UK Stablecoin Debate Heats up as Coinbase Defends Reserves

TLDR

• UK Lords questioned Coinbase on stablecoin run risks and KYC

• Coinbase opposed Bank of England sterling stablecoin caps

• Lawmakers raised concerns about deposit drain from UK banks

• Coinbase called for rewards and reserve rule changes

The UK House of Lords pressed Coinbase on stablecoin risks during a high-profile hearing. Lawmakers questioned whether stablecoins could weaken banks and increase financial crime. Coinbase defended regulated stablecoins and urged changes to proposed Bank of England caps.

Tom Duff Gordon, Vice President for International Policy at Coinbase, appeared before the House of Lords Financial Services Regulation Committee. He argued that fully reserved stablecoins are safer than uninsured bank deposits. He said they are backed one-to-one by cash and short-term government securities.

Peers asked whether stablecoins could trigger Silicon Valley Bank-style runs. They also raised concerns about deposit drain and redemption risks during stress events. Duff Gordon said stablecoins do not engage in maturity transformation and therefore differ from banks.

Bank of England Caps Draw Sharp Criticism

A key issue was the proposed holding limits from the Bank of England. The central bank suggested temporary caps of £20,000 for individuals and £10 million for businesses. These limits would apply to systemic sterling stablecoins used widely in UK payments.

Duff Gordon said those caps would prevent sterling stablecoins from scaling. He told peers that meaningful settlement infrastructure requires larger balances.

Under the draft framework, systemic sterling stablecoins would fall under Bank of England oversight. The Financial Conduct Authority would supervise conduct and consumer protection. Non-sterling stablecoins such as USDT and USDC would remain under existing FCA rules.

Duff Gordon also asked regulators to allow a higher share of reserves in short-dated UK government debt. He said this would support liquidity and reduce pressure during redemptions. He noted that the Bank has proposed a liquidity facility to help issuers repo assets for cash.

KYC, AML and Crime Concerns

Committee members raised concerns about illicit finance and sanctions evasion. They questioned whether stablecoins could make it easier to move funds anonymously. Duff Gordon rejected claims that Coinbase seeks to avoid compliance duties.

He said Coinbase applies Know Your Customer and Anti-Money Laundering checks. He also cited sanctions screening and transaction monitoring tools. He argued that onchain transparency can make tracing funds easier than with cash.

Lawmakers asked who bears redemption risk in a crisis. Duff Gordon said stablecoin holders have direct claims on reserves. He added that transparency and segregation of assets can reduce uncertainty during stress.

UK Faces Global Stablecoin Competition

Duff Gordon warned that the UK risks falling behind other jurisdictions. He referenced the US GENIUS Act and the EU’s MiCA framework. He said overly tight UK rules could push innovation offshore.

Adam Jackson, Chief Strategy Officer at Innovate Finance, also addressed the committee. He said the UK could become less competitive than early movers. He cautioned that a more prescriptive regime may deter issuers.

Earlier sessions included critics such as Arthur E. Wilmarth Jr. Wilmarth described the US stablecoin approach as a “disastrous mistake.” He opposed allowing non-banks into the money business.

Duff Gordon framed 2026 as a critical year for UK digital payments policy. He said stablecoins could reduce cross-border costs and support tokenized asset settlement. He urged lawmakers to align ambition with workable rules and clear authorizations.