House of Lords Financial Services Regulation Committee publishes its report on the UK’s stablecoin proposals

Following its inquiry into the growth and potential regulation of stablecoins, which launched on 29 January 2026, the House of Lords Financial Services Regulation Committee (the Committee) published its findings on 3 June 2026 in a report titled “Stablecoins: waiting for regulation” (the Report). As noted in the Report, stablecoins have technological advantages that could enable them to complement other forms of money and increase competition in the payment sector. Stablecoins therefore present opportunities for the development of a multi-money system in the UK. 

The Committee supports many of the FCA and Bank of England’s regulatory proposals (which were the focus of the inquiry), including those related to 1:1 backing, statutory trust protection for backing assets, audit and disclosure of backing assets and the Bank of England’s backstop lending facility. However, the Committee also highlights several aspects that it considers need further consideration before the regime is finalised. Additionally, it expresses concern that considerable uncertainty persists which prevents issuers from being able to plan ahead (e.g., which stablecoins will be brought within the payments regulatory perimeter).

Three principles underpin the Committee’s recommendations: (i) regulators should not “inadvertently [apply] more severe limitations than they do for other forms of payment”; (ii) the UK’s stablecoin regime should create “a level playing field” that allows stablecoins to genuinely compete with existing payment methods and other digital assets such as tokenised deposits; and (iii) regulators should “bear in mind the strengths for which the UK financial regulatory regime has traditionally been admired: principles-based, technology neutral regulation which balances financial stability with innovation and competitiveness”.   

Findings and Committee recommendations

We summarise below the Committee’s key recommendations. 

Financial crime and the freezing of coins

The Committee recommends that the FCA and HM Treasury review the existing AML and KYC rules to assess whether they “remain robust in light of the challenges and opportunities that the development of the stablecoin market brings”. It also suggests that the regulators ensure that there is legal clarity on the roles and responsibilities for freezing stablecoins or blocking transactions (issuers, exchanges and custodians), so that wherever possible the requirements mirror those for other payments and bank accounts.

Banks issuing stablecoins

The PRA has historically restricted deposit-taking banks from issuing stablecoins by providing its expectations in a couple of “Dear CEO” letters. This effectively meant that banks issuing stablecoins could only do so from separate non-deposit-taking and insolvency-remote entities with distinct branding. The Report points to evidence from Innovate Finance suggesting that banks may issue stablecoins under the same branding in the US, EU, Japan, Canada, Singapore and the UAE. The Committee concludes that the PRA’s restrictions are “unduly restrictive” and recommends that the PRA alter its requirements for the issuance of stablecoins under distinct branding and from insolvency-remote entities. 

Composition of backing assets

The Bank of England’s proposals would require a systemic stablecoin issuer to hold at least 40% of its backing assets as unremunerated central bank deposits. The Committee notes that this requirement has “attracted considerable criticism”, with some arguing it would “impact negatively on the viability of stablecoin issuers and the international competitiveness of the UK market”. Stripe’s analysis cited in the Report concluded that requiring 40% of backing assets to be unremunerated would mean UK stablecoin issuers need to charge merchants “six times (600%) higher payment fees” to offset the yield disadvantage compared to their US and EU peers. Consequently, the Committee recommends that the Bank of England: (i) consider the impact of the proposals on the development of a GBP stablecoin market and set out the basis on which it calculated the required 40% proportion; (ii) remain open to adopting a less prescriptive, principles-based approach subject to adjustment as the market matures and risks become better understood; and (iii) reconsider whether a UK issuer’s central bank deposits should instead be remunerated at base rate. 

Capital requirements: the k-factor

The FCA’s proposed prudential regime would require stablecoin issuers to satisfy an own funds requirement set at the highest of three components, one of which is an activity-based k-factor requirement to hold capital equal to 2% of the average value of stablecoins in issuance (see a more detailed summary of the own funds requirement in our previous post). The Report cites witness arguments that an issuance-linked k-factor capital charge could “heavily favour incumbents with large existing balance sheets, creating punitive barriers to entry for startups”. The Committee recommends that the FCA reconsider whether a k-factor that “increases with the volume of stablecoins issued is an appropriate way to determine that element of a firm’s capital requirements”.

Insolvency

The Committee notes that, where the value of backing assets falls short, coinholders “may need to claim as a creditor in the issuer's insolvency proceedings”. It recommends that HM Treasury considers whether general insolvency law is appropriate or whether there should be something more specific to stablecoins. 

Redemption requirements

The Bank of England and the FCA proposals would both require stablecoin issuers to grant holders direct redemption rights at par value. The Committee’s view is that any such requirements must balance robust consumer protection with the operational feasibility of issuers processing large numbers of small redemptions, noting that in a mature market, stablecoin redemption with issuers would be expected to occur primarily at the institutional level with retail and business holders instead converting their stablecoins into fiat currency through cryptoasset service providers. The Committee recommends that the Bank of England and FCA conduct a cost-benefit analysis of their redemption proposals (accounting for KYC check timelines) and consider whether direct issuer redemption should act as a backstop rather than a core requirement.

Holding limits

The Bank of England has proposed per-coin holding limits of £20,000 for individuals and £10 million for businesses to mitigate the risk of large and rapid outflows of deposits from banks, with the limits to be loosened and ultimately removed once “financial stability risks have been suitably understood and mitigated”. The Committee recommends that, rather than pre-emptively imposing holding limits, the Bank of England monitors the market and only impose limits if required for financial stability reasons, consulting appropriately in due course if it were to consider imposing limits. Additionally, the Committee recommends that the Bank of England “conduct more granular modelling of the impact of imposing stablecoin holding limits on consumers”.

Payment of interest and rewards

The Bank of England and the FCA both propose to prohibit stablecoin issuers from passing interest (also referred to as “yield”) on to coinholders. The Committee concluded that “there is relatively little demand for the Bank and FCA to permit the payment of interest” although the Committee asks the Bank of England and the FCA to set out their approach to rewards “as soon as possible” and, if they decide to prohibit rewards, to “give sufficient risk-based justifications”. If any rewards prohibition seeks to address the risk of disintermediation and the corresponding reduction in credit availability, the Committee recommends regulators conduct “further analysis of the disintermediation risk in a steady state, as well as in stress scenarios.”

Stablecoin custody and wallets

Both the Bank of England and the FCA propose to permit self-custody of stablecoins in private unhosted wallets. The Report references the Bank of England’s view that such wallets, which do not collect personal data, can heighten money-laundering and illicit-finance risks. The Committee recognises that unhosted wallets can be used for entirely legitimate purposes but considers that they may also “pose a serious and concerning challenge in relation to money laundering and illicit finance”. It recommends that HM Treasury, with the Bank of England and the FCA: (i) consider existing legal frameworks to determine if they are sufficient to detect and deter illicit activity using private unhosted and unregulated wallets; and (ii) potentially legislate to restrict their use if necessary.

Dual regulation and systemic designation

The Committee considers that the transition from FCA solo regulation to dual regulation by the Bank of England and the FCA must not act as “a disincentive for stablecoin issuers to scale up”. Given their importance to issuers drawing up business plans, the Committee recommends that both regulators finalise those transition measures and timelines as soon as possible. To give issuers more certainty, it also recommends that HM Treasury: (i) set out further details explaining how it will determine whether a stablecoin is systemic; and (ii) consider whether it would be appropriate to publish indicative quantitative thresholds. 

How regulators should approach the regime

The Committee suggests broader principles for how the UK stablecoin regime should be designed. Regulators should actively encourage safe and responsible innovation and remain open to new technological developments. The Committee also recommends that the regime be flexible, principles-based and technologically neutral and that it should not inadvertently deter market entrants. The Committee calls on the FCA to consider how its proposals align with its secondary international competitiveness and growth objective, and to look beyond mere comparisons with MiCAR or the GENIUS Act.

Next steps 

The Committee concludes that while the UK “is now moving in the right direction,” it is still “lagging behind” the US and EU, partially due to the regulators’ initial scepticism about stablecoins. Concerned by “a perceived lack of ownership of the regulatory regime”, the Committee calls on HM Treasury, the FCA and the Bank of England to work together to ensure the UK “is not left behind in developing a regime that is fit for purpose”. It calls on the Government and regulators to adhere to the timelines they have set out so that final rules are published in mid-2026, the authorisation gateway is opened on 30 September 2026 and the full regime come into force on 25 October 2027. 

Bank of England's revised approach

There has already been one significant development since the Report’s publication: on 22 June 2026, the Bank of England published its policy statement on sterling-denominated systemic stablecoins (the Policy Statement) . While the Bank of England will respond formally to the Report in due course, the Policy Statement states that the revised “regulatory approach [to systemic stablecoins] speaks directly to many of the recommendations made in the… report”. Notably, the Bank of England has now: (i) relaxed the backing asset composition requirements so that only 30% (down from 40%) of a systemic stablecoin's backing assets must be held as unremunerated central bank deposits; and (ii) replaced the previously proposed individual and business holding limits with a temporary £40 billion issuance guardrail per systemic stablecoin. We will analyse the Policy Statement in a separate post.