Stablecoin Regulation Tightens with New Holding Caps
The UK’s finance regulator has delivered a blunt message: a relaxation of oversight on stablecoins could threaten financial stability and squeeze bank-lending capacity. Sarah Breeden, the Bank's deputy governor, stated, “Yep, we have a new set of risks to manage as we move to bringing this new kind of money in.” With the global stablecoin market exceeding US$300 billion, sufficient regulation is viewed as critical.
A central worry is that widespread use of stablecoins could provoke sudden withdrawal of deposits from banks. Breeden focused on the systemic risk banks could be forced to contend with “halved credit-creation” if depositors suddenly flood into stablecoins. In its consultation document, the Bank of England lays out a range of measures that include capping individual holdings at £20,000 and limiting most companies’ stakes to £10 million—a more conservative approach than some other jurisdictions.
In its consultation paper, it suggests that stablecoin issuers will have to keep between 40% and 60% of their backing assets in the form of non-interest central bank deposits and as much as an additional 60% in short-term government obligations. These moves are informed by the 2023 USDC de-peg, where about US$3.3 billion in reserves was seized at failed bank Silicon Valley Bank. This, Breeden said, is “halving” the extent of banking sector stress under mass redemptions.
Industry representatives have protested the tough limits. Some companies have compared the proposed limits as more stringent than those included in either US or EU rules. It is still not clear when or how the cap on individual or business loans might be lifted. Breeden declined to offer a timeline, indicating thresholds would depend on “system adaptation and risk fading.”
Why It Matters: Banks, Credit, and the Surge of Stablecoin
The issuance of stablecoins has taken off; over 30% of all on-chain crypto transactions between January and July 2025 were entirely denominated in stablecoins, according to TRM Labs. The Bank of England highlights the fact that credit in the UK is around 85% bank-funded, meaning big-time stablecoin usage could disrupt credit flows if deposits migrate.
Global attention is also increasing. The US saw the rise of a federal stablecoin regime under the GENIUS Act, and in Europe, MiCA became fully applicable. These frameworks show increased skepticism of what it means for money to be “digital” and how it fits into current financial system rules.
What This Means for Stakeholders
The message to stablecoin issuers looking at the UK market, then, is that compliance needs to be baked into product design. The caps and reserve requirements will require greater transparency, more robust capital buffers, and tougher provisions on redemption risk.
Banking participants and lenders will need to watch deposit flows into stablecoins carefully; systemic credit risk may manifest if large amounts of retail or commercial users move en masse to digital currencies. Regulators around the world might look to the UK example as a model, and so global companies will be keeping a close eye.
In the meantime, for corporates looking at stablecoins as payments or settlement rails, what the UK is doing represents a regulatory statement of intent. Like old-fashioned bank-run money, digital money must adhere to financial-stability guardrails, not just innovation ambitions.
Stablecoins Move from Experiment to Regulated Finance
The Bank of England’s approach represents a departure: stablecoins will be less experimental assets and more regulated payment instruments that have the potential to influence the credit system. With stablecoins worth over US$300 billion and USDC alone valued at USD1.00 and over US$75 billion in circulation, the stakes are high. The user caps and reserve requirements suggest that digital money is no longer on the margins of regulated finance but is being brought inside.
Glossary of Key Terms
- Regulation on Stablecoins
- The legislation regulates the issuance and management of reserves and the use of stablecoins so that these digital currencies maintain a stable price and provide financial security.
- Bank of England (BoE)
- The central bank of the United Kingdom, which oversees monetary policy and financial stability, also regulates digital money systems such as systemic stablecoins.
- USDC (USD Coin)
- A U.S. dollar-pegged stablecoin from Reserve Assets, designated for payments and trading that keeps a fixed value of around $1.
- Reserve Requirement
- The amount of assets stablecoin issuers are required to hold as safe and very liquid securities (e.g., government bonds or central bank deposits) in order to underlie their tokens.
- Credit Creation
- How banks make loans for new projects and products by using what customers deposit; excessive adoption of stablecoin can eventually reduce deposits and limit this.
- Systemic Stablecoin
- A stablecoin with widespread use that could pose risks to the financial system if left unregulated, triggering oversight by central banks and financial authorities.
- FCA (Financial Conduct Authority)
- The British financial watchdog will guard non-systemic stablecoins and also oversee crypto trading platforms to make sure they meet the required investor protection and anti-fraud standards.
- GENIUS Act
- A federal law in the United States created by 2025 to govern stablecoins and establish global standards for transparency, asset-backing, and consumer protections in digital-asset markets.
Frequently Asked Questions About Stablecoin Regulation
1. UK’s New Stablecoin Regulation: What is the UK’s New Law Doing?
The new stablecoin rules are intended to preserve financial stability, safeguard consumers, and ward off a flood of fast-buck investment after digital currencies become more mainstream.
2. How Will the Bank of England’s Regulations Impact Stablecoin Issuers?
They must keep 40 percent of reserves on deposit with the central bank, and caps are placed on individual as well as corporate deposits to contain systemic credit risks.
3. Why Are Hold Limits in the New Stablecoin Rules?
Holding limits mitigate potential bank runs and prevent stablecoin usage from upsetting the UK’s credit and financial fabric.
4. So When Will the Stablecoin Regulation Actually Kick In?
The Bank of England’s consultation runs until February 2026, with final rules scheduled to be published later that year following feedback from the industry and tweaking of policy.