The UK House of Lords Financial Services Regulation Committee released a report Wednesday, directly taking aim at the Bank of England's (BoE) draft stablecoin regulations. The cross-party report warns that several proposed measures could render GBP-pegged stablecoins commercially unviable, further widening Britain's lag behind the US and EU in the global stablecoin race. It acknowledges that unclear rules have already suppressed stablecoin development and investment.
Four Contested Measures: Interest-Free Reserves, Holding Caps, Interest Ban, Dual Oversight
The report singles out four key rules from the BoE's November 2025 consultation paper. Most controversial is the requirement for systematically important issuers to hold at least 40% of reserve assets in central bank accounts bearing zero interest. The committee says this has drawn “significant criticism” and will “negatively impact issuer profitability and UK competitiveness.” Comparatively, the EU's MiCA allows 30-60% cash reserves (partially interest-bearing), while the US GENIUS Act lets issuers invest reserves in short-term Treasuries, making the UK's 40% interest-free threshold the strictest among the three.
Second, temporary holding caps for individuals and firms are deemed “unnecessarily restrictive” and impractical to enforce. Third, an interest ban prohibits systematically important GBP stablecoins from paying any return to holders, aligning with MiCA but tighter than the US GENIUS Act, which still debates indirect rewards via exchanges. The committee argues that combining strict reserve rules with an interest ban severely undermines commercial viability. Fourth, the report calls for clarity on the division of responsibilities between the BoE and the Financial Conduct Authority (FCA), urging the Treasury, BoE, and FCA to stick to the regulatory timeline and avoid further delays.
Cross-Border Regulatory Race: UK, EU, US Divergence
The report highlights stark differences among the three major economies. The EU's MiCA, fully effective since 2024, mandates 30-60% cash reserves, bans interest but allows some interest-bearing deposits; ten issuers are approved, but high compliance costs have limited euro stablecoin growth. The US GENIUS Act adopts a more relaxed approach—non-bank issuers can operate under license, no interest on stablecoins, reserves can include short-term Treasuries—though debates continue on indirect rewards and oversight levels. The UK emerges as the “strictest” regime, with interest-free central bank reserves and effective holding caps, contradicting the government's stated ambition to become a global crypto hub.
The report also notes lessons for Asia. Singapore's MAS prefers bank-issued tokenized deposits over third-party stablecoins; Hong Kong's stablecoin regime requires 100% high-quality liquid assets without interest-free deposit or holding cap requirements. The divergent approaches underscore the absence of global consensus, with each jurisdiction seeking its own balance.
The report's conclusion poses a core question: should stablecoin regulation merely protect the financial system, or also allow the industry to survive? It explicitly states the UK's goal should be to “nurture, not just police” the GBP stablecoin sector, ensuring they can “compete with other UK payment forms” rather than be “regulated into market irrelevance.”