Lords warn Bank of England rules could cripple pound stablecoins
House of Lords committee says BoE proposals — 40% unremunerated central bank reserves, ban on interest and holding limits — may make pound stablecoins commercially unworkable.
A House of Lords committee on Wednesday warned that Bank of England proposals could make pound-denominated stablecoins commercially unworkable. The cross-party Financial Services Regulation Committee identified three measures of concern: a requirement that systemic issuers hold at least 40% of reserves in unremunerated central bank deposits, a ban on paying interest to coinholders, and proposed limits on how much individuals and businesses can hold.
The committee backed core parts of the draft framework, including a 1:1 backing requirement for fiat-referenced stablecoins with high-quality assets and a proposed Bank of England backstop lending facility for systemic issuers. The report singled out the BoE’s November 2025 consultation for the 40% central bank deposit rule, saying that requirement has attracted “considerable criticism” and could harm the viability and international competitiveness of UK issuers.
Peers also flagged temporary holding limits for businesses and individuals as measures that could “unnecessarily inhibit the growth of GBP stablecoins” and be difficult to implement in practice. The committee said such limits might reduce the usefulness of sterling stablecoins for payments rather than strengthening consumer protection or financial stability.
On remuneration, the draft BoE rule would prohibit interest or other payments to holders of sterling-denominated systemic stablecoins. The committee noted this approach aligns the UK with the EU’s Markets in Crypto-Assets rules and mirrors provisions in US legislation. The Lords described payment-focused stablecoins primarily as instruments for fast, low-cost transactions and cautioned that strict reserve rules combined with a remuneration ban could affect business viability. The report also pointed out uncertainty about whether card-style rewards or intermediary-provided incentives would be allowed under the draft regime.
The report follows months of evidence sessions with industry participants, academics and regulators that examined risks to financial stability, bank funding, consumer protection and the potential for illicit finance. While the committee emphasised that expanded stablecoin use must not create new opportunities for illicit activity, it urged regulators to support development alongside enforcement, recommending the UK aim to “nurture, not just police, a pound-denominated stablecoin sector.”
The Lords called on His Majesty’s Treasury, the Bank of England and the Financial Conduct Authority to stick to existing implementation timelines, clarify how dual regulation of systemic issuers will operate in practice, and recalibrate measures such as holding limits and reserve composition so sterling stablecoins can compete with other forms of payment. The report noted the growth of US dollar-pegged tokens such as USDT and USDC as a competitive factor for a UK market that lacks a settled regime.
The committee’s findings add to ongoing policy debate over how to balance consumer protection and financial stability with the development of payment infrastructure. Regulators will consider the report’s recommendations as they refine the regulatory framework for sterling stablecoins.
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