The Bank of England (BoE) will exempt crypto exchanges and other operationally critical companies from proposed limits on stablecoin ownership, potentially converting funds into Bitcoin (BTC) and Ethereum (ETH).
As Bloomberg News reported on Oct. 7, the central bank plans to grant waivers to companies that require large token inventories 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 shift addresses backlash to draft rules reported in September that would have limited ownership of individual stablecoins to £10,000 to £20,000 and capped companies at £10 million.
Exchanges and market makers argued that these thresholds were unworkable because operational requirements routinely require billions of dollars in stablecoin balances. The requirements include maintaining inventory for customer transactions, facilitating fiat conversion, and conducting inter-exchange arbitrage.
Without exemptions, UK platforms would have had to fragment clients’ assets across multiple entities or move custody and trading operations abroad, sucking liquidity from domestic order books.
The exemptions represent an approach to keeping stablecoin flows visible and regulated within UK jurisdiction, rather than pushing them abroad.
Exemptions allow billions to stay on land
The waivers allow UK-based exchanges and market makers to hold centralized inventories for operational purposes, provided they do not exceed the proposed maximums.
Exchanges maintain a stablecoin float to facilitate immediate execution and settlement. When customers deposit fiat and buy crypto, or sell crypto and withdraw fiat, platforms use stablecoin inventory to bridge those transactions. Meanwhile, market makers maintain balances to provide two-sided quotes on trading pairs.
The proposed fixed limit of £10 million would have been insufficient on a large scale. Mid-sized exchanges handle hundreds of millions of dollars in volume every day, requiring an operational float that exceeds the limit by orders of magnitude.
Under the draft rules, platforms would have divided their holdings between separate entities or routed their activities through non-UK branches in Switzerland, Singapore or the Cayman Islands.
The exemptions eliminate that pressure, allowing exchanges to maintain uniform stablecoin inventories under UK jurisdiction. In addition, the Financial Conduct Authority (FCA) is developing parallel rules for stablecoin issuers and custodians.
The BoE’s exemptions are consistent with this framework, as issuers and custodians are subject to requirements focused on coverage and amortization. At the same time, exchanges and market makers are subject to various regulations related to trading and settlement functions.
Furthermore, the UK government has stated that foreign stablecoin issuers do not need UK permission to have their tokens traded 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 have no similar restrictions, creating an incentive for dollar-denominated stablecoin operations to focus on UK locations rather than EU exchanges.
Boosting liquidity to Bitcoin and Ethereum
The exemptions also impact the liquidity of Bitcoin and Ethereum trading, as exchanges use stablecoin inventory to settle spot and derivatives trades in BTC and ETH.
Larger stablecoin balances enable tighter bid-ask spreads and deeper order books because market makers can deploy more capital across price levels. Furthermore, the exemptions come at a favorable time for crypto in the UK.
Bradley Duke, Managing Director of Bitwise Europe, recently noted that the FCA lifted the retail ban on crypto exchange-traded notes (ETN) on October 8. The change will allow 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 stated that retail access to crypto ETNs through online brokers and tax-advantaged accounts opens up new distribution channels.
Crypto exchange trade notes are debt securities that track crypto prices without holding the underlying assets. They have been listed for 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 there are no spot crypto ETFs available to UK retail investors. However, ETNs circumvent this limitation by falling outside the scope of the UCITS.
While the exemptions focus on operational infrastructure for exchanges and market makers, the ETN change expands the range of retail investment products.
Both reduce regulatory friction for on-shore crypto activities, creating rails to boost Bitcoin and Ethereum trading in the UK.