UK Lords push for stablecoin rules that preserve a market for pound tokens

A House of Lords committee is urging the United Kingdom to move ahead with stablecoin regulation while avoiding a framework that leaves pound-denominated tokens legal in theory but commercially unviable in practice. In a report released Wednesday and covered by Cointelegraph, the cross-party Financial Services Regulation Committee said the UK needs to maintain momentum on rulemaking but should rethink parts of the Bank of England and Financial Conduct Authority approach that could suppress development of a domestic sterling stablecoin sector. The intervention is notable because it does not reject tighter oversight; instead, it argues that supervision should be calibrated so regulated issuers can still build a usable market.

The committee’s starting point is that the UK has already fallen behind the United States and the European Union. The report says the absence of a clear domestic regime has suppressed development and investment even as global dollar-linked tokens such as USDT and USDC continue to gain scale. That competitive framing matters. Stablecoin policy is no longer only about consumer protection and financial stability; it is also about whether jurisdictions want to host issuers, payment activity and related infrastructure. By putting competitiveness alongside prudential questions, the Lords are effectively arguing that the UK cannot afford a regime that is so restrictive it pushes meaningful issuance and adoption elsewhere.

At the same time, the committee does not advocate a laissez-faire model. It supports requirements for fiat-referenced stablecoins to be backed one to one by high-quality assets and endorses a proposed Bank of England backstop lending facility for systemic issuers. Those positions show the report accepts the core principle that payment stablecoins should be built around strong reserves and resilience mechanisms. The criticism is directed at how some of those safeguards are being operationalized. In particular, the committee highlighted concern over a proposal that systemic issuers hold at least 40% of backing assets in unremunerated central bank deposits, warning that the measure has attracted considerable criticism and could damage issuer viability and the international competitiveness of the UK market.

The report also questions proposed temporary holding limits for businesses and individuals, arguing they could unnecessarily inhibit growth of GBP stablecoins and prove difficult to implement. On remuneration, the committee notes that the Bank’s draft regime would prohibit returns for holders of systemic sterling stablecoins, placing the UK broadly in line with MiCA in the European Union. It also points to the U.S. debate, where the GENIUS Act bars payment stablecoin issuers from paying interest even as policymakers continue debating whether exchanges and other intermediaries should be able to offer reward-style programs. The Lords’ view is that once strict reserve rules are combined with a ban on interest or similar remuneration, the commercial logic for issuing a pound stablecoin becomes much harder to sustain.

That concern goes beyond issuer economics. The committee frames payment-focused stablecoins as instruments for faster, lower-cost transactions rather than investment products, which means their success depends on whether they can compete with existing payment methods on utility and distribution. If the UK imposes reserve and holding rules that materially reduce profitability while still restricting how the product can be used or incentivized, it risks creating a regime that satisfies policy goals on paper but fails to generate a functional market. The report therefore calls on HM Treasury, the Bank of England and the FCA to clarify how dual regulation of systemic issuers will work and to recalibrate measures such as holding limits and reserve requirements so sterling tokens can compete with other forms of payment in the UK.

For the RWA and stablecoin sector, the report is a reminder that the next phase of market growth will be shaped as much by regulatory design as by blockchain technology. Dollar stablecoins have gained global momentum partly because they combine clear use cases with increasingly credible legal frameworks. The UK now faces a strategic choice: regulate sterling stablecoins mainly as a risk to be contained, or as a payment category that should be supervised closely but given room to develop. The Lords are clearly pushing for the second path, arguing that if Britain wants a real role in tokenized money, it cannot regulate pound stablecoins into irrelevance before the market has a chance to form.