The Bank of England is facing intense political pressure to abandon its stringent stablecoin regulations designed to prevent rapid retail bank capital flight. A new cross-party report from the UK House of Lords warns that the central bank’s proposed holding limits will effectively suffocate the pound-token market before it officially launches.
The committee published a formal inquiry titled “Stablecoins: waiting for regulation” pushing back on conservative regulatory frameworks. Lawmakers argue the current approach renders the United Kingdom uncompetitive against neighboring European Union markets currently absorbing the digital asset sector.
Last November, the central bank introduced preemptive frameworks to manage systemic risks associated with fiat-pegged digital currencies. The proposed rules enforce a strict £20,000 individual holding limit and a £10 million business cap. The cross-party committee report specifically challenges these financial limits alongside a highly contested requirement that issuers back their tokens with 40% interest-free central bank deposits.
Industry executives argue these deposit requirements destroy the commercial viability of issuing sterling-backed tokens. The global stablecoin market currently holds over $250 billion in value. The pound-sterling equivalent remains virtually non-existent, carrying a total market valuation fluctuating between £12 million and £30 million. The official UK Parliament publication validates the industry consensus that organic growth is impossible under the proposed caps. Bank of England Deputy Governor for Financial Stability Sarah Breeden previously acknowledged the initial proposals were overly conservative and confirmed the bank is actively exploring alternative risk management approaches.
How the 40% Reserve Requirement Alters Issuance Viability
Stablecoin issuers generate revenue by holding fiat reserves in low-risk, yield-bearing instruments like short-term government gilts. The central bank’s mandate requiring 40% of backing assets to sit in non-interest-bearing deposits severely restricts this primary revenue stream. Without the ability to earn yield on nearly half of their reserve capital, operators face a mathematical deficit when covering operational costs, compliance audits, and blockchain transaction fees.
The House of Lords’ intervention signals a potential pivot toward a purely monitoring-based regulatory phase. If the central bank formally removes the £20,000 individual holding cap, institutional liquidity providers will gain the legal clearance to launch enterprise-grade pound stablecoins without facing immediate retail distribution ceilings.