1. Stablecoin regulation in the UK: what the Bank of England announced
The Bank of England set out a softer approach to stablecoin regulation in a policy statement dated June 22, 2026, replacing proposed limits on individual holdings with a temporary cap of £40 billion on the size of each sterling stablecoin. The statement also lifts the share of reserves that may sit in short-term government debt from 60% to 70%, with the remainder held at the central bank.
The policy statement was published together with a draft Code of Practice for issuers. Between them, the two documents form the latest version of the framework the Bank intends to apply to sterling-denominated stablecoins that reach systemic scale, meaning coins large enough that their failure or sudden outflows could disturb the wider financial system.
The Bank said the revisions came after extensive feedback from industry. The result is a regime that keeps the central bank's core concern, protecting financial stability, while changing the tools used to pursue it. Instead of constraining what individual savers can hold, the Bank now constrains how large any single coin may grow and prescribes what stands behind it.
2. How does the £40 billion issuance cap work?
The cap is a temporary ceiling of £40 billion on the amount of each individual stablecoin that can be in issue. It is applied per coin rather than to the market as a whole, so the limit bears on the scale of any one issuer's product.
The Bank describes the figure as a guardrail rather than a permanent feature of the regime. It is intended to apply for a transitional period, and what happens to it afterward has not been spelled out in the material reviewed here. The wording signals that the limit is a precaution for the early life of the market, not a statement about the largest size a sterling stablecoin could ever safely reach.
A cap on issuance addresses the same underlying worry as the earlier proposals, which is that a rapid shift of money from ordinary bank accounts into tokens could drain deposits from the banking system. Banks use deposits to fund lending to households and businesses, so a sudden, large migration could tighten credit. By limiting how big any one coin can become, the Bank limits how quickly that kind of migration could occur.
For a market that has not yet launched at scale in sterling, £40 billion is a substantial allowance. Even so, it remains a limit, and issuers with ambitions beyond it will want clarity on how and when the ceiling is raised or removed.
3. Why were individual holding limits dropped?
The earlier approach placed restrictions on how much of a stablecoin individuals could hold. The new statement abandons that idea in favour of the issuance cap, so the rule that once applied to users now applies to the size of each coin.
The change matters for how useful the tokens can be. A per-person limit would have followed the user into every transaction, making a sterling stablecoin awkward for payments, business settlement or trading, where balances can be large and unpredictable. Removing it takes away a feature that could have held back the practical appeal of regulated sterling coins.
The Bank's caution has not disappeared. The June statement retains the same concern about deposit outflows and about the stability of the system. What has changed is the choice of instrument: supervisors now focus on the issuer and its balance sheet instead of policing the behaviour of every wallet holder.
4. What changed in the reserve requirements?
Under the revised rules, up to 70% of the assets backing a systemic stablecoin may be held in short-term UK government debt, up from 60% in the earlier proposal. The remaining 30% can be kept as deposits at the Bank of England.
This split is central to the Bank's role in the regime. Because part of the reserve backing is held as deposits with the central bank itself, the Bank sits directly behind the coin's liquid assets. That arrangement helps explain why the central bank has been described as positioned to act as banker to issuers.
Reserves are the foundation of any fiat-backed stablecoin. A holder must be confident that the token can be exchanged for pounds promptly and on demand, and that confidence depends on the quality and accessibility of the assets behind it. If doubts arise about those assets, redemption requests can accumulate quickly, which is the dynamic that turns a loss of trust into a run.
5. Why do reserves decide whether a stablecoin is safe?
Reserves determine both what an issuer earns and how well it can survive a rush of redemptions, and the 70/30 split reflects a balance between those two goals.
Government debt pays interest, and that interest is how a stablecoin business generates revenue from the assets it holds. Short-dated gilts are also considered low-risk and can generally be sold or allowed to mature without large losses, but converting them into cash still takes some time and depends on market conditions.
Deposits at the central bank are among the safest and most liquid assets available. They can be used immediately to meet redemption requests, which matters most during a period of stress when many holders try to exit at once. A larger deposit share therefore improves resilience but reduces the income an issuer can earn.
Raising the permitted share of government debt from 60% to 70% tilts the framework slightly toward earnings and commercial viability, while still leaving a meaningful liquidity buffer at the central bank. The adjustment suggests the Bank accepted the industry argument that a larger deposit requirement would make a sterling stablecoin harder to run profitably, without giving up the principle that a portion of reserves must be immediately available.
6. What did Deputy Governor Sarah Breeden say?
Sarah Breeden, the Bank of England's Deputy Governor for Financial Stability, described the package as a major milestone and called it a world-leading regime. Her remarks placed the Bank's objectives around a trade-off between supporting a viable stablecoin sector and safeguarding stability.
The aims set out for the framework are prompt redemption for holders, strong protections for users, and room for central bank support if it is needed. Each is connected to the design choices in the statement: the reserve rules support redemption, the issuer-level controls support user protection, and the deposit holdings at the Bank provide the link through which support could be extended.
That combination is the basis for the description of the Bank as a banker to stablecoin issuers. It reflects a posture that is notably more accommodating toward crypto-related payment instruments than the central bank's earlier public stance, although the Bank remains clear that the coins in question are those that could grow systemic and must meet bank-like standards of safety.
7. From a cautious proposal to a more cooperative framework
The Bank's first proposals for sterling stablecoins were driven by concern over how a large flow of money into tokens could strain the banking system. Individual holding limits were a central tool, meant to prevent a sudden relocation of savings from deposits into stablecoins.
The June 22 statement keeps that caution but changes how it is applied. Capping issuance and shaping the reserve mix both deal with the risk at its source, the issuer, rather than at the level of every holder. The shift suggests that the Bank concluded it could protect the system without making the product unattractive to the people it was designed to serve.
The change also illustrates how policy toward stablecoins has evolved in major financial centres. Authorities have increasingly moved from asking whether such instruments should exist toward specifying the conditions under which they can operate, including reserve quality, redemption rights and the role of the central bank.
8. What does it mean for issuers and the market?
The statement gives prospective issuers something they have lacked until now: a defined cap, a clear reserve split and a published timetable. That clarity lets firms prepare business plans, estimate the revenue that a reserve mix of 70% government debt can produce, and judge whether the economics of a sterling coin work.
Dropping holding limits improves the outlook for practical use, since payments firms and trading platforms are not forced to design around restrictions on user balances. The reserve change helps with profitability, while the deposits at the Bank provide a degree of safety that issuers can point to when they seek customers.
Open questions remain. The cap is described as temporary, but its path is unresolved. The draft Code of Practice is not final, and issuers considering significant commitments may prefer to wait for the finished text. The announcements also do not name any specific stablecoin project, concentrating on rules rather than on which companies might launch under them.
9. What happens next for the sterling stablecoin regime?
The regime is not yet in force. The Bank of England aims to complete the framework by the end of 2026, and the draft Code of Practice must be finalised before issuers can operate under it.
Until then, the proposals may still be refined. The Bank has indicated that the temporary £40 billion limit is designed to be revisited over time, which means the next stages to watch are the final version of the Code of Practice and any statement on how the cap will change once the system is running.
For market participants, the immediate task is to study the draft code, test their reserve arrangements against the 70/30 split and assess how a coin would perform under the issuance ceiling. For savers and businesses, a regulated sterling stablecoin remains a prospect rather than a product, but the rules that would govern one are now considerably clearer.