The House of Lords Financial Services Regulation Committee has cautioned that the Bank of England’s proposed regulations could render sterling-backed digital tokens commercially unviable before they gain traction. Despite supporting the need for a robust framework, peers fear the BoE’s stringent requirements may choke innovation and deter market participants.
The committee highlighted that the UK trails behind the United States and European Union in establishing comprehensive stablecoin laws. This regulatory gap has hindered domestic investment, allowing dollar-pegged tokens like USDT and USDC to dominate global markets. While endorsing the principle of full asset backing for stablecoins, the committee questioned specific BoE proposals.
A key point of contention is the BoE’s plan to require systemic stablecoin issuers to hold at least 40% of their reserve assets in unremunerated central bank deposits. The committee noted that this rule has attracted “considerable criticism” for potentially undermining issuer profitability and weakening the UK’s competitive position. Additionally, proposed transaction caps of £20,000 for individuals and £10 million for businesses could restrict the growth of pound stablecoins.
The report also addressed the issue of interest and rewards. Current proposals would prohibit stablecoin issuers from passing through interest earned on backing assets to token holders. The committee argued that any restrictions on incentives must be justified by clear risk assessments, especially since traditional payment systems offer similar benefits. To foster a viable sterling stablecoin ecosystem, the peers urged the BoE and Financial Conduct Authority to accelerate regulatory clarity and ensure that safety measures do not stifle development.