House of Lords warns UK risks losing stablecoin market

The House of Lords Financial Services Regulation Committee said in a new report that the UK risks losing ground in the global stablecoin market because unclear rules and Bank of England proposals could make pound-backed tokens commercially unattractive.

The report said regulatory uncertainty and delayed implementation timelines are discouraging firms from investing in pound-backed stablecoins and related products. The committee noted that firms may prefer jurisdictions where legal frameworks are progressing more quickly.

The committee flagged parts of the Bank of England’s proposed stablecoin framework for specific concern. One proposal would require systemic stablecoin issuers to hold 40% of their reserve assets in central bank deposits that do not pay interest. Industry participants told the committee that tying up a large share of reserves in non-yielding assets could raise costs for issuers.

Lawmakers called for clearer, commercially viable rules so firms can plan product launches, raise capital and build payment services tied to the pound without prolonged regulatory risk. The report recommended regulators adopt proportional safeguards that protect consumers and systemic stability while allowing commercially viable products to be developed.

The report noted that the wider market remains dominated by US dollar-backed tokens such as USDT and USDC, and that pound-backed stablecoins are comparatively few. It said that if firms choose to launch products offshore, the UK could see longer-term effects on payments and tokenised settlement systems.

The committee cited international developments as a factor in its concern. In the United States, lawmakers are advancing stablecoin-focused legislation including the GENIUS Act, and the European Union has begun implementing Markets in Crypto-Assets regulation. The report urged the UK to provide clearer rules and timetables to remain competitive with those markets.

The report concluded that overly prescriptive reserve requirements and slow rulemaking timelines reduce the incentive for firms to base operations in the UK. It recommended regulators consider designs that limit systemic risk while leaving room for market participants such as issuers and custodians to operate.