The Bank of England approves a new regime for systemic stablecoins: reduction of reserve requirements and a £40 billion limit
The Bank of England has presented the final version of the regulatory framework for systemically important stablecoins denominated in British pounds. The regulator has significantly softened the initial requirements for the reserve structure, indicating an effort to balance innovation and financial stability.
The key change concerns the share of reserves that issuers are required to hold in non-interest-bearing deposits at the Central Bank. Initially, a threshold of 40% was proposed, but in the final document, it has been reduced to 30%. The remaining 70% can be placed in short-term UK government bonds with maturities of up to six months. Notably, the regulator categorically rejected the possibility of using deposits in commercial banks as collateral, citing unacceptable risks to the financial system in the event of a liquidity crisis.
Instead of individual limits on stablecoin holdings for individuals and legal entities, the Bank of England is introducing a general "safeguard" on issuance. For a single stablecoin, this limit is set at £40 billion. This is a temporary measure, which, according to the regulator, will be reviewed as the market adapts and may be increased or completely abolished.
Issuers are required to guarantee holders the right to redeem stablecoins at par in fiat currency within 24 hours. To support the sector, an emergency liquidity mechanism will be launched in 2027, allowing companies to obtain loans from the Bank of England backed by government bonds. The full set of rules is expected to be approved by the end of 2026 and will apply exclusively to issuers deemed systemically important to the British economy.
The document has been developed jointly with the Financial Conduct Authority (FCA), and a joint market regulation scheme is expected to be published shortly.
Political Context and Prospects
The publication of these rules coincided with a serious political crisis: Prime Minister Keir Starmer resigned after Labour's defeat in local elections amid rising inflation caused by the energy crisis and the blockade of the Strait of Hormuz. Andy Burnham may become the new head of government.
My analysis: Reducing the share of reserves at the Central Bank from 40% to 30% is a pragmatic step that lowers operational costs for issuers but does not eliminate fundamental risks. The £40 billion limit looks like a reasonable compromise: it is high enough not to stifle the market at the start, yet gives the regulator control levers. However, the key challenge will remain synchronizing the rules with the upcoming European MiCA regulatory framework; otherwise, London risks losing its status as a crypto hub, despite all efforts.