As Bloomberg News reported on Oct. 7, the central bank plans to grant waivers to firms that require large token inventories for market-making and settlement operations, according to a person familiar with the matter.
The BoE will also permit the use of stablecoins for settlement within its Digital Securities Sandbox.
Exchanges and market makers argued that these thresholds were unworkable because operational requirements routinely require billions of dollars in stablecoin balances. The requirements included maintaining inventory for client trades, facilitating fiat conversion, and executing inter-exchange arbitrage.
Without exemptions, UK venues would have needed to fragment client assets across multiple entities or relocate custody and trading operations abroad, draining liquidity from domestic order books.
The exemptions represent an approach to keep stablecoin flows visible and regulated within the UK jurisdiction rather than pushing them offshore.
The waivers enable UK-based exchanges and market makers to maintain centralized inventories for operational purposes, provided they do not exceed the proposed caps.
Exchanges maintain stablecoin float to facilitate instant execution and settlement. When clients deposit fiat and buy crypto, or sell crypto and withdraw fiat, platforms use stablecoin inventory to bridge those transactions. Meanwhile, market makers hold balances to provide two-sided quotes on trading pairs.
The proposed £10 million firm cap would have been insufficient at 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 draft rules, platforms would have distributed holdings across separate entities or routed operations through non-UK affiliates in Switzerland, Singapore, or the Cayman Islands.
The exemptions eliminate that pressure, letting exchanges maintain unified 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 align with this framework, as issuers and custodians are subject to requirements focused on backing and redemption. At the same time, exchanges and market makers are subject to different rules tied to trading and settlement functions.
Additionally, the UK government has stated that overseas stablecoin issuers do not need UK authorization to have their tokens traded on UK platforms.
This differs from the European Union’s (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 constraint, creating an incentive for dollar-denominated stablecoin activity to concentrate in UK venues rather than EU exchanges.
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 allow tighter bid-ask spreads and deeper order books because market makers can commit more capital across price levels. Additionally, the exemptions come at a favorable time for crypto in the UK.
Duke also stated that retail access to crypto ETNs through online brokers and tax-advantaged accounts opens new distribution channels.
Crypto exchange-traded 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.
The Undertakings for Collective Investment in Transferable Securities (UCITS) regulations do not permit funds to hold unregulated crypto directly, so no spot crypto ETFs are available to UK retail investors. However, ETNs circumvent that restriction by sitting outside the UCITS scope.
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 activity, consequently creating rails to boost Bitcoin and Ethereum trading in the UK.
