UK Lords committee warns BOE's proposed 20,000-pound stablecoin cap and 40% zero-yield reserve rule could choke market. BOE signals possible easing.
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A cross-party committee of the U.K. House of Lords has called on the Bank of England (BOE) to reconsider its proposed restrictions on consumer stablecoin holdings and issuer reserve requirements. The Financial Services Regulation Committee’s report, titled “Stablecoins: waiting for regulation,” published Wednesday, argues that the BOE’s draft rules risk making the U.K. uncompetitive and could undermine the business case for GBP-denominated stablecoins before the market even develops.
The committee specifically questioned the BOE’s proposed 20,000 pound ($27,000) per-person holding limit and a 10 million pound ($13.5 million) cap for businesses, as well as a requirement for issuers to hold at least 40% of backing assets in central bank deposits yielding no interest. The report said these rules “could have a significant impact on the business viability of stablecoin issuers in the U.K.”
The report focuses on two areas: holding limits and reserve composition. On limits, the committee said the BOE should not preemptively cap holdings when the GBP stablecoin market is still in its infancy. Instead, regulators should monitor growth and impose restrictions only if financial stability risks clearly warrant it.
The requirement that 40% of backing assets sit in non-interest-bearing central bank deposits drew particular criticism. The committee noted that this would force issuers to forgo yield on a large portion of reserves, compressing margins and making it harder to compete with EU and U.S. stablecoin issuers that face no such constraint. For context, the EU’s Markets in Crypto-Assets (MiCA) regulation requires stablecoin issuers to hold at least 30% of reserves in credit institution deposits and does not mandate zero-yield central bank deposits. The U.S. has no federal stablecoin law yet, though the NYDFS-EBA Pact Tightens Stablecoin Oversight Across Atlantic shows cross-border coordination is increasing. The BOE’s proposal stands out as the most restrictive among major economies.
The committee’s report warned that the zero-yield rule “could have a significant impact on the business viability of stablecoin issuers in the U.K." The implication is clear: if issuers cannot earn a return on a large chunk of reserves, the economics of launching a GBP stablecoin may not work. That risk is especially acute when USDT and USDC already dominate the global stablecoin market with more favorable reserve regimes.
The BOE appears to be listening. Sarah Breeden, deputy governor for financial stability, admitted last month that the proposed restrictions were “overly conservative." In an interview with the Financial Times, Breeden said the BOE is “looking very hard at whether there are different ways we can manage what we think is an important risk as stablecoins come into play."
That signals a potential softening, but – correction – that signals a potential softening. The committee’s report adds political pressure from Parliament’s second chamber. The cross-party nature of the Financial Services Regulation Committee gives its recommendations weight in shaping regulatory outcomes. The report explicitly calls on the BOE to “reconsider" both the holding limits and the reserve composition rule.
Traders and issuers should watch for three signals:
If none of these materialize within the next six months, the risk that the U.K. stablecoin market remains stunted increases.
The practical read is straightforward: if the BOE eases, GBP stablecoins become a viable product. If it does not, issuers will likely focus on EUR- and USD-pegged tokens in more permissive jurisdictions.
The simple read: The House of Lords wants lighter regulation, and the BOE is already leaning that way. Therefore, GBP stablecoins will launch soon and compete with USDT and USDC.
The better market read: The BOE’s core concern is financial stability – specifically, the risk of a run on unbacked stablecoins. The 40% zero-yield reserve rule is designed to ensure that even in a crisis, the BOE can absorb reserves without market disruption. Easing that rule would require alternative safeguards, such as higher capital requirements or mandatory insurance. The committee’s report does not propose those alternatives. The risk is that the BOE compromises on holding limits but keeps the reserve rule, which would still compress issuer margins.
The BOE is expected to publish a revised consultation on stablecoin regulation in Q2 2025. The House of Lords committee will likely hold follow-up hearings to scrutinize the BOE’s response. The Treasury also has a role: it must finalize the broader Financial Services and Markets Act secondary legislation that will govern stablecoins.
Bottom line for traders: The BOE’s final stance will determine whether GBP-denominated stablecoins become a viable alternative or remain a regulatory experiment. Watch the Q2 2025 consultation for the real signal. Until then, the Stablecoin Velocity Hits 49.7x as Crypto ETF Outflows Deepen suggests that capital is already rotating within the crypto ecosystem, and a U.K. stablecoin market could accelerate that trend.
Prepared with AlphaScala editorial tooling from the source reporting linked above. Indexable analysis may include a cited Alpha Score value. Publishing checks screen each story before release. Educational coverage, not personalized advice.