UK Stablecoin Regulations Could Limit Growth of Pound-Backed Digital Tokens

A committee in the United Kingdom’s House of Lords has warned that proposed regulations for stablecoins could make pound sterling-backed digital tokens less competitive in the global market. While supporting efforts to regulate the sector, lawmakers said some planned measures may discourage innovation and investment.

The committee noted that the UK has fallen behind major markets in creating a clear regulatory framework for stablecoins. According to the report, the lack of certainty has slowed development in the domestic digital asset industry while US dollar-backed stablecoins continue to expand globally.

Bank of England Proposals Face Criticism

Lawmakers broadly support requirements that stablecoins be fully backed by high-quality assets and agree with plans for emergency support mechanisms for major issuers. However, concerns have been raised over a proposal requiring systemic issuers to keep at least 40% of reserve assets in non-interest-bearing central bank deposits.

Critics argue that such rules could reduce profitability and weaken the international competitiveness of UK-issued stablecoins.

Growth Challenges for GBP Stablecoins

The report also questions proposed limits on stablecoin holdings for businesses and consumers, warning that these restrictions could slow adoption and make implementation difficult.

Another concern involves restrictions on paying interest or rewards to stablecoin holders. While regulators view stablecoins primarily as payment tools rather than investment products, lawmakers said the combination of strict reserve requirements and limits on incentives may affect the long-term business viability of pound-backed tokens.

UK Urged to Support Competitive Stablecoin Market

The committee emphasized the importance of preventing illicit financial activity while encouraging innovation. It urged UK authorities to refine the regulatory framework, clarify oversight responsibilities, and ensure that pound-denominated stablecoins can compete effectively with other payment options instead of being regulated into irrelevance.