The Bank of England released draft rules Thursday for stablecoins it deems systemically important, easing reserve requirements while slapping a temporary 40 billion-pound issuance cap on the assets. The move replaces earlier holding limits with a more flexible framework designed to accommodate growth without risking financial stability.
New framework for systemic stablecoins
The proposed rules apply to stablecoins that could pose risks to the broader financial system. Under the draft, issuers will no longer face strict per-issuer holding limits. Instead, a single temporary cap of 40 billion pounds on total issuance will apply across all systemic stablecoins. The Bank said the cap is meant to give regulators time to monitor how the market develops before setting longer-term parameters.
The change marks a significant departure from earlier proposals, which had tied reserve requirements more tightly to individual issuers. By easing those requirements, the Bank hopes to encourage innovation while maintaining oversight. The draft rules also clarify what qualifies as a systemic stablecoin, including thresholds based on transaction volume, number of users, and interconnection with the traditional financial system.
Reserve requirements loosened
Under the new draft, stablecoin issuers will be allowed to hold a broader set of assets as reserves. Previously, the Bank had proposed stringent rules that limited eligible reserves to cash and government bonds. The eased requirements now include high-quality corporate bonds and certain short-term securities, though the Bank stressed that reserves must still be liquid and low-risk.
Critics of the earlier draft had argued that overly strict reserve rules would stifle the stablecoin market in the UK, pushing activity to less regulated jurisdictions. The Bank appears to have listened: the new framework lowers the bar for compliance while still requiring issuers to prove their reserves can withstand a run.
Why the cap matters
The 40 billion-pound cap is not permanent. The Bank said it will review the limit after two years or sooner if the market expands rapidly. For context, the total market capitalization of all stablecoins globally is roughly $150 billion, so a 40 billion-pound UK-specific cap gives room for growth but also sets a clear boundary.
The cap applies to the aggregate issuance of all systemic stablecoins, not to any single issuer. That means if one stablecoin grows quickly, it could crowd out others within the same limit. The Bank said it will monitor concentration and may adjust the cap or introduce individual limits if needed.
What happens next
The Bank of England has opened a public consultation on the draft rules. Stakeholders, including stablecoin issuers, banks, and consumer groups, have until September 30 to submit comments. After that, the Bank will finalize the rules, likely by early next year.
A key unresolved question is how the rules will interact with UK payment system regulations and the Financial Conduct Authority’s oversight of crypto assets. The Bank said it will coordinate with the FCA and Treasury, but the exact timeline for implementing the full stablecoin regime remains unclear.
