UK lawmakers urge Bank of England to soften proposed stablecoin transaction limits

UK lawmakers are urging the Bank of England to soften proposed stablecoin rules, including caps of £20,000 for individuals and requirements for non-interest-bearing reserves. A House of Lords committee warns the strict rules could stifle a sterling-backed market, causing the UK to fall behind the US and EU. The BoE, citing financial stability risks, has hinted it may ease the "overly conservative" proposals.

UK regulatory proposals and recommendations

• ▪Bank of England Deputy Governor Sarah Breeden stated the central bank is reconsidering its proposed holding limits, admitting they were "overly conservative."
• ▪The Bank of England's proposed holding limits were 20,000 pounds for individuals and 10 million pounds for businesses
• ▪A cross-party UK House of Lords committee urged the Bank of England to soften its planned rules for stablecoins
• ▪The UK aims to finalize its stablecoin regulations by the end of the year, with rules expected to align with those in the U.S.
• ▪The House of Lords committee warned that overly strict requirements could hinder the development of a sterling-backed stablecoin market
• ▪The committee recommended the Bank of England drop its proposed caps on individual and business stablecoin holdings
• ▪The committee also advised reconsidering a requirement for stablecoin issuers to hold 40% of backing assets in non-interest-bearing central bank deposits

Bank deposit outflow risks

• ▪The European Central Bank has warned that increased issuance of euro stablecoins could trigger deposit outflows from banks
• ▪The Bank of England's proposed rules are intended to prevent a potential mass flight of funds from bank deposits into stablecoins
• ▪Central banks fear that a large-scale shift from bank accounts to stablecoins could reduce commercial banks' lending capacity, potentially causing a credit crunch

Monetary policy transmission concerns

• ▪When savings accumulate in stablecoins instead of bank accounts, central bank interest rate decisions may have proportionally less weight on the real economy
• ▪Central banks are concerned that stablecoins can bypass traditional monetary policy transmission mechanisms that run through commercial banks

Dollar stablecoin global dominance

• ▪The global stablecoin market is dominated by U.S. dollar-linked tokens, with some estimates putting their supply share at 98%
• ▪Sterling-denominated stablecoins currently represent a very small fraction of the total stablecoin market

GENIUS Act regulatory framework

• ▪The GENIUS Act requires payment stablecoins to be backed 1:1 with high-quality, dollar-denominated assets
• ▪The U.S. enacted the GENIUS Act in July 2025, establishing a federal regulatory framework for payment stablecoins
• ▪The U.S. framework was designed to extend the dominance of the U.S. dollar into the digital payments layer

Euro stablecoin market gap

• ▪While Europeans conduct 38% of global stablecoin transactions, euro-denominated tokens account for only 0.3% of the total stablecoin supply
• ▪The House of Lords committee warned that the UK risks falling behind the U.S. and the European Union if its regulatory framework is too restrictive