UK Lords push regulators to soften stablecoin rules before market bolts

The UK House of Lords Financial Services Regulation Committee on Wednesday said Britain is trailing the United States and the European Union on stablecoin regulation, urging the Bank of England and the Financial Conduct Authority to revise several proposals it said risk stunting a nascent market before it can take root. The committee's report, titled "Stablecoins: waiting for regulation," broadly endorsed the BoE and FCA's framework for regulating systemic and non-systemic sterling stablecoins, but flagged specific provisions as poorly calibrated against the country's international competitors.

Backing assets and holding limits: Per the report, the most pointed criticism was leveled at the Bank of England's proposal to require systemic sterling stablecoin issuers to hold at least 40% of their backing assets in unremunerated central bank deposits. The committee said the BoE should conduct more granular modeling of those requirements, reconsider whether to remunerate those deposits at the base rate, and adopt a less prescriptive, principles-based approach to backing the overall asset composition.

On holding limits — the BoE's proposed caps of £20,000 for individuals and £10 million for businesses — the committee argued the central bank should not impose them pre-emptively at all. Instead, it recommended monitoring market growth and triggering limits only if financial stability risks clearly warrant action, citing concerns that the caps would be both commercially damaging and technically difficult to enforce. No other jurisdiction currently imposes holding limits of this kind, the report noted.

Banks and capital requirements: The committee also took aim at restrictions on commercial banks issuing stablecoins, calling the Prudential Regulation Authority's current requirements — which confine stablecoin issuance to insolvency-remote entities under distinct branding — unduly restrictive. The PRA reaffirmed that position in a new Dear CEO letter issued May 18, weeks after the committee had finished taking evidence, but the committee said the requirements should nonetheless be revised. On capital, the FCA was also asked to reconsider whether its k-factor prudential requirement — which scales with the volume of stablecoins in circulation rather than with risk — is an appropriate measure of issuers' capital needs.

Illicit finance and systemic designation: The committee pressed HM Treasury to clarify how it will determine when a stablecoin qualifies as systemic, and recommended that quantitative thresholds be published to give issuers planning certainty. It called on HM Treasury, the FCA, and the BoE to jointly assess whether existing legal frameworks are sufficient to detect and deter illicit activity through private "unhosted" wallets, and said legislation to restrict their use should be prepared if necessary. The global stablecoin market stood at roughly $315 billion as of 2026, the report noted, with over 99% denominated in U.S. dollars and Tether and Circle-issued tokens accounting for around 90% of that total. The sole UK-issued fiat-referenced stablecoin, tokenized GBP (tGBP), had a market cap of $1.53 million as of March 2026 — a rounding error by global standards. The FCA's full cryptoasset regime, including stablecoins, is expected to come into force on October 25, 2027.

"The global stablecoin market is dominated by U.S. dollar stablecoins and evolved to serve crypto asset trading," committee chair Baroness Noakes DBE said. "The UK is lagging behind compared with the U.S. and the EU, but is now moving in the right direction. Regulation needs to allow innovation while ensuring that risks are effectively mitigated."

The Block has previously covered industry pushback on the BoE's holding caps, the central bank's signals that it was reconsidering its framework, and HM Treasury's plans to integrate stablecoins into the UK payments perimeter.