The UK is putting the finishing touches on rules for fiat-backed stablecoins used in payments, but has so far stopped short of setting specific numerical caps. The framework, led by HM Treasury with oversight from three regulators, aims to keep these tokens as a payment tool rather than a savings vehicle.
Three Regulators, One Framework
HM Treasury sets the overall regulatory framework. The Bank of England steps in when a stablecoin arrangement is deemed 'systemic,' applying payment-system-grade standards. The Financial Conduct Authority handles issuer licensing and conduct, while the Payment Systems Regulator covers competition and access. Under the rules, any fiat-backed stablecoin used for payments must be redeemable at par in fiat, fully backed by high-quality assets, and subject to conduct, prudential, and operational requirements.
Why Caps Are on the Table
No specific limits have been confirmed, but regulators are weighing several models. Options include per-user holding limits, per-transaction caps, issuer-level exposure limits, and dynamic circuit-breakers that kick in during stress events. The logic behind caps is to prevent 'stablecoin-as-savings' behaviour and keep the focus on payments. Poorly designed caps could push users toward unregulated tokens or offshore channels, while well-designed ones might lower systemic risk at the cost of more transaction friction. The UK approach is expected to differ from the EU's MiCA, which allows restrictions on stablecoins that exceed usage thresholds, though the underlying principles are similar.
If caps are introduced, wallets and payment service providers will need real-time limit checks. Merchant settlement flows could be adjusted, and issuers will have to manage liquidity more tightly. The rules are still being finalised, so the exact operational burden isn't known yet. But the direction is clear: stablecoins will be treated as a payment instrument, not a store of value.
Distinct From the Digital Pound
The stablecoin discussions are separate from the Bank of England's work on a central bank digital currency. The digital pound's holding limits address a different set of disintermediation risks. For now, the stablecoin rules are moving ahead on their own track.
Industry participants are now waiting for the final text, expected later this year, before they can fully assess the impact on their operations.
