UK House of Lords Pushes Bank of England on Stablecoin Rule Delays

TLDR

• UK lawmakers urged regulators to avoid delays in final stablecoin rules.
• The report said a GBP stablecoin market could support faster and cheaper payments.
• The committee backed one-to-one reserve backing for stablecoin issuers.
• Lawmakers questioned proposed holding limits and unremunerated backing asset rules.
• The report urged HM Treasury to review risks tied to private unhosted wallets.

UK lawmakers have urged regulators to avoid delays in final stablecoin rules as global frameworks move ahead. The House of Lords Financial Services Regulation Committee warned that slow action could weaken the UK’s position. Its report calls for rules that support safe innovation while addressing financial stability and consumer risks.

Committee Sees Room for a GBP Stablecoin Market

The committee argued that a sterling stablecoin market could support faster and cheaper payments. It also linked the technology to settlement efficiency and programmable payment services. The report noted that stablecoins could complement existing forms of money. It also stated that new payment options could increase competition across the UK payments sector.

Lawmakers pointed to the UK’s established financial services industry as an advantage. They argued that the country should allow a GBP stablecoin market to form and grow. The committee also noted that a strong market could support wider services around stablecoins. It linked those services to new business opportunities in the wider digital finance sector.

However, the report also identified risks that regulators must address before wider adoption. These include financial stability concerns, banking sector disruption, and consumer protection issues. The committee also raised concerns about illicit activity linked to stablecoins. It described that issue as a global concern for regulators and policymakers.

Lords Back Core Rules but Question Limits

The committee supported much of the Bank of England and FCA stablecoin framework. It backed the proposed requirement for issuers to hold one-to-one backing assets. Lawmakers also welcomed the Bank of England’s proposed backstop lending facility. The report viewed that tool as part of the wider risk management framework.

However, the committee questioned parts of the UK’s planned regime. It noted that some proposals would diverge from rules used in other major markets. The report focused on holding limits, unremunerated backing assets, and commercial bank restrictions. It stated that these measures could shape how the market develops.

The committee recommended that the Bank reconsider the 40% central bank deposit requirement. It argued that unremunerated assets may affect how issuers manage reserves. It also urged regulators not to impose holding limits before risks justify them. The report warned that early limits could restrict GBP stablecoin growth.

Report Calls for Timelines and Flexible Regulation

The committee urged regulators to keep current timelines and avoid further delays. It stated that final rules should give firms certainty and market confidence. The report also recommended a flexible approach to future stablecoin use cases. It argued that regulators should not assume how digital settlement tools will develop.

Lawmakers urged regulators to avoid applying a harsher risk lens to stablecoins. They asked authorities to compare risks with other payment methods fairly. Baroness Noakes, the committee chair, noted that dollar stablecoins dominate the global market. She also stated that the UK has moved more slowly than the US and the EU.

“The UK is lagging behind compared with the US and the EU,” Noakes stated. She added that the UK was now moving in the right direction. The committee also addressed commercial bank involvement in stablecoin issuance. It recommended changes to proposed PRA rules on separate branding and insolvency-remote entities.

The report further urged HM Treasury to review rules for private unhosted wallets. It asked officials to consider legislation if current laws cannot deter illicit activity. Noakes stated that no one knows how a UK stablecoin market may develop. She added that regulation must allow innovation while ensuring risks receive effective controls.

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