UK Urged to Advance Stablecoin Regulation Amid Competitiveness Concerns

The United Kingdom is being advised to move forward with stablecoin regulation while ensuring that the rules do not hinder the commercial viability of a pound sterling stablecoin market, according to a report released by the House of Lords committee on Wednesday. According to Cointelegraph, the Financial Services Regulation Committee, which is cross-party, highlighted that the UK is trailing behind the United States and the European Union in terms of stablecoin development. The lack of a clear regulatory framework has reportedly stifled stablecoin growth and investment in the UK, despite the global rise of US dollar-pegged tokens like USDt (USDT) and USDC (USDC). The committee expressed support for much of the proposed framework by the Bank of England (BoE) and the Financial Conduct Authority (FCA). However, it cautioned that certain measures could undermine the viability and competitiveness of stablecoins issued in the UK. The report endorses requirements for fiat-referenced stablecoins to be backed 1:1 by high-quality assets and supports a proposed BoE backstop lending facility for systemic issuers. Nonetheless, it raised concerns about elements of the Bank's November 2025 consultation, particularly the requirement for systemic issuers to hold at least 40% of their backing assets in unremunerated central bank deposits. This stipulation has faced significant criticism and could negatively affect the viability of stablecoin issuers and the UK's international competitiveness. The report also flagged proposed temporary holding limits for businesses and individuals as potentially inhibiting the growth of GBP stablecoins and impractical to implement. Additionally, the committee addressed the politically sensitive issue of returns, noting that the Bank's draft regime would prohibit remuneration for coinholders of sterling-denominated systemic stablecoins. This aligns the UK with the EU's Markets in Crypto-Assets Regulation (MiCA), which bars stablecoin issuers from paying interest to holders. The US GENIUS Act similarly prohibits payment stablecoin issuers from paying interest, though debate continues in the US over whether exchanges and intermediaries can offer rewards. The committee views payment-focused stablecoins primarily as tools for fast, low-cost transactions rather than investment products. However, it warns that strict reserve rules combined with a ban on interest or other remuneration could impact the business viability and competitiveness of UK-issued tokens. The report calls for His Majesty’s Treasury, the Bank of England, and the FCA to adhere to existing timelines, clarify dual regulation of systemic issuers, and adjust measures like holding limits and reserve requirements. This would enable sterling stablecoins to compete with other payment forms in the UK rather than being regulated out of relevance.