Bank of England Softens Stablecoin Rules After Industry Pushback

The Bank of England has softened key parts of its proposed stablecoin regime, marking an important shift in the United Kingdom’s attempt to regulate digital money without undermining innovation in the payments sector.

The central bank published its policy statement and draft rules for sterling-denominated systemic stablecoins on 22 June 2026. The framework is intended to support the use of stablecoins as trusted digital money in the UK, while protecting financial stability, confidence in money and the wider banking system.

Stablecoins are digital tokens usually designed to maintain a stable value by being linked to a fiat currency, such as the pound or the US dollar. Regulators have been paying closer attention to them because they could be used for faster payments, cross-border transfers and programmable financial services, but they also raise concerns around redemption rights, reserve quality, consumer protection, systemic risk and the potential movement of deposits out of banks.

The Bank of England’s latest position shows a more flexible approach than earlier proposals. Following feedback from industry and other stakeholders, the Bank has decided not to proceed with temporary holding limits for individuals and businesses. Instead, each systemic stablecoin will initially be subject to a temporary issuance guardrail of £40 billion.

This is a significant change. Earlier proposals had raised concerns that strict limits on how much stablecoin users could hold would make the UK regime unattractive for issuers and difficult for businesses to use in practice. Critics argued that if stablecoins are intended to support payment innovation, users should not face restrictive caps that make them less practical than ordinary bank deposits or other payment instruments.

By replacing holding limits with an issuance-level guardrail, the Bank is trying to achieve the same financial stability objective in a less burdensome way. The purpose of the guardrail is to protect the wider economy’s access to credit by reducing the risk of a rapid and excessive shift of money from bank deposits into stablecoins. However, unlike individual holding caps, the new approach allows households and businesses to use systemic stablecoins without direct restrictions on the amount they can hold or transact, subject to any other applicable laws and regulatory requirements.

The Bank also revised its approach to backing assets. Under the new proposal, systemic stablecoin issuers will be allowed to hold up to 70% of their backing assets in short-term UK government debt, with the remainder held in deposits at the central bank. This is a relaxation from the earlier position, which allowed a lower share of interest-bearing assets.

This change is important for the commercial viability of stablecoin issuers. If issuers are required to hold too much of their backing assets in non-interest-bearing central bank deposits, their ability to generate income from reserves is reduced. By allowing a higher proportion of backing assets to be held in short-term government debt, the Bank is giving issuers more room to build sustainable business models while still requiring high-quality and liquid backing.

At the same time, the Bank is not abandoning caution. The remaining central bank deposit requirement is intended to help stablecoin issuers meet redemptions promptly and maintain confidence in the coin. The overall structure still reflects the Bank’s view that systemic stablecoins, if used widely for payments, must be backed by safe and liquid assets and must be capable of maintaining confidence even during periods of stress.

The revised framework reflects a broader balancing act. The UK wants to position itself as a serious jurisdiction for digital assets and payments innovation, but it does not want to create a weakly regulated stablecoin market that could damage confidence in sterling or create financial stability risks. The Bank’s changes suggest that UK regulators are listening to industry concerns, but only within a framework that keeps systemic stablecoins close to traditional standards of monetary safety.

The international context also matters. Stablecoin regulation is developing quickly in several major markets, including the European Union and the United States. If the UK regime is viewed as too restrictive, issuers may prefer to build products elsewhere. If it is viewed as too permissive, it may create unacceptable risks for consumers and the financial system. The Bank’s latest proposals appear designed to place the UK somewhere in the middle: open to stablecoin innovation, but only under strong reserve, redemption and supervisory requirements.

The Bank of England and the Financial Conduct Authority are also expected to work together on the wider stablecoin regime. The Bank’s role is focused on systemic stablecoins that could become important to the UK payments system, while the FCA is expected to supervise non-systemic stablecoin activity and other cryptoasset-related uses. This division is important because not all stablecoins present the same level of risk. A stablecoin used mainly for crypto trading does not raise the same public-policy issues as one used widely by households and businesses for payments.

The Bank has said the £40 billion issuance guardrail will be temporary and reviewed regularly. It may be removed once the relevant risks to credit provision have been addressed. This suggests that the regime is intended to evolve as the market develops, rather than impose a fixed permanent ceiling on stablecoin growth.

For stablecoin issuers, the message is clearer than before. The UK is preparing a route for regulated sterling stablecoins to operate from 2027, but issuers will need to meet high expectations around backing assets, redemption, operational resilience, governance and supervision. For banks, the framework signals that regulators remain alert to the possibility that stablecoins could affect deposit funding and lending. For businesses and payment firms, the removal of direct holding limits makes the future use of stablecoins more commercially realistic.

The Bank’s revised approach is therefore not a deregulation of stablecoins. It is a recalibration. The central bank has softened rules that were seen as commercially restrictive, but it has preserved the core principle that stablecoins used at systemic scale must be safe, redeemable and strongly backed.

The UK’s stablecoin regime is now moving from policy debate toward implementation. Subject to feedback, the Bank intends to finalise its Code of Practice by the end of 2026, allowing regulated stablecoins to begin operating in the UK from 2027.

The result is a more flexible framework than originally expected, but still one built around financial stability. The Bank of England appears to be sending a clear message: stablecoins may have a place in the future of UK payments, but only if they can operate with the same level of trust expected from money itself.

By fLEXI tEAM