Bank of England Eases Stablecoin Rules, Swaps Holding Caps for £40B ‘Guardrail’ - Decrypt

Bank of England Eases Stablecoin Rules, Swaps Holding Caps for £40B ‘Guardrail’

The Bank of England has set out the shape of its stablecoin regime, easing several proposals the industry had warned could strangle a sterling-backed market before it got going.

In its final policy statement and a draft rulebook published Monday, the central bank dropped planned caps on how much of a stablecoin any one person could hold, replacing them with a limit on total issuance per coin, initially set at £40 billion ($52.8 billion).

It also relaxed the rules on what can back the tokens, letting issuers hold up to 70% of reserves in short-term UK government debt, up from a proposed 60%. The remainder must sit in non-interest-bearing deposits at the Bank.

That partly answers an industry complaint that the original split left too much capital earning nothing, though issuers had pushed for the yield-bearing share to go higher still.

"This is a major milestone in delivering greater choice and innovation in UK payments," said Sarah Breeden, the Bank's deputy governor for financial stability. She added that, "Innovation thrives on trust," calling the framework a "world leading regime" and lauding its “prompt redemption, strong protections and central bank support.

The softening follows months of lobbying from the crypto industry, amid concern that its original plans could hold back the UK's nascent sterling-backed market.

In May, Breeden conceded the Bank may have been "overly conservative" and was reviewing its caps and reserve rules, after firms argued the proposals would dent UK competitiveness against U.S. and European regimes.

The Bank cast the £40 billion ceiling as a temporary guardrail to protect the flow of credit, not a brake on users. It has warned that stablecoins, if widely adopted, could pull deposits out of banks and crimp lending.

Unlike the scrapped holding caps, the issuance limit won't restrict everyday use by households and businesses, the Bank said, and it will be reviewed regularly and removed once the risks to credit are addressed.

The regime covers only "systemic" stablecoins, those used widely enough in payments to pose financial-stability risks. Tokens used mainly to buy and sell crypto, the bulk of the market today, will be supervised by the Financial Conduct Authority.

The Bank has framed stablecoins as "a new form of money" and, with the FCA, plans to open applications from would-be issuers. With the dollar dominating the market, UK officials have argued there is room for a credible sterling alternative.

The Bank is taking feedback until September 22 and aims to finalize the rules by the end of 2026, clearing the way for regulated stablecoins to operate in the UK from 2027.

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