The House of Lords Financial Services Regulation Committee published a report on June 3 calling on the Bank of England to reconsider proposed caps on stablecoin holdings and reserve requirements before finalizing the UK's regulatory regime. The committee warned that the current proposals could make the market for pound-pegged stablecoins uneconomic—leaving the country with clear rules but few issuers.
Why the Lords are pushing back
Under the Bank's draft framework, systemic sterling stablecoin issuers would face per-coin holding limits of £20,000 for individuals and £10 million for businesses. Issuers would also have to keep at least 40% of backing assets as non-interest-bearing deposits at the Bank of England, with the remaining 60% allowed in short-term UK government debt. The Lords committee argued those requirements could strangle the market before it gets off the ground.
The committee urged the Bank to consider paying interest on those deposits at the Bank Rate and to adopt a more flexible, principles-based approach to what counts as eligible backing assets. They also recommended imposing holding limits only if financial stability risks clearly warrant them, and to consult on practical implementation before locking in the numbers.
Bank of England's credit concern
Deputy Governor Sarah Breeden has defended the cautious stance. She told the committee that UK banks provide about 85% of household credit, compared to 30-40% in the US. Rapid deposit shifts into stablecoins, she argued, could reduce credit availability for households and businesses. The Bank's proposed caps are meant to limit that risk.
Still, the Lords aren't convinced the trade-off is worth it. Their report says overly strict rules might push innovation offshore or leave the UK without a functioning GBP stablecoin market at all.
Revolut tests the waters
Fintech firm Revolut is already testing a pound stablecoin inside the UK's regulatory sandbox. That suggests at least one potential issuer is eager to move forward—but the final rulebook will determine whether it's viable at scale. The Lords want the Bank to move fast on revising the proposals, warning that delay could hand the lead to other jurisdictions.
What happens next
The Bank of England has not yet responded publicly to the report. The committee has asked for a formal reply and expects to see revised proposals in the coming months. The clock is ticking: the Treasury aims to have a comprehensive crypto regime in place by 2025, and stablecoin rules are the centerpiece. If the Bank sticks to its current caps and reserve mix, the Lords warn, Britain may end up with a framework that looks good on paper but delivers nothing in practice.
