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The Bank of England is pushing ahead with its plan to impose ownership limits on UK stablecoins, while partly backing down to industry criticism by exempting retailers and cryptocurrency exchanges from the restrictions.
The central bank on Monday said individuals would be limited to owning up to £20,000 of UK stablecoins that are considered systemically important, while most businesses would be limited to holding up to £10mn.
“Retail businesses (such as supermarkets) and intermediaries servicing retail customers (such as cryptoasset trading platforms) who may need to hold large balances of such coins could be exempted from the proposed £10mn business limits,” it said in a consultation paper.
Stablecoins are digital tokens that are pegged at a fixed rate of one-to-one to a real currency. A cornerstone of cryptocurrency trading, they have sparked a heated debate between regulators and executives in the fast-growing market, which is globally worth almost $300bn.
The BoE has been criticised for taking a more cautious approach to stablecoin regulation than other jurisdictions, particularly the pro-crypto US administration of President Donald Trump.
Presenting its proposals for regulating widely used stablecoins, the BoE said it was “considering central bank liquidity arrangements to support systemic stablecoin issuers in times of stress”.
It also said most systemic stablecoins would have to hold 40 per cent of their backing assets in unremunerated deposits at the central bank, with the rest held in short-term UK government debt.
But in another concession to critics, the BoE said stablecoins transitioning to becoming systemic would be allowed to hold 95 per cent of their assets in short-term government debt in order “to support their viability as they grow”.
The proposals were designed to “maintain financial stability and enable systemic stablecoin issuers to operate viable business models”, the central bank said, adding that the ownership limits would be temporary while the financial system adjusted to the new technology.
In an article for the Financial Times last month, BoE governor Andrew Bailey signalled he was taking a less sceptical approach to stablecoins. He noted it would be “wrong to be against stablecoins as a matter of principle”, while hailing their potential for “driving innovation in payments systems both at home and across borders”.
The BoE has watered down some of its earlier plans, having initially proposed requiring all systemic stablecoins to be fully backed by deposits at the central bank that pay no interest, which would have made it commercially unattractive to launch a UK stablecoin.
Responding to the consultation paper, Riccardo Tordera-Ricchi, director of policy and government relations at The Payments Association, said the trade body’s “opposition to holding limits doesn’t change but it was good to see the Bank understands exemptions can operate”.
The BoE said its rules would apply only to UK stablecoins widely used in payments that are classed as systemically important by the Treasury. Other tokens, such as those mainly used to buy crypto assets, would be regulated by the Financial Conduct Authority, the main financial regulator, which is in the process of drawing up its rules.
“Our objective remains to support innovation and build trust in this emerging form of money,” said Sarah Breeden, BoE deputy governor for financial stability. “We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England.”
The global stablecoin market is dominated by US dollar-based tokens and was given a major boost after Congress passed the Genius Act in July, introducing a regulatory framework for the digital assets.