Daily Vecsignal - Bank of England Blinks on Stablecoin Rules

Bank of England Blinks on Stablecoin Rules

May 14, 2026 | VECS News

The Bank of England is preparing to relax its proposed stablecoin regulations following intense criticism from the digital asset industry, marking a significant policy pivot for the UK central bank. Deputy Governor for Financial Stability Sarah Breeden told the Financial Times that the initial plan to cap individual holdings at 20,000 pounds ($27,000) per stablecoin may have been "overly conservative" . The admission represents a remarkable reversal for Breeden, who had previously been one of the most cautious voices on stablecoins within the BoE, warning in November 2025 that diluting the rules too far could damage financial stability .

The proposed holding cap was designed as a "temporary" measure to prevent a sudden outflow of deposits from commercial banks into new forms of tokenized money if a large stablecoin were rapidly adopted for payments . However, industry participants pushed back forcefully, arguing that the cap would be operationally cumbersome, difficult to supervise across trading venues and wallets, and would seriously undermine UK competitiveness in the digital economy . Coinbase's head of policy for Europe, Katie Haries, stated that "a cap on stablecoin holdings is a cap on innovation, with real and significant risks for UK competitiveness" .

Beyond the holding cap, the BoE is also reconsidering its reserve requirements which have been described by legal experts as potentially making a viable sterling stablecoin almost impossible. The original 2023 proposal demanded 100% of reserves be held as non-interest-bearing central bank deposits a structure that would have made the entire stablecoin sector commercially unviable . Under pressure from issuers, the BoE amended this to 40% unremunerated BoE deposits and 60% in short-term UK government bonds . Breeden acknowledged that issuers naturally prefer a larger share of interest-bearing assets because it directly affects profitability, saying "it is not surprising that industry participants would prefer to hold more assets that can earn interest, as that goes straight to their bottom line" .

For crypto investment instruments, this policy shift carries significant implications. The UK has been at risk of seeing stablecoin activity and broader crypto innovation migrate to jurisdictions with more commercially workable frameworks including the United States where the GENIUS Act has established clear federal rules and the European Union where MiCA is already operational . If the BoE follows through on easing these restrictions, London could solidify its position as a global crypto hub attracting both issuers and institutional capital. The alternative a continued exodus of talent and liquidity would have weighed heavily on GBP-denominated crypto instruments and UK-based exchanges.

The structural challenge for stablecoin issuers under the current proposal is severe. Unlike banks, stablecoin issuers cannot lend, invest, or take advantage of maturity transformation. Their revenue model depends almost entirely on the yield generated by backing assets . If 40% of those assets earn no return and the remainder are restricted to low-yield government securities, the income available to support operations is significantly reduced. Ben Lee, Partner at Andersen LLP, warned that the framework "risks making a viable sterling stablecoin almost impossible" and that "innovators will continuously migrate to the US and the UAE, where frameworks are clear, competitive and proportionate" .

The distinction between systemic and non-systemic stablecoin use is also critical for investors. Neither the BoE's systemic rules nor the new cryptoasset regulations are designed to touch stablecoins used for crypto trading which remains the predominant use case today . For investors holding USDT or USDC on UK exchanges, the disruption is expected to be minimal. However, issuers wanting to integrate stablecoins into the UK's traditional financial sector for payroll, bill payments, or merchant acceptance will need to navigate a higher compliance bar. The FCA is simultaneously opening its regulatory sandbox and has delivered on nearly 50 growth commitments, signaling that 2026 is about scaling, not slowing down .

Professional Expert Responses:

Sarah Breeden (Deputy Governor, Bank of England): "We are genuinely open to other ways" of regulating systemic stablecoins, adding that the BoE is "very seriously looking at whether there are different ways for us to address the important risks that we see emerging with the arrival of stablecoins" .

Katie Haries (Head of Policy Europe, Coinbase): "These are important signals from the Bank of England that it is prepared to revisit its stablecoin proposals. We have said for a long time that a cap on stablecoin holdings is a cap on innovation, with real and significant risks for UK competitiveness" .

Ben Lee (Partner, Andersen LLP): In detailed analysis published in December 2025, Lee warned that the BoE's framework could "smother the stablecoin market it wants to support," adding that by imposing the heaviest obligations at launch, the bank "risks creating a regime in which the UK's intended stablecoin ecosystem struggles to gain momentum" .

Andrew Bailey (Governor, Bank of England): Speaking at a conference earlier this week, Bailey warned of a looming "wrestle" with the United States administration over global stablecoin regulation, expressing concerns that some US stablecoins may not be easily redeemable during market stress and could flow into jurisdictions like Britain during a crisis .

Industry Consultation Respondents: The BoE received 46 consultation responses criticizing the earlier framework as commercially impractical and uncompetitive internationally, which contributed to the central bank's revised stance .

The path forward remains uncertain but increasingly clear in direction. The BoE's consultation on systemic stablecoin rules remains open until February 10, 2026, while the FCA's payment services exemption consultation closes May 22, 2026 . For crypto investors, the key takeaway is that the UK is drawing a deliberate line between speculative crypto use and real-world payment integration. The BoE's willingness to admit its initial approach was overly conservative signals that London intends to compete with New York and Abu Dhabi for digital asset business rather than regulate itself into irrelevance.