- A House of Lords report says the UK should relax some stablecoin rules to boost competitiveness.
- Proposed reserve and holding limits could hinder growth and innovation.
- Faster regulatory clarity is needed to stop the UK falling behind globally.
Recently proposed stablecoin regulations may need to be loosened to enable the UK industry to develop and compete internationally, found a report released today, 3 June, by the House of Lords, the UK’s upper house of parliament.
The UK “should be seeking to enable a GBP stablecoin market,” the report said, by providing regulatory certainty and clear timelines. Otherwise, it “risks lagging behind global counterparts, where regulatory regimes are more established and provide clarity for market participants.”
The report was authored by the House of Lords Financial Services Regulation Committee, a cross-party committee that makes recommendations on financial legislation. It reviewed recent regulatory proposals by the Bank of England and the UK’s Financial Conduct Authority (FCA), published in November 2025.
It also considered responses from Mastercard, Revolut, NatWest, and other major players across the UK finance world, to a UK parliament call for evidence on the growth and proposed regulation for UK stablecoins.
The report praised stablecoins for their potential to power rapid, low-cost transfers, efficient settlement, and smart contracts.
Regulatory recommendations
Key recommendations in the report centred around regulatory flexibility. While the Committee praised the Bank of England and FCA’s requirement that all stablecoins be backed 1:1 with fiat currency, it urged the Bank to reconsider the requirement to hold at least 40% of the backing to be held in unremunerated central bank accounts.
The 40% requirement “could have a significant impact on the business viability of stablecoin issuers in the UK, and the international competitiveness of the UK market,” highlighted the report.
Most of those who responded to the call for evidence argued that the requirement would negate many of the benefits of stablecoins in payments, raising costs for issuers and customers alike. Instead, “the Bank [of England] should be open to a principles-based, less prescriptive approach to the composition of backing assets” and consider remunerating at base rate the backing assets it holds as deposits, said the report.
The report also urged regulators to “ensure that in regulating stablecoins they are not inadvertently applying a more severe risk lens than they do for other forms of payment” – a fear that has been echoed by many in the banking world. Despite the risk of stablecoins being used to fund criminal activities or launder money, these risks can be mitigated “as they currently are with other forms of money,” the report pointed out.
To enable the stablecoin industry to develop to its full potential, regulation should also be usage-agnostic, and not consider or regulate around one specific use case (however popular) for the coin. This will give stablecoins the best chance to take advantage of the “potential for future innovations and novel uses, and regulators the opportunity to adapt to new risks.
The Bank of England should also not pre-emptively impose per-coin holding limits, set at £20,000 for individuals and £10 million for businesses in the current proposal. Holding limits could “unnecessarily inhibit the growth of GBP stablecoins” and be difficult to implement. Instead, regulators should hold off on imposing any limits and do so “only if the financial stability risks clearly warrant it.”
The report also commented on the Prudential Regulation Authority’s (PRA) requirement that deposit-takers (which includes commercial and central banks) issue stablecoins under distinct branding and and from insolvency-remote entities. Per the report, the requirement is “unduly restrictive and risks inhibiting innovation unnecessarily,” and should be altered.
Despite other recommendations for the cautious loosening of some of the rules that could restrict stablecoin growth, the report brought attention to some of the dangers of their widespread usage. The Committee suggested a review of the existing legal framework around private, unhosted wallets, and a potential restriction of their usage if current regulations are not enough to deter illegal usage.
Ultimately, the report called for a slightly more relaxed regulatory regime, but more importantly, one that “adheres to current timelines.”
—
The US’s GENIUS Act, passed nearly a year ago, set the ball rolling for dollar-backed stablecoins in the US, and new regulations around the world are promoting innovation across the payments industry.
The UK should act soon, argued the report, before it gets left behind in the dust. Protracted uncertainty could solidify the dominance of dollar-backed stablecoins.
