Bank of England Rethinks ‘Conservative’ Stablecoin Rules

The Bank of England may soften strict stablecoin rules as Deputy Governor Sarah Breeden warns against harming UK competitiveness in digital payments.

A shift in regulatory tone has emerged from Deputy Governor Sarah Breeden, who admitted that some planned rules might prove “overly conservative” and could damage the UK’s competitiveness in the global race for digital payments.

The primary point of contention remains the proposal for stablecoin issuers to hold 40% of their reserves at the Bank of England (BoE) without earning interest.

Industry leaders argue this requirement would render British stablecoin models virtually unprofitable. This stands in stark contrast to US competitors, who can generate yield from reserves by investing in government bonds and other liquid assets.

On May 14, Sarah Breeden told the Financial Times that the BoE is “carefully analyzing” whether this framework is too restrictive. Her comments are seen as the first major sign that the regulator may retreat from its initial hardline stance.

London Seeks Balance Between Security and Competitiveness

Proposed holding limits for stablecoins are also facing scrutiny. The BoE’s original plan suggested that individuals be restricted to holding £20,000 in stablecoins, while companies would be capped at £10 million. These measures were designed to prevent a mass exodus of deposits from the traditional banking system during a crisis.

However, the central bank now acknowledges that these limits might be too difficult to implement in practice. Breeden noted that the industry described the proposals as “operationally clunky,” prompting the regulator to explore alternative risk management mechanisms.

This marks a significant change in tone for the BoE, which has previously prioritized financial stability far above innovation in the crypto sector. Pressure on London is mounting amid fears that rigid rules could drive businesses toward the US or other more liberal jurisdictions.

BoE Warns of a “Clash” with the US

Meanwhile, BoE Governor Andrew Bailey has intensified his criticism of the American regulatory model. During remarks made between May 8 and May 10, he warned that many US stablecoin systems lack sufficiently clear redemption mechanisms for tokens.

Bailey argued that this lack of clarity increases risks during a potential market panic. He cautioned that in a global “boom,” investors might move capital toward jurisdictions with stricter protections, which could put serious pressure on the UK financial system.

The Governor even described an inevitable dispute between London and Washington regarding stablecoin standards—a direct regulatory clash over which model will dominate globally.

Parallel to the BoE’s position, the British Treasury continues its work on the “Cryptoasset Regulations 2026” legislative framework. HM Treasury is collecting final feedback until May 22 on a draft law that would exempt certain UK-issued stablecoins from specific restrictions.

The goal is to allow companies and consumers to use stablecoin payments more easily without requiring a full crypto trading license. These developments suggest the UK is searching for a more balanced path—one that protects the banking system while ensuring London remains a contender in the rapidly growing market for digital dollars and tokenized payments.