UK panel challenges BoE's strict stablecoin plan

TLDR

A UK House of Lords committee has challenged the Bank of Englands proposed stablecoin rules as overly strict and potentially damaging to a future GBP stablecoin market.

1. The committee objects to requirements like 40% unremunerated central bank reserves and tight holding caps for systemic sterling stablecoins.
2. Lawmakers warn such rules could make GBP stablecoins uneconomic, leaving the UK dependent on dollar stablecoins while the US and EU move ahead.
3. The BoE is already signaling it may soften its stance, with revised draft rules expected later in 2026, so the final framework could be more market friendly.

Deep Dive

1. Key Objections To The BoE Plan

In a report titled Stablecoins: waiting for regulation, the House of Lords Financial Services Regulation Committee broadly backed having a regime, but attacked several core BoE proposals. The most contentious is a rule that systemic sterling stablecoin issuers must hold at least 40% of reserves as non-interest-bearing deposits at the central bank, which the committee says could destroy business viability for UK issuers.

They also criticized proposed holding caps of around 20,000 per person and 10 million per business and noted that no other major jurisdiction uses such limits at this stage. The committee recommends modeling alternatives, potentially remunerating reserves at the base rate, and using aggregate issuance limits instead of per-wallet caps, as summarised in recent coverage of the committees recommendations to ease BoE rules.

2. Impact On The UK Stablecoin Market

The criticism comes while the sterling stablecoin market is tiny, on the order of low millions of pounds, compared with a global stablecoin market of roughly $315 billion that is over 99% dollar based and dominated by USDT and USDC. The committee argues that imposing heavy reserve and holding constraints before GBP stablecoins have scaled risks rendering them commercially unattractive versus foreign dollar tokens, as highlighted in its warning that the UK is lagging behind.

That would limit the chances of seeing deep GBP pairs on exchanges, UK-focused payment stablecoins, or tokenized settlement in sterling, pushing British users and firms to keep relying on offshore dollar stablecoins for most crypto and onchain finance activity.

3. What To Watch Next

The BoE and FCA are in the middle of consultations on both stablecoins and broader tokenisation, with the BoE expected to publish revised draft rules later in 2026. BoE Deputy Governor Sarah Breeden has already acknowledged that some elements, such as ownership caps and reserve design, may have been overly conservative, and the Bank is reported to be dropping individual holding limits in favor of aggregate caps on issuers.

Key signals to watch include: 1) whether the 40% unremunerated reserve requirement is relaxed or paid interest, 2) if holding caps are removed or only used as a backstop, and 3) how the UKs final framework compares in strictness to the EUs MiCA regime and emerging US stablecoin laws.

Conclusion

A cross-party Lords committee is effectively telling the BoE that its first stablecoin blueprint overshoots on prudence and undershoots on competitiveness. The outcome of this clash will shape whether sterling-backed stablecoins can scale into real payment and market infrastructure, or whether UK crypto participants continue to route most activity through offshore dollar stablecoins. For now, the regulatory trajectory is still in play, with upcoming BoE rule drafts the key catalyst to track.