UK Proposes Stablecoin Caps, Sparking Industry Revolt
The Bank of England has proposed a cap on individual stablecoin holdings, a move designed to mitigate systemic risk. The proposal has sparked backlash from industry leaders, with Coinbase CEO Brian Armstrong arguing the policy could stifle innovation and unfairly favor incumbent banks over non-bank issuers.
- The proposed caps are £20,000 for individual holdings and £10 million for businesses per-coin, although exemptions for larger businesses may be possible. These limits are described as temporary and would be removed once the Bank of England determines that a widespread shift to stablecoins no longer poses a risk to the availability of credit in the broader economy. - This regulation specifically targets "systemic" sterling-denominated stablecoins used for payments. Stablecoins used primarily for trading crypto-assets would not be subject to these rules and would instead be supervised by the Financial Conduct Authority (FCA). - The Bank of England's primary concern is that a rapid and large-scale shift of funds from commercial bank deposits to stablecoins could reduce banks' ability to lend, thereby impacting credit provision to households and businesses. - As part of the proposed framework, issuers of systemic stablecoins would be required to back their coins with a mix of assets. At least 40% must be held in non-interest-bearing accounts at the Bank of England, with up to 60% permitted in short-term UK government debt. - The legislative foundation for this proposed regulation is the Financial Services and Markets Act 2023, which brought "digital settlement assets" like stablecoins within the UK's regulatory perimeter. - The consultation period for these proposals is open until February 10, 2026, with the Bank of England planning to finalize its detailed "Codes of Practice" later that year. - In response to the backlash, a petition organized by the advocacy group Stand With Crypto UK, which calls for a more innovation-friendly regulatory framework, has gathered over 80,000 signatures. If it reaches 100,000, it could be considered for debate in Parliament. - This initiative is part of a broader strategy to modernize the UK's payment systems and runs parallel to the Bank of England's exploratory work on a potential central bank digital currency (CBDC), the "digital pound."
