Bank of England's crackdown risks making Britain the outlier in stablecoin regulation

The Bank of England is moving towards one of the most restrictive stablecoin regimes among major financial centres, with plans that would block transfers to self-hosted wallets and impose temporary holding caps on sterling-denominated systemic tokens. According to a consultation paper published by the central bank in November 2025, individuals would face a limit of £20,000 and businesses a cap of £10 million, at least until the system is judged safe enough for those restrictions to be lifted.

That approach goes well beyond the familiar debate over know-your-customer checks at exchanges. In practice, it would reshape how stablecoins can be used in Britain by forcing users to keep regulated tokens with approved custodians rather than in wallets where they control the private keys themselves. During a House of Lords hearing in March 2026, Deputy Governor Sarah Breeden confirmed that self-hosted wallets would not be allowed under the regime and that the prohibition would apply across the stablecoin market, not only to instruments deemed systemic.

For supporters of the proposal, the logic is straightforward. The Bank of England has long argued that stablecoins used at scale could drain deposits from the banking system and weaken credit creation. Its 2023 discussion paper already made clear that custodial wallet providers would play a central role in the system it envisaged, while unhosted wallets posed a challenge because they sit outside conventional intermediated oversight. The November 2025 paper also paired the holding limits with reserve and liquidity requirements intended to make redemption more resilient during periods of market stress.

But the industry sees something very different: a framework that may be technically hard to enforce and commercially hard to justify. Critics say the restrictions would make regulated stablecoins far less useful for everyday payments, treasury management and decentralised finance, precisely because self-custody is one of the core features that makes blockchain-based assets attractive in the first place. Simon Jennings of the UK Cryptoasset Business Council has argued that meaningful enforcement of holding limits would be difficult once tokens circulate on-chain, where issuers often cannot see who the ultimate holder is.

The Bank’s stance also places the UK on a more restrictive path than other major jurisdictions. In the European Union, the MiCA framework allows transfers to self-hosted wallets subject to risk-based checks rather than a blanket ban. In the US, the Genius Act adopted in 2025 explicitly permits unhosted wallets. That leaves Britain in danger of becoming the outlier, even as the stablecoin market continues to expand globally.

The potential commercial impact is one reason opposition has broadened beyond crypto-native firms. Coinbase has criticised the holding caps and wallet restrictions as harmful to savers, the City and sterling itself, while UK-based operator Zumo has warned that the measures could push innovation away from London. For companies building payment infrastructure, the problem is not only compliance cost but product design: a stablecoin that cannot interact freely with self-custodied wallets has a much narrower use case than one that can.

Breeden has, however, signalled that the Bank is not completely closed to revision. In March 2026, she said the central bank was open to reconsidering aspects of the proposals, though she also expressed frustration at the lack of constructive engagement. That leaves room for change before the consultation concludes in the second half of 2026, but not much comfort for an industry that already sees the direction of travel as unmistakably tight.

What happens next will matter well beyond Britain. If the final rules preserve the ban on self-hosted wallets, the UK will be testing a model that treats direct blockchain ownership as incompatible with regulated stablecoins. If the Bank softens its position, it may still keep the holding limits and reserve rules, but it would be edging closer to a more risk-based framework that recognises how users actually interact with digital assets. Either way, the consultation marks a defining moment in the argument over whether stablecoins should be brought into the banking system, or allowed to remain something closer to the open architecture they were built for.