Bank of England Deputy Governor Sarah Breeden signaled a willingness to explore alternative regulatory approaches for stablecoins, after facing significant opposition from industry groups. Speaking to the House of Lords Financial Services Regulation Committee, Breeden acknowledged the need to balance financial stability with innovation, opening the door to discussions on different methods to mitigate risks without stifling the UK’s crypto sector.
Addressing Financial Stability Concerns
Breeden emphasized that the primary objective of the proposed regulations is to prevent a sudden shift of deposits from traditional banks to stablecoins, which could disrupt credit availability for businesses and households. “We are genuinely open to other ways of achieving the objective. The risk to the provision of credit is real, and we must ensure that there isn’t a precipitous drop in credit to the businesses and households in the UK,” she stated.
Industry Criticism and Regulatory Challenges
Industry groups have strongly criticized the proposed holding limits, which range from 10,000 to 20,000 British pounds. They argue that such restrictions would send a negative signal about the UK’s stance on crypto, potentially driving businesses offshore and stifling innovation. The Bank of England has invited public feedback on its regulatory framework, which was outlined in a consultation paper released last November.
Self-Custody Wallets Not Permissible
Breeden also ruled out the use of self-custody wallets for holding stablecoins, citing concerns over reduced oversight and potential risks such as money laundering. “Unhosted wallets will not be permissible in the UK; they are permissible in the US regime. There is this concept of an unhosted wallet, but you haven’t got a wallet provider who is a regulated entity ensuring that AML [anti-money laundering] and KYC [know your customer] criteria are complied with,” she explained.
Looking Forward: Regulatory Sandbox and Application Process
The Financial Conduct Authority (FCA) has established a regulatory sandbox to allow firms to test stablecoin products and services in the first quarter of 2026. Despite the ongoing consultation and rule finalization, the Bank of England is optimistic about welcoming applications from stablecoin issuers by the end of 2026. “I hear some say that the UK is behind. I simply don’t recognize that. We’ll be welcoming applications from stablecoin issuers by the end of this year,” Breeden said.
The guiding principle for the UK’s regulatory framework is to ensure that stablecoins used as money in the economy are as robust and reliable as traditional bank-issued money. This forward-looking approach aims to strike a balance between fostering innovation and maintaining financial stability, positioning the UK as a leader in the global crypto landscape.
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