The Bank of England has abandoned proposed individual holding limits for systemic sterling stablecoins, moving instead to a £40 billion issuer-level cap. On the eve of MiCA entering full enforcement in the EU, the UK is positioning itself as a more flexible alternative. The question now is whether this approach can regulate stablecoins without weakening their utility as payment and settlement infrastructure.
The latest proposals on stablecoins by the Bank of England, the UK’s central bank, mark a clear retreat from an earlier, more restrictive stance and could open the country up to being a more welcoming environment for crypto businesses.
Previously, individuals would have been limited to holding no more than £20,000 in equivalent stablecoins, while businesses would have faced a £10 million cap. These proposed limits were arguably the most contentious element of the BoE’s initial consultation in November 2025. One of the biggest concerns within the industry was that, while they might have made regulated sterling stablecoins viable in theory, in practice they would have become unusable.
The timing of the UK’s shift highlights the comparison with the European Union’s Markets in Crypto-Assets Regulation (MiCA), whose transitional period ends on 1 July 2026.
As the EU moves into full enforcement of a more demanding, albeit legally certain, regime, the UK’s focus appears, for now, to be on flexibility. This divergence is likely to influence not only which markets digital asset firms prioritise, but how much utility stablecoins retain as payment and settlement infrastructure once brought inside regulated finance.
From Holding Limits to Issuance Caps
The holding limits that defined the BoE’s original proposal were designed to address one of the main preoccupations around systemic stablecoins: what happens if they become large enough to affect the wider banking system?
A widely used sterling stablecoin could theoretically pull deposits away from commercial banks if users began treating it as a close substitute for bank money. In a stress scenario, that kind of shift could have a material effect on bank funding and lending, raising wider financial-stability concerns.
The main question was whether individual holding limits were the right way to manage that risk. Applying caps at the user level would have required extensive real-time monitoring, with intermediaries expected to track balances across wallets, exchanges and payment providers before transactions could be completed. For an instrument designed to move value quickly, that could have introduced significant — and prohibitively expensive — operational friction, ultimately affecting commercial viability.
A cross-party House of Lords Financial Services Regulation Committee report published on 3 June, 2026 had already pressed the BoE to reconsider, arguing that the same financial-stability objective could be achieved at the issuer level instead.
While the BoE’s focus on financial stability remains, its revised approach now moves precisely in that direction. Its 22 June policy statement sets an aggregate issuance limit of £40 billion per systemic stablecoin, creating a ceiling on total circulating supply rather than restricting what any individual or business can hold.
The reserve model has also shifted in a more commercially workable direction. Under the November 2025 proposal, issuers could hold up to 60% of backing assets in short-term UK government debt, with at least 40% in unremunerated deposits at the Bank of England.
Under the latest draft rules, that split moves to 70% and 30% respectively, an important development given that reserve income is one of the main ways stablecoin issuers generate revenue.
Allowing a larger share to sit in interest-bearing government debt helps address concerns that the earlier model would have weakened the commercial case for regulated issuance.
MiCA’s Deadline and Europe’s Stablecoin Model
In contrast to the UK, the EU is now moving from transition to enforcement. MiCA’s transitional period ends on July 1 2026, and the European Securities and Markets Authority (ESMA) has stated there will be no grace period for firms that have not secured full authorisation. Those firms are now in the final stages of winding down EU operations.
The requirements for stablecoin issuers are demanding. Issuing an Electronic Money Token — an EMT — requires authorisation as a credit institution or Electronic Money Institution within the EU. Tokens that reach significant scale face additional obligations, including European Banking Authority supervision and stricter reserve requirements. Offshore issuers cannot extend existing structures into the EU, instead needing a separately authorised European entity.
MiCA therefore offers a very different trade-off from the UK’s emerging framework. Its biggest advantage is a harmonised route into a 27-country market — but only for firms able to meet onerous authorisation and compliance standards.
There is also a protectionist element to the regime, even if framed in terms of financial stability and monetary sovereignty. Non-euro stablecoins face transaction limits when used as a means of payment, and the compliance threshold raises the barrier for offshore and crypto-native firms that do not already resemble regulated financial institutions.
UK Usability vs EU Passporting
The UK’s approach appears more closely aligned with how stablecoins function as payment infrastructure. The shift from wallet-level limits to an issuer-level cap, combined with a more workable reserve model, suggests a framework designed around the actual mechanics of stablecoins rather than treating them primarily as a variant of bank deposits.
The fact that the £40 billion cap is intended to be temporary is also significant, providing the BoE a macro-level guardrail while the market develops, without permanently constraining how stablecoins can be used.
MiCA’s advantage is immediate market access. For firms able to meet its authorisation standards, the EU offers a harmonised route into a large regulated market. Access is only useful, however, if the product remains commercially viable and practically usable. The UK may offer a more flexible model, but one that remains in draft form until at least end-2026 and is not expected to become operational until 2027.
That timing matters because digital asset firms are not choosing between the UK and EU in isolation. Singapore’s MAS, Dubai’s VARA, Hong Kong’s HKMA and the US under the GENIUS Act are all developing regulated frameworks for stablecoins or digital assets. For firms deciding where to locate activity, the question is not only which jurisdiction offers the clearest rulebook, but which offers the best combination of legal certainty, market access and commercial viability.
UK politics adds another variable, but should not be overstated. Prime Minister Keir Starmer’s resignation on 22 June may complicate the wider competitiveness narrative, but it is unlikely to change the BoE’s stablecoin roadmap directly.
The more immediate issue for firms is that the UK framework still has to move from consultation to implementation.
Can Regulation Preserve What Makes Stablecoins Useful?
The right regulatory question for stablecoins is not simply whether to permit them, but whether the rules allow them to function as intended. That means reserve frameworks viable enough for issuers to sustain a business, payment mechanics workable enough to compete with existing rails and safeguards credible enough to support trust and adoption.
The BoE’s June revisions move in that direction. The EU has chosen a different path based on strict licensing and institutional compliance as the price of access to a large, unified block. Both approaches make sense in their own way, but neither has yet been tested at full scale in a mature regulated stablecoin market.
The next phase of stablecoin regulation will be judged less by how comprehensive the rules look on paper than by what they allow in practice. If regulated stablecoins become slower, more expensive or less flexible than the products they are meant to replace, legal certainty alone will not be enough.
The jurisdictions that matter most will be those that can bring stablecoins inside the regulatory perimeter without stripping away the speed, access and utility that made them so popular to begin with.
