Bank of England Eases Stablecoin Rules, Sets £40B Cap for Major Issuers

The Bank of England has relaxed several proposed stablecoin rules following feedback from the crypto and financial sectors. The changes include lower reserve requirements, the removal of holding limits, and a temporary £40 billion issuance cap.

These changes aim to make the country more attractive for stablecoin issuers while maintaining financial safeguards.

One of the biggest changes in the final framework is the reduction in mandatory cash reserves held at the Bank of England.

Under an earlier proposal, systemic stablecoin issuers would have been required to hold 40% of reserves as cash at the central bank and 60% in short-term UK government debt.

The new rules reduce the cash requirement to 30%, while allowing up to 70% of reserves to be invested in UK Treasury bills with maturities of up to six months.

The change follows industry concerns that holding large amounts of non-interest-bearing cash would make stablecoin businesses less profitable and discourage innovation.

Deputy Governor for Financial Stability Sarah Breeden said, “This is a major milestone in delivering greater choice and innovation in UK payments.”

“We have adjusted our position to settle on bringing the central bank deposit requirement down to 30%.”

The revised structure allows issuers to earn yield on 70% of their reserve assets while maintaining access to highly liquid and low-risk investments.

The Bank also reversed one of its most controversial proposals. Earlier plans would have limited individuals to holding £20,000 in stablecoins and businesses to £10 million.

Those limits have now been removed.

Instead, regulators will place a temporary £40 billion cap on the total amount of each systemic stablecoin in circulation. The Bank said the measure is designed to slow any rapid movement of deposits from traditional banks into stablecoins.

Officials warned that large-scale deposit migration could reduce banks’ funding base, limiting their ability to provide loans to households and businesses.

“We will instead introduce a temporary guardrail on the level of issuance per systemic stablecoin product.”

The framework also includes plans for a central bank liquidity facility that would allow eligible stablecoin issuers to access emergency funding during periods of market stress by pledging UK government bonds as collateral.

In another major requirement, stablecoins must remain redeemable at face value within 24 hours. Issuers cannot suspend redemptions, even during periods of financial stress, and there will be no minimum redemption amount.

The Bank also rejected requests to allow reserves to be held in commercial bank deposits or money market funds, arguing that such assets could increase contagion risks between stablecoins and the traditional banking sector

As of now, the Stablecoin market cap is sitting at $317.45 billion, down from its high of $322 billion.