UK Lords warn BoE could regulate pound stablecoins into irrelevance
A House of Lords report backs UK stablecoin rules but warns Bank of England limits could make pound tokens commercially unworkable.
Intelligence analysis by GPT-5.4 Mini
UK peers want stablecoin regulation to move forward, but they argue the Bank of England and FCA should avoid rules that make sterling stablecoins too costly or impractical to issue. The report says the UK is already behind the US and EU and risks missing out if it overcorrects.
The UK is writing rules for digital pounds that can be sent like money on a phone. Lawmakers say the rules should keep people safe, but if they are too strict, the digital pounds could become so hard to use that nobody wants them.
Analysis
What the Lords are saying
A cross-party House of Lords committee says the UK should press ahead with stablecoin regulation, but not in a way that makes a pound-denominated market commercially unworkable. The report argues that the UK has lagged the US and EU, and that the lack of a clear regime has slowed stablecoin development and investment.
Where the committee agrees and disagrees
The committee supports several core ideas in the Bank of England and Financial Conduct Authority approach, including a 1:1 backing requirement with high-quality assets and a possible BoE backstop lending facility for systemic issuers. But it warns that some draft measures could do lasting damage to viability and competitiveness.
The biggest concern is a proposal for systemic issuers to keep at least 40% of backing assets in unremunerated central bank deposits. Peers say that rule has drawn heavy criticism and could hurt issuer economics and the UK market's international competitiveness. They also flag temporary holding limits for businesses and individuals as something that could slow growth and be hard to enforce.
Interest, rewards and competitiveness
The report also focuses on whether sterling stablecoins can offer any kind of return or reward. The draft regime would ban remuneration for holders of systemic sterling stablecoins, similar to the EU's MiCA framework, and the US GENIUS Act's prohibition on interest. The committee says the mix of strict reserve rules and no-interest treatment could weaken the business case for UK-issued tokens, especially while it is unclear whether card-style rewards or other incentives will be allowed.
The Lords say stablecoins should be treated mainly as payment tools, not investment products, but they also want the UK to nurture a pound stablecoin sector rather than simply police it. They urge the Treasury, BoE and FCA to stay on schedule, clarify how dual regulation will work, and adjust reserve and holding rules so sterling stablecoins can compete with other payment methods.
Key points
- A House of Lords committee supports stablecoin regulation but warns against rules that make sterling tokens commercially unworkable.
- The report says the UK is lagging the US and EU, and that the current lack of clarity has slowed stablecoin investment.
- Peers back 1:1 reserve backing and a potential BoE backstop facility for systemic issuers.
- They criticise a proposal to hold 40% of reserves in unremunerated central bank deposits, saying it could hurt competitiveness.
- The committee also warns that holding limits and bans on remuneration could reduce the viability of UK-issued stablecoins.
If the government adjusts the rules without weakening safety, sterling stablecoins could become a usable payments tool in the UK. Clear timelines and a workable regime could also help local issuers attract investment and compete with larger foreign stablecoin markets.
If reserve requirements, deposit rules and holding limits stay too strict, issuers may decide the UK market is not worth the cost. In that case, pound stablecoins could remain a small niche while dollar-backed tokens keep the lead.
