UK lawmakers urge Bank of England to soften stablecoin rules

A cross-party House of Lords committee has urged the Bank of England to reconsider proposed regulations for stablecoins, warning that overly prescriptive requirements could hinder the development of a sterling-backed market. The committee recommended that the central bank drop proposals to cap the amount of stablecoins held by individuals and businesses, as well as mandates for issuers to back tokens with non-interest-bearing deposits.

The House of Lords Financial Services Regulation Committee, chaired by Conservative lawmaker Sheila Noakes, stated that the Bank of England, the Financial Conduct Authority, and HM Treasury must recognise the stablecoin market as nascent and growing, adapting the regulatory regime accordingly. Noakes told Reuters she was unconvinced the central bank had taken the right approach to address concerns about a potential credit crunch.

The Bank of England has argued that strict protections are necessary to prevent a flight from bank deposits into stablecoins, which could potentially cause a credit crunch. However, lawmakers advocate for a principles-based, less prescriptive approach to regulation. The Bank of England is expected to publish its final policy and draft rules for systemic stablecoins later in June.

UK authorities aim to finalise stablecoin rules by the end of the year, broadly in line with the United States. The stablecoin market is currently dominated by U.S. dollar-linked tokens, with sterling-denominated stablecoins representing a tiny fraction of those in use. The Bank of England’s rules will apply specifically to systemic stablecoins, defined as those widely used for everyday payments.

In a recent speech, Bank of England Deputy Governor Sarah Breeden hinted that the central bank was reconsidering holding limits. A Bank of England spokesperson confirmed that final policy and draft rules for systemic stablecoins would be published later in June.