UK lawmakers challenge BOE’s plan to cap stablecoin holdings in new letter
A cross‑party alliance of British lawmakers has formally urged the government to resist the Bank of England’s (BOE) proposal to restrict how much stablecoin individuals and companies in the UK can hold, warning that the move risks undermining the country’s ambitions to become a global hub for digital assets.
In a letter addressed to Chancellor Rachel Reeves, members of the House of Commons, the House of Lords and other peers criticised elements of the BOE’s emerging stablecoin framework, arguing that rigid caps on holdings would damage innovation, drive capital abroad and leave the UK out of step with other major financial centres.
Lawmakers emphasised that stablecoins are already reshaping financial infrastructure by cutting transaction costs, speeding up settlement times and improving access to financial services. According to the letter, these tokens are not just speculative instruments but an important bridge between traditional finance and the digital asset ecosystem, enabling banks, payment firms and fintechs to modernise legacy systems.
“Their rise is also enabling traditional institutions to connect with the digital asset ecosystem and modernise legacy infrastructure,” the letter stated, describing powerful technological and market forces that are “rapidly driving a major shift across financial services as we know them.”
Against this backdrop, the group warned that the BOE’s proposed limits on stablecoin holdings could “prevent the UK from fully capitalising on these opportunities.” They argued that if the rules are too restrictive, innovative companies and investors will simply relocate to more permissive jurisdictions, often favouring widely used dollar‑pegged stablecoins over sterling‑linked alternatives. That, in turn, could leave the UK “a global outlier” and weaken the international role of the pound.
The signatories said they were “deeply concerned that the UK is drifting towards a fragmented and restrictive approach that will deter innovation, limit adoption, and push activity overseas.” In their view, the combination of tight caps, high reserve requirements and local‑only asset backing risks creating a regime that is both burdensome and uncompetitive.
What exactly is the BOE proposing?
In November, the Bank of England published a consultation paper outlining a regulatory framework for systemic, sterling‑denominated stablecoins. The document followed a November 2023 discussion paper and sets out detailed proposals on issues such as asset backing, redemption, and limits on how much can be held by different types of users.
One of the most contentious ideas is a temporary cap on stablecoin holdings. The BOE argues that such limits are needed to mitigate financial stability risks, particularly the possibility of large and rapid outflows of deposits from commercial banks into stablecoins in a crisis scenario. By constraining how much users can move into these tokens, the Bank believes it can reduce the risk of destabilising bank runs or sudden liquidity squeezes.
Under the proposal, individuals would be allowed to hold between £10,000 and £20,000 in stablecoins, while businesses could hold up to £10 million. These thresholds mirror the BOE’s thinking on a potential “digital pound,” where similar caps have been floated as a way to protect the traditional banking system while a central bank digital currency is introduced.
The consultation also suggests that issuers of systemic stablecoins should be required to hold at least 40% of their reserves as non‑interest‑bearing deposits at the central bank. The remaining 60% could be held in short‑term UK government securities. The BOE argues that this structure would ensure robust redemption even under stress and bolster public confidence by tying stablecoin backing closely to the safest and most liquid sterling assets.
Why MPs say the caps are ‘an own goal’
While many lawmakers accept the need for oversight and prudential safeguards, they view the combined package of caps and reserve rules as over‑engineered and self‑defeating. One of their central objections is that mandating all reserves backing sterling‑pegged stablecoins to be held in UK assets amounts to, in their words, a “massive own goal” for the pound.
In their reasoning, the pound’s international relevance depends in part on how widely it is used and held overseas. If stablecoin issuers are forced to back tokens solely with domestic instruments and hold reserves entirely within the UK, the framework may discourage global adoption of sterling‑based digital currencies. Foreign users, the lawmakers argue, may prefer dollar‑denominated stablecoins that operate under more flexible arrangements, thereby entrenching the dominance of the US currency in digital markets.
The coalition frames this as a strategic issue: a country that aims to lead in digital finance cannot simultaneously create rules that isolate its currency and make its digital representations less attractive internationally. From that perspective, the UK should be encouraging, not constraining, responsible cross‑border use of pound‑linked tokens, subject to robust risk management.
They also highlight the practical downside of low ownership caps. If a large corporate treasury, fintech, or global merchant cannot hold sufficient stablecoin balances in sterling, it may default to using dollar‑pegged assets for cross‑border commerce and liquidity management. Over time, this would erode demand for sterling instruments and reduce London’s influence in shaping the next generation of payments infrastructure.
Government and regulator responses
A Treasury spokesperson, responding to questions about the proposal, reiterated the government’s stated goal of making the UK a world leader in digital assets. They stressed that the intention is to provide regulatory certainty for firms and to boost consumer confidence by bringing cryptoassets under a clear framework.
According to the spokesperson, the UK’s approach will be “fair and proportionate,” with the Treasury continuing to work closely with the Bank of England on the stablecoin regime. They described the BOE’s consultation as a valuable opportunity for stakeholders to present their views, implying that the final rules are not yet set in stone and could be adjusted in response to industry and parliamentary feedback.
Earlier in the week, the Financial Conduct Authority (FCA) also signalled that stablecoins are moving to the top of its agenda. In a letter to the Prime Minister, the regulator named stablecoin payments as a key priority for the coming year and committed to finalising digital asset rules and progressing the regime for UK‑issued sterling stablecoins by 2026. This timeline suggests that policymakers are trying to balance speed with thoroughness, though critics worry that the pace is still slower than in some competing jurisdictions.
Concerns over falling behind other markets
Both lawmakers and market participants increasingly perceive the UK as lagging behind other major economies in designing stablecoin rules that support innovation while controlling risk. The United States, for example, has advanced a comprehensive framework for stablecoins at the federal level, with clearer guidance on issuance, reserves and supervision. Other regions, including parts of Asia and the Middle East, are experimenting with more flexible sandboxes and pilot projects that allow real‑world testing of tokenised payments and settlement.
In this context, the UK’s focus on strict caps and conservative reserve structures is seen by some as overly cautious. Industry voices argue that a jurisdiction that moves too slowly or creates too many constraints risks losing start‑ups, developers and capital to more dynamic centres. Once payment networks and liquidity pools establish themselves elsewhere, it may be difficult for the UK to catch up, no matter how strong its legacy financial sector is.
Lawmakers behind the letter insist that being “safe” and being “competitive” are not mutually exclusive goals. They argue that the UK can insist on high‑quality reserves, strong governance and clear redemption rights without imposing hard ceilings on ownership that limit adoption and usefulness. In their view, smart regulation should enable scale where risks are understood and mitigated, rather than pre‑emptively blocking growth.
How stablecoins fit into the wider financial landscape
Stablecoins—crypto tokens designed to maintain a stable value, typically by being pegged to a fiat currency—have evolved from niche instruments to key components of digital finance. They are widely used as settlement assets on exchanges, bridges between traditional bank money and crypto markets, and increasingly as payment tools in commerce and remittances.
For established financial centres like London, stablecoins present both a threat and an opportunity. On one hand, if left unregulated or poorly supervised, they could introduce new channels for fraud, money laundering and systemic risk. On the other, they can modernise cross‑border payments, streamline wholesale settlement and support tokenised securities, potentially reinforcing the UK’s role as a global financial hub.
This dual nature explains why regulators such as the BOE are simultaneously cautious and curious. They recognise that stablecoins could compete with bank deposits or even with a future digital pound, but also see the potential to reduce frictions and costs in markets from trade finance to capital markets. The core dispute highlighted by MPs is not whether to regulate stablecoins, but how far to go in constraining their growth in the name of prudence.
Possible middle ground: risk‑based rules instead of blunt caps
Some policy experts suggest that the UK could adopt a more nuanced, risk‑based approach that focuses on the activities and systemic footprint of stablecoin issuers rather than imposing universal caps across the board. Under such a framework, smaller, non‑systemic issuers could operate with lighter obligations, while those reaching a certain scale would face stricter oversight, higher capital requirements and more intensive supervision.
Instead of hard limits on how much any individual or business may hold, regulators could rely on stress testing, liquidity coverage rules, and dynamic monitoring of flows between banks and stablecoin platforms. If data showed destabilising outflows from the banking sector, temporary measures could be deployed in times of stress, rather than permanently constraining usage during normal conditions.
Lawmakers critical of the BOE’s proposal are broadly aligned with this thinking. They argue that dynamic safeguards, combined with robust consumer protection and strict rules on reserve composition, would be more compatible with the UK’s desire to be a leader in digital assets. From their perspective, ownership caps are a crude tool that signal distrust of the very technologies the UK claims it wants to champion.
Implications for businesses and consumers
If implemented as outlined, the BOE’s caps and reserve rules would have tangible effects on both businesses and individual users. Large corporates and fintech firms might find that they cannot hold enough stablecoin balances to support large‑scale treasury operations, cross‑border settlements, or on‑chain liquidity provision. This could push them to base key functions in jurisdictions without such restrictions.
For retail users, a £10,000–£20,000 ceiling might not immediately bite, but over time it might limit the ability to use sterling stablecoins for higher‑value transactions, such as property‑related transfers, larger investments or international education and healthcare payments. If dollar‑denominated tokens are easier to use at scale, UK residents might increasingly denominate digital savings in foreign currencies, subtly weakening the role of sterling in the emerging digital economy.
Payment processors, exchanges and fintech apps would also have to redesign products to comply with the caps, adding friction at the very moment when user demand is gravitating toward instant, low‑cost digital payments. Lawmakers fear this could blunt the adoption curve, leaving UK consumers with fewer competitive options compared to their counterparts in markets with more enabling frameworks.
The strategic question: what role should the UK play?
Underlying the technical debate is a strategic question: does the UK want merely to “manage” the rise of stablecoins, or to shape it? As a historic financial centre with deep expertise in regulation, market infrastructure and legal services, the UK is well‑positioned to set high standards that others might emulate. But that influence depends on being home to significant stablecoin activity and innovation.
If activity migrates abroad, the UK’s leverage over global norms diminishes. In that scenario, British regulators could find themselves reacting to standards set elsewhere rather than leading the conversation. The lawmakers’ letter implicitly warns that a defensive, inward‑looking stance might protect incumbents in the short term, but at the cost of long‑term relevance.
To avoid this outcome, the authors argue that the UK’s stablecoin regime should be benchmarked against “leading international models.” That does not mean copying any one country, but it does require ensuring that UK rules are competitive on key dimensions: clarity, proportionality, and openness to cross‑border use, provided robust safeguards are in place.
What happens next?
The BOE’s consultation process allows policymakers, industry participants and civil society to submit formal responses. The letter from MPs and peers signals that political scrutiny of the Bank’s approach will intensify, especially if final rules still include tight ownership caps and rigid reserve requirements.
The Treasury and the FCA, meanwhile, will continue to develop complementary frameworks for broader cryptoassets and for stablecoin‑based payment systems. The timeline stretching to 2026 suggests there is still room for negotiation and recalibration, particularly as international standards evolve and more real‑world data on stablecoin usage becomes available.
For now, the UK faces a delicate balancing act: protecting financial stability and consumers while fostering a regulatory climate that allows responsible innovation to flourish. The outcome of this debate over stablecoin caps will be an early test of whether the country can translate its rhetoric about digital leadership into a practical, competitive rulebook that attracts, rather than repels, the next wave of financial technology.