Short Description:
The UK’s House of Lords launches a critical inquiry into proposed stablecoin rules, scrutinizing their impact on banks and the wider financial system.
Read Time: 4 minutes, 30 seconds
Main Article:
The UK’s journey towards stablecoin regulation has entered a significant new phase with the House of Lords Financial Services Regulation Committee opening a formal public inquiry. This legislative review will formally scrutinize the detailed proposals from the Bank of England (BoE) and the Financial Conduct Authority (FCA), seeking input on whether their frameworks for overseeing stablecoins—particularly systemic ones—are “measured and proportionate.” The inquiry underscores the growing institutional recognition of stablecoins’ potential to reshape traditional financial services, especially in the payments sector, and the corresponding need for a robust regulatory response to mitigate risks.
Central to the inquiry is the BoE’s plan for systemic stablecoins, which it aims to finalize by the end of 2026. These are defined as fiat-linked tokens, like pound sterling-denominated stablecoins, that become widely used for payments and could threaten financial stability. The proposed regime is stringent, requiring issuers to hold reserves backing the tokens, with at least 40% of those reserves held as deposits at the BoE itself. Officials, including the BoE’s Sasha Mills, have openly stated that widespread stablecoin adoption could reduce commercial bank deposits, potentially impacting the credit available to the broader economy—a core concern for lawmakers.
This parliamentary probe follows the FCA’s own recent consultation on broader crypto market rules and highlights the UK’s distinct, centralized regulatory approach compared to jurisdictions like the U.S. Unlike the proposed U.S. CLARITY Act, which divides oversight between multiple agencies, the UK is consolidating authority under the FCA. The committee is now actively gathering evidence, with written submissions open until March 11 and public hearings scheduled, to ensure the final rules effectively balance fostering innovation with safeguarding the financial system as stablecoin regulation evolves from proposal to law.
Short Summary:
The UK House of Lords has launched an inquiry into proposed stablecoin regulation from the Bank of England (BoE) and Financial Conduct Authority (FCA), focusing on the impact on traditional financial services and financial stability. The review will assess plans for systemic stablecoins, amidst concerns they could reduce bank deposits, as the UK aims to finalize its crypto market oversight framework by 2026-2027.
