New stablecoin regulations proposed by the Bank of England and the Financial Conduct Authority might need to be loosened if the UK wants its digital currency industry to stay competitive globally, according to a report released June 3 by the House of Lords.
The report, published by the cross-party Financial Services Regulation Committee, said the UK should aim to create a market for pound-backed stablecoins by providing clear rules and firm timelines. Without that, the UK “risks lagging behind global counterparts, where regulatory regimes are more established and provide clarity for market participants.”
Stablecoins are digital tokens designed to hold a steady value, usually tethered to a currency like the dollar or pound.
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What the report says about the Bank of England’s 40% reserve rule
The committee looked at regulatory proposals published in November 2025. It also reviewed responses from Mastercard, Revolut, NatWest, and other major players. A key sticking point: the requirement that stablecoin issuers hold at least 40% of their backing assets in unremunerated central bank accounts.
The report warned this 40% rule “could have a significant impact on the business viability of stablecoin issuers in the UK, and the international competitiveness of the UK market.” Most respondents argued that the requirement would raise costs and erase many of the benefits stablecoins bring to payments.
Instead, the committee recommended the Bank of England adopt a “principles-based, less prescriptive approach” to what counts as backing assets. It also suggested the central bank consider paying interest at the base rate on the deposits it holds as backing.
Regulators shouldn’t treat stablecoins more harshly than other payment methods
The report urged regulators not to “inadvertently applying a more severe risk lens than they do for other forms of payment.” While stablecoins do pose risks around money laundering and criminal financing, the committee noted those risks “can be mitigated as they currently are with other forms of money.”
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The committee also argued that regulation should be usage-agnostic — meaning it shouldn’t be written just for one popular use case, like payments or trading. That flexibility would give stablecoins the best shot at finding future innovations and let regulators adapt to new risks.
Holding limits and branding rules under fire
The Bank of England’s current proposal includes per-coin holding limits of £20,000 for individuals and £10 million for businesses. The report said those caps could “unnecessarily inhibit the growth of GBP stablecoins” and would be hard to enforce. It recommended regulators hold off on any limits unless “the financial stability risks clearly warrant it.”
Another bone of contention: the Prudential Regulation Authority’s requirement that deposit-takers issue stablecoins under separate branding from insolvency-remote entities. The report called that rule “unduly restrictive and risks inhibiting innovation unnecessarily.”
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The committee did flag dangers too. It suggested a review of the legal framework around private, unhosted wallets and said restrictions might be needed if current rules can’t stop illegal use.
Time is running out, the report warns
Ultimately the report calls for a slightly more relaxed regulatory regime — but more importantly, one that “adheres to current timelines.” The US already has the GENIUS Act, passed nearly a year ago, which set rules for dollar-backed stablecoins. New regulations in other countries are pushing innovation forward.
The UK should act soon, the report argued, before it gets left behind. Protracted uncertainty could solidify the dominance of dollar-backed stablecoins, the committee said, leaving the pound on the sidelines.