UK Sterling Stablecoin Rules: Major Changes, One Key Limit Remains

The Bank of England quietly made one of the most consequential adjustments to its crypto framework in years this month — and the industry noticed. Its June 22 policy update scrapped the individual holding limits that had made the original sterling stablecoin proposal almost unworkable, replacing them with a single £40 billion ceiling per token and loosening the reserve rules that determine whether issuing a pound-backed coin can actually turn a profit. It’s a meaningful step forward. Whether it’s enough is a different question entirely.

• The Bank of England scrapped per-user sterling stablecoin holding limits, replacing them with a single £40 billion cap per token.
• New reserve rules let sterling stablecoin issuers hold up to 70% in short-dated UK gilts, significantly improving their yield economics.
• Dollar-denominated tokens control around 98% of the global stablecoin market, giving pound coins a steep competitive hill to climb.
• The Bank says the £40 billion ceiling is temporary and will be lifted once systemic risks to credit provision are adequately managed.

What the Bank of England Actually Changed

The earlier draft framework had proposed a £20,000 cap on how much sterling stablecoin any individual could hold, and a £10 million limit for businesses. Those numbers attracted immediate and sustained criticism. A cross-party House of Lords committee told the Bank in early June that the wallet-level limits were out of step with how every other major jurisdiction was approaching the space, and that founders and issuers had spent the consultation period pointing out something fairly obvious: you can’t meaningfully enforce a balance cap across fragmented wallets and exchanges. The Bank listened.

In their place, the June 22 statement introduced a £40 billion aggregate cap on the total amount of each systemic sterling stablecoin in circulation. Households and firms can now hold as much as they want. Any single token can grow freely up to that ceiling before the brakes come on. That’s a structurally different kind of constraint — it shifts the friction from the user level to the market level, which at least makes regulatory sense.

Uniquely among large economies, the UK is now the only one to put a hard ceiling on how large a token denominated in its own currency can grow. The US and EU both regulate stablecoins heavily — the EU’s MiCA framework being the most prominent example — but neither imposes a maximum size on euro or dollar tokens. The Bank has called its limit ‘temporary,’ promising to review it as the market develops and systemic risks become clearer. That framing matters, and we’ll come back to it.

The Reserve Rule Shift That Changes the Economics of a Sterling Stablecoin

The holding cap changes get the headlines, but the reserve rule adjustment is arguably more important for anyone seriously thinking about issuing a sterling stablecoin. Here’s why: stablecoin issuers make their money from the float. They collect backing assets — typically government bonds or short-term debt — and earn yield on them while the stablecoins themselves pay nothing to holders. The split between yield-bearing assets and dead-weight deposits at the central bank is what decides whether the whole business model works.

The November 2025 draft required systemic issuers to hold 40% of reserves as unremunerated deposits at the Bank of England — money earning nothing, just sitting there as a stability buffer. The remaining 60% could go into short-term gilts. The new framework cuts the non-yielding deposit requirement to 30% and raises the gilt allocation ceiling to 70%. Better still, tokens that are designated systemic right from launch can begin with up to 95% in gilts and scale toward the 70/30 split as they grow.

That step-up provision is practical and sensible. A new issuer doesn’t pose systemic risk at day one, so forcing them to park a large slice of their backing at the Bank of England early on is punitive without being prudent. Letting them earn closer to full market yield while they build the user base — and tightening the requirements as they become genuinely significant — is a more proportionate approach.

The comparison that matters here is with dollar stablecoin issuers. Tether and Circle’s USDC both hold substantial portions of their reserves in US Treasury bills, earning yields that fund their operations comfortably. A sterling stablecoin issuer under the old 40% unremunerated deposit regime would have been running on thinner margins than its dollar competitors almost by design. The updated rules don’t fully close that gap, but they narrow it meaningfully.

Why the £40 Billion Ceiling Still Creates Real Problems

Forty billion pounds sounds like a lot. For a payment instrument designed to handle domestic retail transactions, it probably is. But the economics of stablecoin networks don’t work like retail payment volumes — they work like social networks and liquidity pools, where scale compounds. More users attract more merchants. More merchants mean deeper liquidity. Deeper liquidity pulls in market makers. Market makers enable more institutional use cases. Each of those reinforces the others, and all of them together are what make a token worth integrating in the first place.

A cap that bites before those network effects have time to mature leaves you with something safe and supervised but commercially thin. Coinbase’s European policy lead and ClearBank’s chief executive both made versions of this argument publicly this week, warning that a capped sterling stablecoin would struggle to match the commercial attractiveness of its dollar and euro counterparts. When your settlement pool has a hard ceiling bolted to it, global corporates running cross-border flows will keep routing through dollar tokens — because USD liquidity is deeper, scales without constraint, and already has the integrations built.

The Bank’s concern driving all of this is deposit flight. If households and firms shift large balances from bank accounts into stablecoins, commercial banks lose cheap funding, their capacity to lend tightens, and in a stress scenario, that dynamic accelerates fast. So the central bank is treating sterling stablecoins as potential competitors to commercial bank money — which, at scale, they genuinely are — and using the £40 billion ceiling to keep that competition manageable while it figures out the right long-term framework. That’s a legitimate regulatory instinct. The tension is that containing competition also contains utility.

The Bigger Problem: Building Demand for a Pound Token

Even if the framework were perfect, the sterling stablecoin market would face a structural demand problem that regulation alone can’t fix. Sterling tokens currently account for roughly 0.5% of a global stablecoin market worth around $315 billion. Around 98% of stablecoins in circulation are dollar-denominated, because crypto markets, DeFi liquidity pools, offshore exchanges, and institutional settlement flows all price and clear in dollars. That’s not a regulatory artifact — it’s a network effect that has been compounding for years.

UK consumers, meanwhile, already have Faster Payments: instant, free, and available to virtually everyone with a UK bank account. For a sterling stablecoin to displace even a fraction of that domestic flow, it has to offer something Faster Payments doesn’t — programmability, on-chain composability, 24/7 settlement with DeFi protocols, or meaningfully lower fees for specific use cases. Those are real advantages in the right context. They’re just not advantages that automatically translate into mass consumer adoption, particularly when the alternative is already instant and costs nothing.

Merchants won’t switch without a clear fee reduction. Global treasury teams won’t reroute settlement flows into a pound token with a hard ceiling when dollar liquidity is already deep and uncapped. Issuers are being asked to operate inside one of the more conservative frameworks among major economies in exchange for access to a market that, right now, is a fraction of the size of what they can access by issuing dollar-denominated tokens instead.

A Framework in Progress, Not a Finished Policy

The most honest reading of the Bank of England’s June update is that it’s a work in progress — a framework trying to balance financial stability against the risk of simply regulating a sterling stablecoin market out of existence before it ever gets started. The removal of per-user holding caps and the improved reserve rules are genuine improvements. The industry had legitimate complaints about the November 2025 draft, and the Bank addressed the most serious ones.

But the £40 billion ceiling is a bet that cautious, supervised growth is better than no sterling stablecoin market at all — and that the Bank can accurately judge when to lift the cap before it has done lasting competitive damage. The Bank says it will raise the limit once it’s comfortable that systemic risks to credit provision are handled. The question is whether any serious issuer will build toward a market with a ceiling that may or may not get raised on a timeline they can’t control.

The UK wants to be a serious crypto financial centre. The updated framework gets it closer. But closing the gap between a technically permissive regime and one that actually attracts capital and issuers at scale will require the Bank to make good on its promise to treat the £40 billion cap as a starting point — not a destination.

Source: CryptoSlate

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