The Bank of England (BoE) will exempt crypto exchanges and other operationally critical businesses from proposed stablecoin holding limits, potentially moving money into Bitcoin (BTC) and Ethereum (ETH).
As Bloomberg News reported on October 7, the central bank plans to grant waivers to companies that need large inventories of tokens for market-making and settlement operations, according to a person familiar with the matter.
The BoE will also allow the use of stablecoins for settlement within its digital securities sandbox.
The change responds to backlash over draft rules reported in September that would have capped individual stablecoin holdings at between £10,000 and £20,000 and limited businesses to £10 million.
Exchanges and market makers have argued that these thresholds are unachievable because operational requirements routinely require billions of dollars in stable balances. Requirements included holding inventory for customer transactions, facilitating fiat conversion, and executing inter-exchange arbitrage.
Without exemptions, UK platforms would have had to fragment client assets across multiple entities or relocate custody and trading operations overseas, thereby draining liquidity from domestic order books.
The exemptions represent an approach to keeping stablecoin flows visible and regulated within the UK jurisdiction rather than pushing them overseas.
Exemptions keep billions on land
The waivers allow UK-based exchanges and market makers to maintain centralized stocks for operational purposes, provided they do not exceed the proposed caps.
Exchanges maintain a stable float to facilitate instant execution and settlement. When customers deposit fiat and buy crypto, or sell crypto and withdraw fiat, the platforms use the stablecoin inventory to connect these transactions. During this time, market makers hold balances to provide two-sided quotes on trading pairs.
The proposed hard cap of £10 million would have been insufficient on a large scale. Mid-sized exchanges process hundreds of millions of dollars in daily volume, requiring operational float that exceeds the cap by orders of magnitude.
Under the draft rules, the platforms would have divided their assets between separate entities or routed their operations through non-UK subsidiaries in Switzerland, Singapore or the Cayman Islands.
Exemptions remove this pressure, allowing exchanges to maintain unified stocks of stablecoins under UK jurisdiction. Additionally, the Financial Conduct Authority (FCA) is developing parallel rules for stablecoin issuers and custodians.
The BoE exemptions align with this framework, as issuers and depositories are subject to requirements focused on collateralization and repurchase. At the same time, exchanges and market makers are subject to different rules related to trading and settlement functions.
Additionally, the UK government has stated that foreign stablecoin issuers do not need UK permission for their tokens to trade on UK platforms.
This differs from the European Union (EU) MiCA framework, which requires authorization for issuers and imposes transaction volume thresholds on non-euro stablecoins to prevent currency substitution.
UK platforms face no equivalent constraints, prompting a concentration of dollar-denominated stablecoin activity on UK venues rather than EU exchanges.
Generate liquidity to Bitcoin and Ethereum
The exemptions also impact the liquidity of Bitcoin and Ethereum exchanges, as exchanges use stablecoin stocks to settle spot and derivatives trades in BTC and ETH.
Larger stablecoin balances allow for tighter bid-ask spreads and larger order books because market makers can commit more capital at all price levels. Additionally, the exemptions come at a favorable time for crypto in the UK.
Bitwise Europe Managing Director Bradley Duke recently noted that the FCA lifted the retail ban on crypto exchange-traded notes (ETNs) on October 8. The change allows crypto ETNs listed on the London Stock Exchange to be sold to individual investors once platforms implement compliance infrastructure, expected by October 16.
Duke also said that retail access to crypto ETNs through online brokers and tax-advantaged accounts opens up new distribution channels.
Crypto exchange-traded notes are debt securities that track the prices of cryptocurrencies without owning the underlying assets. They have been listed among professional investors since 2024. ETNs differ from exchange-traded funds (ETFs) because they are structured as unsecured debt rather than pooled investments.
Undertakings for collective investment in transferable securities (UCITS) regulations do not allow funds to directly hold unregulated cryptocurrencies, so no spot crypto ETFs are available to UK retail investors. However, ETNs circumvent this restriction by being outside the scope of UCITS.
While the exemptions focus on the operational infrastructure of exchanges and market makers, the ETN change expands the range of retail investment products.
Both reduce regulatory friction for local crypto activity, creating rails to boost Bitcoin and Ethereum trading in the UK.
