The Bank of England (BoE) will exempt crypto exchanges and other operationally important companies from proposed restrictions on holding stablecoins, potentially allowing them to supercharge their funds into Bitcoin (BTC) and Ethereum (ETH).
As Bloomberg News reported on October 7, the central bank plans to grant exemptions to companies that require large stockpiles of tokens for market-making and payments operations, according to people familiar with the matter.
The BoE will also allow the use of stablecoins for payments within its digital securities sandbox.
The changes address backlash over draft rules reported in September that would have capped stablecoin holdings by individuals to between £10,000 and £20,000 and corporate holdings to £10m.
Exchanges and market makers argued that these thresholds are unfeasible because operational requirements routinely require stablecoin balances in the billions of dollars. Requirements included maintaining inventory for customer trading, facilitating fiat currency conversion, and conducting arbitrage between exchanges.
Without the exception, UK exchanges would have had to split client assets between multiple entities or move custodial and trading operations offshore, draining liquidity from domestic order books.
This exemption represents an approach to keep stablecoin flows visible and regulated within UK jurisdiction, rather than pushing them overseas.
Waiver allows billions to remain on land
This exemption will allow UK-based exchanges and market makers to maintain centralized stocks for operational purposes as long as they do not exceed the proposed cap.
Exchanges maintain a stablecoin float to facilitate instant execution and settlement. When a client deposits fiat currency to buy cryptocurrencies, or sells cryptocurrencies and withdraws fiat currencies, the platform uses stablecoin inventory to bridge those transactions. Market makers, on the other hand, hold balances to provide two-sided quotes for trading pairs.
The proposed fixed cap of £10 million would be insufficient in scale. Medium-sized exchanges process hundreds of millions of dollars in trading volume every day and require operational float orders of magnitude above their caps.
Under the draft rules, platforms would either diversify their holdings into separate entities or route their operations through non-UK affiliates in Switzerland, Singapore and the Cayman Islands.
This exemption removes that pressure and allows exchanges to maintain a unified stablecoin inventory under UK jurisdiction. Additionally, the Financial Conduct Authority (FCA) is developing parallel rules for issuers and custodians of stablecoins.
The central bank exemption is in line with this framework, as issuers and custodians are subject to requirements focused on backing and redemption. At the same time, exchanges and market makers must follow various rules related to trading and settlement functions.
Additionally, the UK government has stated that foreign stablecoin issuers do not need UK authorization to trade tokens on UK platforms.
This differs from the European Union’s (EU) MiCA framework, which requires issuer authorization and imposes transaction volume thresholds on non-euro stablecoins to prevent currency substitution.
The lack of comparable constraints on UK platforms creates an incentive for dollar-denominated stablecoin activity to concentrate on UK venues rather than EU exchanges.
Driving liquidity into Bitcoin and Ethereum
This exemption also impacts the liquidity of Bitcoin and Ethereum transactions, as exchanges use stablecoin inventories to settle spot and derivative trades in BTC and ETH.
Larger stablecoin balances allow market makers to commit more capital across price levels, reducing bid-ask spreads and allowing for a deeper order book. Moreover, this exemption comes at a favorable time for UK cryptocurrencies.
Bitwise Europe Managing Director Bradley Duke recently pointed out that the FCA lifted the retail ban on ETN cryptocurrencies on October 8th. The changes will allow London Stock Exchange-listed cryptocurrencies, ETNs, to be sold to retail investors once platforms have compliance infrastructure in place, expected by October 16th.
Duke also said that retail access to crypto ETNs through online brokers and tax-advantaged accounts opens up new distribution channels.
Cryptocurrency exchange-traded bonds are bonds that track the price of a virtual currency without owning the underlying asset. ETNs 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.
Spot crypto ETFs are not available to retail investors in the UK, as UCITS regulations do not allow funds to directly hold unregulated cryptocurrencies. However, ETNs circumvent that limitation by being located outside the scope of UCITS.
While the exemption focuses on the operational infrastructure of exchanges and market makers, the ETN changes expand the scope of retail investment products.
Both would reduce regulatory friction for domestic cryptocurrency activity, resulting in rails to facilitate Bitcoin and Ethereum trading in the UK.