Britain Wrote The World’s Most Cautious Stablecoin Rules, Three Years Late

The caps are gone, the ceiling is new

The 2025 consultation proposed limiting individuals to £20,000 in any systemic sterling stablecoin and businesses to £10 million, limits the industry called unworkable and a House of Lords committee warned could threaten the viability of issuers. Nobody could explain how an issuer would police the wallet totals of holders it cannot always identify. In June the Bank dropped the idea entirely.

In its place stands what the Bank calls a temporary issuance guardrail: no single systemic sterling stablecoin may exceed roughly £40 billion, about $50.6 billion, in circulation. The ceiling gets reviewed regularly and removed once the Bank stops worrying about what a fast-growing coin would do to bank credit. Alongside it, issuers may hold up to 70% of backing assets in short-term UK government debt, up from 60% in the draft, with the remainder parked at the Bank of England as unremunerated deposits.

The architecture splits supervision in two. Ordinary qualifying stablecoins sit with the FCA for issuance and custody; the Bank takes over, jointly with the FCA, only once HM Treasury formally recognizes a coin as systemic, meaning widely used in UK payments. The guardrail therefore binds precisely the coins that succeed. A sterling stablecoin can grow unbothered until the moment it starts to matter, at which point it inherits a ceiling.

A ceiling both giants already exceed

Tether’s USDT circulates at around $189 billion, nearly four times the UK maximum. Circle’s USDC, at roughly $73 billion, also clears it. The two coins that define the market could not exist at their current size inside the UK regime.

A sterling coin starts from zero and might take a decade to test the limit, which is the Bank’s point: the guardrail costs nothing today. What it costs is positioning. Stablecoin issuance is a scale business, reserve income on float, in which the size of the pool is the size of the prize. An issuer deciding where to build learns from the June documents that the UK market has a stated maximum and its competitors have none. Ceilings read as caution to a central banker and as a term sheet to everyone else.

Neither rival regime works this way. The GENIUS Act imposes no size limit on issuers at all, and MiCA polices large coins through significance thresholds that add supervision and requirements as tokens grow, an escalator of obligations where the UK builds a wall. The UK is alone in writing a number, and numbers are what get quoted in board papers when a global issuer decides which three markets to enter first.

Consider what the ceiling means for a coin that reaches it. An issuer at £40 billion must stop minting, so new demand can only be served by someone selling, and a token that cannot expand to meet demand starts trading with exactly the friction stablecoins exist to remove. No treasurer builds payment flows on an instrument that might be rationed. Rational issuers will therefore manage growth to stay comfortably below the line, which means the practical ceiling sits lower than the printed one.

The 30% the Bank keeps for itself

The reserve rules carry a quieter competitive cost. A GENIUS Act issuer in the US holds essentially all of its reserves in yielding instruments, short-dated Treasuries and repo, and keeps the interest. A UK issuer will hand the Bank of England 30% of its float at zero remuneration. Neither regime lets the holder earn anything, so the difference lands entirely on issuer margins: whatever short rates do, a firm surrendering the yield on nearly a third of its reserves runs structurally thinner economics than a US competitor keeping the yield on all of them.

Margins are what fund distribution, the exchange listings, wallet integrations and payment partnerships that decide which coins actually circulate. No major regime lets the holder earn interest, the UK included, so stablecoins do not compete on rates; they compete on where they are accepted, and acceptance is bought with issuer margin. The UK has designed a product category in which the domestic version is legal, safe, and less able to pay for shelf space than the imports it is meant to compete with.

The question the June package never quite answers is what a sterling stablecoin is for. The dollar coins won crypto settlement and are winning cross-border payments; a sterling token’s natural market is domestic tokenized finance, the collateral, securities-settlement and wholesale experiments the Bank itself has been encouraging. Those are real markets, and they are also precisely the ones where a £40 billion ceiling and a 30% unremunerated reserve bite hardest, because wholesale users move in size and issuers serving them live on basis points.

The fear underneath is deposit flight

The Bank’s stated reason for the guardrail is credit provision. Sterling that migrates from bank deposits into stablecoin reserves stops funding mortgages and business lending, and a fast-growing coin could pull deposits out of the banking system quicker than banks could adjust. The concern deserves to be taken at face value; the UK runs a bank-intermediated economy, and the Bank of England is accountable for it in a way the US Congress, which waved the same risk through in the GENIUS Act, is not.

To its credit, the Bank moved where the arguments were strongest. Raising the gilt share of reserves from 60% to 70% and scrapping the holding caps were both direct responses to consultation feedback, and Breeden’s framing, that innovation thrives on trust and the June package lays its foundations, is the sound of an institution persuading itself into the market rather than out of it. The direction of travel favors issuers. The speed does not.

What caution cannot do is stop the substitution already underway. Dollar stablecoins circulate freely among UK users through offshore venues today, at zero benefit to sterling and outside the Bank’s perimeter. Delaying a regulated sterling alternative does not slow that dollarization; it guarantees the local option arrives after the habits form.

Three regulatory generations behind

The EU’s MiCA regime has been fully applicable since December 30, 2024, and licensed issuers have operated under it since. The GENIUS Act became US law on July 18, 2025. Britain’s consultation window closes September 22, the code of practice lands around year-end, and the first regulated sterling stablecoin arrives in 2027 at the earliest, five years after the Treasury first promised to make the UK a crypto hub.

Sequencing compounds the delay. Systemic recognition requires HM Treasury to act before the Bank’s regime even attaches, and an issuer cannot know in advance which side of the line it will land on. A firm weighing a London launch faces a rulebook still in consultation, a recognition process with no published mechanics, and a supervisor that has already named the number at which growth becomes a problem. The same firm can be licensed and operating in Dublin or New York before the UK code of practice is final.

Hovering over all of it is the Bank’s own digital money agenda. The same institution finalizing stablecoin rules is still designing a digital pound and has spent two years steering commercial banks toward tokenized deposits as its preferred form of private digital money. A regime that admits stablecoins reluctantly, caps their success, and thins their margins is consistent with a central bank that wants the instrument to exist without particularly wanting it to win. Issuers reading the June documents will price that ambivalence accordingly.

Breeden is right that innovation thrives on trust. It also thrives on being open for business. By the time a sterling stablecoin issues under the Bank’s rules, users will have had three years of regulated alternatives and the corridors will have chosen their coins. Trust accrues to whoever shows up, and Britain has scheduled its arrival for last.