By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panel consensus is that the BoE's stablecoin regulations are uncompetitive and likely to hinder the UK's role in the global stablecoin ecosystem. The rules, including the 30% non-interest-bearing reserve requirement and the £40bn issuance cap, make sterling stablecoins less profitable and scalable compared to USD or EUR equivalents. The September feedback window is seen as a political cover rather than a genuine review mechanism.
Risk: Structural unprofitability and limited market size due to regulatory constraints, as well as potential liquidity crunch during gilt-market stress.
Opportunity: None identified by the panel.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
LONDON, June 22 (Reuters) - The Bank of England on Monday eased proposed stablecoin rules following widespread concern they risked stifling development of a nascent sterling-backed market, though some in the industry said the changes fell short of enabling an internationally competitive sector.
The BoE, which is finalising rules for sterling stablecoins that can be widely used for retail payments, scrapped plans to cap the amount of stablecoins individuals can hold, opting instead to limit total issuance per stablecoin, initially set at £40 billion ($52.8 billion).
It also slightly relaxed a proposal on backing assets to allow issuers of widely used stablecoins to invest up to 70% - versus 60%, previously - of assets backing them in short-term government debt. The remainder must be held in non-interest-bearing central bank deposits.
Stablecoins are digital tokens designed to keep a constant value that are often pegged to a fiat currency and backed by traditional assets such as government debt. They have grown rapidly in recent years, particularly under the crypto-friendly U.S. Trump administration.
In the UK, they are currently subject to limited rules focused largely on anti-money laundering and financial promotions, in contrast to the European Union where the comprehensive MiCA regime has been in force since December 2024, although it is now coming under review.
Although the BoE described its policy position as final, it also said it welcomed feedback before September 22 "on any remaining challenges that industry may identify".
MIXED REACTION FROM INDUSTRY
While industry representatives welcomed the changes, some said the BoE still had not gone far enough to allow sterling stablecoins to compete internationally.
Adam Jackson, from fintech lobby Innovate Finance, said the BoE's incremental amendments took some feedback on board, "but actually the fundamentals haven't changed... It still remains the most cautious, the most conservative regime in the world."
"The UK will be the only country in the world where as much as 30% of banking assets are earning no income whatsoever, which means the business model for the UK has to be different from anywhere else in the world, so why would you invest in the UK?" Jackson said.
Describing the changes as encouraging, ClearBank Group CEO Mark Fairless however said, "the UK cannot win the global race on digital assets if sterling stablecoins remain less commercially viable or less useful than their dollar and euro counterparts".
Four leading AI models discuss this article
"The UK regime remains too restrictive to achieve global-scale adoption, casting doubt on sterling's ability to become a leading stablecoin payments hub."
BoE's tweaks aim to reduce financial stability risk while preserving a UK intake for stablecoins. The removal of per‑person holding caps plus an issuance cap of £40bn signals scale will be modest at best; the 70/30 asset mix remains yield-light, and the bulk of backing assets sits in non-interest-bearing deposits, creating real opportunity costs for issuers and likely higher fees for users. The real question: can a capped, yield-scarce regime compete with US/EU ecosystems that encourage higher collateral flexibility and retail adoption? The article glosses over how these rules interact with cross-border flows, AML controls, and whether a large domestic market will actually materialize before tech rails and banks re‑price risk.
Counterpoint: a cautious regime can become a trusted base that competes on stability rather than ambition; and if adoption accelerates, the cap may be raised, or non‑US players will build out within the UK framework.
"The requirement to hold 30% of assets in non-interest-bearing deposits creates a structural yield disadvantage that will prevent UK-issued stablecoins from achieving global scale."
The BoE is attempting a 'Goldilocks' approach that will likely fail to capture significant market share. By mandating that 30% of backing assets remain in non-interest-bearing central bank deposits, the regulator is essentially imposing a permanent tax on stablecoin issuers. While the £40 billion issuance cap is a reasonable guardrail for systemic stability, the yield drag makes sterling-backed tokens structurally uncompetitive against USD-pegged counterparts that can capture the full spread of T-bill yields. This isn't just 'cautious' regulation; it is a deliberate decision to prioritize monetary sovereignty over fintech innovation, effectively relegating the UK to a niche player in the global stablecoin ecosystem.
The BoE's conservative stance may actually attract institutional capital that prioritizes safety and regulatory clarity over the higher yields found in more volatile, offshore-regulated jurisdictions.
"The BoE relaxed optics while leaving the commercial model broken—sterling stablecoins will remain a niche UK product, not a global competitor."
The BoE's moves—scrapping individual holding caps, raising government debt allocation from 60% to 70%, extending feedback until September—are genuine concessions, but they're also theater masking a fundamentally uncompetitive framework. The 30% non-yielding reserve requirement is the real constraint: it makes sterling stablecoins structurally unprofitable versus dollar or euro equivalents, which the article quotes correctly. The £40bn issuance cap per token is also a hidden ceiling on market size. This isn't softening; it's managed decline dressed as pragmatism. The September feedback window suggests the BoE knows it's still wrong but wants political cover before the next revision.
The BoE may be deliberately calibrating conservatism to prevent a 2023-style stablecoin panic (Luna, FTX) from originating in sterling; a slower, safer UK market could actually attract institutional capital that fled crypto volatility, and the 70% yield allowance does improve unit economics materially.
"The 30% zero-yield reserve rule preserves a cost structure that keeps sterling stablecoins commercially inferior to dollar and euro alternatives."
The BoE's shift from per-user caps to a £40bn issuance limit and 70% short-term gilt allowance eases some friction for sterling stablecoins, yet the mandate for 30% non-interest central bank deposits creates a structural cost disadvantage versus dollar or euro peers. Industry voices correctly flag this as the world's most conservative framework, with MiCA already operational in the EU since late 2024. The September 22 feedback window is narrow and unlikely to alter core economics. Sterling stablecoins will therefore struggle to scale retail payments or attract issuers, limiting any near-term boost to UK fintech or crypto-adjacent payments infrastructure.
Further tweaks after the feedback round could still narrow the yield gap, and regulatory clarity alone might draw issuers prioritizing UK legal certainty over marginal returns.
"Gilt-heavy backing with a 30% non-yield reserve creates liquidity risk that can trigger a UK-specific instability even before cross-border competition matters."
While the 'tax' framing is neat, the real risk is stability during gilt-market stress. A 70% short-term gilt backing with 30% non-yield reserves concentrates liquidity risk in a small, rate-sensitive pool; a sharp gilt sell-off would compress collateral value and force rapid deleveraging or higher fees. If cross-border rails lag, retail redemptions could trigger a UK-specific liquidity crunch even before competition from USD/EUR ecosystems.
"The BoE's 30% reserve requirement is a strategic tool for domestic liquidity management rather than a failed attempt at competitive fintech innovation."
ChatGPT is right about the liquidity crunch risk, but you are all ignoring the 'sovereign trap.' By forcing 30% into central bank deposits, the BoE is essentially creating a captive buyer for its own liabilities during a crisis. This isn't just about issuer profitability; it's a monetary policy mechanism to ensure stablecoin collateral supports the gilt market. The UK isn't trying to compete with USD stablecoins; they are building a controlled, domestic sandbox for institutional settlement.
"The 30% reserve is a stability guardrail, not a hidden monetary policy tool, and the BoE will likely relax it if adoption pressures mount."
Gemini's 'sovereign trap' framing is sharp, but it conflates two separate mechanisms. The 30% non-yield requirement does support gilt demand, yes—but that's a side effect, not the primary design. The BoE's stated goal is stability, not monetary policy engineering. More importantly: if stablecoins become a meaningful settlement layer, the BoE will face pressure to raise the yield-bearing allocation or risk capital flight to offshore alternatives. The September feedback window isn't theater; it's a pressure valve the BoE built in because it knows 30% is unsustainable at scale.
"The sovereign trap may entrench the 30% non-yield rule as a deliberate policy tool instead of prompting revisions."
Claude overlooks how Gemini's sovereign trap could lock in the 30% rule rather than create pressure for change. If stablecoins become a reliable captive buyer for BoE liabilities during stress, regulators gain a direct monetary tool that outweighs issuer complaints or capital flight threats. This dynamic turns the September window into a formality, not a genuine review mechanism, and amplifies the liquidity concentration ChatGPT flagged by design, not accident.
The panel consensus is that the BoE's stablecoin regulations are uncompetitive and likely to hinder the UK's role in the global stablecoin ecosystem. The rules, including the 30% non-interest-bearing reserve requirement and the £40bn issuance cap, make sterling stablecoins less profitable and scalable compared to USD or EUR equivalents. The September feedback window is seen as a political cover rather than a genuine review mechanism.
None identified by the panel.
Structural unprofitability and limited market size due to regulatory constraints, as well as potential liquidity crunch during gilt-market stress.