UK parliament warns regulators of competitiveness risk over reserve and holding limits
The House of Lords Financial Services Regulation Committee has published a report urging the Bank of England to reconsider proposed stablecoin regulations, warning that the country risks falling behind global leaders if the rules are not calibrated correctly.
The committee expressed concern that the BoE’s framework is “where the desired balance between supporting innovation and risk mitigation appears less appropriately calibrated.” The report specifically flags holding limits and reserve requirements as areas needing further consideration.
Under the BoE’s current proposals, systemic stablecoin issuers must hold 40% of reserves as unremunerated bank deposits. Individual users would face holding limits of £10,000 to £20,000, while businesses would be capped at £10 million. These limits were designed to mitigate financial stability risks from large and rapid deposit outflows from the banking sector.
The BoE proposed these rules last year alongside a requirement that issuers back stablecoins 1:1 and include a backstop lending facility. The House of Lords affirmed support for the 1:1 backing and lending facility but flagged concerns about the broader regulatory burden.
Sarah Breeden, Deputy Governor for financial stability at the Bank of England, previously described the proposals as “overly conservative.” Last month, Breeden stated the BoE was “genuinely open” to revisiting the rules. The central bank is scheduled to publish final policy and draft rules later this month.
In December, members of the House of Lords, House of Commons, and peers sent a letter to Chancellor Rachel Reeves opposing the BoE stablecoin rules. The House of Lords report now echoes that pressure, citing lack of clarity on the transition from Financial Conduct Authority regulation to joint oversight with the BoE, and uncertainty about HM Treasury’s plans to determine which stablecoins qualify as systemic.
The regulatory regime’s direction will strongly influence the shape of the pound-denominated stablecoin market. Industry participants and lawmakers have pressured regulators to reconsider the controversial proposals, signaling that the final BoE framework will face intense scrutiny from both Parliament and the sector.
