UK Lords warn strict BoE stablecoin rules could make pound-backed tokens hard to scale, even as lawmakers back a clear UK regime.
Summary
- UK Lords backed stablecoin rules but warned BoE holding caps could slow pound token adoption.
- BoE’s 40% unremunerated reserve plan drew concern over issuer viability and UK market competitiveness risks.
- Peers urged faster clarity as UK stablecoin rules continue trailing US and EU frameworks abroad.
A House of Lords committee has warned that the Bank of England’s planned stablecoin rules may make a pound sterling token market commercially weak before it grows. The Financial Services Regulation Committee said the UK needs clear rules, but those rules should not stop viable issuers from entering the market.
The report said the UK is “lagging behind” the United States and the European Union in stablecoin regulation. It also said the lack of a clear regime has slowed UK stablecoin investment, while dollar-backed tokens such as USDT and USDC dominate global use.
The committee backed the main safety goal of requiring fiat-backed stablecoins to hold assets equal to the value of tokens in circulation. It also supported a Bank of England backstop lending facility for systemic issuers, saying the measure could support confidence during stress.
However, peers questioned the Bank’s proposal that systemic issuers hold at least 40% of backing assets in unremunerated central bank deposits. The report said the rule had drawn “considerable criticism” because it could hurt issuer viability and weaken the UK’s ability to compete.
Holding Limits Could Slow Pound Tokens
The Bank has also proposed temporary holding limits of £20,000 for individuals and £10 million for businesses. It says the caps would reduce the risk of sharp deposit outflows from banks if stablecoins become widely used for payments.
The committee said those limits could “unnecessarily inhibit the growth of GBP stablecoins” and create practical problems for firms. It urged the Bank to monitor the market first and apply caps only if financial stability risks clearly justify them.
Rewards Debate Adds Commercial Doubt
The report also raised questions over interest and rewards. Under the current proposals, stablecoin issuers would not be allowed to pass interest from backing assets to token holders. Regulators have not yet decided whether card-style rewards or other user incentives will be allowed.
That issue matters because pound stablecoins must compete with cards, bank payments, dollar tokens and tokenized deposits. The committee said any ban on rewards should come with clear risk-based reasons, especially if similar rewards remain available in traditional payment systems.
UK Regulators Face A Timing Test
The warning comes as the UK tries to bring stablecoins, tokenized deposits and wider crypto activity into formal financial rules. Recent policy work places stablecoins inside the payments system, while the FCA’s wider crypto regime is scheduled to switch on in 2027.
The committee urged HM Treasury, the Bank and the FCA to keep their timelines and explain how dual regulation will work for systemic issuers. It said regulation should support safety while leaving enough room for a sterling stablecoin market to develop.
