The UK should continue to regulate stablecoins but avoid laws that make the sterling stablecoin market commercially impractical, a House of Lords committee warns in a report published on Wednesday.
The Cross-Party Committee on the Regulation of Financial Services has said the UK is “lagging behind” the US and the European Union and that the lack of a clear regime has “stifled stablecoin development and investment in the UK” despite the growth of global US dollar-pegged tokens such as USDt (USDT) and USDC (USDC).
While endorsing much of the framework proposed by the Bank of England (BoE) and the Financial Conduct Authority, the committee warned that some measures could threaten the viability and competitiveness of UK-issued stablecoins.
The report supports requirements for fiat-backed stablecoins to be backed 1:1 by high-quality assets and the proposed BoE margin loan for systemic issuers.
However, several elements of the November 2025 Bank were highlighted consultation as potentially harmful, warning that the requirement for systemic issuers to hold at least 40% of their underlying assets in unpaid deposits with the central bank has been met with “significant criticism” and could “negatively impact the viability of stablecoin issuers and the international competitiveness of the UK market”.
Proposed ephemeral coin holding limits for businesses and individuals are also flagged as measures that could “unnecessarily hamper the development of GBP stablecoins” and prove impractical to implement.
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Interest and reward bans create uncertainty in the UK token cloud
Peers are also turning to the politically sensitive issue of profits. The Bank’s draft system would prohibit rewards to holders of sterling-denominated stablecoins, putting the UK on par with the EU’s Cryptocurrency Markets Regulation (MiCA), which prohibits stablecoin issuers from paying interest to holders. The US GENIUS Act prohibits issuers of payment stablecoins from paying interest, although there is debate in the US over whether exchanges and other intermediaries can offer rewards.
House of Lords Stablecoin Report. Source: House of Lords
The Commission presents payment-oriented stablecoins primarily as instruments enabling speedy and low-cost transactions, rather than as investment products. However, it warns that the combination of strict reserve rules and a ban on interest or other remuneration could impact the “business viability” and competitiveness of tokens issued in the UK, especially when it is unclear whether card rewards or other interest-free incentives will be permitted.
Evidence from the study highlights the risk and strategic choice of the UK
The conclusions follow months of evidence-gathering during which the committee pressed industry and academic witnesses on whether stablecoins can go well beyond “moving in and out of cryptocurrencies,” questioned them on financial stability, bank financing and consumer protection risks, and explored sharply divergent views on the U.S. GENIUS Act’s approach to non-bank issuers.
Stressing that the expansion of stablecoin markets “must not create new opportunities for illicit activities to flourish”, the Lords argue that the UK should seek to support, rather than just police, the sterling-denominated stablecoin sector.
They are calling on HM Treasury, the Bank of England and the FCA to stick to existing timetables, clarify how dual regulation of systemic issuers will work in practice, and recalibrate measures such as holding limits and reserve requirements so that sterling stablecoins can “compete with other forms of payment in the UK” rather than being subject to frivolous regulation.
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