UK House of Lords delivers a rare dressing-down to the central bank: strict oversight could make the British pound stablecoin “commercially unable to survive”

The Financial Services Regulation Committee of the UK House of Lords has released a report warning that the Bank of England’s overly strict stablecoin regulatory draft—including a 40% interest-free deposit reserve, holding limits, and an interest ban—could make pound-denominated stablecoins commercially unable to survive, and would cause the UK to continue falling behind the United States and the European Union in the global stablecoin race.
(Backgrounder: The Bank of England’s proposed “limiting stablecoin holdings” has sparked public outrage—it's basically unworkable and will only make the UK fall behind global crypto competition.)
(Additional context: The Bank of England has proposed new stablecoin regulatory rules: an individual holding limit of £20,000 and a corporate limit of £10 million, with reserve assets capped at 95% invested in government bonds.)

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• Four major controversial measures: 40% interest-free deposits, holding limits, interest bans, and dual regulation
• Cross-border regulatory race game: a three-way comparison of pound, euro, and dollar stablecoins
• Asian perspective: reference and lessons for stablecoin regulation

The UK House of Lords Financial Services Regulation Committee (Financial Services Regulation Committee) issued a major report on Wednesday, issuing a direct warning against the Bank of England’s stablecoin regulatory draft. Some measures could make pound-denominated stablecoins “commercially unable to survive,” instead pushing the UK further behind in the global stablecoin competition. The bipartisan report admits that the UK is already “seriously lagging” behind the US and the EU, and points out that the lack of a clear regulatory framework has suppressed a large amount of stablecoin development and investment.

The report broadly endorses the direction proposed by the Bank of England and the Financial Conduct Authority (FCA): fiat-backed stablecoins should have 1:1 high-quality asset reserves, and systemically important issuing entities should have a central bank backstop lending mechanism. However, the report attacks, one by one, multiple specific measures in the Bank of England’s consultation document published in November 2025, arguing that these rules go beyond reasonable boundaries for prudential regulation and could fundamentally stifle the commercial viability of pound stablecoins.

Four major controversial measures: 40% interest-free deposits, holding limits, interest bans, and dual regulation

There are four controversial focus areas targeted by the House of Lords report. The most contentious is the Bank of England’s requirement that systemically important issuers keep at least 40% of their reserve assets in interest-free accounts at the central bank. The committee notes that this requirement has already drawn “substantial criticism,” and that it will “negatively impact the profitability of stablecoin issuing entities and the UK’s international competitiveness.” Compared with the EU’s MiCA framework, which requires 30–60% cash reserves (some of which may be interest-bearing), and the US GENIUS Act, which allows issuers to invest reserve assets into yield-generating instruments such as short-term government bonds, the UK’s 40% interest-free deposit threshold is clearly the strictest among the three.

Second, the draft’s temporary holding limits for businesses and individuals have also been singled out by the committee. The House of Lords believes this measure “unnecessarily suppresses the growth of pound stablecoins,” and is difficult to implement in practice.

The third contentious point is the interest ban. The Bank of England’s draft prohibits systemically important pound stablecoins from paying interest or other rewards to holders. This aligns with the EU’s position under MiCA, but contrasts with the ambiguous gray area under the US GENIUS Act—where the US is still debating whether exchanges and intermediary institutions can indirectly pay out gains to stablecoin holders through incentive programs. The House of Lords committee believes that the combination of strict reserve rules and the interest ban will severely undermine the commercial viability of pound stablecoins, especially given uncertainty over whether non-interest incentive rewards are permitted.

Fourth, the committee calls for clarification of the division of responsibilities for dual regulation of systemically important issuing entities (the allocation of duties and powers between the Bank of England and the FCA). It also urges the UK Treasury, the central bank, and the FCA to stick to the existing regulatory timelines and not further delay them due to policy debates.

Cross-border regulatory race game: a three-way comparison of pound, euro, and dollar stablecoins

This report highlights major route differences among three major economies in stablecoin regulation:

EU MiCA took full effect in 2024, becoming the world’s first comprehensive stablecoin regulatory framework. MiCA requires issuers to hold 30–60% cash reserves, prohibits paying interest, but allows issuers—under certain conditions—to deposit cash into interest-bearing accounts. Currently, 10 institutions have been approved to issue stablecoins in the EU, but industry critics say MiCA’s compliance costs are too high, causing most euro stablecoin sizes to remain unable to break through bottlenecks.

The US GENIUS Act takes a relatively relaxed approach: it allows non-bank entities to issue stablecoins (but requires them to obtain a stablecoin issuance license), prohibits paying interest, but allows reserve assets to be allocated to short-term government bonds. The US Treasury and the Federal Reserve are still debating the regulatory level for non-bank issuing entities, as well as whether exchanges can provide indirect rewards.

In this comparison, the UK presents the “strictest” image. It not only requires part of the reserves to be held in completely interest-free central bank accounts, but also imposes substantive holding limits. This sharply contradicts the UK government’s stated goal of building a global cryptocurrency hub.

Asian perspective: reference and lessons for stablecoin regulation

The UK’s experience has direct reference value for Asian regulators. Taiwan’s Financial Supervisory Commission is currently planning a special law for virtual asset management, and the regulatory positioning of stablecoins is one of the key issues being debated. If the UK’s 40% interest-free deposit threshold is proven to be harmful to industry development, Asian regulators should look for a more balanced middle path in reserve asset allocation and interest policies.

Singapore’s Monetary Authority (MAS) currently follows a regulatory approach centered on tokenized deposits. Regulators prefer tokenized deposits issued by banks rather than stablecoins issued by third parties. Hong Kong has already rolled out a stablecoin issuer regulatory regime, allowing licensed institutions to issue fiat-backed stablecoins. The reserve requirement is 100% high-quality liquid assets (short-term government bonds or cash), and it sets neither an interest-free deposit threshold nor holding limits. The policy differences among the three places (UK, Hong Kong, Singapore) show that there is no global consensus on stablecoin regulation, and each country is exploring its own appropriate balance.

The conclusion of the House of Lords report raises a question worth deep thought by all regulators: should the goal of stablecoin regulation be simply to protect the financial system, or should it also ensure that this industry can survive? The report makes it clear that the UK’s goal should be to nurture rather than merely police the pound-denominated stablecoin industry, and to “allow pound stablecoins to compete with other forms of payment in the UK,” rather than “being regulated into losing market relevance.”