TLDR
The Bank of England is signaling it may relax its proposed holding caps on sterling stablecoins while keeping a tight focus on financial stability.
- The BoE is reconsidering retail and business stablecoin caps after industry backlash, saying it is "genuinely open" to alternative tools for managing risks.
- Even with more flexible caps, the UK regime still looks strict for crypto, especially with plans to ban unhosted stablecoin wallets and require sizeable non?interest reserves.
- Key next steps are the current consultation, a parliamentary inquiry, and detailed rulemaking that will decide how attractive the UK really is for stablecoin issuers and users.
Deep Dive
1. What The BoE Actually Signaled
In testimony to the House of Lords, Deputy Governor Sarah Breeden said the Bank is "genuinely open to other ways of achieving the objective" than strict holding caps on sterling stablecoins, responding to strong industry criticism of the initial proposal. According to reporting from Cointelegraph, the original idea was temporary limits in the range of 10,000 to 20,000 per individual and around 10 million per business, to avoid a rapid shift of deposits from banks into stablecoins that could cut credit to the real economy. CryptoBriefing notes that officials are now actively reviewing feedback and may adjust how these caps work as part of the ongoing consultation process.
Caps are not gone, but they are no longer a fixed line in the sand; the BoE is inviting arguments for more nuanced ways to contain bank?run style risks.
2. How This Affects Crypto And Stablecoin Issuers
Industry groups argue that strict caps and reserve rules would make sterling stablecoins hard to use at scale and push business offshore, framing the UK as hostile to crypto. Current proposals include transitional holding limits, plus a requirement that about 40% of reserves sit as unremunerated deposits at the central bank, which squeezes issuer economics and could raise costs for users. At the same time, the framework would let systemic issuers hold BoE accounts and keep the rest of reserves in short term UK gilts, which is attractive from a safety and credibility angle.
If caps are softened but high quality reserve and supervision standards stay, UK?regulated pound stablecoins could become very credible but not necessarily the cheapest or most flexible option.
3. Remaining Frictions And What To Watch
Breeden also stated that unhosted, or self?custody, wallets for sterling stablecoins will not be permissible under the UK regime, in contrast to the US approach, which is a major limitation for on chain users. The UK Financial Conduct Authority plans a stablecoin sandbox in early 2026, and officials say applications for sterling stablecoins will be welcomed before the end of 2026, but the final attractiveness of the regime depends on where caps, wallet rules, and reserve mechanics land. Parliament has launched an inquiry into whether the BoE and FCA rules are proportionate, so hearings, consultation outputs, and any revised drafts are the main things to track.
Watch for revised consultation documents and sandbox conditions; they will tell you whether UK stablecoins look more like bank money with limited DeFi utility, or something closer to todays on chain stablecoins.
Conclusion
The Bank of England is backing away from a rigid cap?first design for sterling stablecoins, but it is not loosening its overall stance on stability or control. For crypto users and issuers, the UK is shaping up as a high?safety, high?constraint jurisdiction where the details of caps, custody, and reserves will determine whether the market opportunity is worth the compliance cost.
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