UK Stablecoin Firms Urge BoE to Drop Unhosted Wallet Ban

Stablecoin issuers and industry groups have asked the Bank of England to abandon a proposal that would outlaw unhosted crypto wallets in the UK. They told regulators the measure could disrupt remittances, weaken pound-backed token competitiveness and present major enforcement challenges.

The Bank of England has raised concerns that easy access to higher-yielding crypto products could prompt deposit outflows, reducing credit available to UK households and businesses. Deputy Governor Sarah Breeden told a House of Lords committee the bank is “open to other ways of achieving the objective” of protecting credit availability. She said that under the regime being discussed, unhosted wallets — wallets not controlled by a regulated provider — would not be allowed in the UK.

Industry executives argued the ban would remove the option of self-custody and undermine core uses of stablecoins. Benoit Marzouk, chief executive of GBP stablecoin issuer tGBP, warned removing self-custody would “wipe out hard-earned network effects” and said existing tokens could become noncompliant, forcing issuers to reissue tokens or adopt whitelisting systems that limit open transfers.

Marzouk and other leaders said the proposal would hinder international payments. They said recipients who use self-custody wallets would be unable to access funds unless they were fully onboarded with a regulated exchange, which would reduce the utility of pound-backed tokens for cross-border transfers and remittances.

Joey Garcia, chief strategy, policy and regulatory affairs officer at Xapo Bank, raised questions about enforceability and market signals. He argued the proposal would restrict regulators’ ability to understand and mitigate risks and would be interpreted as a hostile regulatory stance that discourages developers and investment in the UK fintech sector. Garcia added that relying on Virtual Asset Service Providers and information-sharing tools tied to the Travel Rule could be more workable than banning wallet creation outright.

Privacy-focused advocates also opposed the change. Susie Violet Ward, co-founder of Bitcoin Policy UK, said the rules would expand data collection, reduce privacy, increase costs and add friction for users who rely on intermediaries. The group’s chief policy officer, Freddie New, criticized the proposal’s design and urged that users be allowed to continue using self-hosted wallets without additional regulatory intrusion.

Some industry participants suggested a narrower regulatory approach. They recommended limiting the issuance of new stablecoins to registered VASPs or exchanges, which could use existing information-sharing systems to address money-laundering and consumer-protection concerns while preserving peer-to-peer custody.

The Bank of England’s November consultation paper on stablecoins did not explicitly propose a ban on unhosted wallets. Any formal changes would move through the Treasury and be implemented within the Financial Conduct Authority framework set out by the 2023 Financial Services and Markets Act, a process that requires consultation and industry input before rules are finalised.

Industry representatives said continued engagement with policymakers is the appropriate route to influence outcomes. Garcia urged sector participants to demonstrate how stablecoin technology can deliver benefits while addressing identified risks, to support arguments for proportionate regulation.