What is the Bank of England changing in its stablecoin rules?

The Bank of England has signalled it may soften parts of its proposed stablecoin framework after criticism from crypto firms and legal experts. Regulators are reviewing whether some reserve and wallet restrictions are too strict and could hurt the UK’s ability to compete globally.

Why are crypto companies unhappy with the Bank of England stablecoin proposal?

Crypto firms argue the proposed rules could make sterling-backed stablecoins less profitable and less attractive than US dollar stablecoins. The biggest concern is that issuers may have to keep 40% of reserves in non-interest-bearing deposits at the Bank of England.

How would the Bank of England reserve rules affect stablecoin issuers?

Under the proposal, stablecoin issuers could hold only 60% of reserves in short-term UK government bonds, while 40% would sit at the central bank earning no yield. That could reduce revenue because stablecoin businesses often rely on interest income from reserve assets.

Why does stablecoin reserve yield matter for investors and issuers?

Stablecoin issuers generate significant profits by investing reserves into low-risk government debt like US Treasuries or UK gilts. Lower yields mean lower margins, which could make sterling-backed stablecoins less competitive compared with larger dollar-backed rivals.

What are unhosted wallets and why is the UK debating them?

Unhosted wallets are crypto wallets controlled directly by users instead of regulated custodians or exchanges. The Bank of England raised concerns around anti-money laundering and identity checks, but critics argue banning or restricting them would hurt decentralisation and innovation.

Could the UK ban self-custody crypto wallets?

The Bank of England suggested unhosted wallets “will not be permissible” under some stablecoin arrangements, but no final rules have been confirmed. Industry groups argue such restrictions may be impractical because anyone can create a wallet using open blockchain software.

Why does this matter for the UK crypto industry?

The debate could shape whether the UK becomes a major hub for digital assets or falls behind regions like the US and European Union. Crypto firms are concerned that overly restrictive rules may push innovation, talent and capital to more flexible jurisdictions.

How does the UK stablecoin approach compare with the US and EU?

The European Union already launched its MiCA crypto framework, while US lawmakers are advancing stablecoin legislation viewed by many in the industry as more commercially friendly. Critics say the UK risks becoming less competitive if its rules are too conservative.

Bank of England signals stablecoin rule changes

Written by Isaac FrancisPublished May. 7 2026Last Updated May. 8 2026

The Bank of England signalled it may revise parts of its proposed stablecoin framework after backlash from crypto companies and digital asset advocates who warned the rules could undermine the competitiveness of sterling-backed stablecoins.

The central bank’s consultation on systemic stablecoins proposed allowing issuers to hold up to 60% of reserves in short-term UK government debt while requiring the remaining 40% to sit in non-interest-bearing deposits at the Bank of England.

“Today’s proposals mark a pivotal step towards implementing the UK’s stablecoin regime next year,”

Said Sarah Breeden.

“Our objective remains to support innovation and build trust in this emerging form of money.”

Breeden later acknowledged concerns that parts of the framework may be “overly conservative”, with Reuters reporting the Bank was reconsidering aspects of the reserve structure following industry feedback.

Crypto firms argue the reserve proposal could significantly reduce profitability for sterling stablecoin issuers because non-yielding deposits at the central bank would limit income earned from government bond reserves compared with US dollar stablecoin competitors.

Another controversial proposal involves restrictions on unhosted crypto wallets, with Breeden stating such wallets “will not be permissible in the UK” under the proposed framework due to anti-money laundering and know-your-customer concerns.

Critics including tGBP chief executive Benoit Marzouk and Bitcoin Policy UK policy chief Freddie New warned the wallet restrictions could damage innovation and prove unenforceable because users can create wallets independently through open blockchain software.

The debate comes as the UK continues exploring a possible digital pound while facing growing pressure to keep pace with the European Union’s MiCA framework and advancing US stablecoin legislation amid rapid growth in global dollar-backed stablecoins.