The Bank of England is under renewed pressure over its approach to stablecoin regulation after a UK parliamentary committee warned that the country risks falling behind international rivals.
An intervention by the House of Lords Financial Services Regulation Committee has intensified scrutiny of the central bank's draft framework for systemic stablecoins.
In a report, the committee argues that several proposed safeguards would impose tougher conditions on stablecoins than on other forms of digital or traditional payments. It highlights the suggested 40% requirement for non-interest-bearing backing assets, a £20,000 individual holding limit and curbs on commercial banks issuing stablecoins as especially restrictive.
Peers say these measures would put UK-regulated stablecoins at a disadvantage compared with regimes in other major jurisdictions. The report warns that the package could hurt the UK's international competitiveness in digital finance.
The criticism comes as the Bank of England prepares to publish draft rules. Over the past year, industry groups and digital asset firms have lobbied the central bank on the design of the regime, including how reserves are held and what limits should apply to users.
Amid that pressure, the Bank has already indicated that it is reconsidering two of the most contentious elements of its initial proposal. Officials are reviewing both the scale of consumer holding caps and the requirement that 40% of backing assets sit in non-interest-bearing reserves.
"The Bank of England's willingness to revisit both the proposed holding caps and the 40% non-interest-bearing reserve requirement is a positive signal. Frameworks that make stablecoin businesses commercially unworkable don't protect consumers - they just push activity into less regulated environments and stifle innovation, which is the opposite of the intended effect," said Derek Corcoran, Chief Executive Officer, Confirmo Limited (Ireland).
"The broader goal should be bringing stablecoins into the same regulatory frameworks that govern equivalent traditional financial instruments, not creating a separate regime that has no real parallel in conventional payments."
Corcoran said the policy dilemma facing the Bank mirrors debates in other markets. Efforts to tighten rules on consumer-protection grounds, he said, can have the unintended effect of driving activity offshore or into less supervised products.
His comments also point to a divergence between sterling-based projects and those denominated in other major currencies. Confirmo is regulated in the European Union under the Markets in Crypto-Assets (MiCA) framework, which is beginning to shape the issuance and oversight of euro-denominated stablecoins.
Corcoran said regulatory structures in Europe and the United States have already started to move stablecoins into more established legal and supervisory channels.
"This underlying tension isn't unique to the UK. Regulators everywhere are trying to manage financial stability concerns while not working against the payment infrastructure that consumers and businesses actually want to use. Getting that balance right takes time, and it's encouraging to see the BoE willing to do that work," said Corcoran.
Coinbase, which operates one of the world's largest digital asset trading platforms, also backed the Lords committee's broader critique of the Bank's stance.
"The Bank of England is currently proposing rules that would place more severe limitations on stablecoins than any other jurisdiction. Today's Lords report points this out, and rightly so," said Katie Harries, Head of Policy for Europe, Coinbase.
"Regulation must be proportionate, evidence-based and designed to address actual risks rather than hypothetical future scenarios, as is currently the case. The Bank is publishing draft rules later this month and it's so important that these rules allow stablecoins to compete on a level playing field with other forms of digital money.
"The UK needs GBP stablecoins to grow and operate at scale - the UK's rules must not cap their future before they are even off the ground," said Harries.
The committee's findings follow a separate Lords inquiry that warned the UK is becoming a laggard on stablecoins despite its ambition to position itself as a hub for digital assets. That evidence session focused on whether domestic rules align with market developments in larger currencies.
"The Lords inquiry reflects a growing sense that the UK's current approach to stablecoin regulation is out of step with where the market is heading," said Corcoran.
He linked the pace of regulatory development directly to adoption patterns across currencies.
"Regulation is the single most important catalyst for mainstream stablecoin adoption. Thanks to frameworks such as MiCA in Europe and the GENIUS Act in the US, stablecoins are transitioning from a regulatory system in development into a robust, recognised payments infrastructure in the same realm as traditional finance," said Corcoran.
Corcoran said more developed regimes elsewhere are already shaping which currencies dominate issuance and payment flows.
"The result is that euro-backed and dollar-backed stablecoin infrastructure is growing and scaling, while less than half a per cent of the market is in sterling. But this doesn't have to be the case - the UK has every reason to be a serious player in the stablecoin space," said Corcoran.
Despite the criticism, Corcoran pointed to signs that UK authorities could still recalibrate their stance as they move from consultation to detailed rulemaking.
"There are encouraging signs that regulators are prepared to readjust - the Bank of England is reviewing its proposed restrictions on systemic stablecoins. Getting this right matters, both for the UK's position as a global financial hub and for businesses and consumers who stand to benefit from stablecoin payments across a wide range of use cases," said Corcoran.