A House of Lords committee says the UK should move ahead with stablecoin regulation but avoid rules that would make a pound-denominated stablecoin market commercially unviable. In a report published this week, the cross-party Financial Services Regulation Committee warned that the UK is falling behind the United States and the European Union and that a lack of a clear regulatory regime has suppressed stablecoin development and investment, even as US dollar–pegged tokens such as USDT and USDC have expanded globally.
The committee supports many elements of the Bank of England and Financial Conduct Authority framework, including requirements that fiat-referenced stablecoins be backed one-for-one by high-quality assets and the proposal for a BoE backstop lending facility for systemic issuers. However, it flagged several draft measures in the Bank’s November 2025 consultation as potentially damaging to the viability and competitiveness of UK-issued stablecoins.
Most notably, the Lords singled out the proposal that systemic stablecoin issuers hold at least 40% of their reserve assets in unremunerated central bank deposits. The committee said this requirement has attracted substantial criticism and could harm issuers’ business models and the international competitiveness of the UK market. It also raised concerns about proposed temporary holding limits for businesses and individuals, calling them likely to inhibit growth and be difficult to implement in practice.
The report also addresses the politically sensitive question of whether stablecoin holders can receive interest or other remuneration. The Bank’s draft regime would ban remuneration for holders of sterling-denominated systemic stablecoins, aligning the UK with the EU’s MiCA rules, which prohibit issuers from paying interest. The US GENIUS Act likewise bans interest payments by payment stablecoin issuers, though debate in the US continues over whether intermediaries can offer rewards.
The committee frames payment-focused stablecoins primarily as instruments for fast, low-cost payments rather than as investment products. It warned, however, that combining strict reserve requirements with a ban on interest or other incentives could undermine the business viability and competitiveness of UK tokens, especially while it remains unclear whether card-style rewards or other non-interest incentives would be permitted.
These conclusions follow months of evidence-gathering in which peers questioned industry and academic witnesses about whether stablecoins can grow beyond on- and off-ramps into broader crypto markets, and probed risks around financial stability, bank funding, consumer protection, and illicit finance. While stressing that the expansion of stablecoin markets must not create new opportunities for illicit activity, the committee urged regulators to nurture as well as police a sterling stablecoin sector.
The Lords called on His Majesty’s Treasury, the Bank of England, and the FCA to adhere to existing implementation timelines, clarify how dual regulation of systemic issuers will operate in practice, and recalibrate measures such as holding limits and reserve composition so that pound sterling stablecoins can compete with other payment methods in the UK rather than being effectively regulated out of relevance.