The UK House of Lords is sounding the alarm over proposed regulations from the Bank of England (BoE) that could render pound sterling stablecoins commercially unviable. In a report released on Wednesday, the cross-party Financial Services Regulation Committee articulated that while it supports the establishment of a regulatory framework, overly strict rules could stunt the growth of the UK’s burgeoning stablecoin market.
Regulatory Framework Needed, But Not at All Costs
In its findings, the committee highlighted the risk of the UK falling behind global standards set by the United States and the European Union, with current ambiguities surrounding stablecoin regulation identified as a barrier to investment and development. “We are lagging behind,” the report states, emphasizing the necessity for a clear regulatory regime to foster the UK’s competitive edge in the evolving financial landscape.
Concerns Over BoE's Proposed Measures
The House of Lords committee agrees with some BoE proposals, particularly those concerning the 1:1 backing of fiat-referenced stablecoins by high-quality assets and the implementation of a backstop lending facility for systemic issuers. However, critical concerns were raised regarding specific aspects of the BoE's November 2025 consultation, particularly the stipulation requiring systemic issuers to hold a minimum of 40% of their backing in unremunerated central bank deposits. This measure has attracted significant criticism and is seen as a potential hindrance to the stability and international competitiveness of UK-issued stablecoins.
Impact of Interest Prohibitions and Business Viability
The report further scrutinizes proposed restrictions on returns—namely, a ban on providing interest or other remuneration for holders of pound-denominated stablecoins. This would align the UK with the European Union’s Markets in Crypto-Assets Regulation and the US GENIUS Act, both of which impose similar prohibitions. Peers argue that such restrictions could adversely affect the operational viability of UK stablecoin offerings, potentially deterring investment.
Future Prospects for a Stablecoin-Friendly Environment
As the committee engaged in extensive consultations with industry experts and academics, concerns emerged regarding the risks of stablecoins extending beyond their primary role as conduits into the crypto ecosystem. Calls for nurturing the UK’s approach to stablecoins—rather than imposing an overly cautious regulatory environment—were underscored. The committee urged His Majesty's Treasury, the Bank of England, and the Financial Conduct Authority to adhere to established timelines while recalibrating the proposed measures to enable pound stablecoins to compete effectively.
Conclusively, the committee's report encapsulates a pivotal moment for the UK’s financial future, as it navigates the balance between ensuring consumer protection and fostering innovation in the digital currency space.
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