The House of Lords has told the Bank of England and the FCA to keep to their timetable on stablecoin regulation, arguing that further delay will hand the digital payments race to Washington and Brussels, and shut British SMEs out of a fast-moving market.
Britain’s stablecoin moment has, in the view of peers, finally arrived, and the regulators must not fluff it. In a report published this week under the unsentimental title Stablecoins: waiting for regulation, the cross-party House of Lords Financial Services Regulation Committee has urged the Bank of England, the Financial Conduct Authority and HM Treasury to stick rigidly to their published timetable, warning that any slippage will entrench the dominance of dollar-backed tokens and leave UK challenger banks, payment firms and small businesses on the wrong side of an emerging global infrastructure.
The committee, chaired by the Conservative peer Baroness Noakes DBE, was unsparing in its assessment of how far the UK has fallen behind. “The global stablecoin market is dominated by US dollar stablecoins and evolved to serve cryptoasset trading,” she said. “New uses for stablecoins are emerging and regulators globally are setting up regulatory regimes. The UK is lagging behind compared with the US and the EU but is now moving in the right direction.” The message to Threadneedle Street and Stratford was, in effect: get on with it.
A sterling stablecoin, a digital token pegged one-for-one to the pound and backed by safe, liquid assets, is presented in the report as a genuine opportunity for the City and for the wider economy. Peers point to faster, cheaper settlement, programmable payments that could automate routine SME treasury tasks, and a broader stablecoin services ecosystem that could generate fee income for British banks, custodians and fintechs. With the UK’s existing depth in capital markets and a mature regulatory culture, a credible GBP token could find a willing audience well beyond the crypto trading floor.
But the committee is equally candid about the risks. Stablecoins, peers warn, carry implications for financial stability, the disintermediation of traditional deposit-takers and the protection of consumers who may not fully understand what sits behind a digital token. The use of stablecoins for illicit finance, particularly via unhosted, self-custody wallets, is highlighted as a serious global concern that British policymakers cannot wish away.
The committee broadly supports the approach taken in the Bank of England’s November consultation on a regulatory regime for sterling-denominated systemic stablecoins, including the principle that issuers must hold backing assets one-for-one and the offer of a Bank backstop lending facility. What worries peers is the fine print.
Three areas in particular drew sharp criticism. First, the Bank’s proposal that systemic issuers hold at least 40 per cent of their backing assets in unremunerated deposits at Threadneedle Street, which the committee says risks making the UK regime “an international outlier” and a commercially unattractive one at that. Second, the suggestion that pre-emptive holding limits be imposed on stablecoin balances, which peers fear could throttle a market before it has had a chance to demonstrate either its risks or its uses. Third, the proposed restrictions on commercial banks issuing stablecoins under their own branding through ordinary subsidiaries, which the report says could shut high-street lenders out of an obvious adjacent market.
The committee’s preferred approach is what it terms a “use-case agnostic” framework: rules robust enough to mitigate financial stability and consumer protection risks, but flexible enough that they do not pre-judge which applications, wholesale settlement, e-commerce, cross-border B2B payments, micro-transactions, will turn out to matter. Crucially, peers warn the Bank and FCA not to apply “a more severe risk lens” to stablecoins than they do to existing payment rails. That is a pointed reminder that card networks, faster payments and correspondent banking carry risks of their own that have long been managed rather than designed out.
For small and medium-sized businesses, the practical stakes are considerable. Programmable sterling tokens could automate supplier payments, settle export invoices in seconds rather than days, and remove a layer of foreign-exchange and intermediary cost that currently sits between British exporters and overseas customers. Peers’ insistence on regulatory certainty matters because, without it, UK fintechs developing those tools are likely to redomicile or build on dollar rails, a familiar story for anyone who watched the debate over Britain’s ambition to compete with the US as a global crypto hub play out over recent years.
The FCA, meanwhile, is pressing on with a broader conduct regime for digital assets, against the backdrop of falling retail crypto ownership and rising institutional interest, as our recent coverage of the regulator’s preparations for new digital asset rules noted. The Lords’ report is, in effect, an attempt to make sure the prudential and conduct workstreams reinforce rather than undermine each other.
The most pointed political signal in the report concerns unhosted wallets, self-custody digital wallets that sit outside the regulated perimeter and have become a focus of anti-money-laundering attention in both Washington and Brussels. Peers have asked HM Treasury, working with the Bank and the FCA, to assess whether existing UK law is sufficient to detect and deter their misuse, and have explicitly invited ministers to legislate to restrict their use if it is not. That is a notable shift in tone for a committee otherwise inclined towards encouraging innovation, and reflects how seriously Westminster is now taking the illicit-finance risks brought into sharp relief by the Trump administration’s enthusiastic embrace of the sector, as charted in our reporting on the US ‘crypto week’ and the rise of bank-issued stablecoins.
The Lords’ message is straightforward, even if the underlying regime is anything but. The UK has a narrow window in which to set rules that are credible, competitive and durable. Get the calibration wrong on backing assets, holding limits or bank participation and a sterling stablecoin market will simply fail to emerge, ceding ground to MiCA-compliant euro tokens and an increasingly liberal US regime. Get it right and Britain has a genuine shot at hosting a stablecoin ecosystem that serves not only City wholesale markets but the wider SME economy that depends on cheap, fast and reliable payments.
As Baroness Noakes put it: “Regulation needs to allow innovation while ensuring that risks are effectively mitigated. The shape of any UK stablecoin market will be strongly influenced by the direction of the regulatory regime, and so it is important that the regulators get this balance right.”
Further details of the inquiry, including the full report and the evidence submitted by industry, are available on the UK Parliament’s Financial Services Regulation Committee page.
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Peers warn UK cannot afford to drag its feet on sterling stablecoin rules