UK Lords Urge Bank of England to Rethink Stablecoin Holding Caps and Reserve Rules
A House of Lords committee published a report on June 3 asking the Bank of England to reconsider its proposed sterling stablecoin holding limits and reserve requirements. The committee argues the safeguards could make a pound-denominated stablecoin market uneconomic before it launches.
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What the Lords Committee Recommended
The House of Lords Financial Services Regulation Committee published its report, Stablecoins: waiting for regulation, on June 3, asking the Bank of England to revisit two core parts of its proposed regime. The committee supports 1:1 backing and accepts that stablecoins carry risks to financial stability, consumer protection and illicit finance. Its objection is that the Bank's safeguards may be calibrated for a sterling stablecoin market that does not yet exist.
The report's central concern is viability. If a pound stablecoin cannot be held in useful amounts or generate enough reserve income to support its issuer, the UK could end up with clear rules but few firms willing to build products under them.
The Reserve Requirement Under Review
The Bank's November 2025 consultation proposed a split backing model for systemic sterling stablecoins. At least 40% of backing assets would sit as deposits at the Bank of England, earning no interest, while up to 60% could be held in short-term sterling-denominated UK government debt. The Bank said the 40% floor reflects estimates of short-term redemption requests drawn from stress events in traditional and crypto markets, and that central-bank deposits provide immediate liquidity under pressure.
The 60% government-debt allowance was itself a compromise, intended to improve issuer economics relative to an earlier model that would have required all backing assets to sit in unremunerated central-bank deposits. The committee said remuneration and liquidity requirements could have a significant effect on issuer viability and on UK competitiveness. It urged the Bank to assess the cost of any required unremunerated share and to reconsider whether deposits held at the Bank should earn Bank Rate. It also asked the Bank to adopt a more principles-based, less prescriptive approach to backing-asset composition that can be adjusted as risks become clearer.
Holding Limits and the Bank's Rationale
The Bank has proposed temporary per-coin holding limits of £20,000 for individuals and £10 million for businesses, with possible exemptions for businesses that need larger balances in normal operations. In its November release, the Bank framed these as temporary tools to protect access to credit while the financial system adapts to new forms of money. Its concern extends beyond competition with banks: bank deposits do substantial work inside the UK credit system, and the Bank is focused on the risk of deposit outflows into stablecoins.
The committee took a narrower position. Given the early stage of the sterling stablecoin market, it said the Bank should monitor growth and impose holding limits only if financial stability risks clearly warrant them. If limits become necessary, it said the Bank should consult on how they would be implemented in practice.
Industry Reaction and Competitive Context
Bitcoinist framed the report as an effort to ease stablecoin rules to avoid the UK falling behind global leaders, a reading that goes further than the committee's own language, which accepts the need for safeguards and asks for calibration rather than removal. Coverage from CryptoSlate and Bitcoinist differs in emphasis, with CryptoSlate focusing on the reserve and holding-cap mechanics and Bitcoinist on the competitiveness argument. Neither source provides the Bank of England's formal response to the report, and the Bank's final regime has not been published.
What Happens Next
The Bank has not yet finalized the regime, so the committee's recommendations are advisory. The most consequential open questions are whether deposits held at the Bank will be remunerated, whether the 40% floor is retained, and whether holding caps are applied at launch or only if monitoring shows financial stability risk.
Why It Matters
For Traders
Sterling-linked tokens and UK-facing stablecoin issuers face a regime still in flux, so near-term price action should be watched against any Bank of England response to the Lords report.
For Investors
Whether the UK adopts remunerated reserves and light-touch holding limits will determine if London can compete with other jurisdictions for stablecoin issuance over the coming years.
For Builders
Issuers designing sterling products should model reserve economics under both remunerated and unremunerated deposit scenarios, since the final backing-asset rules remain undecided.
This article is for information only and is not financial advice. Read the full disclaimer.
