remains to support innovation and build trust in this emerging form of money,” stated Sarah Breeden, the BoE’s deputy governor for financial stability. She emphasized that the bank has adjusted its proposals based on stakeholder feedback to enhance the relationship between stablecoin issuers and the BoE.
Despite these concessions, some in the crypto industry remain critical. Varun Paul, a former BoE official now affiliated with digital asset provider Fireblocks, remarked that the revised rules still place the UK at a disadvantage compared to the US. Tom Duff Gordon, vice-president of international policy at Coinbase, acknowledged the positive changes but suggested that the BoE could increase the allowable percentage of stablecoin assets invested in government debt to 80%.
The BoE also maintained its plan to cap individual ownership of UK stablecoins at £20,000. However, exceptions will be made for certain businesses, like supermarkets and crypto trading platforms, which could bypass a separate £10 million limit imposed on corporate ownership.
The overarching intent behind these regulations is to ensure financial stability while enabling systemic stablecoin issuers to establish viable business models, according to the BoE. The ownership limits are intended as temporary measures while the financial landscape adapts to new technologies.
Notably, BoE Governor Andrew Bailey previously indicated a shift toward a more supportive stance on stablecoins. He stated that it would be “wrong to be against stablecoins as a matter of principle,” while emphasizing their potential to drive innovation in both domestic and international payment systems.
Riccardo Tordera-Ricchi, director of policy and government relations at The Payments Association, reiterated the group’s continued opposition to ownership limits but acknowledged progress in understanding that exemptions could function effectively. The BoE clarified that these rules would apply only to UK stablecoins deemed systemically important by the Treasury, while the Financial Conduct Authority will oversee other digital tokens primarily used for purchasing cryptocurrency.
The global market for stablecoins continues to be significantly influenced by US dollar-based tokens, especially following the recent passing of the Genius Act by Congress, which established a framework for regulating digital assets.
