House of Lords warns UK risks falling behind in stablecoins

A report from the House of Lords Financial Services Regulation Committee warns that Britain risks losing ground in the global stablecoin market unless regulators provide clearer, commercially viable rules for digital asset issuers and amend aspects of the Bank of England’s proposed framework.

The committee says regulatory uncertainty and restrictive requirements are discouraging investment in pound-backed stablecoins and related products. Industry participants reported holding back on projects and financing because rules remain unclear and implementation timelines are delayed.

The report highlights a specific Bank of England proposal that would require systemic stablecoin issuers to hold 40% of backing assets in non-interest-bearing central bank deposits. The committee flagged that such a requirement could lower returns for issuers and make UK-issued stablecoins less competitive against dollar-pegged tokens issued in other jurisdictions.

Global stablecoin issuance remains concentrated in US dollar-pegged tokens, and pound-backed options are limited. The committee warned that continued reliance on foreign-issued stablecoins could leave the UK dependent on overseas payment infrastructure as token-based settlement systems become more common.

The report notes progress on stablecoin rules in other jurisdictions, citing US congressional proposals such as the GENIUS Act and the European Union’s Markets in Crypto-Assets framework. The committee says the UK must move faster on its regulatory approach if it wants to support a domestic market for stablecoins.

Recommendations include clearer, commercially practical rules for digital asset issuers, re-examining proposals that could undermine the economics of issuing pound-backed stablecoins, and closer engagement between regulators and industry. The committee calls for safeguards that manage financial stability risks while allowing a workable domestic market to develop.

Stablecoins are digital tokens designed to hold a stable value by being pegged to fiat currencies and are used for payments, trading and settlement. The report concludes that regulatory clarity and proportionate requirements will determine whether the UK can attract issuance and infrastructure for pound-backed stablecoins.