UK House of Lords Pushes BoE to Revise Stablecoin Caps

The House of Lords Financial Services Regulation Committee has published a report urging the Bank of England (BOE) to soften its proposed restrictions on stablecoins. The cross-party committee’s document, titled “Stablecoins: Waiting for Regulation,” calls for a rethink of the £20,000 individual holding cap and the 40% reserve requirement in non-interest-bearing central bank deposits. Lawmakers argue those rules would choke off the UK’s nascent sterling-backed stablecoin market before it has a chance to grow.

The Holding Cap and Reserve Rules Under Fire

The BOE had proposed three main limits for stablecoin regulation:

An individual cap of £20,000 (about $27,000) per single stablecoin
A business cap of £10 million ($13.5 million)
A reserve requirement of at least 40% of backing assets held as non-interest-bearing central bank deposits

Individual Cap: Premature Curb on Adoption

The Lords committee said imposing a £20,000 limit before the stablecoin market exists in any meaningful form risks halting development. The report recommends that regulators monitor the growth of pound-backed stablecoins and introduce restrictions only if financial stability concerns become material. Lawmakers described the current proposal as a “one-size-fits-all” approach that does not account for different risk profiles of stablecoin use cases.

Business Cap: Risk to Institutional Use

The £10 million business limit would hit payment processors, treasury operations, and other institutional users that rely on stablecoins for settlement. The committee warned that such a low ceiling could push these entities toward stablecoins issued outside the UK, undercutting the BOE’s goal of building a regulated onshore ecosystem. The report called for limits based on risk-adjusted analysis rather than a blanket number.

Reserve Requirement: A Tax on Issuers

The 40% reserve rule mandates that stablecoin issuers park a large portion of backing assets in deposits that earn no interest. The Lords committee said this requirement could destroy the commercial viability of issuance. Issuers would either absorb the cost (reducing profitability) or pass it to users (raising fees). Either outcome makes the UK a less attractive jurisdiction compared to the EU or US.

Proposed UK Stablecoin Rule	Value
Individual holding cap	£20,000
Business holding cap	£10 million
Required central bank deposits	40% of reserves

Committee’s Core Argument: Monitor First, Cap Later

The report explicitly states that the BOE’s proposals are “premature.” The stablecoin market in the UK, particularly pound-pegged tokens, is still negligible in size. The Lords committee argues that imposing holding limits now would block legitimate payment use cases from gaining traction, reducing the UK’s competitiveness relative to the EU’s Markets in Crypto-Assets (MiCA) regime, which does not impose similar consumer caps.

The Alternative Regulatory Path

Breeden’s Signal: “Overly Conservative”

The BOE Deputy Governor for Financial Stability, Sarah Breeden, has already signalled openness to revision. In recent public comments, she described parts of the original proposals as

overly conservative.

Breeden said the central bank is exploring alternative approaches to manage stablecoin risks while supporting digital payments innovation. The Lords committee’s report aligns directly with that shift, pressing the BOE to follow through with concrete rule changes.

Timeline and What Changes the Risk

The BOE has not yet set a final implementation date for stablecoin regulations under the Financial Services and Markets Act 2023. The detailed rules remain under consultation. The Lords committee’s report adds political pressure for a more market-friendly outcome.

What Would Reduce the Risk

The BOE raises or removes the £20,000 individual cap, replacing it with a risk-based monitoring framework.

The 40% reserve requirement is reduced or restructured to allow interest-bearing alternatives.

The BOE signals alignment with the EU MiCA approach, which has no similar consumer holding limits.

A formal BOE response to the Lords committee, expected within months, proposes revised numbers.

What Would Make It Worse

The BOE defends the original caps and reserve rule unchanged. Stablecoin projects would likely base operations outside the UK.

A prolonged consultation with no resolution creates regulatory uncertainty. Investment in sterling-backed tokens would stall.

The UK loses its post-Brexit advantage as a digital asset hub while the EU’s MiCA regime takes effect in stages through 2025.

Wider Implications for the UK Crypto Hub Ambition

The UK government has publicly endorsed making the country a global crypto hub. The House of Lords report explicitly warns that overly strict stablecoin rules would cede ground to the US, Europe, and Asia. The report references the risk that pound-backed tokens would be issued from offshore jurisdictions, undermining consumer protection and oversight.

AlphaScala covered the earlier stages of this debate in UK Lords Warn BoE Stablecoin Rules Risk Killing Pound Tokens. The new report sharpens that warning with specific proposed redlines.

The next concrete catalyst is the BOE’s formal response to the Lords committee. If the central bank proposes revised caps or a different reserve structure, the outlook for sterling-backed stablecoins improves. If it defends the original numbers, the UK’s crypto hub status faces a material test.

Bottom line for traders: The BOE stablecoin rule debate will determine whether pound-pegged tokens can function as a viable payments infrastructure. The Lords committee has given the central bank a clear roadmap to recalibrate. The BOE’s next move will set the regulatory trajectory for one of the most anticipated segments of the digital asset market.