UK Lords Warn BoE on GBP Stablecoin Rules

Parliament building with a stack of pound coins and a balance scale holding a rulebook against a blue background

UK House of Lords Warns Bank of England on Stablecoin Rules – Peers Say Overly Strict Framework Could Weaken GBP Token Market

Key Takeaways

A House of Lords committee warns that parts of the Bank of England’s proposed stablecoin regime could make GBP stablecoins commercially unworkable.
The report supports regulation, including 1:1 backing with high quality assets and a central bank backstop facility for systemic issuers.
Peers criticize a proposal requiring systemic issuers to hold at least 40% of reserves in unremunerated central bank deposits.
Temporary holding limits and a ban on interest payments to coinholders are flagged as potential obstacles to market growth.
The committee urges UK authorities to clarify timelines and ensure sterling stablecoins can compete with other payment methods.

House of Lords Backs Regulation but Warns Against Overreach

A cross party committee of the UK House of Lords has called on the Bank of England and other authorities to move forward with stablecoin regulation, while cautioning that certain proposals could undermine the viability of pound sterling denominated tokens.

In a report released on June 2, the Financial Services Regulation Committee states that the United Kingdom is lagging behind the United States and the European Union in establishing a clear stablecoin framework. According to the committee, the absence of a defined regime has suppressed stablecoin development and investment in the UK, even as US dollar pegged tokens such as USDt and USDC have grown globally.

The committee supports much of the joint approach outlined by the Bank of England and the Financial Conduct Authority. This includes requiring fiat referenced stablecoins to be backed 1:1 with high quality assets. It also endorses the proposal for a Bank of England backstop lending facility for systemic stablecoin issuers.

At the same time, peers warn that specific elements of the Bank’s November 2025 consultation risk weakening the competitiveness of UK issued stablecoins.

Reserve Requirements and Deposit Rules Under Scrutiny

One of the central concerns raised in the report relates to a proposal that systemic stablecoin issuers hold at least 40% of their backing assets in unremunerated central bank deposits.

The committee notes that this requirement has attracted considerable criticism. It argues that forcing issuers to allocate a large share of reserves to non interest bearing central bank deposits could negatively affect business viability and international competitiveness.

While the Lords support strict backing standards in principle, they suggest that the combination of 1:1 reserve requirements and limits on how reserves can be managed may significantly reduce the commercial attractiveness of issuing sterling stablecoins.

For users of crypto based payment systems, including those who rely on stablecoins for deposits and withdrawals on international platforms, such structural constraints may influence whether GBP denominated tokens gain traction or remain marginal compared to established dollar based alternatives.

Holding Limits and Interest Ban Raise Additional Questions

The report also highlights proposed temporary holding limits for businesses and individuals. According to the committee, such limits could unnecessarily inhibit the growth of GBP stablecoins and may prove difficult to implement in practice.

In addition, the Bank of England’s draft regime would prohibit remuneration for holders of systemic sterling stablecoins. This approach mirrors the European Union’s Markets in Crypto Assets Regulation, which bars stablecoin issuers from paying interest to holders.

The United States GENIUS Act similarly prohibits payment stablecoin issuers from offering interest, although debate continues there about whether exchanges and intermediaries may provide rewards.

The House of Lords frames payment focused stablecoins primarily as tools for fast and low cost transactions rather than investment products. However, it warns that a strict interest ban, combined with tight reserve and liquidity rules, could weigh on the business case for UK issued tokens. The committee also notes uncertainty around whether non interest incentives, such as card style rewards, would be permitted under the proposed framework.

Evidence Review Focused on Stability and Illicit Activity Risks

The conclusions follow months of evidence gathering by the committee. During this process, members questioned industry and academic witnesses about the broader role of stablecoins beyond serving as on and off ramps into crypto markets.

The inquiry examined potential financial stability risks, the impact on bank funding, and consumer protection concerns. It also addressed the possibility that expanding stablecoin markets could create opportunities for illicit activity.

The committee stresses that growth in the sector must not open new channels for financial crime. At the same time, it argues that regulation should not focus solely on risk containment. Instead, the UK should aim to nurture a domestic pound denominated stablecoin sector that can operate effectively within the regulatory perimeter.

Call for Clarity on Dual Regulation and Timelines

Another issue raised in the report concerns the practical implementation of dual regulation for systemic issuers, which would fall under both the Bank of England and the Financial Conduct Authority.

The committee urges His Majesty’s Treasury, the Bank of England, and the FCA to adhere to existing timelines and to clarify how supervisory responsibilities will be coordinated. Greater clarity, it suggests, would reduce uncertainty for potential issuers and market participants.

Peers recommend recalibrating elements such as holding limits and reserve requirements to ensure that sterling stablecoins can compete with other forms of payment in the UK. The stated objective is to avoid a scenario in which regulation renders pound denominated tokens commercially irrelevant.

Our Assessment

The House of Lords report confirms that the UK intends to establish a formal regime for stablecoins, aligning in key areas with approaches seen in the European Union and the United States. At the same time, it identifies specific measures in the Bank of England’s proposals that could limit the commercial viability of GBP stablecoins, including strict reserve allocation rules, holding caps, and a ban on interest payments.

For market participants and users who depend on stablecoins for payments, trading, or platform transfers, the final shape of the UK framework will determine whether sterling denominated tokens develop as a competitive alternative to established dollar pegged coins or remain a niche product under tight regulatory constraints.