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.

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.

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.“

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