The Financial Services Regulation Committee of the UK’s House of Lords has urged the government to advance its stablecoin regulatory framework while cautioning against rules that could render sterling-backed stablecoins commercially unviable. The committee, composed of members from across political parties, released its findings Wednesday, highlighting the need for balanced regulations to keep the UK competitive in the global digital assets market.
The UK loses ground in the stablecoin race
According to the report, the UK is lagging behind the United States and the European Union when it comes to developing a clear regulatory approach for stablecoins. While USD-pegged assets like USDt and USDC have experienced global growth, uncertainty around UK regulations has hindered domestic investment and activity in the space.
The committee expressed support for much of the joint proposal by the Bank of England and the Financial Conduct Authority, particularly the requirements for 1:1 backing of fiat-referenced stablecoins with high-quality liquid assets and emergency central bank liquidity for systemic issuers.
The committee emphasized the urgent need for a regulatory framework supportive of sterling-linked stablecoins, warning that failure to do so risks ceding ground to international competitors.
Main objections to proposed rules
However, the report warned that certain aspects of the Bank of England’s November 2025 consultation paper could create issues for the market. Notably, it criticized the proposal requiring systemic issuers to hold at least 40% of reserves in non-interest-bearing central bank deposits, arguing that this could undermine their business models and the UK’s global competitiveness.
Temporary holding limits for corporates and individuals were also singled out as potentially unnecessary and impractical constraints. The committee argued these limits could slow the growth of sterling stablecoins without offering meaningful risk reduction.
| Regulatory measure | Committee stance |
|---|---|
| 1:1 high quality asset backing | Supported |
| Central Bank liquidity for systemic issuers | Supported |
| At least 40% reserves in non-interest central bank deposits | Criticized |
| Temporary holding limits | Criticized for restraining growth |
Yield ban and regulatory uncertainty take center stage
The ban on paying any yield to holders of sterling-denominated systemic stablecoins emerged as another key issue. The approach tracks with the European Union’s MiCA framework, which prohibits yield for stablecoin holders. Similarly, the US GENIUS Act restricts the payment of interest on payment stablecoins, though debates continue around whether exchanges and brokers may offer alternative rewards.
Mini glossary: MiCA (Markets in Crypto Assets) is the EU’s comprehensive crypto regulation framework. The GENIUS Act is a key US proposal for payment stablecoin rules.
The committee noted that payment-focused stablecoins are primarily designed for fast and low-cost transactions rather than as investment products. Yet it warned that combining strict reserve requirements with a blanket yield ban could undermine the commercial sustainability of UK-issued tokens. It also highlighted ongoing uncertainty over whether alternative, non-interest rewards such as card-like incentive programs would be permitted—a key issue for the sector’s future.
The report cautioned that enforcing tough reserve rules together with a yield ban may put excessive pressure on the business models of UK-based stablecoins.
Parliament calls for regulatory clarity and momentum
The committee’s findings reflect months of consultations with industry and academia, examining whether stablecoins could go beyond serving merely as an on-off ramp to crypto markets and evaluating their impact on financial stability, consumer protection, and bank funding risks. Varied international approaches, particularly regarding non-bank issuers in the US, were also considered.
While stressing the need to guard against illegal activities in a growing stablecoin market, the House of Lords urged UK authorities to couple oversight with supportive policies. It called on the Treasury, Bank of England, and Financial Conduct Authority (FCA) to stick to the existing policy timetable, clarify dual supervision for systemic issuers, and create a framework that enables sterling stablecoins to compete with other domestic payment options.
