- The House of Lords is urging the Bank of England to reconsider stablecoin restrictions that cap individual holdings at £20,000.
- Proposed stablecoin restrictions requiring 40% of backing assets in non-interest-bearing central bank deposits could kill issuer profitability.
- Bank of England deputy governor Sarah Breeden has already admitted the proposals were ‘overly conservative’.
- The UK risks falling behind rival financial centres if these limits go live without revision.
- The House of Lords is urging the Bank of England to reconsider stablecoin restrictions that cap individual holdings at £20,000.
- Proposed stablecoin restrictions requiring 40% of backing assets in non-interest-bearing central bank deposits could kill issuer profitability.
- Bank of England deputy governor Sarah Breeden has already admitted the proposals were ‘overly conservative’.
- The UK risks falling behind rival financial centres if these limits go live without revision.
Why the UK’s Stablecoin Restrictions Are Causing a Political Storm
The stablecoin restrictions proposed by the Bank of England have drawn an unusually sharp rebuke from one of the UK’s most senior legislative bodies — and for good reason. The House of Lords Financial Services Regulation Committee published a report this week calling on the Bank to fundamentally rethink rules that many in the industry say would cripple the UK’s ability to compete in one of the fastest-moving corners of digital finance. If you needed a signal that these proposals have moved from a niche crypto debate into the mainstream of UK economic policy, this is it.
The Bank of England had proposed capping the amount of a stablecoin any individual could hold at £20,000 — roughly $27,000 — and limiting businesses to £10 million, or around $13.5 million. On top of that, issuers of pound-denominated stablecoins would be required to park at least 40% of their backing assets in central bank deposits that earn no interest whatsoever. For a business model that depends entirely on yield from reserve assets, that’s not a regulation — it’s a structural handicap.
What the Lords Actually Said About Stablecoin Restrictions
The cross-party Financial Services Regulation Committee didn’t mince words. Its report, titled Stablecoins: waiting for regulation, argued that the proposed stablecoin restrictions were premature given how early-stage the GBP stablecoin market actually is. The committee’s position is straightforward: don’t impose hard limits on a market that barely exists yet. Watch it grow, assess the real risks, and only act if those risks become concrete and measurable.
“Given the early stage of the GBP stablecoin market, rather than pre-emptively impose holding limits, the Bank should consider monitoring the growth of the market and imposing holding limits only if the financial stability risks clearly warrant it,” the committee said.
That’s a measured, evidence-based approach — and it stands in stark contrast to the Bank of England’s initial instinct to lock things down before a single GBP stablecoin has achieved meaningful scale. The Lords are essentially making a proportionality argument: the cure shouldn’t be harsher than the disease, especially when the disease is still theoretical.
On the reserve requirement issue, the committee was equally pointed. Forcing issuers to hold 40% of backing in unremunerated deposits, it said, “could have a significant impact on the business viability of stablecoin issuers in the UK.” That’s a diplomatic way of saying: it could make the whole enterprise financially unworkable.
The Competitive Risk Nobody Wants to Admit
Here’s the part that should focus minds at Threadneedle Street. Stablecoin issuers don’t have to be based in the UK. If the regulatory environment is materially worse here than in the EU — which is now operating under its Markets in Crypto-Assets (MiCA) framework — or in jurisdictions like Singapore or the UAE that are actively courting crypto businesses, then companies will simply set up elsewhere. There are no passport controls on digital tokens.
The £20,000 individual cap is the most glaring example of this competitive problem. MiCA doesn’t impose equivalent holding caps. Neither do most other major regulatory frameworks currently under development. A UK resident wanting to hold more than £20,000 in a stablecoin could simply use a product issued and regulated abroad. All that achieves is routing business — and tax revenue — out of the country. In practice, stablecoin restrictions of this kind penalise domestic issuers without preventing domestic users from accessing less-regulated alternatives.
This isn’t a new concern for UK fintech. Since 2021, there’s been persistent anxiety that Brexit combined with a more cautious regulatory posture could see London gradually lose ground to Amsterdam, Paris, and Dublin in financial services. Crypto and digital assets are one of the few areas where the UK could credibly set itself apart — but only if it moves at a pace that allows businesses to actually build here.
The Bank of England Is Already Blinking
To be fair to the Bank, this isn’t a situation where regulators are digging in. Sarah Breeden, the Bank’s deputy governor for financial stability, acknowledged last month that the original proposals were “overly conservative.” Speaking to the Financial Times, she said the Bank is “looking very hard at whether there are different ways we can manage what we think is an important risk as stablecoins come into play.”
That’s meaningful. When a deputy governor publicly walks back a proposal using language like “overly conservative,” the direction of travel is clear. The question is how far the Bank is willing to move — and whether the revised framework will be substantively different or just marginally softer at the edges. The Lords’ report is designed, in part, to make sure the revision is real rather than cosmetic. Critics argue that without a thorough reassessment, any new stablecoin restrictions risk repeating the same calibration errors in slightly different form.
There’s also a timing dimension here. The UK’s broader crypto regulatory framework has been years in the making. The Financial Services and Markets Act 2023 brought crypto activities into the regulatory perimeter, and the FCA has been working through authorisation processes for crypto firms. Stablecoins are a specific and commercially significant subset of that. Getting the rules wrong — either too loose or, as here, potentially too tight — has lasting consequences for market structure.
What’s Actually at Stake for GBP Stablecoins
It’s easy to view stablecoin regulation as a niche concern for crypto enthusiasts. It isn’t. Stablecoins — digital tokens pegged to a reference asset like sterling or the dollar — are increasingly being used in cross-border payments, trade finance, and as settlement infrastructure for tokenised assets. The Bank for International Settlements and the BIS Innovation Hub have both been studying their implications for monetary systems for years now.
A GBP stablecoin, specifically, could play a meaningful role in making sterling more usable in global digital commerce — a goal that aligns neatly with the broader ambitions the UK government has been articulating around becoming a crypto hub. If the stablecoin restrictions imposed by the Bank of England make it uneconomical to issue a credible GBP-denominated stablecoin, then that ambition collapses before it starts. Dollar-denominated stablecoins — dominated by Tether’s USDT and Circle’s USDC — would simply fill the gap, further entrenching dollar dominance in digital markets.
That’s the bigger picture the Lords appear to understand clearly. The 40% unremunerated reserve requirement isn’t just a compliance headache — it’s a structural tax on GBP stablecoin issuers that has no equivalent for their dollar-denominated competitors operating under different frameworks. Over time, that asymmetry compounds. Analysts tracking the sector have pointed out that stablecoin restrictions of this severity would make a UK-issued GBP stablecoin fundamentally uncompetitive against offshore alternatives on yield alone.
Where This Goes Next
The Bank of England is expected to publish revised proposals later this year. Given Breeden’s public comments and now the formal Lords report, there’s real political and institutional pressure for those revisions to be substantive. The most likely outcome is that holding caps, if they survive at all, are set significantly higher than the original £20,000 threshold — or replaced entirely with a monitoring-first approach as the Lords recommended. The reserve requirement will almost certainly be renegotiated downward too.
But the broader lesson here goes beyond stablecoins. It’s a reminder that financial regulation written before a market has matured tends to reflect the fears of the moment rather than the realities that follow. The Bank of England’s instinct to protect financial stability is legitimate — nobody wants a stablecoin collapse spilling into the broader monetary system. The question is always one of calibration. Get it right, and the UK has a real chance to be the jurisdiction where serious stablecoin infrastructure is built. Get it wrong, and the current stablecoin restrictions will be remembered as the moment London watched from the sidelines as that infrastructure took shape in Frankfurt, Singapore, or Dubai instead.
