UK cuts stablecoin reserves as crypto assets post third quarterly loss
The Bank of England and FCA are relaxing stablecoin restrictions to attract crypto firms, even as the sector faces its worst losing streak since 2022 from capital rotating into AI equities.
The Bank of England has scrapped proposed holding limits on fiat-pegged stablecoins and reduced the central bank reserve requirement for issuers from 40% to 30%. The Financial Conduct Authority simultaneously finalized its broader crypto framework, detailing capital requirements, admissions, disclosures, and conduct rules.
These moves mark a sharp reversal from the central bank's November 2025 proposals, which capped individual holdings of systemic sterling stablecoins at £20,000 and business holdings at £10 million. Industry critics had argued those limits were commercially unworkable. The FCA has also agreed to consult later this year on how its rules will apply to systemic stablecoin issuers, a step toward resolving the historical friction of navigating split responsibilities between the two regulators.
The regulatory pivot arrives at a difficult time for the digital asset industry. Crypto assets just recorded their third consecutive quarter of losses in Q2 2026, the longest losing streak since the 2022 bear market. Bitcoin ETFs saw their largest quarterly outflows since launch as institutional capital rotated into AI equities. Domestic crypto firms have also faced headwinds from major UK financial institutions that have restricted customer transactions to crypto exchanges over fraud and money laundering concerns.
Despite the market downturn, global stablecoin adoption continues to accelerate, driven by payments and settlement rather than speculation. The number of unique holders of non-dollar stablecoins grew 30 times between January 2023 and February 2026, according to Visa and Dune data. The UK is attempting to catch up with jurisdictions like the EU, where MiCA stablecoin rules pushed Euro stablecoin transfer volumes from $270 million to $8 billion a month, and the US, which recently passed the GENIUS Act.
Significant gaps remain in the UK framework. A £40 billion cap on the circulation of any single systemic sterling stablecoin is still in place, though the Bank of England has signaled it may be revised. Furthermore, rules on decentralized finance, distributed ledger technology operational resilience, and digital asset taxation are still pending.
Firms have until October 2027 to secure mandatory authorization under the new regime. However, the sector faces immediate political uncertainty. Prime Minister Keir Starmer has resigned, and a new Labour leader is expected within weeks, testing whether the UK's crypto regulatory agenda can survive a transition in government.
