TLDR
UK legislators are warning that the Bank of Englands draft stablecoin regime may be so strict it kills pound stablecoins before they scale.
- The House of Lords wants the BoE to rethink high reserve requirements and tight holding caps for systemic stablecoins.
- Lawmakers argue the rules could make GBP stablecoins uneconomic, undermining the UKs ambition to be a crypto and payments hub.
- The BoE is due to publish final policy and draft rules soon, which will show whether it softens its stance or not.
Deep Dive
1. What UK Lawmakers Are Challenging
A House of Lords Financial Services Regulation Committee report, Stablecoins: waiting for regulation, urges the BoE to ease parts of its November 2025 proposals for systemic stablecoins.
The BoE floated two key ideas:
- At least 40% of reserves held as unremunerated deposits at the central bank.
- Temporary holding limits, suggested in the range of about 10,000 to 20,000 pounds per individual and 10 million pounds per business, to cap risk concentration.
The committee supports 1:1 backing and strong safeguards but says these measures are preemptive given the GBP stablecoin market is roughly 12 million pounds and only a handful of firms are in the FCA sandbox, warning the current plan could make issuance uneconomic and adoption impractical. The critique is outlined in a CoinsKid community summary of the Lords report and in coverage on UK Lords warn BoE could kill pound stablecoins.
Policymakers are not rejecting regulation, they are arguing the current design is too heavy for such a small, early market.
2. Impact On UK Stablecoins And Competitiveness
The Lords argue that if pound stablecoins face more punitive rules than rivals, issuers will simply focus on dollar or euro tokens or move activity to other jurisdictions.
They highlight that the UK already lags frameworks like the EUs MiCA, and that unclear transitions between FCA oversight and BoE systemic status could create a regulatory bottleneck. Combined with high capital and deposit burdens, that could discourage GBP stablecoin issuance entirely, even as global stablecoin use in payments is accelerating, as shown by recent business adoption studies.
If the BoE keeps a very conservative design, GBP stablecoins may remain niche and most UK activity will keep using offshore dollar tokens instead.
3. What To Watch Next
The BoE consultation closed earlier this year, and the bank is expected to publish final policy and draft rules later this month. Deputy Governor Sarah Breeden has already hinted some proposals may have been overly conservative.
Key signals to watch:
- Whether the 40% unremunerated reserve share is cut or redesigned.
- Whether holding caps are relaxed, removed, or made more flexible.
- How clearly the BoE and FCA spell out the path from small FCA-regulated tokens to systemic BoE-supervised issuers.
The next BoE paper is the inflection point that will reveal whether the UK prioritizes a cautious, bank-like model or a more competitive stablecoin ecosystem.
Conclusion
UK lawmakers are effectively telling the BoE that its stablecoin blueprint overweights risk control relative to innovation and competitiveness. How the BoE adjusts reserve and holding rules in the coming policy paper will determine whether pound stablecoins become a serious part of UK payments, or whether the UK continues to rely mostly on foreign dollar stablecoins and overseas regulatory regimes.
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