House of Lords Urges Bank of England to Ease Stablecoin Restrictions

The debate over the future of stablecoins in the UK has intensified after a House of Lords committee called on the Bank of England to adopt a more flexible approach to regulation, warning that overly restrictive rules risk undermining the country’s ambitions to become a leading digital assets hub.

House of Lords urges BofE to support innovation

In a newly published report, the House of Lords Financial Services Regulation Committee urged policymakers to strike a better balance between financial stability and innovation, arguing that the current proposals could place the UK at a competitive disadvantage compared with the European Union and the United States.

Concerns Over Proposed Stablecoin Limits

At the centre of the debate are the Bank of England’s proposals for regulating systemic stablecoins. Under the plans currently under consultation, individuals would be restricted to holding up to £20,000 in a single stablecoin, while businesses would face a £10 million cap.

The central bank has also proposed that issuers of systemic stablecoins place at least 40% of the reserves backing their digital currencies on deposit at the Bank of England. Those funds would not earn interest, while the remainder of reserves would need to be invested in highly liquid assets such as government bonds.

Supporters of the framework argue that these measures are necessary to protect financial stability and minimise the risk of sudden outflows from the banking sector. However, critics contend that such restrictions could significantly reduce the commercial attractiveness of issuing sterling-backed stablecoins.

Regulation Must Support Growth

The House of Lords committee believes regulators should avoid attempting to address every conceivable future risk before the market has had an opportunity to develop.

The report argues that the UK stablecoin market remains at a very early stage and that regulators should monitor adoption levels before imposing restrictions that could limit growth. Committee members suggested that holding caps should only be introduced if evidence emerges that stablecoins pose a genuine threat to financial stability.

Committee chairman Baroness Noakes said regulation must provide sufficient flexibility for innovation while ensuring risks are managed appropriately, noting that the eventual shape of the UK stablecoin market will be heavily influenced by the regulatory framework established today.

Pressure Mounts on the UK to Keep Pace

The report comes at a time when policymakers worldwide are accelerating efforts to establish clear digital asset rules. The EU has already implemented its Markets in Crypto-Assets (MiCA) framework, while the US has made significant progress towards a comprehensive federal stablecoin regime.

Industry participants have increasingly warned that regulatory uncertainty could drive investment and innovation away from the UK. Particular concern has centred on the prospect of dual supervision, with systemic stablecoins falling under Bank of England oversight while non-systemic issuers are regulated by the Financial Conduct Authority.

The Bank of England has already signalled it may revisit some aspects of its proposals. Deputy Governor Sarah Breeden recently acknowledged that policymakers are exploring alternative approaches to managing risk while allowing the market to develop.

The House of Lords intervention adds further pressure on regulators to refine the framework, with the ultimate challenge being how to encourage innovation without compromising financial stability. As global competition for digital asset leadership intensifies, the decisions taken in the coming months could determine whether the UK becomes a major centre for stablecoin activity or falls behind rival jurisdictions.