Lords urge BoE to rethink pound stablecoin caps

The House of Lords Financial Services Regulation Committee has asked the Bank of England to reconsider proposed limits on sterling stablecoins, saying the rules could prevent a UK market from forming. The committee published its report, Stablecoins: waiting for regulation, on June 3.

The report supports core safeguards including one-to-one backing, audited reserves and statutory trust protections. Its main concerns focus on two Bank proposals: temporary per-holder caps of £20,000 for individuals and £10 million for businesses, and a requirement that systemic sterling stablecoin issuers hold at least 40% of backing assets as unremunerated deposits at the Bank of England.

In a November 2025 consultation the Bank proposed a split backing model for systemic sterling stablecoins: at least 40% of reserves held as deposits at the Bank and up to 60% in short-term sterling government debt. The Bank’s rationale is that central-bank deposits provide immediate liquidity for large redemptions, while government debt would allow issuers some reserve income.

The Lords committee said the combination of holding caps and a large share of unremunerated central-bank deposits could affect whether firms build products in the UK. If caps prevent useful holding sizes or reserve income is insufficient to cover issuer costs, firms may prefer offshore or dollar-denominated alternatives. The committee recommended the Bank consider remunerating deposits at Bank Rate and adopt a more flexible, principles-based approach to backing composition.

On holding limits, the Bank framed the caps as temporary measures to protect access to credit while the financial system adapts. The committee recommended monitoring market growth and imposing holding limits only if clear financial-stability risks emerge. It also asked that any limits be subject to consultation on practical implementation and exemptions for firms that need larger balances for normal operations.

The committee drew on evidence about the role of deposits in UK finance. In March, Sarah Breeden, the Bank’s deputy governor for financial stability, told the committee that banks provide about 85% of household credit in the UK, compared with roughly 30% to 40% in the US. The Bank’s concern is that rapid shifts of deposits into widely used payment stablecoins, if not replaced, could reduce household and business credit.

The report cited estimates that the global stablecoin market exceeded $310 billion in 2026 and is dominated by US dollar stablecoins and two large issuers. The committee said a functioning sterling stablecoin could support cross-border payments, tokenised settlement and programmable payments for UK users and businesses, and that unattractive domestic rules might push users to dollar options.

Regulatory clarity remains an open issue. The Financial Conduct Authority covers non-systemic stablecoin issuance and custody, while the Bank’s rules would apply once a sterling stablecoin becomes systemic. The committee asked HM Treasury for clearer guidance on when a stablecoin crosses the systemic threshold, noting uncertainty about the transition could deter firms from scaling.

The report also sought guidance on rewards, rebates and other incentives. The committee noted limited demand so far for issuers to pay interest on stablecoins but said the treatment of incentives could affect market formation. The Bank has indicated draft rules are expected in mid-2026, with final rules and applications by year-end; those documents will show whether the proposed caps and deposit rules are adjusted.