The United Kingdom should advance its stablecoin regulatory regime, but with calibrations to avoid making a pound-denominated market commercially unworkable, a House of Lords committee concluded in a published report. The cross-party Financial Services Regulation Committee argued that the UK currently lags behind the United States and the European Union, and that the absence of a clear regime has constrained development and investment in the UK stablecoin sector, even as dollar-pegged tokens such as USDt and USDC continue to expand globally. According to Cointelegraph, the committee’s findings endorse much of the Bank of England’s and the Financial Conduct Authority’s proposed framework while cautioning against provisions that could hamper the viability or competitiveness of UK-issued stablecoins.
The report supports a 1:1 reserve backing standard for fiat-referenced stablecoins and backs a Bank of England backstop lending facility for systemic issuers. Yet it flags several elements from the BoE’s November 2025 consultation as potentially damaging. In particular, the committee criticizes the proposal that systemic issuers hold at least 40% of their backing assets in unremunerated central bank deposits, describing the requirement as having attracted significant criticism and potentially undermining the viability of issuers or the UK’s international competitiveness. It also notes that proposed temporary holding limits for businesses and individuals could impede growth in GBP-denominated stablecoins and may be impractical to implement.
Key takeaways
– 1:1 reserve backing and BoE backstop: The committee endorses the principle that fiat-collateralized stablecoins should be backed by high-quality assets at a 1:1 ratio and supports a BoE backstop facility for systemic issuers.
– Criticism of reserve-dust policies: The proposal to require a substantial share of reserves in unremunerated central bank deposits drew sharp critique and is seen as potentially detrimental to issuer viability and UK market competitiveness.
– Holding limits are problematic: Temporary limits on holdings by entities and individuals are viewed as potentially stifling and not readily implementable.
– Remuneration bans and MiCA alignment: The committee notes the intention to prohibit interest payments on sterling-systemic stablecoins, aligning with MiCA’s approach in the European Union and parallel discussions in the United States, though the policy landscape remains unsettled.
– Aim to nurture, not merely police: The Lords advocate a framework that grows a robust pound-denominated stablecoin sector while managing illicit-finance and financial-stability risks, clarifying how dual regulation of systemic issuers would operate in practice.
Regulatory alignment and systemic stablecoins
The committee’s analysis centers on aligning the UK regime with broader regulatory objectives—financial stability, consumer protection, and the integrity of the payments landscape—while safeguarding the UK’s competitiveness as a financial hub. The report favors the core Bank of England/FCA framework that treats systemic stablecoin issuers similarly to other systemically important financial entities, with appropriate oversight and backstops to mitigate failure risk. However, it argues for recalibrations to avoid suppressing the growth of sterling-backed tokens that could compete as a payment instrument in the domestic market.
A notable tension emerges around the BoE consultation’s reserve requirements and asset mix. The 40% threshold for unremunerated central bank deposits is singled out for concern, with the committee noting that such a rule could hamper issuer resilience and raise cross-border cost of capital for UK platforms. The debate mirrors wider policy tensions in stablecoin regulation: safety versus market functioning, and the risk of shifting activity to less-regulated jurisdictions if capital costs in London are too high.
In urging timely progress, the Lords emphasize the need for a clear regulatory timetable and for detailing how dual regulation would function in practice for systemic issuers. The committee underscores that the UK should calibrate reserve standards and liquidity rules so that sterling stablecoins can compete with traditional payment rails, rather than being regulated out of relevance. This viewpoint aligns with a broader policy objective: to anchor innovation within a robust regulatory perimeter that supports safe, efficient payments while minimizing systemic risk.
Remuneration restrictions, incentives, and policy coherence
A central policy question concerns whether stablecoin holders may receive rewards or interest on holdings. The BoE’s draft regime contemplates banning remuneration for holders of sterling-denominated systemic stablecoins, a stance consistent with the EU’s Markets in Crypto-Assets Regulation (MiCA) and with ongoing debates in the United States, including aspects of the GENIUS Act. The committee’s position highlights the practical implications of such a ban: while it reinforces a focus on payments use cases—fast, low-cost transfers—without converting stablecoins into yield instruments, it also raises concerns about the sustainability and business model of UK issuers.
The tension becomes more acute when considering potential non-interest incentives, such as card-style rewards or other non-financial benefits. The committee warns that uncertainty about what will be permitted could affect product design, issuer capital planning, and consumer expectations. The overarching question is whether the regulatory framework can encourage the development of resilient, consumer-friendly GBP stablecoins that can be integrated with existing banking and payments infrastructure, while preventing yield-driven incentives that could blur the line between money and investment.
Inquiry evidence and strategic choices
The Lords’ conclusions reflect months of evidence from industry participants and academics. In its proceedings, the committee pressed witnesses on whether stablecoins can extend beyond simple “on and off-ramps into crypto” and whether the UK can manage associated financial-stability and bank-funding risks. Witnesses offered divergent views on the GENIUS Act’s approach to non-bank issuers, reflecting broader policy debates in the United States. Across the spectrum, the committee stressed that stablecoins should not create new channels for illicit activity and that the regulatory framework should be robust and enforceable.
Beyond enforcement, experts emphasized the need to balance regulation with market development. The Lords argue for a UK strategy that nurtures and harnesses stablecoin technology as a payment mechanism, rather than treating it as a peripheral or purely speculative asset class. This approach presumes a stable, predictable regulatory environment that reduces uncertainty for issuers, banks, and payment providers while maintaining appropriate risk controls.
Implications for market structure, licensing, and cross-border considerations
For market participants, the Committee’s recommendations signal a push toward a structured, rules-based GBP stablecoin ecosystem anchored by a clear regulatory backstop and rigorous reserve standards. This has several practical implications:
– Licensing and oversight: Issuers of systemic GBP stablecoins could face licensing requirements, governance standards, and ongoing supervisory actions designed to ensure resilience, liquidity, and consumer protection.
– Banking integration and liquidity: A regulated stablecoin market, with calibrated reserve requirements and a credible backstop, could facilitate integration with UK banks and the broader payments rails, potentially improving settlement efficiency and reducing settlement risk.
– Cross-border considerations: The UK’s approach would need to align with international standards and vary with other major jurisdictions’ regimes. The committee’s emphasis on practical viability suggests a preference for harmonized, but not burdened, cross-border operations that support legitimate use cases while limiting regulatory arbitrage.
– Compliance and risk management: Financial institutions, exchanges, and issuers would be expected to implement robust AML/KYC controls and risk-management practices commensurate with the systemic nature of the instruments, consistent with ongoing UK enforcement priorities.
Closing perspective
The House of Lords committee presents a principled call for a measured, ambitious approach to stablecoins that supports innovation and efficiency in the UK payments landscape while maintaining robust protections. The report argues for sustaining timelines, clarifying dual-regulatory arrangements for systemic issuers, and recalibrating specific requirements to avoid stifling growth. As policymakers, regulators, and market participants translate these recommendations into policy design, the key question will be whether the UK can establish a stable, compliant pound-stablecoin market that competes effectively with global standards without compromising financial stability or regulatory integrity. The coming months will reveal how Treasury, the Bank of England, and the Financial Conduct Authority operationalize these positions and navigate the balance between risk management and market development. What remains unresolved is how allowances for non-interest incentives and evolving cross-border regimes will shape issuer strategies and the broader trajectory of the UK stablecoin ecosystem.
