Headline: House of Lords urges Bank of England to rethink strict stablecoin curbs, warns of harm to UK market
The U.K. House of Lords’ Financial Services Regulation Committee has urged the Bank of England to revisit parts of its proposed stablecoin rulebook, arguing that some measures could stifle the nascent pound stablecoin market and hurt issuer viability.
In a report titled "Stablecoins: waiting for regulation" published Wednesday, the cross-party committee challenged two central elements of the BoE’s proposals: limits on how much consumers and businesses can hold in a single stablecoin, and a requirement that at least 40% of issuers’ backing assets be held as interest-free central bank deposits.
Quick facts:
- Proposed holding limits by the BoE: £20,000 (~$27,000) per individual and £10 million (~$13.5 million) per business.
- Proposed backing rule: minimum 40% of reserves must be in central bank deposits that pay no interest.
- Report recommendation: monitor market growth and only impose holding caps if clear financial stability risks emerge.
Stablecoins are digital tokens pegged to traditional assets such as the U.S. dollar or British pound and are increasingly central to blockchain payments, decentralized finance and tokenized finance generally. As global regulators move to shape how they’re issued and used, the BoE has proposed what many in the industry view as some of the more conservative limits.
The Lords committee warned that pre-emptive holding caps risk making the U.K. less competitive versus jurisdictions without such constraints and could hinder business models for issuers. “Given the early stage of the GBP stablecoin market, rather than pre-emptively impose holding limits, the Bank should consider monitoring the growth of the market and imposing holding limits only if the financial stability risks clearly warrant it,” the report said.
It also flagged the 40% central bank deposit requirement as potentially damaging to commercial viability, noting the policy could materially raise costs for issuers and reduce product innovation.
The Bank of England has signaled it may move away from its hardest-line proposals. Deputy Governor for Financial Stability Sarah Breeden told the Financial Times last month that the initial limits were “overly conservative” and that the BoE is “looking very hard at whether there are different ways we can manage what we think is an important risk as stablecoins come into play.”
The Lords’ report increases pressure on the BoE to strike a balance between guarding financial stability and fostering a competitive U.K. stablecoin ecosystem as regulatory design enters its next phase.
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