UK House of Lords Tells Bank of England to Ease GBP Stablecoin Rules

The House of Lords Financial Services Regulation Committee published a blunt assessment on June 3, 2026, warning that the Bank of England's proposed stablecoin regime contains elements so restrictive they could strangle a pound-denominated stablecoin market before it ever takes root. The report, titled Stablecoins: waiting for regulation, concluded a four-month inquiry launched in January and directed its sharpest criticism at rules that, in the committee's view, diverge from international equivalents in ways that serve neither financial stability nor UK competitiveness [1][2].

A 40% Reserve Rule That Echoes Brussels

The most contested element of the Bank of England's November 2025 consultation paper is the requirement that systemic stablecoin issuers hold at least 40% of backing assets in unremunerated central bank deposits; that is, funds parked at the BoE earning zero interest. The remaining 60% may be held in short-term UK government debt. The Lords committee identified this as a point of serious concern, noting that the requirement imposes an effective yield drag on issuers that has no equivalent in the US framework established by the GENIUS Act, and exceeds even the reserve floors set under the EU's Markets in Crypto-Assets (MiCA) regulation.

The parallel to MiCA is not incidental. Under MiCA, non-significant euro stablecoins face a 30% bank-deposit floor, rising to 60% for significant tokens, and issuers are prohibited from paying interest to holders. The combined effect has made euro-denominated stablecoins commercially marginal: the global stablecoin market reached a record $322 billion in May 2026, yet US dollar-denominated tokens account for approximately 98% of that total [2]. Euro stablecoins have barely registered. The Lords committee is explicitly warning that a similar architecture for sterling risks producing the same outcome [1][3].

Baroness Sheila Noakes DBE, who chairs the committee, framed the competitive risk directly:

"The global stablecoin market is dominated by US dollar stablecoins and evolved to serve cryptoasset trading. The UK is lagging behind compared with the US and the EU but is now moving in the right direction. There are, however, elements of the proposals which should be reconsidered, particularly in relation to holding limits, unremunerated backing assets, and restrictions on commercial banks issuing stablecoins." [1]

Holding Limits: Impractical and Growth-Inhibiting

The second major concern centres on temporary holding limits that the BoE proposed as a safeguard against rapid deposit migration from commercial banks into stablecoins. The November 2025 consultation paper set those limits at £20,000 per individual and £10 million per business. The committee concluded these figures are impractical for high-value commercial use cases and could choke off the very corporate adoption that would give GBP stablecoins economic relevance.

The report was direct: "The Bank should not pre-emptively impose holding limits, and should use them only if the financial stability risks warrant it, because they could unnecessarily inhibit the growth of GBP stablecoins and prove impractical to implement" [2]. The committee called on the BoE to conduct more granular modelling of how holding limits would affect high-value use cases before any restrictions are enacted [1][2].

Significantly, the BoE itself appears to be reconsidering. In May 2026, Sarah Breeden, Deputy Governor for Financial Stability, acknowledged in an interview with the Financial Times that the central bank's initial plans may have been "overly conservative" and that the BoE is "genuinely open" to alternatives [4]. Bloomberg separately reported that the BoE is weighing aggregate issuance caps on total stablecoin supply as a substitute for per-holder limits, a mechanism that would impose less friction on legitimate large-scale users while still constraining systemic growth risk [4]. Breeden has confirmed that the BoE's final stablecoin policy and updated draft rules will be published in June 2026.

Commercial Banks and the Interest Question

A third area of concern is the BoE's proposal to bar commercial banks from issuing their own fiat-backed stablecoins. The committee argued this restriction would limit participation and innovation in the nascent GBP stablecoin market, and called for its reconsideration [1][2]. On the interest prohibition, the existing FCA framework and BoE consultation both maintain that systemic stablecoins should not pay yield to holders, a position shared by MiCA and the GENIUS Act, though the Lords report urged regulators not to apply a more severe risk lens to stablecoins than to other established payment instruments [2].

The Regulatory Comparison

Rule Element — BoE Proposal (Nov 2025) — Lords Recommendation — MiCA (EU) — GENIUS Act (US)

Unremunerated reserve floor — 40% at BoE — Reduce or reconsider — 30-60% (bank deposits) — No floor (Treasuries/deposits)

Individual holding limit — £20,000 per coin — Use only if stability risk warrants — Not specified — Not specified

Business holding limit — £10 million per coin — Model high-value impact before imposing — Not specified — Not specified

Commercial bank issuance — Prohibited — Should be permitted — Permitted for licensed banks — Permitted for licensed banks

Interest to holders — Prohibited — Maintain prohibition — Prohibited — Prohibited

Regime timeline — Final rules June 2026 — Adhere to timeline — In force since June 2024 — In force since July 2025

UK at a Fork

The Lords report arrives at a moment when the architecture of the GBP stablecoin market is still entirely open. No significant sterling stablecoin issuers currently operate at scale, and the UK's regulatory perimeter for stablecoins is only just being formalised under the Financial Services and Markets Act 2023, with new rules for digital asset activities scheduled to come into force on October 25, 2027 [2].

The committee acknowledged that no one yet knows whether or how a UK-based stablecoin market could develop, but stressed that the regulatory framework will be the decisive factor in whether it develops at all. "The shape of any UK stablecoin market will be strongly influenced by the direction of the regulatory regime, and so it is important that the regulators get this balance right," Baroness Noakes said [1].

The stakes are clear in the international context. The US GENIUS Act, which came into force in July 2025, has created a federal licensing path for dollar stablecoin issuers with no reserve floor and no holding limits, accelerating issuance [3]. Major issuers such as Circle and PayPal have organised their operations around the dollar-centric framework. If the BoE softens its reserve and holding-limit requirements, the UK becomes a viable jurisdiction for non-dollar stablecoin issuance in a European market still constrained by MiCA's stricter architecture. If the BoE maintains the current proposals, the committee's own analysis suggests the GBP stablecoin market will follow the euro: technically regulated, commercially dormant [1][2][4].

The committee's report carries persuasive authority only. HM Treasury, the FCA, and the Bank of England are not required to accept its recommendations. But with Breeden already signalling openness to revisions and final rules due before the end of June, the June 3 report lands at the precise moment when those choices are being made [1][2].

References

[1] House of Lords Financial Services Regulation Committee, "Stablecoins: waiting for regulation," June 3, 2026. https://www.fintech.global/2026/06/05/stablecoin-rules-must-change-peers-warn-regulators/

[2] CoinGeek, "UK warns against delaying stablecoin rule, suppressing innovation," June 5, 2026. https://coingeek.com/uk-warns-against-delaying-stablecoin-rule-suppressing-innovation/

[3] Eco Support, "MiCA vs GENIUS Act vs UK FCA," May 27, 2026. https://eco.com/support/en/articles/14796313-mica-vs-genius-act-vs-uk-fca

[4] CryptoNews, "Bank of England ready to water down 'overly conservative' stablecoin rules," May 14, 2026. https://cryptonews.net/news/finance/32861418/

[5] Skadden, "Bank of England Revises Its Proposed Regime for Regulating Systemic Stablecoins," November 13, 2025. https://www.skadden.com/insights/publications/2025/11/bank-of-england-revises-its-proposed-regime-for-regulating-systemic-stablecoins

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