The Financial Services Regulation Committee of the UK House of Lords has called on the Bank of England to reassess its proposed restrictions on the amount of stablecoin assets consumers can hold. In its report published Wednesday, titled “Stablecoins: waiting for regulation,” the committee emphasized the need to ensure that new rules keep pace with the current stage of market development.
Proposed limits spark debate
The Bank of England had recommended a holding cap of £20,000 per individual and £10 million per corporate entity. However, some industry stakeholders have argued that such limits could undermine the UK’s competitiveness compared to neighboring markets without similar restrictions.
According to the report, the sterling-backed stablecoin sector remains in its infancy. The committee suggested that rather than imposing strict caps from the outset, regulators should instead closely monitor market growth and only enforce limits if clear risks to financial stability emerge.
Highlighting the early stage of the sterling-based stablecoin market, the committee recommended monitoring its development and only imposing asset limits if substantial risks to financial stability are clearly justified.
Concerns over reserve requirements
Beyond holding caps, the committee also questioned proposed rules regarding the structure of stablecoin issuers’ reserves. Specifically, it challenged the requirement for issuers to keep at least 40% of their collateral in non-interest-bearing central bank deposits, urging a reassessment of this mandate.
The committee noted that this obligation could have serious implications for the business models of stablecoin issuers seeking to operate in the UK. The assessment concluded that such requirements might impose significant pressure on the commercial viability of industry participants.
Glossary: A stablecoin is a type of digital token typically pegged to the value of a traditional asset such as the US dollar or British pound. Collateral assets held by issuers are reserves used to maintain this peg.
Signals of flexibility from the central bank
Recently, the Bank of England has indicated a willingness to take a more flexible stance. Last month, Sarah Breeden, Deputy Governor for Financial Stability, admitted that the proposed restrictions could be considered “overly cautious.”
In an interview with the Financial Times, Breeden stated that the bank is carefully examining alternative ways to manage potential risks stemming from stablecoins entering the financial system. This marks one of the clearest signals yet that the central bank may revise its initial proposals.
Stablecoins are digital tokens tied to fiat currencies like the US dollar or British pound, or to other traditional financial assets. In recent years, central banks and lawmakers have worked to frame appropriate regulations for the sector, with the Bank of England’s approach often perceived as comparatively strict by industry observers.
