In November 2025, the Bank of England opened a consultation on how it would regulate systemic pound-backed stablecoins, and the proposed terms were strict. Individuals would have been capped at holding £20,000 in stablecoins, businesses at £10 million. Issuers would have had to keep 40% of their reserves in non-interest-bearing Bank of England deposits, with the remaining 60% in short-term UK government debt.
Industry figures pushed back almost immediately, arguing the caps in particular would make pound stablecoins unusable for anything beyond small retail payments, ruling out cross-border settlement, institutional collateral, or corporate treasury use at any real scale. That criticism reached Parliament as on June 3, 2026, the House of Lords Financial Services Regulation Committee published its report, Stablecoins: Waiting for Regulation, warning that parts of the framework risked making pound-denominated stablecoins commercially unworkable, even as the UK already trailed the US and EU in finalizing its rules at all.
Less than three weeks later, the Bank of England responded. Its final policy statement, published June 22, 2026, scrapped the individual and business holding caps entirely, replacing them with a £40 billion aggregate issuance cap per systemic stablecoin, no restriction on how much any person or business can hold. It also eased the reserve requirement, cutting the non-interest-bearing portion from 40% to 30% and raising the interest-earning government debt allowance from 60% to 70%.
This is a rare, fast example of financial regulators visibly responding to legislative criticism within weeks rather than years. It’s also not the end of the story. Some of the most-cited concerns like the reserve cost, the ban on paying interest to holders, and the UK’s overall timeline compared to its competitors, are still in place. Here’s what actually changed, what didn’t, and what it means for anyone trying to figure out whether a pound-backed stablecoin is worth building or holding.
The Warning That Started This
The House of Lords Financial Services Regulation Committee, chaired by Baroness Noakes, launched its inquiry into UK stablecoin regulation in January 2026. It took its evidence from the Bank of England and industry figures through the spring.
Its report, published June 3, 2026, was broadly supportive of regulating stablecoins at all, but flagged specific terms it argued needed reconsideration.
Two stood out. The committee argued the Bank of England should reconsider its proposed individual and business holding limits, writing that regulators should “consider monitoring the growth of the market and imposing holding limits only if the financial stability risks clearly warrant it,” rather than capping holdings pre-emptively. It also singled out the 40% non-interest-bearing reserve requirement as a meaningful drag on issuer economics and UK competitiveness.
The report’s broader concern was timing. The UK’s full cryptoasset regulatory regime, covering both systemic and non-systemic stablecoins, isn’t due to take effect until October 25, 2027. The EU’s MiCA framework’s stablecoin provisions have been in force since June 2024, and the US passed the GENIUS Act in mid-2025. The committee’s main message was less of “don’t regulate” and more of “don’t let an overcautious framework arrive late and land badly.”
Three Weeks Later, the Bank of England Reversed Course
The Bank of England’s final policy statement, published June 22, 2026, addressed both of the committee’s central objections, though not exactly identically to what critics asked for.
Holding caps removed
The proposed £20,000 individual and £10 million business limits are gone. In their place is a single £40 billion issuance cap applied per systemic stablecoin, a ceiling on how much of a given token can exist in total, not on what any individual or business can hold. The Bank said this level is enough to support daily transaction volumes comparable to the UK’s major payment systems, and that the cap will be reviewed and potentially removed as the market matures.
Reserve requirements eased, but are not gone
The share of reserves issuers must hold in non-interest-bearing Bank of England deposits dropped from 40% to 30%. The share they’re allowed to hold in short-term, interest-earning UK government debt rose from 60% to 70%. That’s a real improvement to issuer economics; more of the backing pool can now generate a return, but it’s not a full removal of the cost the House of Lords flagged.
What stayed the same
Coin-holders still cannot earn interest on stablecoin holdings directly, a deliberate choice the Bank has framed as keeping systemic stablecoins positioned as payment instruments rather than investment products. Issuers must still offer face-value redemption within 24 hours, and non-UK issuers designated as systemic still need to establish a licensed UK subsidiary holding backing assets domestically.
Industry reaction has been largely positive but not uncritical. Adam Jackson of fintech trade group Innovate Finance called the revised rules an improvement but said the UK “still maintains one of the most cautious stablecoin frameworks globally.” Adriana Ennab of Stand With Crypto UK described the removal of holding limits as “a significant step towards creating a more competitive and innovation-friendly framework.”
Does This Really Solve the ‘Competitiveness’ Problem?
Removing the holding caps solves the specific scenario that worried critics most: a pound stablecoin that’s legally unusable for any transaction above a few thousand pounds. That constraint is gone. What’s left is a narrower, more specific cost: 30% of every issuer’s reserves sit in assets earning nothing, a real, ongoing expense that issuers of dollar stablecoins with more flexible reserve rules don’t carry to the same degree.
Whether that’s a dealbreaker depends on what a pound stablecoin is actually trying to do. For domestic UK payments and settlement, the reserve drag is a manageable cost of doing business under a framework built for stability first. For competing internationally against USDT and USDC, which already dominate global stablecoin liquidity and don’t face this specific structural cost, it’s a real disadvantage, though not a fatal one on its own.
The bigger competitive gap may simply be time. The UK’s full regime doesn’t take effect until October 2027, more than three years after MiCA’s stablecoin provisions took effect, and well over two years after the GENIUS Act. Every month that gap persists is a month issuers, investors, and infrastructure providers can choose to build elsewhere first.
The Problem No Regulator Can Fix
Beyond the regulatory picture, there’s still another pretty hard problem which is basic market demand. GBP stablecoins face much steeper commercial hurdles because they’re entering a market where most digital currencies are already pegged to the dollar, with the global adoption and liquidity to match.
Lower global demand for non-dollar stablecoins compared to USD-pegged assets
Most of the activities involving stablecoins nowadays revolve around the US dollar, not due to any technological constraints but mainly due to demand. There is widespread demand for tokens that have dollar backing in trading, payment, and savings on exchanges and in various regions of the world. On the other hand, the demand for non-dollar stablecoins such as the GBP tokens is relatively localized.
Challenges in liquidity, adoption, and cross-border usage
One of the most difficult aspects of launching any stablecoin is the issue of liquidity. This is largely because the market itself is still small. Currently, the overall market capitalization of GBP stablecoins is approximately $34.8 million.
Such small amounts make it difficult for individuals and businesses to depend on the stablecoin for rapid transactions and payments.
For instance, a pound-backed stablecoin in use within the United Kingdom is unlikely to gain enough liquidity in the international market when compared to popularly adopted options. Such will result in high spreads, longer settlement periods, and poor cross-border transactions, which reduce its usefulness in facilitating value transfer.
Regulatory uncertainty across different jurisdictions
Even in instances where the stablecoin meets all regulations required by UK laws, there may be uncertainties in other jurisdictions. Other countries have different regulations concerning the reserve requirement, redemption, and structure of issuance of the stablecoin.
For instance, a stablecoin pegged to the British Pound and approved for use in Britain might be subject to further regulations in major international exchanges following American and European regulatory laws.
This form of fragmented regulation limits its capacity to serve as a globally recognized means of payment.
Competition from established global stablecoins like USDT and USDC
There are currently some existing big players such as USDT and USDC, which benefit from their immense liquidity and usage across leading exchanges.
They have been incorporated into global platforms for trading, payments, and decentralized finance, which gives them a massive edge over any competing pound stablecoin that might emerge.
What This Means for the UK’s Digital Currency Strategy
The June 22 revisions ease the most immediate commercial pressure, but they don’t resolve the UK’s bigger strategic position. Several longer-term risks remain live, not because regulators failed to respond, but because some of what’s at stake here isn’t something any single rule change can just simply fix.
Slower international positioning in digital currency leadership
Following a conservative path regarding regulation of stablecoins, the UK might increase regulatory efficiency but could be slower in developing infrastructure than jurisdictions which have already made progress in the area and established a regulatory environment and products available on their markets.
Greater dependence on foreign digital assets
If pound-backed stablecoins struggle to gain scale even under the friendlier rules, UK users may continue leaning on dollar-denominated stablecoins issued by foreign institutions for most digital-dollar use cases.
Limited influence of GBP in global digital payment flows
Even with the caps removed, pound-backed stablecoins are likely to see only marginal global use compared to dollar-pegged tokens, meaning the pound’s role in international digital payments is likely to stay limited for the foreseeable future.
Reduced attractiveness of the UK as a hub for digital finance innovation
Lingering uncertainty, particularly around the reserve requirement’s ongoing cost and the UK’s later implementation timeline compared to the EU and US, could still make the UK a less attractive base for international players than jurisdictions offering more flexible rules or a faster path to launch. The June 22 revisions address the most acute concern, but they don’t fully close the gap with markets that have been operational longer.
Strategic uncertainty around the UK’s long-term digital money role
The UK is still balancing two directions: becoming a leader in regulated digital assets or prioritizing strict financial control over rapid growth. This lack of clear positioning may affect investor confidence and slow long-term ecosystem development.
Regulators Listened, But the Ticking Clock Is Still the Bigger Problem
A pound sterling stablecoin was never actually dead on arrival, and it’s now further from that outcome than it was even a month ago. The Bank of England’s decision to scrap its holding caps within three weeks of the House of Lords report is a genuinely fast regulatory response, and it removes the single most commercially damaging constraint that was on the table.
What it didn’t remove is harder to legislate away. Dollar stablecoins already have the liquidity, integration, and global demand that pound stablecoins would need years to build, rule change or not. That’s not a regulatory problem the Bank of England can solve with another policy statement, it’s a market position pound stablecoins will have to earn the slow way, transaction by transaction, integration by integration.
This isn’t a story about a market being killed or saved by regulation. It’s that UK regulators moved fast to clear their own obstacles out of the way. What happens next depends on whether anyone actually builds something people want to hold, and that part was never really up to the Bank of England in the first place.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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