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

The Bank of England has admitted that stablecoin regulation has been overly conservative and is reassessing the framework. The original hold-and-limit approach triggered backlash, prompting a shift toward a more pragmatic policy to maintain London’s fintech advantage.

The Bank of England shifts course, and stablecoin regulatory policy begins to loosen

The Bank of England’s regulatory stance on stablecoins has undergone a clear shift. Sarah Breeden, the Deputy Governor of the Bank of England, recently told Financial Times in an interview that the stablecoin regulatory proposal initially put forward by the central bank “may have been too conservative,” and that it is now reevaluating the existing framework in an effort to establish a system that balances financial stability with industry development.

Market participants view these remarks as an important signal that the UK government and financial regulators are taking a further pragmatic turn in their attitude toward digital assets. Over the past year, the UK originally planned to impose highly conservative restrictions on “systemic stablecoins,” including requiring issuers to hold 40% of reserves in a non-interest-bearing account at the Bank of England, while setting limits on individuals’ and businesses’ holdings of stablecoins. Under the early draft, the general public’s holding limit was roughly 20,000 pounds sterling, while corporate holdings were capped at 10 million pounds sterling.

• Related news: Extremely strict! The Bank of England proposes limits on stablecoin holding caps, industry pushes back: violates decentralization principles

However, these measures quickly sparked strong backlash from the industry. Multiple fintech companies and crypto businesses criticized that the overly high reserve ratio and holding limits would weaken the UK’s competitiveness as a digital-asset hub, and could also force companies to move to more flexible regulatory environments such as Singapore, Hong Kong, Abu Dhabi, or the United States.

Industry pressure mounts, as the UK worries about losing fintech competitiveness

Breeden said the Bank of England is currently reexamining alternative options, hoping to avoid overly restricting the market through the regulatory framework. She emphasized that the central bank wants to build a stablecoin system that can genuinely work, while also ensuring the safety of users and the financial system.

The shift in the UK’s regulatory stance is related to the rapid escalation of global stablecoin competition. The United States has recently been accelerating efforts to pass the CLARITY Act and the GENIUS Act, aiming to establish comprehensive rules for stablecoins and the digital-asset market. Hong Kong has already completed the Stablecoin Ordinance and is preparing to issue its first batch of stablecoin licenses. Abu Dhabi, Singapore, and Japan also continue to attract large financial institutions to enter the market.

In recent years, the UK government has been hoping to remold London into a global digital financial center, and the Treasury and the FCA have gradually taken a more open stance toward the crypto industry. This year, the UK Financial Conduct Authority (FCA) has already launched a stablecoin regulatory sandbox, and several UK pound stablecoin issuers have entered the testing phase. The Bank of England is responsible for regulating “systemic stablecoins” that could affect financial stability.

Market consensus suggests that if the UK maintains overly strict restrictions, major payment companies and stablecoin issuers are likely to prioritize the United States or Asian markets, further weakening London’s influence in global fintech competition.

The Bank of England still worries about bank deposit outflows and financial risks

Although the regulatory direction has begun to loosen, the Bank of England’s core concerns about stablecoins have not disappeared. Breeden has warned multiple times in the past that if stablecoins rapidly become popular in the payments market, it could cause large volumes of bank deposits to flow into stablecoins, further compressing banks’ lending capacity and even triggering liquidity problems for the financial system.

The UK’s financial system is highly dependent on bank lending, unlike the US-dominated financial architecture led by capital markets. The Bank of England believes that once stablecoins become everyday payment tools, bank deposits may experience a large-scale “migration effect,” so it hopes to reduce potential run-on-bank risks through reserve and holding restrictions.

Bank of England Governor Andrew Bailey has also publicly said that if global stablecoins lack internationally coordinated rules, it will put pressure on financial stability. He believes that the rapid expansion of US dollar stablecoins could change the structure of cross-border payments and global capital flows, so regulation cannot be driven by a single country alone.

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

Global stablecoin regulation is gradually moving toward a competitive model

The UK policy shift also reflects a broader trend in which global stablecoin regulation is moving from risk prevention to balancing market competition and financial innovation. Central banks and regulators are concerned, on the one hand, about stablecoins disrupting the banking system and monetary policy, and on the other hand, about missing out on opportunities for digital financial development in their own markets.

Especially after the United States accelerates stablecoin legislation, major financial centers in Europe and Asia have begun to readjust strategies. Hong Kong, Singapore, Abu Dhabi, Japan, and the UK have recently released signals of openness almost in sync, hoping to attract more payment companies, trading platforms, and financial institutions to establish stablecoin infrastructure locally.

Breeden’s latest remarks also show that the Bank of England’s internal attitude toward stablecoins has been gradually changing. The market will next watch whether the UK will lower the reserve ratio, remove the holding limits, or allow a more flexible design for stablecoin reserve assets. These adjustments will directly affect whether the UK can retain its status as a financial center in the global race for digital assets.