Bank of England Weighs Stablecoin Caps: Safeguarding Financial Stability While Promoting Innovation

UK Government Explores Regulatory Balance for Stablecoins

The Bank of England (BoE), a leading authority in the UK financial ecosystem, is closely examining policy measures that would balance the risks and rewards of stablecoin adoption. Deputy Governor Sarah Breeden highlighted this delicate approach in her October 15, 2025 speech, revealing potential adjustments to current restrictions on stablecoin holdings. While stablecoins — digital assets pegged to the value of fiat currencies — are a cornerstone of the cryptocurrency landscape, they remain subject to rigorous scrutiny due to their implications for financial stability.

The UK government’s regulatory framework for stablecoins seeks to strike a balance between safeguarding the economic system and nurturing private sector innovation, according to Cryptopolitan.

Mixed Reactions: UK Crypto Sector Pushback

The UK cryptocurrency industry has voiced significant concerns over the proposed caps on stablecoin holdings. While exemptions for specific categories are being considered, the majority of stakeholders view such limits as overly restrictive and counterproductive to innovation.

Simon Jennings, director of the UK Cryptoasset Business Council, critiqued the limitations, calling them “complex, costly, and challenging to enforce.” Although the prospect of exemptions has provided cautious optimism, industry advocates argue for a complete overhaul of the policies to ensure they foster growth and usability in the digital economy.

According to Jennings, restrictions on individual holdings present practical challenges, especially when individuals use multiple wallets. This decentralization complicates the enforcement process and raises concerns about delegation of oversight to stablecoin issuers.

Financial Stability at the Core of BoE’s Concerns

The BoE’s cautious stance stems from worries that a widespread shift from traditional bank deposits to stablecoins could destabilize credit availability and the financial system itself. Deputy Governor Breeden underscored these risks in her speech, noting, “If a substantial portion of bank deposits were to rapidly transition to stablecoins, banks might struggle to effectively reallocate large nonbank funds, leading to a sharp decline in credit availability for businesses and households.”

Early discussions include a tentative cap of £10,000 to £20,000 (around $12,200 to $24,400) for individual stablecoin holdings, with higher thresholds set for businesses. By contrast, other major economies remain largely free of similar restrictions, a fact that has drawn criticism from UK crypto advocates worried that overregulation will stifle market competitiveness.

A draft of formal proposals is due next month, which, according to Breeden, may eventually allow lifting these caps if stablecoins are proven to pose no material risk to the broader financial system. For larger enterprises, discussions indicate possible exemptions for holdings exceeding £10 million ($12.2 million), a sharp difference from the individual limits under consideration.

Regulatory Oversight Framework

The Bank of England intends to take direct regulatory control over major stablecoins under its proposed framework, relegating oversight of smaller stablecoins to the UK Financial Conduct Authority (FCA). This bifurcated model marks an attempt to implement proportional regulation tailored to the scale of stablecoin issuers and their economic impact.

Tensions Between Innovation and Regulation

Despite broader efforts to support innovation, the UK crypto sector expressed dissatisfaction following the BoE’s September announcement of caps on both personal and corporate holdings. Critics argue that such restrictive measures contradict the government’s goal of fostering a globally competitive digital asset market.

Deputy Governor Breeden admitted the complexities of enforcing caps, especially for individual users operating multiple wallets. Industry leaders and technology experts continue to challenge these proposed restrictions, pointing out their potential to discourage adoption and drive users to jurisdictions with more lenient policies.

Conclusion

With stablecoin regulation still in its developmental stages, the UK faces a critical juncture as it seeks to balance financial stability with supportive policies that enable cryptocurrency growth. As digital assets gain prominence, the BoE’s forthcoming draft will likely serve as a bellwether for the future trajectory of stablecoin adoption and regulation in the region. Industry stakeholders are optimistic that thoughtful revisions to the framework will create a sustainable foundation for innovation without compromising economic integrity.

The Bank of England’s approach underscores the continual tug-of-war between risk management and technological progress, emphasizing the importance of policies built to adapt to an evolving financial landscape.