Bank of England may ease parts of sterling stablecoin rules

The Bank of England announced it is reviewing parts of its proposed framework for sterling-backed stablecoins after receiving industry feedback. The consultation on systemic sterling stablecoins opened in November and the Bank says the review aims to balance financial stability with support for digital payments in the UK.

Under the draft rules, issuers could hold up to 60% of reserves in short-term UK government debt and would place the remaining 40% in non-interest-bearing deposits at the Bank of England. The proposals also include temporary holding caps of £20,000 for individuals and £10 million for businesses. The consultation paper requests views on alternative mechanisms to manage financial stability risks while allowing space for innovation.

Industry participants and analysts told the Bank the 40% requirement to hold non-yielding reserves would reduce issuer income. Stablecoin issuers commonly earn revenue by investing reserves in short-term government securities and retaining the interest. With UK gilt yields relatively high, placing a large share of reserves in non-yielding central bank deposits would lower potential returns for sterling-backed issuers compared with dollar-linked competitors.

The Bank has argued the reserve structure would lower the risk of destabilizing runs and protect consumer confidence if stablecoins become systemically important. Deputy Governor Sarah Breeden, in the consultation announcement, said the Bank had listened to feedback and adjusted proposals on how issuers interact with the Bank.

A separate point of contention is the treatment of unhosted wallets, which are private crypto wallets controlled directly by users rather than by regulated custodians. The Bank indicated unhosted wallets would not be permissible in the UK on anti-money-laundering and know-your-customer grounds. Industry figures criticised the approach and questioned how such a ban could be enforced in practice.

Benoit Marzouk, chief executive of tGBP, described the restriction as “a serious misstep for the UK, risking long-term damage that is hard to unwind.” Joey Garcia of Xapo Bank said it “restricts any attempt to understand and mitigate the perceived risks.” Freddie New, chief policy officer at Bitcoin Policy UK, called the proposal “of such monumental, such overweening, stupidity, that it is hard to formulate a sensible response.”

The stablecoin consultation is running alongside work on a potential retail central bank digital currency, the digital pound. The Bank’s March 2026 progress report stated no decision has been made on introducing a digital pound. The Digital Pound Lab completed a first phase of experiments on merchant payments and wallet technology, and a blueprint and formal assessment are expected later in 2026 before any choice on next steps.

Regulatory developments abroad include the European Union’s Markets in Crypto-Assets framework and ongoing stablecoin legislation efforts in the United States. Sterling-backed stablecoins currently make up a very small share of the global stablecoin market.

The Bank of England and HM Treasury have invited further feedback on the proposals and are reviewing whether some measures are overly conservative while the regime is finalized.