Senior British lawmakers have called on regulators to relax conservative proposals for stablecoin issuers, warning the rules threaten the City of London's fintech ambitions and risk ceding ground to the US and EU.
A new report from the UK House of Lords Financial Services Regulation Committee, titled "Stablecoins: waiting for regulation," exposes tensions with the Bank of England (BoE). Stablecoins are cryptocurrencies engineered to maintain a stable value, typically pegged to fiat currencies such as the US dollar.
BoE policymaker Megan Greene recently advocated for tokenized commercial bank deposits – digital versions of traditional bank deposits recorded on a blockchain – over privately issued stablecoins. She made the comments at a conference in Croatia, suggesting private fiat-backed tokens could eventually be displaced.
Falling behind
The report, published 3 Jun, finds the UK is lagging in its stablecoin regulatory framework compared with the US and EU. US dollar-pegged stablecoins dominate the sector, which has a total market value of around $320bn, according to data provider DeFiLlama.
The EU's comprehensive regime for stablecoins, legally categorized as asset-referenced tokens (ARTs) and e-money tokens (EMTs), took effect on 30 Jun 2024 under the Markets in Crypto-Assets (MiCA) regulation. MiCA is the EU's landmark legislation governing crypto assets.
The committee supports many BoE and Financial Conduct Authority (FCA) proposals but urges reconsideration of key restrictions. Committee chair Baroness Noakes DBE highlighted concerns over holding limits, unremunerated backing assets and curbs on commercial banks issuing stablecoins.
Current proposals include temporary caps of £20,000 ($27,000) on individual holdings and £10mn for businesses. They also require holders to place at least 40% of stablecoin value in non-interest-bearing central bank assets, with the remainder in sovereign bonds and liquid assets. These measures add to potential issuance costs for firms.
K-factor questioned
The report questions whether a "K-factor" requirement for stablecoin issuers remains appropriate. The K-factor is a regulatory mechanism from the FCA that automatically scales an issuer's financial buffers with the volume and risk of its business, potentially raising costs as issuance grows. The EU, which originated the concept, chose not to apply it to MiCA, opting instead for standard e-money institution rules.
When the UK framework rolled out in November 2025, the BoE aimed to ensure stablecoins posed no threat to the banking system or mortgage funding.
"No-one knows whether or how a UK-based stablecoin market could develop," Noakes said. "Regulation needs to allow innovation while ensuring that risks are effectively mitigated."
The report follows an inquiry the parliamentary committee launched in January 2026 examining stablecoin growth and proposed oversight by the BoE and FCA.
Threat assessment
Lawmakers stressed the need for balanced rules to preserve UK competitiveness in digital assets. The sector offers potential efficiency gains in payments and settlements, though risks to financial stability require careful management.
Stablecoins facilitate fast, low-cost transfers and serve as a key onramp for crypto trading and decentralized finance (DeFi) activities. DeFi refers to financial services built on blockchain technology that operate without traditional intermediaries.
