TLDR
Senior UK lawmakers have pushed back against the Bank of Englands draft stablecoin rules, warning they could make pound-backed stablecoins uneconomical before the market starts to grow.
- A House of Lords committee is challenging BoE plans for strict reserve rules and hard caps on individual and business stablecoin holdings.
- Lawmakers argue the UK risks regulating sterling stablecoins into irrelevance, ceding payments and innovation to dollar stablecoins and friendlier jurisdictions.
- The BoE is expected to soften some proposals and publish revised rules this month, which will define how attractive the UK becomes for stablecoin issuers.
Deep Dive
1. What Lawmakers Object To
The House of Lords Financial Services Regulation Committee has urged the BoE to rethink key parts of its consultation on systemic sterling stablecoins. In a June 3 report titled Stablecoins: waiting for regulation, peers criticised proposals that would force issuers to hold at least 40% of reserves as non-interest-bearing deposits at the BoE and the rest in short-term UK government debt, plus temporary per-user holding caps of about 20,000 for individuals and 10 million for businesses.
The committee supports 1:1 backing and strong safeguards, but says these specific measures are uneconomic for issuers and impractical to enforce at scale, given the current sterling stablecoin market is only about 12 million in size. It warns that preemptive holding limits should be a last resort if genuine financial stability risks emerge, not a starting point for a nascent market. A separate analysis notes peers fear the UK could regulate pound stablecoins into irrelevance if rules are not calibrated more carefully.
2. Why It Matters For GBP Stablecoins
Lawmakers frame this as a competitiveness issue, not just a prudential one. While the EUs MiCA regime is already live for stablecoins, the UK is still finalising its framework, and dollar tokens dominate global volume. The Lords argue that forcing UK issuers to park large, zero-yield reserves at the central bank would crush business models, pushing serious projects to issue offshore or in dollars instead.
They also highlight bottlenecks, such as the UK sandbox where only a small fraction of applicants were selected, as signs that overcautious regulation is already slowing domestic innovation. If sterling stablecoins cannot scale, UK banks, fintechs and payment firms could be stuck relying on foreign dollar tokens for on-chain payments.
For crypto users and builders, the outcome will decide whether a credible, liquid GBP stablecoin ecosystem emerges onshore or whether most activity stays in US dollar tokens and overseas venues.
3. What To Watch Next
BoE Deputy Governor Sarah Breeden has already signalled that parts of the original package were overly conservative and indicated the Bank is dropping individual holding caps in favour of aggregate issuance limits for large stablecoin providers. The BoE is expected to publish revised policy and draft rules later in June, with final codes for systemic stablecoins anticipated by late 2026.
Under the emerging split, non-systemic fiat-referenced stablecoins will sit primarily under FCA oversight, while systemic ones face joint supervision by the BoE and HM Treasury. The details will determine reserve composition, caps, and how UK rules line up against MiCA and US proposals.
Key signals to watch are whether the final regime relaxes zero-yield reserve requirements, abandons hard holding caps, and gives a clear path for well-capitalised GBP issuers to scale without constant rule changes.
Conclusion
UK lawmakers are not rejecting stablecoin regulation, they are challenging a version they see as too restrictive for a tiny sterling market in a world already dominated by dollar tokens. How the BoE revises its proposals in the coming months will heavily influence whether the UK becomes a serious home for GBP stablecoins or continues to trail jurisdictions that combine strong safeguards with commercially viable rules.
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