The Bank of England unveiled proposals for a regulatory regime governing sterling-denominated stablecoins, introducing temporary limits of £20,000 for individuals and £10 million for businesses holding systemic stablecoins. Deputy Governor Sarah Breeden defended the restrictions as necessary to prevent rapid deposit outflows from commercial banks that could threaten credit availability, while promising that the caps would be removed once the transition no longer posed a risk to the UK economy.Deputy Governor of the Bank of England | Source: Reuters Earlier today, a “Proposed regulatory regime for sterling-denominated systemic stablecoins” consultation paper was released. The consultation paper marks a significant step toward establishing Britain’s framework for digital assets that pose potential risks to financial stability. While Breeden insisted the UK regime would be operational “just as quickly as the US,” industry executives criticized the holding limits as overly cautious compared to America’s approach under the GENIUS Act, which established federal stablecoin regulation without ownership caps. Regulatory Framework Balances Innovation With Stability Concerns The proposed regime applies to systemic stablecoins, those widely used in payments that could impact UK financial stability, and will see joint oversight by the Bank of England for prudential matters and the Financial Conduct Authority for consumer protection. The Bank substantially revised its initial 2023 proposal, now permitting issuers to hold up to 60% of backing assets in short-term UK government debt securities while maintaining at least 40% in unremunerated Bank of England deposits. Capital requirements follow international standards, with issuers needing reserves equal to either the cost of recovery from the largest plausible loss event or six months of operating expenses. Statutory reserves placed on trust for coinholders will cover both financial risk from holding sovereign debt and insolvency costs, ensuring redemption requests are honored by the end of each business day. Industry Backlash Intensifies Over Restrictive Approach The proposed caps have triggered fierce criticism from crypto advocates, who view the measures as counterproductive. “This proposal only enforces caps on holdings in the more ‘systemic’ stablecoins most likely used for payments,” Laurence wrote on X. “It means I will be compelled to move my on-chain funds into something further out the risk curve. It is their safety they are concerned about, not yours.“ Another user, known as Stani.eth, called the approach “absurd,” arguing that “stablecoins issued onchain do not pose greater risks than traditional electronic money issued on more fragile electronic databases.” Meanwhile, Grant announced his departure from Britain, stating “i’m leaving the UK this Friday for good. I just don’t trust them to fix it as they’re all highly incompetent and believe taxing their way out of the problem is the only solution.“ Strider labeled the proposal “draconian,” warning that “proposed regulations like this is keeping a cap on the European crypto world.” Tom Duff Gordon, Vice President of International Policy at Coinbase, has also previously told the Financial Times that “imposing caps on stablecoins is bad for UK savers, bad for the City and bad for sterling,” noting no other major jurisdiction deemed such limits necessary. Mortgage Market Differences Drive Cautious Stance Breeden explained that the holding limits stem from fundamental differences between British and American credit markets, where UK consumers obtain mortgages from commercial banks rather than government-sponsored enterprises. “People in the UK get their mortgages from commercial banks, and so that issue that we talked about, about the need for limits as we transition to a world of stablecoins, is one that is less pertinent to the US regime,” she said at a London conference on Wednesday. Despite promises that caps remain temporary, the consultation paper provides no timeline for when limits would be lifted. The global stablecoin market has expanded beyond $305 billion, yet sterling-pegged tokens remain negligible at just $1.65M compared to $511 million in euro-linked stablecoins, according to DeFiLlama data.Source: DeFiLlama The Bank expects to finalize regulations by year’s endThe Bank of England unveiled proposals for a regulatory regime governing sterling-denominated stablecoins, introducing temporary limits of £20,000 for individuals and £10 million for businesses holding systemic stablecoins. Deputy Governor Sarah Breeden defended the restrictions as necessary to prevent rapid deposit outflows from commercial banks that could threaten credit availability, while promising that the caps would be removed once the transition no longer posed a risk to the UK economy.Deputy Governor of the Bank of England | Source: Reuters Earlier today, a “Proposed regulatory regime for sterling-denominated systemic stablecoins” consultation paper was released. The consultation paper marks a significant step toward establishing Britain’s framework for digital assets that pose potential risks to financial stability. While Breeden insisted the UK regime would be operational “just as quickly as the US,” industry executives criticized the holding limits as overly cautious compared to America’s approach under the GENIUS Act, which established federal stablecoin regulation without ownership caps. Regulatory Framework Balances Innovation With Stability Concerns The proposed regime applies to systemic stablecoins, those widely used in payments that could impact UK financial stability, and will see joint oversight by the Bank of England for prudential matters and the Financial Conduct Authority for consumer protection. The Bank substantially revised its initial 2023 proposal, now permitting issuers to hold up to 60% of backing assets in short-term UK government debt securities while maintaining at least 40% in unremunerated Bank of England deposits. Capital requirements follow international standards, with issuers needing reserves equal to either the cost of recovery from the largest plausible loss event or six months of operating expenses. Statutory reserves placed on trust for coinholders will cover both financial risk from holding sovereign debt and insolvency costs, ensuring redemption requests are honored by the end of each business day. Industry Backlash Intensifies Over Restrictive Approach The proposed caps have triggered fierce criticism from crypto advocates, who view the measures as counterproductive. “This proposal only enforces caps on holdings in the more ‘systemic’ stablecoins most likely used for payments,” Laurence wrote on X. “It means I will be compelled to move my on-chain funds into something further out the risk curve. It is their safety they are concerned about, not yours.“ Another user, known as Stani.eth, called the approach “absurd,” arguing that “stablecoins issued onchain do not pose greater risks than traditional electronic money issued on more fragile electronic databases.” Meanwhile, Grant announced his departure from Britain, stating “i’m leaving the UK this Friday for good. I just don’t trust them to fix it as they’re all highly incompetent and believe taxing their way out of the problem is the only solution.“ Strider labeled the proposal “draconian,” warning that “proposed regulations like this is keeping a cap on the European crypto world.” Tom Duff Gordon, Vice President of International Policy at Coinbase, has also previously told the Financial Times that “imposing caps on stablecoins is bad for UK savers, bad for the City and bad for sterling,” noting no other major jurisdiction deemed such limits necessary. Mortgage Market Differences Drive Cautious Stance Breeden explained that the holding limits stem from fundamental differences between British and American credit markets, where UK consumers obtain mortgages from commercial banks rather than government-sponsored enterprises. “People in the UK get their mortgages from commercial banks, and so that issue that we talked about, about the need for limits as we transition to a world of stablecoins, is one that is less pertinent to the US regime,” she said at a London conference on Wednesday. Despite promises that caps remain temporary, the consultation paper provides no timeline for when limits would be lifted. The global stablecoin market has expanded beyond $305 billion, yet sterling-pegged tokens remain negligible at just $1.65M compared to $511 million in euro-linked stablecoins, according to DeFiLlama data.Source: DeFiLlama The Bank expects to finalize regulations by year’s end