UK tests stablecoins in regulatory sandbox while proposing limits on user holdings

UK regulators have begun live testing of stablecoin use cases under a controlled sandbox programme. This comes even as policymakers move to impose limits on the amount of stablecoin users can hold domestically.

The parallel initiatives underscore a cautious regulatory approach: encouraging experimentation with pound-denominated stablecoins while putting guardrails in place to prevent them from becoming systemically significant too quickly.

FCA sandbox moves stablecoin testing into live trials

The testing is taking place under a sandbox run by the Financial Conduct Authority, which allows firms to trial new financial products under regulatory supervision.

The sandbox includes a small group of participants assessing potential applications such as payments, wholesale settlement, and crypto trading. Revolut, Monee Financial Technologies, ReStabilise, and VVTX would be part of the testing.

Work is expected to begin this quarter, with testing conducted in tightly controlled conditions rather than through public rollouts.

Notably, the trials do not include major high-street banks, reflecting the continued caution among large UK lenders toward issuing or distributing stablecoins.

Proposed holding caps signal prudence

Running alongside the sandbox is a separate proposal from the Bank of England to cap the amount of stablecoins that UK users can hold, at least during the early phase of adoption.

Under the proposal, individuals would face limits on holdings of a given systemic stablecoin. At the same time, businesses would be subject to higher thresholds.

Individuals will be allowed up to about £20,000 per coin, while companies will be allowed up to about £10 million per coin.

The measures are intended as temporary safeguards to mitigate risks such as deposit flight from traditional banks and rapid outflows during periods of stress.

The caps would apply only to stablecoins deemed systemic and are designed to be revisited as the market matures.

UK takes a “test and contain” approach

Taken together, the sandbox and holding-limit proposals reflect a regulatory strategy that prioritises learning and containment over rapid scale.

While regulators acknowledge that stablecoins could improve efficiency in areas like payments and settlement, they remain wary of their potential to blur the line between bank deposits and crypto-based instruments. 

The Bank of England has previously encouraged banks to focus on tokenised deposits rather than issuing stablecoins directly.

Pound stablecoins remain marginal globally

The UK’s measured stance also reflects the limited global footprint of non-dollar stablecoins.

Industry data shows that pound- and euro-denominated stablecoins account for a fraction of global circulation, with dollar-pegged tokens continuing to dominate volumes.

Against that backdrop, the sandbox is less about accelerating mass adoption and more about determining whether sterling stablecoins can operate safely within the existing financial system.

Final Summary

• The UK is allowing stablecoin testing to proceed, but only within tightly controlled regulatory boundaries.
• Proposed holding limits suggest policymakers want to manage systemic risk before stablecoins reach meaningful scale.