Bank of England stablecoin caps may choke the UK’s pound-token market before launch
A House of Lords committee has instructed the Bank of England to rethink stablecoin caps before the UK’s regime is finalized.
The Financial Services Regulation Committee printed its report, Stablecoins: waiting for regulation, on June 3, turning a technical debate over reserve design right into a check of whether or not the UK can construct a pound-denominated stablecoin market with out making it uneconomic from the begin.
The stress level is the design of the safeguards. The committee helps 1:1 backing and accepts that stablecoins can create dangers round monetary stability, shopper safety, and illicit finance.
Its problem is extra particular: the Bank’s proposed safeguards may be calibrated for a market that doesn’t but exist in the UK.
Two measures sit at the middle of that critique. The Bank has proposed short-term per-coin holding limits of £20,000 for people and £10 million for companies.
It has additionally proposed requiring systemic sterling stablecoin issuers to maintain a minimum of 40% of backing belongings as deposits at the Bank of England that don’t earn curiosity.
The Lords report says these decisions may form whether or not a GBP stablecoin market develops in any respect. If a pound stablecoin can’t be held in helpful quantities or generate sufficient reserve revenue to assist the issuer’s enterprise, the UK may find yourself with clear guidelines, however few companies prepared to construct the merchandise these guidelines are supposed to govern.
The Rules Under Pressure
The Bank of England’s November 2025 consultation proposed a break up backing mannequin for systemic sterling stablecoins.
At least 40% of backing belongings would sit as deposits at the Bank, whereas as much as 60% could possibly be held in short-term sterling-denominated UK authorities debt.
The Bank’s case is that central-bank deposits present rapid liquidity if holders search giant redemptions in a brief interval. In its session, it stated the threshold aligned with estimates of potential short-term redemption requests drawn from stress occasions in conventional and crypto markets.
The 60% government-debt allowance was meant to enhance issuer viability in contrast with an earlier mannequin that might have positioned all backing belongings in unremunerated central-bank deposits.
That compromise is now beneath stress. The Lords committee concluded that remuneration and liquidity necessities for backing belongings may have a major impact on issuer viability and UK competitiveness.
It urged the Bank to think about the affect of requiring a proportion of unremunerated belongings and to rethink whether or not deposits held at the Bank needs to be remunerated at Bank Rate.
The committee additionally pushed the Bank towards a extra versatile strategy to backing-asset composition. It stated the Bank needs to be open to a principles-based and fewer prescriptive mannequin, with necessities adjusted as market conduct and dangers turn out to be clearer.
The similar logic applies to holding limits. The Bank’s proposal would cap every particular person’s holdings of a systemic stablecoin at £20,000 per coin and every enterprise’s holdings at £10 million, with potential exemptions for companies that want larger balances in regular operations.
In a November news release, the Bank framed these limits as short-term instruments to guard entry to credit score whereas the monetary system adapts to new varieties of cash.
The committee’s suggestion was sharper. Given the early stage of the GBP stablecoin market, it stated the Bank ought to monitor progress and impose holding limits provided that monetary stability dangers clearly warrant them.
If limits turn out to be needed, the committee stated the Bank ought to seek the advice of to make sure they are often applied in a sensible approach that also meets the Bank’s goals.
Why The Bank Is Cautious
The Bank’s concern goes past competitors with banks. In the UK, financial institution deposits do extra work inside the credit score system than they do in another main markets.
In oral evidence to the committee in March, Sarah Breeden, the Bank’s deputy governor for monetary stability, stated banks present about 85% of family credit score in the UK, in contrast with roughly 30% to 40% in the US.
Her argument was that if deposits moved quickly into cost stablecoins and that funding was not changed, the end result could possibly be a drop in credit score for households and companies.
That is the financial-stability case for a circuit breaker. The Bank is designing for a future through which stablecoins are broadly used as cash for on a regular basis funds, past their present use in crypto buying and selling.
If adoption moved shortly by way of social media platforms, e-commerce networks, wallets, or automated cost instruments, the Bank worries that cash may go away deposits sooner than banks and funding markets may modify.
The committee accepts that danger. Its report says stablecoins can pose challenges round monetary stability, illicit finance, and shopper safety.
It additionally welcomes 1:1 backing, audited reserves, disclosure, statutory belief protections, and the proposed Bank backstop lending facility for systemic issuers.
The disagreement is about timing and prescription. Lawmakers are asking whether or not the Bank ought to impose caps and reserve economics before there’s sufficient proof about how a pound stablecoin market would behave.
A protecting rulebook may scale back the likelihood of a disorderly shift out of financial institution deposits. It may additionally make the regulated model of the product much less enticing than offshore, dollar-denominated, or non-systemic options.
The stakes are larger as a result of the report describes the UK stablecoin market as nascent whereas the world market is already giant and dollar-led.
It says the world stablecoin market was estimated at greater than $310 billion in 2026, overwhelmingly dominated by US greenback stablecoins and two issuers, Tether and Circle.
For the UK, that creates a strategic downside. A sterling stablecoin market may assist cross-border funds, tokenized settlement, programmable funds, and competitors in funds.
It may additionally scale back the danger that UK customers and companies default to greenback stablecoins as a result of pound options by no means get sufficient regulatory readability or industrial scale.
The committee says the UK is already lagging the US and EU in creating a stablecoin regime, although it says the nation is now transferring in the proper route.
The FCA’s stablecoin issuance and crypto custody consultation covers the non-systemic facet of the regime, whereas the Bank’s guidelines apply as soon as a sterling stablecoin turns into systemic.
The transition between these regimes stays one of the areas issuers want to grasp before they will construct sturdy enterprise plans.
The Next Signal Is The Draft Rulebook
The timing makes the Lords report greater than a retrospective critique. Breeden instructed the committee in March that the Bank anticipated draft guidelines in the center of 2026, closing guidelines by year-end, and functions from stablecoin issuers by the finish of the yr.
That means the subsequent coverage doc will present whether or not the Bank treats the report as a cause to vary the design or as a problem to elucidate the current mannequin extra clearly.
The alerts to look at are particular: whether or not per-holder caps stay, whether or not the Bank shifts towards combination issuance guardrails or monitoring triggers, whether or not the 40% deposit share is adjusted, and whether or not any Bank deposits obtain remuneration.
Rewards will depend, too. The committee famous comparatively little demand for issuers to pay curiosity on stablecoins, however stated the remedy of rewards, rebates, or different incentives may have an effect on the creation of a GBP stablecoin market and the UK’s worldwide competitiveness.
That query connects stablecoin guidelines to the broader funds market, the place card networks and monetary apps already compete by way of reward buildings.
The report additionally asks for extra readability from HM Treasury on when a stablecoin turns into systemic. That threshold is central for issuers as a result of it determines when a agency strikes from the FCA-only observe into twin regulation by the Bank and FCA.
If the transition is just too unsure, scaling may turn out to be a danger in itself.
CryptoSlate has already coated adjoining UK cost infrastructure strikes, together with Revolut’s pound stablecoin sandbox trial and the Bank’s 24/7 settlement plans.
The Lords report strikes the debate to a unique level: whether or not the UK’s stablecoin rulebook will let a sterling market turn out to be commercially significant as soon as tokenized funds enter the system.
The Bank remains to be finalizing the regime, and the committee remains to be asking for financial-stability protections. The new stress is for the Bank to indicate that its safeguards won’t cease a pound stablecoin market before it has an opportunity to kind.
That is the dwell check for the UK’s crypto-hub promise. The subsequent draft guidelines will present whether or not the Bank’s stablecoin firewall is a brief guardrail, a redesign in progress, or a value issuers determine the pound market can not take in.
The submit Bank of England stablecoin caps may choke the UK’s pound-token market before launch appeared first on CryptoSlate.
