Will the UK Drop the £20K Stablecoin Cap? BoE Signals Major Policy Shift

The Bank of England is rethinking parts of the strict stablecoin regime it proposed last November. Industry groups warned the original rules would make UK sterling stablecoins uneconomic next to dollar rivals. Deputy Governor Sarah Breeden told the Financial Times this week that the central bank is "genuinely open to other ways" of managing the financial stability risks the original rules were built to address.

The shift matters. UK regulators are racing to catch up with the US GENIUS Act and the EU's MiCA framework, both of which already support active stablecoin markets. Sterling stablecoins currently make up only a few million dollars of the roughly $300 billion global market. Updated UK draft rules are due in June.

£20,000 Caps and a 40% Reserve Wall Were the Two Biggest Friction Points

The November consultation set out two requirements that drew the loudest industry objections. The first was a temporary holding cap of £20,000 per individual (roughly $27,000) and around £10 million per business during the transition period. The second was the reserve mix: at least 40% of backing assets had to sit as non-interest-bearing deposits at the Bank of England. The other 60% could be held in short-term UK government debt.

The reserve rule is the bigger commercial problem. Money parked at the central bank earns nothing. That means a UK issuer would lose yield on nearly half its reserves, while US rivals like Circle and Tether earn full Treasury yields on similar reserve mixes. With UK gilt yields around 4.5%, that gap could compress margins to a point where issuing a sterling stablecoin no longer makes commercial sense. Several law firms and prospective issuers said as much during the consultation.

The caps were the more politically charged piece. £20,000 is too low for corporate treasury, payroll or settlement use, which are the institutional use cases that would actually drive adoption. Critics also questioned whether the caps could be enforced at all. Stablecoins move freely across platforms and wallets, and tracking individual holdings across that infrastructure is technically very hard.

Breeden's Tone Has Shifted Materially in Six Months

The change in posture is significant. In November 2025, Breeden warned publicly that diluting the rules too far could damage financial stability. She argued stablecoins are money-like instruments that must be at least as safe as existing payments infrastructure. Six months on, she is now describing parts of the framework as "overly conservative" and asking the industry to suggest alternatives.

The Bank's underlying concern has not changed. A rapid shift of deposits from commercial banks into tokenised money could destabilise bank funding. It could also disrupt how monetary policy gets transmitted through the economy. That risk is real, and the original rules were designed around it. What has shifted is the recognition that hard quantitative caps may be both unenforceable in practice and counterproductive for the UK's competitive position.

Breeden made the point directly to the House of Lords in March. "What we've been a bit disappointed with is that nobody has come forward and said, 'why not do it this way?'" she told peers. The Bank is open to alternative mechanisms for managing deposit migration risk, but it wants the industry to propose them rather than just oppose the rules.

Updated Rules in June, Sandbox Running in Parallel

The next step is the publication of updated draft rules around June 2026. These will incorporate feedback from the November consultation and the industry pushback that followed. The Bank will then run a further consultation before finalising the rules later in the year. The framework will sit alongside the FCA's separate regulation for smaller, non-systemic stablecoin issuers. HM Treasury will decide which issuers cross the systemic threshold.

The FCA has moved faster than the BoE on payments. It has named pound-pegged stablecoins as a "major priority" for 2026. It has fast-tracked a dedicated stablecoin sandbox inside its Digital Sandbox programme, and opened applications for issuers wanting to test pound-pegged tokens in a controlled environment. The combined effect is clearer: UK regulators want a working compromise, not a tighter rulebook.

The competitive stakes are real. Tokenised finance is scaling fast on the dollar and euro side. The EU's MiCA framework is fully in force. The US GENIUS Act is operational. JPMorgan filed its JLTXX tokenised money market fund last week, explicitly designed for compliance with US stablecoin reserve rules. The UK currently has neither a finalised regime nor a meaningful sterling stablecoin in circulation. Whether June's draft rules produce a workable commercial framework for GBP stablecoins, or whether sterling keeps lagging on tokenised payment rails, depends largely on how far the Bank moves from November.