UK lawmakers have voiced significant concerns over the Bank of England’s proposed regulations for sterling-denominated stablecoins. The House of Lords Financial Services Regulation Committee is urging the central bank to rethink its plans, arguing that the current measures could hinder the development of a vibrant stablecoin market in the UK.
Pressure on the Bank of England: Rethinking Stablecoin Rules
The House of Lords committee published its report, “Stablecoins: waiting for regulation,” on June 3, turning a technical debate over reserve design into a test of whether the UK can build a pound-denominated stablecoin market without making it uneconomic from the start.
At the heart of the critique are two key proposals from the Bank of England:
- Temporary per-coin holding limits: £20,000 for individuals and £10 million for businesses.
- Reserve requirement: Systemic sterling stablecoin issuers must keep at least 40% of backing assets as non-interest-earning deposits at the Bank of England.
“The Bank’s proposed safeguards may be calibrated for a market that does not yet exist in the UK, potentially stifling innovation and growth before it can even begin,” the House of Lords Committee report stated.
Impact on Issuer Viability and UK Competitiveness
The committee argues that these measures could significantly affect issuer viability and the UK’s international competitiveness. If a pound stablecoin cannot be held in useful amounts or generate enough reserve income to support the issuer’s business, the UK could end up with clear rules but few firms willing to build the products those rules are meant to govern.
Key Concerns Highlighted:
- Unremunerated Deposits: The 40% reserve requirement at the Bank of England, without interest, reduces profitability for issuers.
- Holding Limits: Low caps could deter large institutional users and limit scalability.
- Lagging Behind: The UK is already behind the US and EU in developing a stablecoin regime.
The Bank of England, for its part, contends these measures are crucial for financial stability and consumer protection. Sarah Breeden, the Bank’s Deputy Governor for Financial Stability, highlighted that banks provide about 85% of household credit in the UK, compared to roughly 30-40% in the US. She worries that a rapid shift of deposits into stablecoins could lead to a drop in credit for households and businesses.
Strategic Importance of GBP Stablecoins
Despite the concerns, the committee acknowledges the potential for sterling stablecoins to support cross-border payments, tokenized settlement, and competition in payments. The global stablecoin market, estimated at over $310 billion in 2026, is overwhelmingly dominated by US dollar stablecoins like Tether and Circle. Establishing a robust GBP stablecoin market could reduce the risk of UK users defaulting to dollar alternatives.
“The UK must ensure its regulatory framework fosters, rather than impedes, the development of a competitive and innovative sterling stablecoin market,” a committee spokesperson commented.
The Bank of England’s next steps will be critical. Draft rules are expected in mid-2026, with final rules by year-end. These documents will reveal whether the Bank adjusts its design in response to the critique or provides a clearer explanation of its existing model.
Frequently Asked Questions
What is a sterling stablecoin?
A sterling stablecoin is a type of cryptocurrency whose value is pegged to the British Pound, typically 1:1, and backed by reserves such as fiat currency or its equivalents.
Why is the Bank of England proposing stablecoin limits?
The Bank of England proposes limits and reserve requirements to safeguard financial stability, prevent rapid shifts out of traditional bank deposits, and mitigate risks related to illicit finance and consumer protection.
What is the main criticism of the Bank of England’s proposals?
The primary criticism is that the proposed holding caps and the requirement for unremunerated reserves could make the sterling stablecoin market uneconomic and stifle its growth, thereby reducing the UK’s competitiveness in the global market.
