Bank of England Drops Stablecoin Ownership Limits, Sets Issuance Cap

The Bank of England is scrapping individual stablecoin limits and opting for an issuance cap instead. The policy shift is meant to leave room for innovation without undermining financial stability.

Key Takeaways

• The Bank of England is dropping limits on individual stablecoin holdings and replacing them with a 40 billion pound issuance cap.
• The required share of backing assets held in non-interest-bearing central bank deposits is falling from 50% to 30%, while direct interest payments to holders will still be banned.
• The central bank says these rules are meant to protect financial stability while still leaving room for growth and competition in the stablecoin market.

The Bank of England has officially walked back its original plan to cap how many stablecoins individuals and companies can hold. Instead of setting individual limits, the central bank is now introducing a total issuance cap of 40 billion pounds ($50.6 billion (€44.1 billion)) for each systemically important stablecoin.

Adjusting the Stablecoin Regulatory Framework

The central bank said it is dropping its earlier proposal to limit individuals to a maximum of £20,000 and companies to £10 million in stablecoins. That decision follows criticism from a UK House of Lords committee and the crypto industry, which said the original limits were too restrictive and would hurt innovation.

In addition, the required share of backing assets held in non-interest-bearing central bank deposits has been cut from 50% to 30%. That means stablecoin issuers can now invest up to 70% of their reserves in short-term UK government bonds with maturities of less than six months, giving them a way to earn yield on their reserves. Direct interest or dividend payments to stablecoin holders are still banned, though. The Bank of England does allow users to receive rewards through Web3 apps tied to transactions, such as cashback or loyalty points.

Balancing Innovation and Financial Stability

With the new macroprudential issuance cap, the Bank of England wants to protect the broader UK credit system from sudden capital flight while still leaving room for growth and international competition in the stablecoin market. The bank stressed that the cap is temporary and could be removed once the market has stabilized enough.

This change also follows a report from the UK Parliament's Financial Services Regulation Committee, which called for the limits to be reconsidered because of the possible negative impact on the viability of stablecoin issuers. In the US, work is also underway on tighter stablecoin rules, including new customer identification rules for issuers.

Why This Matters for the European Crypto Market

This development in the United Kingdom could matter for European crypto investors and companies, since it shows how central banks are trying to strike a balance between encouraging tech innovation and protecting financial stability. The decision to drop limits on individual ownership and introduce an issuance cap could point to a practical approach that other jurisdictions may also follow. That could affect the adoption and regulation of stablecoins across Europe, especially ahead of broader crypto rules.