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The United Kingdom should press ahead with stablecoin regulation but avoid rules that make a pound sterling stablecoin market commercially unworkable, a House of Lords committee warned in a report released Wednesday. <\/p>\n
The cross-party Financial Services Regulation Committee said the UK was \u201clagging behind\u201d the United States and the European Union and that the absence of a clear regime has \u201csuppressed stablecoin development and investment in the UK,\u201d despite the growth of global US dollar-pegged tokens such as USDt (USDT) and USDC (USDC).<\/p>\n
While backing much of the Bank of England (BoE) and Financial Conduct Authority\u2019s proposed framework, the committee warned that some measures risk undermining the viability and competitiveness of UK-issued stablecoins. <\/p>\n
The report backs requirements for fiat-referenced stablecoins to be backed 1:1 by high-quality assets and a proposed BoE backstop lending facility for systemic issuers. <\/p>\n
However, it singles out several elements of the Bank\u2019s November 2025 consultation<\/a> as potentially damaging, warning that a requirement for systemic issuers to hold at least 40% of their backing assets in unremunerated central bank deposits has attracted \u201cconsiderable criticism\u201d and could \u201cimpact negatively on the viability of stablecoin issuers and the international competitiveness of the UK market.\u201d <\/p>\n Proposed temporary holding limits for businesses and individuals are also flagged as measures that could \u201cunnecessarily inhibit the growth of GBP stablecoins\u201d and prove impractical to implement.<\/p>\n Related: <\/strong><\/em>UK FCA seeks feedback on guidance for crypto rules ahead of 2027 rollout<\/strong><\/em><\/a><\/p>\n Peers also turn to the politically sensitive question of returns. The Bank\u2019s draft regime would prohibit remuneration for coinholders of sterling-denominated systemic stablecoins, putting the UK on a similar footing to the EU\u2019s Markets in Crypto-Assets Regulation (MiCA)<\/a>, which bars stablecoin issuers from paying interest to holders. The US GENIUS Act<\/a> prohibits payment stablecoin issuers from paying interest, though US debate continues over whether exchanges and other intermediaries can offer rewards.<\/p>\n House of Lords Stablecoin Report. Source: House of Lords<\/em><\/p>\n The committee presents payment-focused stablecoins primarily as instruments for fast, low-cost transactions rather than as investment products. However, it warns that the combination of strict reserve rules and a ban on interest or other remuneration could weigh on the \u201cbusiness viability\u201d and competitiveness of UK-issued tokens, especially while it remains unclear whether card-style rewards or other non-interest incentives will be allowed.<\/p>\n The conclusions follow months of evidence gathering in which the committee pressed industry and academic witnesses<\/a> on whether stablecoins can move much beyond \u201con and off-ramps into crypto,\u201d challenged them on financial stability<\/a>, bank funding and consumer protection risks, and probed sharply divergent views on the US GENIUS Act\u2019s approach to non-bank issuers.<\/p>\n While stressing that the expansion of stablecoin markets \u201cmust not create new opportunities for illicit activity to flourish,\u201d the Lords argue the UK should aim to nurture, not just police, a pound-denominated stablecoin sector. <\/p>\n They urge His Majesty\u2019s Treasury, the Bank of England and the FCA to stick to existing timelines, clarify how dual regulation of systemic issuers will work in practice, and recalibrate measures such as holding limits and reserve requirements so that sterling stablecoins can \u201ccompete with other forms of payment in the UK\u201d rather than be regulated out of relevance.<\/p>\nInterest bans and rewards uncertainty cloud UK tokens<\/h2>\n
Inquiry evidence highlights risks and UK\u2019s strategic choice<\/h2>\n