Summary
- The Bank of England has released its final policy and draft regulations for systemic stablecoins, adjusting earlier proposals that could have hindered a sterling-backed market.
- It has eliminated caps on individual holdings, replacing them with a temporary issuance limit of £40 billion ($53 billion) for each stablecoin.
- Issuers are now permitted to allocate up to 70% of their backing assets into interest-earning UK government securities, increased from 60%, with the balance required to be held in central bank deposits.
The Bank of England has outlined its framework for stablecoins, making several adjustments based on industry feedback that warned of potential limitations on a sterling-backed market's growth.
In the final policy statement and accompanying draft rules published on Monday, the central bank removed previously proposed caps on individual stablecoin holdings. Instead, it has established a cap on total issuance per stablecoin, initially set at £40 billion ($52.8 billion).
The guidelines have also been relaxed regarding backing assets, allowing issuers to maintain up to 70% of their reserves in short-term UK government bonds, an increase from the initially suggested 60%. The remaining assets must be kept in non-interest-bearing deposits at the central bank.
This change addresses concerns from the industry that the original asset allocation would keep too much capital unproductive, although issuers had hoped for an even higher percentage of yield-bearing assets.
Sarah Breeden, the Bank's deputy governor for financial stability, remarked, "This is a significant step towards enhancing choice and innovation in UK payments." She emphasized that "Innovation thrives on trust," referring to the new framework as a "world-leading regime" and highlighting its features of quick redemption, robust protections, and backing from the central bank.
This revision follows extensive lobbying from the cryptocurrency sector, which expressed worries that the initial proposals could stifle the development of the UK's emerging sterling-backed market.
In May, Breeden acknowledged that the Bank might have been "overly conservative" and was reassessing its caps and reserve policies after companies indicated that the proposed rules could undermine the UK's competitive edge compared to U.S. and European frameworks.
The Bank has characterized the £40 billion limit as a temporary measure to safeguard credit availability, rather than a restriction on user access. It has cautioned that widespread adoption of stablecoins could potentially withdraw deposits from banks, thereby limiting lending capacity.
Unlike the previously proposed holding limits, the issuance cap is not expected to affect the daily use of stablecoins by individuals and businesses, as stated by the Bank, and it will be subject to regular reviews, with the possibility of removal once credit risks are mitigated.
The regulatory framework is applicable solely to "systemic" stablecoins, which are defined as those that are utilized broadly enough in transactions to pose risks to financial stability. Tokens primarily used for cryptocurrency trading, which represent the majority of the current market, will fall under the oversight of the Financial Conduct Authority.
The Bank regards stablecoins as "a new form of money" and, in collaboration with the FCA, intends to open applications for potential issuers. UK officials believe there is an opportunity for a viable sterling alternative, especially given the dominance of the dollar in the market.
The Bank is accepting feedback until September 22 and aims to finalize the regulations by the end of 2026, paving the way for regulated stablecoins to operate within the UK starting in 2027.