UK Lawmakers Urge Bank of England to Ease Proposed Stablecoin Rules

LONDON: British lawmakers have called on the Bank of England (BoE) to adopt a more flexible approach to its proposed stablecoin regulations, warning that overly restrictive requirements could impede the growth of the United Kingdom’s emerging sterling-backed digital asset market.

In a report published on Wednesday, the cross-party House of Lords Financial Services Regulation Committee urged the central bank to reconsider plans that would limit the amount of stablecoins individuals and businesses can hold and require issuers to fully back tokens with non-interest-bearing deposits.

Stablecoins are a form of cryptoasset designed to maintain a stable value, typically by being pegged to a fiat currency. While the global market is currently dominated by U.S. dollar-linked stablecoins, sterling-denominated tokens account for only a small share of the sector. UK authorities are working to finalize a regulatory framework for stablecoins by the end of the year, broadly aligned with developments in the United States.

“The Bank, the Financial Conduct Authority, and HM Treasury must recognise that the stablecoin market is nascent and growing, and adapt the regulatory regime as the market develops,” the committee said in its report.

The Bank of England’s proposed rules would apply to “systemic” stablecoins, defined as those widely used for everyday payments. The central bank has argued that such safeguards are necessary to prevent a potential shift of funds from traditional bank deposits into stablecoins, a scenario that could reduce bank lending capacity and contribute to a credit squeeze.

However, Committee Chair Sheila Noakes expressed reservations about the Bank’s approach, suggesting that the risks may not justify the level of restriction currently proposed. The committee recommended that the BoE consider a principles-based and less prescriptive regulatory framework that can evolve alongside the market.

The debate comes as the Bank of England reviews feedback on its proposals. In a recent speech, Deputy Governor Sarah Breeden indicated that the central bank may be reconsidering certain aspects of the framework, including limits on stablecoin holdings.

A BoE spokesperson said the central bank’s final policy and draft rules for systemic stablecoins are expected to be published later this month.