UK Lords Push BoE to Ease GBP Stablecoin Rules

The House of Lords has urged the Bank of England (BoE) to rethink elements of its proposed regulatory framework for pound sterling stablecoins, warning that overly strict rules could render the market commercially unviable. In a report released June 2, the Financial Services Regulation Committee endorsed swift regulatory action but criticized measures such as unremunerated deposit mandates and temporary holding limits as potentially damaging to innovation and competitiveness.

According to the report, the UK is falling behind the United States and European Union in fostering a stablecoin ecosystem, hampered by the absence of a clear regulatory regime. The Lords noted that global demand for stablecoins is growing, particularly for USD-pegged tokens like USDT and USDC, while GBP-denominated stablecoins remain underdeveloped. Without a balanced framework, the UK risks missing out on a key sector of the digital asset economy.

Controversial Rules Under Scrutiny

The report backs core regulatory principles such as requiring fiat-backed stablecoins to hold reserves in high-quality liquid assets on a 1:1 basis. It also supports the BoE’s proposed backstop lending facility for systemic issuers. However, the Lords raised concerns over several contentious proposals outlined in the BoE’s November 2025 consultation.

One key issue is the requirement for systemic issuers to maintain at least 40% of their reserve assets as unremunerated central bank deposits. The Lords argue this rule would impose significant costs on issuers, potentially undermining their ability to compete internationally. Similar measures proposed in the EU’s Markets in Crypto-Assets Regulation (MiCA) have already drawn industry criticism. Additionally, proposed temporary holding limits for businesses and individuals were flagged as impractical and likely to stifle GBP stablecoin adoption.

Interest Payments and Incentives in Question

Another contentious area is the prohibition on paying interest to holders of sterling-denominated stablecoins. While this aligns with MiCA and the U.S. GENIUS Act, the Lords warned that banning interest payments, combined with strict reserve requirements, could weigh heavily on the business viability of UK-issued tokens. The report emphasized the need for the BoE and Financial Conduct Authority (FCA) to clarify whether non-interest incentives, such as rewards programs, might still be permissible.

The committee framed stablecoins primarily as payment tools rather than investment products, stressing that the UK must strike a balance between financial stability and fostering innovation. The Lords urged regulators to recalibrate policies to ensure GBP stablecoins can compete with other payment systems in the domestic market.

Strategic Implications for the UK

This debate comes at a critical juncture for the UK’s broader crypto strategy. Parliament passed legislation in 2026 bringing cryptoasset activities under FCA oversight, part of a plan to finalize a comprehensive regulatory regime by 2027. The House of Lords has been instrumental in shaping this framework, with inquiries into stablecoins, DeFi, and crypto governance risks.

The Lords’ stablecoin inquiry, launched in January 2026, reflects their support for integrating digital assets into the UK’s financial system while maintaining robust consumer protections. As global stablecoin markets expand, attracting investment in GBP-pegged tokens could help solidify the pound’s relevance in the digital payments space—particularly as the U.S. dollar dominates the stablecoin sector.

What’s Next?

The committee’s recommendations call for a recalibration of reserve and holding rules and greater clarity on dual regulation for systemic issuers. The BoE and FCA are expected to respond as they finalize the framework later this year, while His Majesty’s Treasury works to integrate stablecoins into the UK’s payments regulatory perimeter. Market participants will be closely watching whether the UK can balance its goals of innovation, competitiveness, and financial stability without overregulating the nascent sector.

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