Bank of England Softens Stablecoin Regime, Sets Temporary £40bn Cap for Systemic Issuers

The Bank of England has scaled back several elements of its proposed stablecoin regime after feedback from crypto firms and the wider financial industry, lowering reserve requirements, dropping individual holding limits and introducing a temporary £40 billion ceiling on issuance for each systemic stablecoin. Under the final framework, systemic stablecoin issuers will now be required to hold 30% of reserves as cash at the Bank of England, down from the previously proposed 40%. The remaining 70% may be invested in UK Treasury bills with maturities of up to six months, compared with the earlier split of 60% in short-term UK government debt. Industry respondents had warned that forcing issuers to keep large balances in non-interest-bearing central bank cash would hurt profitability and deter innovation. Deputy Governor for Financial Stability Sarah Breeden called the changes "a major milestone in delivering greater choice and innovation in UK payments," adding that the Bank had "adjusted" its stance to bring the central bank deposit requirement down to 30%. Regulators also abandoned earlier plans to cap holdings at £20,000 for individuals and £10 million for businesses. In their place, the Bank will impose a temporary £40 billion limit on the total amount of each systemic stablecoin in circulation, a guardrail aimed at slowing any rapid shift of deposits from banks into stablecoins. Officials said large-scale deposit migration could erode banks' funding base and constrain lending to households and businesses. The framework includes a proposed central bank liquidity facility that would allow eligible issuers to obtain emergency funding during market stress by pledging UK government bonds as collateral. Operationally, systemic stablecoins will be required to remain redeemable at par within 24 hours, even during periods of financial stress. Issuers will not be allowed to suspend redemptions, and there will be no minimum redemption amount. The Bank also rejected calls to permit reserve assets to be held in commercial bank deposits or money market funds, arguing such instruments could heighten contagion risks between stablecoins and the traditional banking system. The global stablecoin market capitalisation stood at $317.45 billion, down from a recent peak of $322 billion.