The Bank of England (BoE) is set to water down its planned stablecoin rules and is exploring alternative solutions to mitigate potential risks, following pressure from the local crypto industry and multiple lawmakers about the proposed restrictions.
BoE Calls Stablecoin Plans ‘Overly Conservative’
On Thursday, the Bank of England’s Deputy Governor for financial stability, Sarah Breeden, revealed that the central bank is preparing to ease its controversial regulatory plans for stablecoins.
In an interview with Financial Times (FT), Breeden admitted that the regulator’s proposal may have been “overly conservative” and that the financial regulator was “looking very hard” at potential solutions.
The BoE proposed a temporary cap on stablecoin ownership in a November consultation paper to “mitigate financial stability risks stemming from large and rapid outflows of deposits from the banking sector.”
The restriction aimed to set holding limits of £10,000 to £20,000 for individuals and £10 million for businesses, resembling its proposed approach to the digital pound, which also sought to address financial stability risks.
Additionally, the central bank proposed that systemic stablecoin issuers hold at least 40% of reserves backing the token as unremunerated deposits at the central bank to ensure “robust redemption and public confidence, even under stress.”
In March, Breeden had already signaled openness to reviewing BoE’s proposals during a meeting with the House of Lords Financial Services Regulation Committee. At the time, she recognized the cap’s technical difficulties but argued that they “are there to support an orderly transition as the shape of the system changes.”
Meanwhile, Breeden told FT that the 60:40 asset allocation requirement was “based on experience of potential liquidity stress,” particularly the size of deposits withdrawn from Silicon Valley Bank in 2023 and other recent crises.
Central Bank To Rethink Approach
Notably, crypto industry and payment groups in the UK strongly criticized the financial regulator’s proposal, arguing that it would be detrimental to the pound and put the UK at a disadvantage relative to the US and the European Union (EU).
Simon Jennings, executive director of the UK Cryptoasset Business Council trade body, said that “limits simply don’t work in practice,” explaining that enforcing caps would require a “costly, complex new system, such as digital IDs or constant co-ordination between wallets.”
Similarly, a coalition of UK lawmakers opposed the BoE’s policies in December, claiming that it could undermine the government’s efforts to position the UK as a leading nation in the digital assets industry.
According to the Thursday report, Breeden affirmed that “what we have heard from industry is that the way we have proposed to implement limits is cumbersome operationally for a temporary measure,” and added that the industry also seems to prefer to hold more interest-earning assets, “as that goes to their bottom line.”
Now, the central bank is “genuinely open to thinking whether there are other ways of achieving our objective” of creating a regime in which stablecoins can succeed and deliver benefits to users. “But it is money and we want to make sure that this new form of money is safe,” she concluded.
