Bank of England Eases Stablecoin Rules in Bid to Support UK Digital Payments Market

The Bank of England has softened parts of its proposed stablecoin framework, easing several requirements in a move aimed at supporting the growth of the UK's emerging sterling-backed stablecoin market while maintaining financial stability safeguards.

Under its final policy and draft rules, the central bank abandoned plans to impose limits on individual stablecoin holdings. Instead, regulators will focus on restricting the total issuance of each stablecoin, with an initial cap set at £40 billion.

The changes come after industry participants raised concerns that earlier proposals could restrict innovation and hinder the development of stablecoin-based payment services in the UK.

Revised Approach to Reserve Requirements

The Bank of England also adjusted its requirements governing the assets used to back stablecoins.

Under the updated framework, issuers will be permitted to hold up to 70% of reserve assets in short-term UK government debt, an increase from the 60% limit proposed previously. The remaining reserves must be maintained as non-interest-bearing deposits at the central bank.

The revised rules are designed to balance liquidity, stability, and redemption requirements while providing issuers with greater flexibility in managing reserve assets.

Focus on Innovation and Financial Stability

Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, described the framework as an important step toward enabling innovation in the payments sector while ensuring adequate consumer protections.

The central bank said the new rules are intended to support a payment system where stablecoins can be redeemed promptly and operate within a regulated environment backed by appropriate safeguards.

Stablecoins, which are digital assets typically pegged to traditional currencies such as the British pound or US dollar, have gained traction globally as a means of facilitating faster and lower-cost payments, particularly for cross-border transactions.

Balancing Growth and Risk

Despite adopting a more flexible approach, the Bank of England continues to emphasize potential risks associated with large-scale stablecoin adoption.

Policymakers have previously warned that widespread use of stablecoins could lead consumers and businesses to move funds away from traditional bank deposits, potentially affecting bank funding, lending activity, and broader credit conditions.

The updated framework reflects the Bank's effort to encourage innovation in digital payments while limiting potential risks to the UK's financial system as stablecoins become a more prominent part of the global payments landscape.