The House of Lords has released their stablecoin update.
The Financial Services Regulation Committee has published their 1st report catered to discussing the future of stablecoins in the UK. It provides an overview of the innovation, and at the same time highlights weaker areas across reserves, holdings, and rewards.
While there is a clear recognition of the growing stablecoin market, including the benefits of stablecoins in treasury, programmability, cross-border payments, retail payments, tokenization, and agentic commerce, other aspects of proposed rulemaking have been deemed not ideal.
Specifically, attention is drawn to the way in which the UK market has experienced a slower pace of putting forward a practical framework for issuers to come in and operate, unlike in other international markets across the U.S., EU, and certain regions in Asia.
Additionally, there is a particular emphasis on critique from industry participants and trade associations on the level of stablecoin reserve backing to be held as cash deposits (recently revised to 40%), which will impact revenue streams for issuers and could be passed in the form of fees charged to businesses and consumers.
Moving on, holding restrictions for individuals and businesses is another area the report makes an effort to improve.
Given the early stage of the GBP stablecoin market, rather than pre-emptively impose holdings limits, the Bank should consider monitoring the growth of the market and imposing holding limits only if the financial stability risks clearly warrant it.”
On stablecoin yield and rewards, the report goes through a number of feedback comments, most of which are in agreement to not permit direct interest on stablecoin holdings.
For third party rewards, there is a greater consideration that it could help scale the UK market just as credit card point schemes had done so in the past.
The report is comprehensive and covers most of the combined efforts at the Bank of England and the FCA (Financial Conduct Authority) since last year, aiming to get to an operational UK stablecoin framework.
