The Bank of England's proposed stablecoin regulatory framework has drawn sharp criticism from the House of Lords Financial Services Regulation Committee, which warned that per-holder limits of £20,000 for individuals and £10 million for businesses — combined with non-interest-bearing reserve requirements — could make GBP stablecoins commercially unviable before the market even launches, potentially entrenching dollar-denominated alternatives by default.
The tension at the heart of the Bank's framework is structural. Financial stability objectives require issuers to maintain substantial reserves at the Bank of England in non-remunerated deposits — earning 0% while borrowing at market rates or funding through stablecoin issuance revenue alone. For a stablecoin issuer targeting the retail market, this creates a funding model where the cost of issuing the instrument can exceed the revenue it generates unless volume and fee income are substantial. The Lords committee identified this as a potential deterrent: if reserve requirements make pound stablecoins economically unworkable for issuers, the regulated GBP stablecoin market may fail to develop at all.
The House of Lords Financial Services Regulation Committee warned that the proposed safeguards "could shape whether a GBP stablecoin market develops at all," urging the Bank to reconsider non-remunerated reserve requirements and adopt more flexible, principles-based backing requirements calibrated to actual market behavior rather than theoretical risk scenarios.
The reserve structure initially proposed under the November 2025 consultation required a minimum of 40% of backing assets held as non-interest-bearing Bank of England deposits, with the remaining 60% permitted in short-term sterling UK government debt. This has since been revised to allow up to 70% in interest-bearing gilts and a minimum 30% in central bank deposits — an improvement that partially addresses the Lords' concerns about commercial viability, but maintains structural reserve costs that dollar stablecoin competitors do not face in the same form.
An additional complexity arises from the systemic stablecoin issuance cap of £40 billion per coin product. If demand for a systemically designated GBP stablecoin exceeds this cap before the Bank grants authorization to raise it, the token could trade at a premium to its £1 peg in secondary markets — creating an arbitrage mechanism that would attract regulatory scrutiny and potentially undermine the stability narrative the framework is designed to protect. Individual holding caps of £20,000 per wallet — proposed in November 2025 — have since been removed, which reduces one barrier to institutional scale but leaves the broader viability questions unresolved. The final regulatory framework is expected to be published by the end of 2026, with regulated stablecoins targeted for UK market entry in 2027.
For investors and stablecoin issuers evaluating the UK market, the regulatory evolution from November 2025 to mid-2026 suggests the Bank of England is moving iteratively toward a workable framework — but the journey is not complete. The removal of individual holding caps is a meaningful concession to market feedback. The persistence of the £40 billion systemic cap, however, means GBP stablecoins will launch at a fraction of Tether's $90 billion+ outstanding issuance, limiting their immediate competitiveness on global DeFi and trading rails. Issuers planning UK stablecoin launches should model their business cases against the cap constraints and build flexibility for regulatory revision into their product architecture — the framework will evolve faster than most central bank policy typically does.
Keywords: Adoption|Banking|Featured|Politics|Regulation
Source: CryptoSlate