The Bank of England has signaled it may ease proposed restrictions on sterling stablecoins after sharp criticism from the crypto industry. Deputy Governor Sarah Breeden told the House of Lords Financial Services Regulation Committee on March 11, 2026, that the central bank is “genuinely open” to revising its initial proposals, which included holding limits of £20,000 for individuals and £10 million for businesses.
The testimony comes as the UK races to finalize its stablecoin regulatory framework by the end of 2026, with the FCA already running a sandbox program featuring Revolut and three other firms. The rules will shape whether sterling stablecoins can compete with dollar-denominated alternatives like USDC and Tether, which currently dominate the global stablecoin market with a combined market cap exceeding $200 billion.
The outcome matters well beyond UK borders. If the Bank of England’s rules are too restrictive, legal experts warn they could make a commercially viable sterling stablecoin market “structurally impossible,” pushing UK crypto activity further toward dollar-based assets and offshore platforms.
What the Bank of England Originally Proposed
The Bank of England published its consultation paper on sterling stablecoin regulation in November 2025, proposing a framework that drew immediate pushback from industry participants. The key proposals include:
| Requirement | Detail |
|---|---|
| Individual holding limit | £20,000 per person |
| Business holding limit | £10 million per entity |
| Backing assets | 40% held as unremunerated deposits at the Bank of England |
| Government debt | Up to 60% in short-term UK government bonds |
| Self-custody wallets | Not permitted under UK rules |
| Scope | “Systemic” sterling stablecoins used for retail payments and wholesale settlement |
The holding limits are framed as temporary safeguards. The Bank of England’s core concern is deposit migration: if stablecoins become attractive enough, consumers and businesses could move deposits out of banks and into stablecoin wallets, reducing the funds available for lending to UK households and businesses.
A step-up regime would allow newly recognized systemic issuers to hold up to 95% of backing assets in government debt initially, declining to 60% as they scale. The 40% deposit requirement at the Bank of England is designed to ensure issuers have immediate access to liquidity during periods of stress.
Breeden’s Testimony: Open to Change, But Frustrated
Deputy Governor Breeden’s testimony struck a nuanced tone. While confirming the Bank is open to revising its proposals, she expressed frustration at the quality of industry feedback received during the consultation period, which closed on February 10, 2026.
Breeden acknowledged that the 60:40 split between government debt and central bank deposits might be “overly conservative” and said the Bank remained open to alternative approaches that could meet financial stability objectives without strict holding limits.
However, she was firm on one point: self-custody wallets will not be permitted to hold regulated sterling stablecoins. Breeden stated that unhosted wallets lack the regulated entity oversight required for anti-money laundering (AML) and know-your-customer (KYC) compliance. This puts the UK at odds with the United States, where self-custody is permitted and actively defended by lawmakers.
Coinbase Pushes Back at House of Lords
Breeden was not the only witness before the committee. Tom Duff Gordon, Vice President at Coinbase, testified at the same House of Lords hearing, urging regulators to abandon the proposed holding caps entirely.
Duff Gordon argued that the £20,000 individual limit and £10 million business cap would prevent sterling stablecoins from reaching the scale needed to function as serious settlement infrastructure for tokenized capital markets. His core argument: a stablecoin ecosystem that cannot handle large institutional transactions is effectively useless for the wholesale use cases the UK government itself has identified as priorities.
This is the core tension, and neither side is entirely wrong. The Bank of England wants to protect the banking system’s deposit base, while industry participants argue that overly cautious rules will simply push activity to unregulated or dollar-denominated alternatives, achieving the opposite of the intended outcome.
FCA Sandbox: Four Firms Already Testing
While the Bank of England deliberates on its final rules, the Financial Conduct Authority has moved ahead with a practical testing program. In February 2026, the FCA selected four firms from 20 applicants for its dedicated stablecoin sandbox:
- Revolut: Building a GBP-denominated stablecoin backed by sterling reserves, allowing customers to buy, hold, sell, and transfer within its platform
- Monee Financial Technologies: Developing a stablecoin for cross-border issuance, trading, and settlement of digital securities
- ReStabilise: Creating an institutional-facing UK stablecoin issuance and custody platform for GBP and other currency stablecoins
- VVTX: Building a UK ecosystem unifying traditional finance and blockchain with a GBP stablecoin and consumer card
Testing began in Q1 2026, and findings from the sandbox will help shape the final regulatory framework. Once the full framework takes effect in October 2027, all sandbox participants must obtain formal FCA authorization.
Revolut’s involvement is particularly significant. The fintech company already serves over 40 million customers globally and holds a UK banking license, giving it the scale and regulatory credentials to launch a sterling stablecoin that could see meaningful adoption.
How UK Rules Compare to the US and EU
The UK’s approach sits between the more permissive US framework and the EU’s MiCA regulation, but introduces unique restrictions that have drawn the most criticism:
| Feature | UK (Proposed) | US (Current) | EU (MiCA) |
|---|---|---|---|
| Holding limits | £20,000 individual / £10M business | None | None |
| Self-custody | Banned for regulated stablecoins | Permitted | Permitted |
| Backing requirements | 40% BoE deposits + 60% gov’t debt | Full reserves (varies by state) | Full reserves in liquid assets |
| Central bank deposits | Required (40%) | Not required | Not required |
| Timeline | Final rules end of 2026 | Evolving (GENIUS Act pending) | Live since June 2024 |
The self-custody ban is the most contentious divergence. In the US, legislators have actively pushed back against attempts to restrict self-custody, viewing it as a fundamental property right. The EU’s MiCA framework also permits self-custody wallets, though with AML obligations on the service providers.
Legal experts at FinTech Weekly have argued that the combined effect of holding limits, the 40% central bank deposit requirement, and the self-custody ban could make it “structurally impossible” to build a commercially viable sterling stablecoin market, as issuers would face higher costs than competitors in other jurisdictions while serving a more restricted customer base.
What This Means for Crypto Markets
The UK stablecoin framework matters for the broader crypto ecosystem in several ways.
For Bitcoin and crypto trading: If sterling stablecoins launch successfully, they would create new on-ramps for UK investors and reduce dependence on dollar-based pairs. However, restrictive rules could keep UK traders reliant on USDC and USDT, reinforcing dollar dominance in crypto markets.
For institutional adoption: The Bank of England’s cautious approach signals that UK regulators prioritize financial stability over rapid innovation. This could slow institutional crypto adoption in the UK compared to the US, where the SEC and CFTC recently signed a harmonization MOU designed to reduce regulatory friction.
For stablecoin competition: Circle and Tether already dominate the global market. A well-regulated UK stablecoin could carve out a niche for GBP-denominated transactions, but only if the rules allow sufficient scale. The EU’s MiCA framework has already spurred European banks to seek exchange partners for stablecoin launches, creating competitive pressure on the UK.
Regulatory Timeline
| Date | Milestone |
|---|---|
| Nov 2025 | Bank of England publishes consultation paper on systemic stablecoin rules |
| Feb 10, 2026 | Consultation feedback deadline closes |
| Feb 2026 | FCA selects Revolut, Monee, ReStabilise, and VVTX for stablecoin sandbox |
| Mar 11, 2026 | Deputy Governor Breeden testifies before House of Lords, signals flexibility |
| Jun 2026 | Draft stablecoin rules expected from Bank of England |
| End of 2026 | Final regulations and sterling stablecoin applications open |
| Oct 2027 | Full regulatory framework in effect; sandbox participants must obtain authorization |
Related Reading
- SEC and CFTC Sign Historic MOU to End Regulatory Turf War and Unify Crypto Oversight
- European Banks Seek Exchange Partners Ahead of 2026 Stablecoin Launch
- Stablecoin Transfer Volume Hits $1.8T as USDC Overtakes USDT in Monthly Flows
Sources
- Cointelegraph: Bank of England Signals Flexibility on Sterling Stablecoin Holding Limits
- Reuters: Bank of England open to revising stablecoin rules, Breeden says
- The Block: Coinbase policy exec urges UK regulators to drop proposed Bank of England stablecoin caps
- CryptoTimes: UK May Ease Stablecoin Holding Limits, Says Bank of England
- Bank of England: Proposed regulatory regime for sterling-denominated systemic stablecoins
- FCA: 4 firms selected to test stablecoin innovation in Regulatory Sandbox
This is not financial advice. Regulatory developments can have unpredictable effects on crypto markets. Always conduct your own research before making investment decisions.
