The House of Lords told the Bank of England and the FCA to maintain their timetable for stablecoin regulation, arguing that continued delays would give digital payments a race to Washington and Brussels, and shut British SMEs out of the fast-moving market.
Britain’s stablecoin moment, in the eyes of peers, has finally arrived, and regulators shouldn’t miss it. In a report published this week under the unpopular title Stablecoins: awaiting regulation, the House of Lords Financial Services Regulation Committee urged the Bank of England, the Financial Conduct Authority and HM Treasury to stick firmly to their published timetable, warning that any slippage would entrench the dominance of dollar-backed tokens and leave small businesses challenging the UK bank around the world. infrastructure.
The committee, chaired by Conservative peer Baroness Noakes DBE, was unreserved in its assessment of how far behind the UK is. “The global stablecoin market is dominated by US dollar stablecoins and has evolved into cryptoasset trading,” he said. “New uses for stablecoins are emerging and regulators around the world are putting in place regulations. The UK is lagging behind the US and the EU but is now moving in the right direction.” The message to Threadneedle Street and Stratford, in essence, was: get on with it.
A sterling stablecoin, a digital token pegged individually to the pound and backed by safe, liquid assets, was presented in the report as a real opportunity for the City and the wider economy. Peers point to fast, cheap, structured payments that could automate the typical treasury tasks of an SME, and a wider ecosystem of stablecoin services that could generate revenue for British banks, custodians and fintechs. With the UK’s existing depth in financial markets and a mature regulatory culture, a reliable GBP token can find a willing audience outside of the crypto trading floor.
But the committee is outspoken about the dangers. Stablecoins, peers warn, carry implications for financial stability, the alienation of traditional borrowers and the protection of consumers who may not fully understand what sits behind the digital token. The use of stablecoins in illegal currencies, especially in unsecured, escrow wallets, is highlighted as a serious global concern that British policy makers will not wish to address.
The committee broadly supports the approach taken in the Bank of England’s November consultation on the regulation of high-quality stablecoins, including the provision that issuers must hold individual backing assets and the provision of the Bank’s back-end lending facility. Peer concerns fine print.
Three areas in particular have received much criticism. First, the Bank’s proposal that financial system producers hold at least 40 percent of their assets backed by non-performing deposits on Threadneedle Street, which the committee says risks making the UK government “internationally foreign” and unattractive to trade at that. Second, the proposal that early holding limits be placed on stablecoin valuations, which peers fear could disrupt the market before it has a chance to demonstrate its risks or utility. Third, proposed restrictions on commercial banks issuing stablecoins under their own brand through traditional subsidiaries, which the report says could shut high street lenders out of the local market.
The approach chosen by the committee is what it calls a “use-case agnostic” framework: rules strict enough to reduce financial stability and consumer protection risks, but flexible enough not to pre-judge which applications, wholesale payments, e-commerce, cross-border B2B payments, small transactions, will matter. Most importantly, peers warned the Bank and the FCA not to apply a “harder risk lens” to stablecoins than they do to existing payment channels. That’s a stark reminder that card networks, instant payments and correspondent banking carry risks of their own that have long been managed rather than designed.
For small and medium-sized businesses, the operating stakes are huge. Smart programmable tokens can automate supplier payments, pay export invoices in seconds rather than days, and remove a layer of foreign exchange and logistics costs that currently reside between British exporters and overseas customers. The insistence of peers on certain regulatory issues because, without it, UK fintechs that develop those tools will probably rebuild or build on the dollar rails, a common story for anyone who watches the debate about Britain’s desire to compete with the US as a global crypto hub that has been playing out in recent years.
The FCA, on the other hand, is moving forward with a comprehensive regulation of the conduct of digital assets, against the background of the decline in crypto ownership of shops and the growing interest of the institution, as indicated by the recent presentation of the regulator’s preparations for new rules for digital assets. The Lords report is, in fact, an attempt to ensure that intellectual and ethical channels reinforce rather than undermine each other.
The most prominent political signal in the report concerns untethered wallets, self-contained digital wallets that live outside the controlled border and have become the focus of anti-money laundering attention in Washington and Brussels. Peers have called on HM Treasury, working with the Bank and the FCA, to assess whether existing UK law is sufficient to detect and prevent misuse, and to formally invite ministers to legislate to limit their use if not. That’s a remarkable change of tone in a committee that tends to promote innovation, and shows how seriously Westminster now takes the risks of illegal finance brought to the sharp success by the Trump administration’s enthusiastic reception of the sector, as charted in our report on the US ‘crypto week’ and the increase in coins issued by the bank.
The Lord’s message is clear, even if the basic regime is different. The UK has a narrow window in which to put in place reliable, competitive and long-lasting regulations. Get the valuation wrong in asset backing, holding restrictions or bank participation and a stablecoin market at its best will simply fail to emerge, leaving behind MiCA compliant euro tokens and the increasingly liberal US regime. Get it right and Britain has a real shot at hosting a stablecoin ecosystem that serves not only the City’s retail markets but the wider SME economy that relies on cheap, fast and reliable payments.
As Baroness Noakes put it: “Regulations need to allow for innovation while ensuring that risks are effectively mitigated. The shape of any UK stablecoin market will be heavily influenced by the direction of the regulatory regime, so it is important that regulators get this balance right.”
Further details of the investigation, including the full report and evidence submitted by the industry, are available on the UK Financial Services Regulatory Commission’s website.
