House of Lords urges softer sterling stablecoin rules

The House of Lords Financial Services Regulation Committee has urged the Bank of England and the Financial Conduct Authority to relax planned rules for sterling stablecoins, highlighting concerns over a proposed requirement that systemic issuers hold at least 40% of backing assets in unremunerated central bank deposits and over pre-emptive holding limits.

The committee published its report on Wednesday and broadly endorsed the framework for regulating systemic and non-systemic sterling stablecoins while flagging several provisions it judged poorly calibrated against the United States and the European Union.

On backing assets, the committee asked the Bank of England to run more detailed modelling of the 40% central bank deposit requirement, to reconsider whether those deposits should be remunerated at the Bank's base rate, and to issue guidance focused on outcomes rather than fixed asset mixes.

On holding limits, the committee criticised proposed caps of £20,000 for individuals and £10 million for businesses. It recommended that regulators monitor market growth and impose limits only if clear financial stability risks emerge, noting no other jurisdiction currently enforces such caps and saying they could be commercially damaging and technically difficult to enforce.

The committee challenged Prudential Regulation Authority rules that restrict commercial banks to issuing stablecoins through insolvency-remote entities with separate branding, describing the conditions as overly restrictive. The PRA issued a Dear CEO letter on May 18 reaffirming its position after the committee had completed evidence gathering; the committee maintained the policy merits revision.

On capital, the report asked the Financial Conduct Authority to reconsider its k-factor approach, which ties prudential requirements to the volume of stablecoins in circulation rather than the specific risk profile of issuers, and recommended a review to better align capital rules with underlying risks.

The committee pressed HM Treasury to clarify how it will decide when a stablecoin is “systemic” and to publish quantitative thresholds so issuers can plan. It also asked HM Treasury, the FCA and the Bank of England to assess whether existing laws detect and deter illicit finance through private unhosted wallets and to prepare legislation to restrict their use if current frameworks prove insufficient.

The report placed the UK's plans in global context, saying the stablecoin market reached about $315 billion in 2026, with more than 99% denominated in US dollars and roughly 90% of supply issued by two firms. The only UK-issued fiat-referenced stablecoin, tokenized GBP (tGBP), had a market capitalisation of about $1.53 million as of March 2026. The FCA's full cryptoasset regime is due to come into force on October 25, 2027.

“The global stablecoin market is dominated by U.S. dollar stablecoins and evolved to serve crypto asset trading,” committee chair Baroness Noakes DBE noted.

The committee's recommendations call for flexible, outcome-based rules, clearer criteria for systemic designation and coordinated work on anti-money laundering gaps related to private wallets.