The Bank of England plans to loosen stablecoin regulations! The Vice President admits: The early proposal was too conservative

The Bank of England admits that stablecoin regulation is too conservative and is reevaluating the framework. The original restrictions caused backlash, prompting a shift toward a pragmatic policy to maintain London’s fintech advantage.

The Bank of England’s stance shifts, and stablecoin regulation policies begin to loosen

The Bank of England’s position on stablecoin regulation has shown a clear change. Sarah Breeden, Deputy Governor of the Bank of England, recently told the Financial Times that the initial proposed stablecoin regulation “may have been too conservative,” and they are now reassessing the existing framework in hopes of establishing a system that balances financial stability and industry development.

This statement is seen by the market as an important signal that the UK government and financial regulators are taking a more pragmatic approach toward digital assets. Over the past year, the UK initially planned to impose highly conservative restrictions on “systemic stablecoins,” including requiring issuers to hold 40% reserves stored at the Bank of England without interest, and setting limits on holdings for individuals and businesses. According to early drafts, the general public’s holding limit was about 20k GBP, while corporate holdings were capped at 10 million GBP.

• Related news: Extremely strict! UK proposes limits on stablecoin holdings, industry backlash: violates decentralization principles

However, these measures quickly sparked strong industry opposition. Many fintech and crypto companies criticized that the high reserve requirements and holding limits would weaken the UK’s competitiveness as a digital asset hub, and could force companies to move to more flexible regulatory markets like Singapore, Hong Kong, Abu Dhabi, or the US.

Industry pressure intensifies, UK worries about losing fintech competitiveness

Breeden stated that the Bank of England is currently exploring alternative options to avoid overly restrictive regulatory frameworks. She emphasized that the goal is to build a truly operational stablecoin system while ensuring the safety of users and the financial system.

The regulatory attitude shift in the UK is related to the rapid rise of global stablecoin competition. The US is accelerating the passage of the CLARITY and GENIUS bills to establish comprehensive rules for stablecoins and digital assets; Hong Kong has completed the Stablecoin Ordinance and is preparing to issue its first stablecoin licenses; Abu Dhabi, Singapore, and Japan continue to attract large financial institutions.

In recent years, the UK has aimed to reposition London as a global digital finance hub, with the Treasury and FCA gradually adopting a more open attitude toward the crypto industry. The UK Financial Conduct Authority (FCA) has launched a stablecoin regulatory sandbox this year, with several GBP stablecoin issuers already in testing. The Bank of England is responsible for regulating “systemic stablecoins” that could impact financial stability.

The market generally believes that if the UK maintains overly strict restrictions, major payment companies and stablecoin issuers are likely to prioritize the US or Asian markets, further weakening London’s influence in global fintech competition.

The Bank of England remains concerned about bank deposit outflows and financial risks

Although the regulatory direction is beginning to loosen, the core concerns of the Bank of England regarding stablecoins have not disappeared. Breeden has repeatedly warned that if stablecoins rapidly become popular in the payments market, large amounts of bank deposits could flow into stablecoins, further compressing banks’ lending capacity and potentially triggering liquidity issues in the financial system.

The UK financial system is highly dependent on bank lending, unlike the US-dominated capital markets. The Bank of England believes that once stablecoins become everyday payment tools, there could be a large-scale migration of deposits, so they hope to reduce potential bank run risks through reserve and holding restrictions.

Bank of England Governor Andrew Bailey also publicly stated that without international coordination rules, the rapid expansion of global stablecoins could threaten financial stability. He believes that the swift growth of US dollar stablecoins could alter cross-border payments and global capital flows, so regulation cannot be led by a single country.

The UK has not yet published the final version of the rules, but market expectations suggest that later this year, the UK will officially open applications for systemic stablecoin licenses and adjust the original holding and reserve requirements.

Global stablecoin regulation is gradually shifting toward a competitive model

The policy shift in the UK also reflects a global trend where stablecoin regulation is moving from risk prevention to balancing market competition and financial innovation. Central banks and regulators are concerned about stablecoins disrupting banking systems and monetary policy, but also about missing out on digital financial development opportunities.

Especially as the US accelerates stablecoin legislation, major financial centers in Europe and Asia are beginning to adjust their strategies. Hong Kong, Singapore, Abu Dhabi, Japan, and the UK have recently issued signals of openness, aiming to attract more payment companies, trading platforms, and financial institutions to establish stablecoin infrastructure locally.

Breeden’s latest remarks also indicate that the Bank of England’s internal attitude toward stablecoins is gradually changing. The market will next focus on whether the UK will lower reserve ratios, remove holding limits, or allow more flexible stablecoin reserve asset designs. These adjustments will directly impact whether the UK can maintain its status as a global financial center in the digital asset race.