U.K. Parliament Initiates Inquiry Into Stablecoin Regulations

The U.K. Parliament has begun a formal inquiry into the rapidly evolving stablecoin market to evaluate current regulations and proposed changes.

Key Takeaways

The U.K. Parliament's FSRC is conducting an inquiry into stablecoins to analyze their growth and regulatory framework.
The inquiry will consider the effects of stablecoin development on the U.K. economy and monetary control.
Proposed regulations by the Bank of England emphasize a 60/40 reserve asset model, and impose caps on individual and business holdings.
Critics argue that the proposed regulations may make U.K. stablecoins less competitive compared to those in the U.S.

UK stablecoins

The inquiry, led by the House of Lords Financial Services Regulation Committee (FSRC), aims to explore the growth of stablecoins, their adoption, and their potential impact on the British economy. It will assess both the opportunities and risks associated with this sector, particularly focusing on Sterling-backed stablecoins and their competitiveness in the global market.

U.K. Parliament's Inquiry Into Stablecoins

On January 29th, the House of Lords Financial Services Regulation Committee (FSRC) launched a stablecoin inquiry to evaluate the sector's growth and the effectiveness of the proposed regulatory framework.

The inquiry aims to capture the opportunities and risks involved in the expansion of stablecoins, particularly looking into their impact on monetary control and the wider U.K. economy. Additionally, it will investigate the competitiveness of Sterling-backed stablecoins in the global marketplace. Sheila Valerie Noakes, Baroness Noakes DBE and Chair of the FSRC, stated the purpose of the inquiry is to, “assess whether the Bank of England and FCA’s proposed regulatory frameworks provide measured and proportionate responses to these developments.”

UK stablecoin
Source: Bank of England

The submission of evidence and expert opinions related to the core questions of this inquiry will be accepted until March 11, 2026. This timeline aligns with the U.K.'s objective to finalize regulations for the stablecoin sector by the end of this year.

Proposed Regulations for Stablecoins in the U.K.

In late 2025, the Bank of England (BoE) introduced proposed regulations for Sterling-backed stablecoins, highlighting a reserve asset model consisting of a 60/40 allocation: 60% of reserve assets could be exposed to U.K. government short-term bonds to generate interest, while the remaining 40% would be held with the BoE earning no interest. Additionally, the regulations propose limits on holdings, setting a cap of £20,000 per individual and £10 million per business to reduce financial stability risks.

These caps seem to be a calculated approach to mitigate concerns raised by traditional U.S. banks, which worry that the migration of deposits to stablecoins could hamper credit availability.

Criticism of the Proposed Regulatory Framework

Despite these regulatory efforts, crypto advocates, including Stani Kulechov, the founder of the DeFi platform Aave, have expressed concerns regarding the proposed regulations. Kulechov argues that the interest-earning caps and holding limits could render GBP or Sterling-based stablecoins uncompetitive.

It remains to be seen if major market players will lobby for changes to these proposals, as some believe they should be fine-tuned to be more in line with existing U.S. regulations. Unlike the U.K.'s current draft, regulations in the U.S. do not impose caps on user holdings and allow issuers to earn interest on reserve assets.

A key challenge will be to balance the risk of deposit flight from traditional banks with the need to maintain the competitiveness of GBP-based stablecoins. As of now, Sterling offerings rank only 10th, contributing a mere $261,000 to the overall $306 billion stablecoin supply, which is less than 1% of the market. The U.S. dollar is the clear leader with 99% market dominance, followed closely by the Euro.

UK stablecoin
Source: Artemis

Concluding Remarks

As the U.K. moves forward with its inquiry and regulatory framework for stablecoins, it will be crucial to address both the competitive landscape and the associated risks to achieve a balanced approach that fosters innovation while ensuring financial stability.