UK House of Lords Committee Warns Strict Stablecoin Rules Could Undermine Sterling Tokens

The UK House of Lords Financial Services Regulation Committee urged the Bank of England to rethink proposed stablecoin safeguards, arguing that measures meant to protect financial stability could make pound sterling stablecoins uneconomic before the market has a chance to develop. In a June 3 report, the committee backed 1:1 backing and acknowledged risks including financial stability, consumer protection and illicit finance, but said the Bank’s proposed temporary holding limits and reserve rules may be too rigid for a nascent market. At the center of the debate are proposed caps of £20,000 per coin for individuals and £10 million for businesses, as well as a requirement that systemic sterling stablecoin issuers hold at least 40% of backing assets as non-interest-bearing deposits at the Bank of England, with up to 60% in short-term sterling-denominated UK government debt. The committee said those choices could materially affect issuer viability and UK competitiveness, and urged the Bank to consider remunerating deposits held at the central bank at Bank Rate and to adopt a more principles-based approach to backing assets. The report said holding limits should be imposed only if financial stability risks clearly warrant them and called for clearer guidance on when a stablecoin becomes systemic, a threshold that would move issuers from Financial Conduct Authority oversight into dual regulation by the Bank and the FCA. The intervention adds pressure ahead of draft Bank of England rules expected in mid-2026, with final rules and issuer applications anticipated by year-end, and highlights the UK’s effort to balance safeguards with ambitions to build a meaningful sterling-denominated stablecoin market in a global sector still dominated by dollar tokens from Tether and Circle.