UK Advances Stablecoin Regulation Amidst Global Policy Shifts

Bank of England Outlines Comprehensive Stablecoin Regulatory Framework

The Bank of England (BoE) has significantly advanced its plans for a comprehensive regulatory framework concerning systemic stablecoins in the UK, signaling a pivotal move towards integrating digital assets into the traditional financial system while fostering innovation.

The Regulatory Imperative

BoE Governor Andrew Bailey has consistently emphasized that stablecoins widely adopted for payments within the UK must adhere to stringent regulations mirroring those governing traditional money. This includes critical mandates for depositor protections, the establishment of robust resolution schemes, and ensuring that stablecoins can be exchanged for cash without sole reliance on potentially volatile cryptocurrency exchanges. The BoE is on track to release a detailed consultation paper later this year, which will outline its proposed "systemic stablecoin regime." This framework is anticipated to be one of the most comprehensive globally outside the U.S. Under the new regime, systemic stablecoin issuers will face dual oversight from both the Bank of England and the Financial Conduct Authority (FCA). Key requirements will include the full backing of stablecoins by secure, liquid assets, held in a statutory trust, and managed by an independent third-party custodian. Furthermore, a minimum of 5% of these backing assets must be maintained in on-demand bank deposits to ensure robust liquidity and redemption capabilities.

Market Adaptation and Strategic Adjustments

Initial proposals suggesting strict stablecoin holding caps—reportedly between £10,000 and £20,000 for individuals and £10 million for businesses—generated considerable concern within the industry. Market participants highlighted that these thresholds were impractical for the operational demands of crypto firms, which routinely manage billions in stablecoin balances. In response to this feedback, the BoE has indicated a more flexible approach, planning to grant exemptions for certain crypto firms, such as exchanges and custodians, that necessitate larger stablecoin reserves for liquidity and settlement purposes. A significant development is the BoE's decision to allow systemic stablecoin issuers to hold a portion of their backing assets directly in central bank deposits. This strategic pivot aims to enhance trust in stablecoins, reduce reliance on commercial banks, and position the UK as a competitive hub for cryptoassets, thereby preventing liquidity from migrating to offshore markets. This evolving stance aligns with broader global regulatory trends, notably the U.S. GENIUS Act, which mandates 1:1 backing by low-risk assets, and the EU’s Markets in Crypto-Assets Regulation (MiCA), both of which emphasize robust resolution schemes and direct cash exchange capabilities.

Broader Market Implications and Growth Trajectories

These regulatory developments carry substantial implications for the broader digital asset ecosystem. The recent lifting of the FCA's four-year ban on crypto exchange-traded notes (ETNs) and the planned stablecoin holding limit exemptions are expected to "supercharge" stablecoin rails into major digital assets like Bitcoin (BTC) and Ethereum (ETH), fostering increased liquidity and efficiency in UK crypto trading. The BoE's willingness to act as a "banker" to stablecoin issuers is anticipated to significantly boost corporate adoption for payments and settlement, thereby improving investor sentiment towards the UK's digital asset market. From a macroeconomic perspective, stablecoins could gradually alter market structures by potentially weakening the traditional link between money and credit creation, a function typically performed by banks. The global stablecoin market has demonstrated remarkable growth, with its market capitalization exceeding $230 billion in 2025 and a current total market capitalization reaching approximately $300 billion. Citi Institute has revised its 2030 base case forecast for the stablecoin market upwards to $1.9 trillion, with a bull case scenario projecting an astounding $4 trillion. While stablecoins offer significant advantages in terms of faster and cheaper cross-border transactions, their increased adoption presents notable challenges for traditional financial models and monetary sovereignty, particularly in emerging markets. Analysts at Standard Chartered project that stablecoins could attract $1 trillion in deposits from banks in these markets over the coming years.

Expert Commentary

Industry sentiment reflects a blend of concern and cautious optimism regarding the UK's regulatory trajectory. Sean Kiernan, CEO of UK-based digital finance platform Greengage, articulated the competitive pressures, stating:

"America already has a live stablecoin framework, giving issuers the certainty they need to build and scale. If the UK dithers for another year, liquidity, talent and investment will flow to New York instead of London."

This perspective underscores the critical importance of regulatory clarity and agility for the UK to retain its position as a leading financial hub in the rapidly evolving digital asset landscape.

Looking Ahead

The forthcoming consultation paper from the Bank of England will be instrumental in detailing the precise mechanisms and requirements of the systemic stablecoin regime. The continued evolution of the UK's approach, meticulously balancing financial stability with fostering innovation, will be a decisive factor in its competitive standing within the global digital asset market. Key areas to monitor include the finalization of holding limit exemptions, the operational specifics for central bank access for stablecoin issuers, and how these regulations integrate with and influence the rapidly expanding global stablecoin market, especially in light of ongoing policy developments in the U.S. and the EU.