The recent decision by the Bank of England has significant implications for the landscape of digital asset regulation in the UK. By eliminating proposed limits on individual and corporate holdings in sterling stablecoins, the Bank has adopted a more streamlined regulatory approach. The focus has shifted from restricting the amount that can be held by any single entity to capping the total issuance of each systemic stablecoin at £40 billion.
This transformation, announced on June 22, reflects a strategic pivot in philosophy. The prior proposal had originally suggested placing strict caps—£20,000 for individuals and £10 million for businesses. Such limits faced strong opposition from stakeholders in the industry. The Bank of England reconsidered and introduced a flexible issuance limit that promises to foster innovation and integration within the UK's payment systems.
The enhancements to reserve requirements are noteworthy. Issuers of stablecoins can now back 70% of their assets with short-term UK government debt, an increase from the previous 60% limit. The remaining 30% must be placed in non-interest-bearing deposits at the Bank of England. This change not only facilitates greater liquidity but also supports transparency and security for investors. Sarbanes-Oxley guidelines are being implemented to bolster consumer trust, ensure prompt redemption, and enhance protection against volatility.
What does this regulatory framework mean for different types of stablecoins? The new rules specifically relate to systemic stablecoins—those assessed to be significant enough to potentially influence the financial ecosystem, primarily through the migration of assets away from traditional banking systems. In contrast, non-systemic stablecoins will be governed by regulations from the Financial Conduct Authority.
The Bank aims to finalize its Code of Practice by late 2026, with the full regulations expected to become active by 2027. Feedback from stakeholders on the draft proposal is due by September 22, 2026, signifying a collaborative approach to regulatory development.
For investors, lifting per-holder limits is a pivotal change, allowing institutions, banks, asset managers, and corporate treasuries to engage with sterling stablecoins comprehensively. This is a decisive advantage when compared to the old framework that severely limited holdings for sizable funds. Moreover, the backing requirement of 70% in government debt positions UK-regulated stablecoins as a secure asset class. This regulatory clarity and framework enforced by the Bank of England represent a strong foundation for any issuer that chooses to comply.
Existing companies such as Circle and Tether face a decision point. They must consider whether to develop sterling-denominated products that align with these new regulations or to yield this market opportunity to local players. While the necessity to hold 30% of reserves in a non-interest-bearing manner at the Bank of England introduces a cost, the credibility conferred by adherence to BoE oversight may provide long-term advantages that outweigh this expense.