The Bank of England published its final policy and draft rules for sterling stablecoins on Monday, responding to widespread industry concern that earlier proposals would have made UK-issued stablecoins commercially unviable and driven development offshore. The central bank scrapped its proposed individual holding caps – which would have limited retail users to 20,000 pounds and businesses to 10 million pounds per stablecoin – replacing them with a total issuance cap per stablecoin initially set at 40 billion pounds, equivalent to approximately 52.8 billion dollars. The reserve backing rules were also relaxed, with issuers now permitted to hold 70% of backing assets in short-term UK government debt, up from the previously proposed 60%, with the remainder required in non-interest-bearing Bank of England deposits. KeyToFinancialTrends interprets the regulatory retreat as a direct response to competitive pressure: with the US advancing the GENIUS Act and the EU’s MiCA regime already operational since December 2024, the Bank of England recognised that maintaining requirements materially stricter than peer jurisdictions would not protect financial stability – it would simply relocate sterling stablecoin development to Frankfurt or New York.
The prior framework had drawn specific criticism around its economics. Under the original reserve split – 40% in non-interest-bearing BOE deposits and 60% in short-term gilts – UK stablecoin issuers would have earned yield on only 60% of their reserves, compared to Circle holding approximately 88% of USDC reserves in Treasury bills. At short-dated gilt yields of around 4%, the proposed split would cost a UK issuer roughly 11.2 million pounds annually for each 1 billion pounds in circulation. The revised 70/30 split materially improves that economics without eliminating the structural reserve requirement that provides the systemic protection the BOE is seeking.
Deputy Governor for Financial Stability Sarah Breeden – who had acknowledged in May that the original proposals may have been «overly conservative» – framed the published framework as a major milestone in delivering greater choice and innovation in UK payments. Industry reaction was broadly positive, though several participants noted the changes did not go far enough to make sterling stablecoins genuinely competitive with dollar equivalents. ClearBank CEO Mark Fairless welcomed the revision while stating that the UK cannot win the global race on digital assets if sterling stablecoins remain less commercially viable than their dollar and euro counterparts. KeyToFinancialTrends threads the competitive needle as the central challenge the BOE is navigating: every softening of reserve requirements reduces the issuer economics gap with US and EU frameworks but also reduces the protection against bank deposit flight that the BOE identified as the core systemic risk when stablecoins achieve mass retail adoption.
The 40 billion pound issuance cap per stablecoin – replacing the individual holding caps – represents a philosophically different approach to risk containment. Rather than limiting how much any single user can hold, the BOE is limiting how large any single stablecoin can grow before triggering enhanced oversight. This structure is easier to implement operationally, avoids the user-level surveillance that individual caps would have required, and concentrates systemic risk monitoring on the issuer level where the BOE’s supervisory tools are most effective.
The consultation period on the draft rules runs until September 22, after which the BOE will finalise the framework expected to be complete by year-end. The FCA will regulate non-systemic stablecoin issuers in parallel, creating a tiered oversight structure where the scale and systemic significance of any stablecoin issuer determines which regulator takes the lead. Sterling stablecoins currently account for less than 0.5% of the 315 billion dollar global market dominated by dollar-backed instruments. KeyToFinancialTrends scores the reserve change as the most commercially significant element of the final framework: moving from 60/40 to 70/30 roughly halves the yield drag relative to US-based issuers and brings UK stablecoin economics within range of MiCA-regulated euro issuers – the minimum threshold below which serious institutional capital would not have engaged with the sterling market regardless of any other regulatory improvement.
The broader policy context matters. The UK government has positioned digital finance as a growth sector where regulatory clarity can attract international capital and talent at a moment when the economy needs investment. The BOE’s stablecoin framework, operating alongside the FCA’s broader crypto asset rules and HM Treasury’s payments legislation, is intended to give the UK a coherent, internationally competitive digital payments infrastructure before the window closes. Key To Financial Trends defines the remaining gap as the distance between the published framework and a structure where sterling stablecoins are as economically attractive to issue, hold, and use in settlement as their USDC equivalents – a gap that the June 22 revisions have materially narrowed but not yet closed, and that will determine whether the UK becomes a meaningful participant in global stablecoin payment infrastructure or remains a secondary market with a well-designed but underutilised regulatory framework.
