The United Kingdom’s stablecoin sector is pushing back against a proposed Bank of England policy that would ban unhosted, or self-custodial, wallets for stablecoin holdings. Industry leaders warn the measure could stifle innovation, damage the UK’s competitiveness as a crypto hub, and undermine the core utility of blockchain-based assets.
Bank of England’s rationale for the ban
The Bank of England (BOE) has argued that restricting stablecoin transfers to regulated custodial wallets is necessary to protect the UK banking system. The central bank’s primary concern is that easy access to stablecoins offering higher yields could trigger a run on bank deposits, reducing credit availability for households and businesses.
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In March 2026, BOE Deputy Governor Sarah Breeden told the House of Lords Financial Services Regulation Committee that the bank is “open to other ways of achieving the objective” of maintaining credit stability. However, she emphasized that the BOE has a duty to prevent a “precipitous drop in credit.” Breeden also noted that unhosted wallets, which lack regulated providers ensuring Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance, would not be permissible under the proposed regime, unlike in the United States.
Industry opposition: ‘A serious misstep’
Benoit Marzouk, CEO of stablecoin issuer tGBP, called the proposal “a serious misstep for the UK, risking long-term damage that is hard to unwind.” He argued that the ban would “wipe out hard-earned network effects” and force issuers into whitelisting models or reissuing tokens that comply with restrictive transfer rules.
Joey Garcia, chief strategy, policy, and regulatory affairs officer at Xapo Bank, told Cointelegraph that the ban “essentially restricts any attempt to understand and mitigate the perceived risks” and would be interpreted as a signal of a hostile regulatory environment, discouraging developers and investment in the UK’s fintech sector.
Critics also highlight the impact on remittances. Under the BOE’s plan, recipients of stablecoin transfers would need to be fully onboarded with a regulated exchange to access funds. Marzouk compared the restriction to “a plane without wings,” arguing that a stablecoin that can only move within a closed ecosystem is effectively just e-money and does not require separate blockchain regulation.
Feasibility and enforcement challenges
Beyond the policy’s impact, industry experts question whether an unhosted wallet ban is even enforceable. Freddie New, chief policy officer at Bitcoin Policy UK, described the proposal as being of “such monumental, such overweening, stupidity, that it is hard to formulate a sensible response.” Susie Violet Ward, director and co-founder of Bitcoin Policy UK, said the rules would do little to address illicit flows but would instead “expand data collection, erode privacy, impose costs, and add friction.”
Garcia noted that the underlying technology behind crypto wallets means anyone can create one. “As long as the internet and public blockchains exist, a direct ban on wallet creation and use is not practically enforceable,” he said.
The BOE could attempt to enforce the ban through Virtual Asset Service Providers (VASPs), limiting the issuance of new stablecoins to registered exchanges and custodians. However, Marzouk pointed out that this would stretch the intended purpose of the Travel Rule, which was designed for identity verification, not to restrict self-custody.
Strategic risk to the UK’s crypto ambitions
The proposed ban comes at a time when the UK is actively seeking to position itself as a global hub for cryptocurrency and fintech innovation. Industry leaders argue that curbing self-custody undermines that goal. Marzouk warned that the policy “kills a major strategic opportunity: Positioning the Pound Sterling, one of the strongest and most trusted currencies, as a credible alternative to USD stablecoins.”
Garcia added that stablecoins derive much of their value from peer-to-peer transfers on open networks, which is particularly relevant for the unbanked and underbanked globally. Restricting that utility, he said, diminishes the technology’s potential for financial inclusion.
Next steps and regulatory process
It remains uncertain whether the unhosted wallet ban will make it into the final version of the BOE’s regulations. The bank’s latest Consultation Paper on stablecoins, published in November 2025, does not explicitly propose such a ban. Any changes would need to go through the standard process led by the Treasury under the Financial Conduct Authority’s framework, as defined by the 2023 Financial Services and Markets Act. This process involves formal consultation, industry input, and iterative rulemaking before any measures can be finalized.
Garcia advised that the best course for the industry is continued engagement with policymakers. “As participants within the sector, we must demonstrate the benefits of this technology clearly to address the concerns and risks that have been identified, to strengthen the case for proportionate regulation,” he said.
Conclusion
The Bank of England’s proposed ban on unhosted wallets for stablecoins has drawn sharp criticism from the UK crypto industry, which argues the policy would harm competitiveness, innovation, and financial inclusion. While the central bank’s concerns about banking stability are legitimate, the feasibility and unintended consequences of such a ban remain highly questionable. The final outcome will depend on the ongoing consultation process and the industry’s ability to present a compelling case for a more balanced regulatory approach.
FAQs
Q1: What is an unhosted wallet?
A1: An unhosted wallet, also known as a self-custodial wallet, is a cryptocurrency wallet where the user holds their own private keys, rather than relying on a regulated third-party provider like an exchange. This gives the user full control over their assets.
Q2: Why does the Bank of England want to ban unhosted wallets for stablecoins?
A2: The BOE is concerned that easy access to stablecoins offering higher yields could lead to a run on bank deposits, reducing credit availability. It argues that restricting stablecoin transfers to regulated custodial wallets helps mitigate this risk and ensures compliance with AML and KYC rules.
Q3: What happens next in the regulatory process?
A3: The BOE’s proposal is still under consultation. Any final regulation would need to go through the Treasury and the Financial Conduct Authority under the 2023 Financial Services and Markets Act, involving formal consultation, industry input, and iterative rulemaking before it can be implemented.
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