Bank Of England To Ease ‘Overly Conservative’ Stablecoin Rules After Industry Backlash – Report

The Bank of England (BoE) is set to water down its planned stablecoin rules and is exploring alternative solutions to mitigate potential risks, following pressure from the local crypto industry and multiple lawmakers about the proposed restrictions.

On Thursday, the Bank of England’s Deputy Governor for financial stability, Sarah Breeden, revealed that the central bank is preparing to ease its controversial regulatory plans for stablecoins.

The BoE proposed a temporary cap on stablecoin ownership in a November consultation paper to “mitigate financial stability risks stemming from large and rapid outflows of deposits from the banking sector.”

The restriction aimed to set holding limits of £10,000 to £20,000 for individuals and £10 million for businesses, resembling its proposed approach to the digital pound, which also sought to address financial stability risks.

Additionally, the central bank proposed that systemic stablecoin issuers hold at least 40% of reserves backing the token as unremunerated deposits at the central bank to ensure “robust redemption and public confidence, even under stress.”

Meanwhile, Breeden told FT that the 60:40 asset allocation requirement was “based on experience of potential liquidity stress,” particularly the size of deposits withdrawn from Silicon Valley Bank in 2023 and other recent crises.

Simon Jennings, executive director of the UK Cryptoasset Business Council trade body, said that “limits simply don’t work in practice,” explaining that enforcing caps would require a “costly, complex new system, such as digital IDs or constant co-ordination between wallets.”

According to the Thursday report, Breeden affirmed that “what we have heard from industry is that the way we have proposed to implement limits is cumbersome operationally for a temporary measure,” and added that the industry also seems to prefer to hold more interest-earning assets, “as that goes to their bottom line.”

Now, the central bank is “genuinely open to thinking whether there are other ways of achieving our objective” of creating a regime in which stablecoins can succeed and deliver benefits to users. “But it is money and we want to make sure that this new form of money is safe,” she concluded.