The United Kingdom’s House of Lords has warned that proposed stablecoin regulations risk making a sterling-denominated market “commercially unworkable.” In a new report, a cross-party committee stated the UK is “lagging behind” the US and EU, and urged regulators to avoid rules that could suppress investment and development. While supporting core elements like 1:1 asset backing, the committee criticized specific measures, including a potential 40% unremunerated deposit requirement, as threats to competitiveness.
A UK House of Lords committee has warned that the country is “lagging behind” the United States and European Union in establishing a clear stablecoin regime. The cross-party Financial Services Regulation Committee stated this absence has “suppressed stablecoin development and investment in the UK.”
The committee backed much of the proposed framework from the Bank of England and Financial Conduct Authority, including requirements for 1:1 backing by high-quality assets. However, it identified several potentially damaging elements from the Bank’s November 2025 consultation.
It warned that a requirement for systemic issuers to hold 40% of reserves in unremunerated central bank deposits has attracted “considerable criticism.” The report argued this could “impact negatively on the viability of stablecoin issuers and the international competitiveness of the UK market.”
Proposed temporary holding limits for users were also flagged as potentially impractical. The committee stated these measures could “unnecessarily inhibit the growth of GBP stablecoins.”
On the sensitive issue of returns, the report notes the draft regime would prohibit remuneration for holders of systemic sterling stablecoins. This aligns with the EU’s MiCA rules and aspects of the US GENIUS Act.
While presenting stablecoins primarily as payment instruments, the committee warned that strict reserves and an interest ban could hurt “business viability.” It highlighted uncertainty over whether card-style rewards or other non-interest incentives will be permitted.
The Lords urged His Majesty’s Treasury, the Bank of England, and the FCA to stick to timelines and clarify dual regulation for systemic issuers. They advised recalibrating measures so sterling stablecoins can “compete with other forms of payment in the UK” rather than be regulated into irrelevance.
