The Bank of England has approved new rules for stablecoins: limits, reserves, and emergency liquidity.
The Bank of England has introduced an updated regulatory regime for systemically significant sterling-denominated stablecoins. The regulator has substantially revised collateral requirements and established temporary issuance limits, which, in my view, represents a balanced step between fostering innovation and maintaining financial stability.
The main change concerns the structure of reserves. Initially, it was proposed that 40% of issuers' funds be held in non-interest-bearing deposits at the Central Bank. However, in the final version of the rules, this threshold has been lowered to 30%. The remaining 70% can now be held in short-term UK government bonds with maturities of up to six months. This gives issuers greater flexibility to generate income without increasing risk.
The regulator has categorically refused to include deposits in commercial banks in the list of permitted assets. In its view, such a practice creates additional risks for the system in the event of a banking crisis, and I fully share this position — mixing banking and cryptocurrency risks could have unpredictable consequences.
Instead of individual limits on stablecoin holdings for individuals and legal entities, the Bank of England is introducing an overall issuance cap per asset of £40 billion. This is a temporary "safeguard" that is expected to be increased or removed as the market adapts. Additionally, issuers are required to ensure the right to redeem coins at par within 24 hours of a request.
To support the sector, an emergency liquidity facility will be launched from 2027: issuers will be able to obtain loans from the Central Bank backed by government bonds. The full set of rules is expected to be finalized by the end of 2026 and will apply only to companies deemed systemically significant for the British economy.
Political Context
The publication of the document coincides with a political crisis in the country. Prime Minister Keir Starmer resigned after Labour's defeat in local elections amid rising inflation due to energy prices and the blockade of the Strait of Hormuz. Andy Burnham may become the new head of government. In May, it was already reported that the Bank of England would focus its strategy on real assets to modernize the economy.
Expert Commentary: The Bank of England's new rules are arguably the most balanced approach among major regulators. Reducing the share of non-interest-bearing deposits to 30% allows issuers to earn income on government bonds while maintaining a high level of liquidity. The £40 billion cap per stablecoin seems like a reasonable safeguard that will not stifle the market but will help avoid systemic risks at an early stage of development.