The House of Lords has urged Britain’s financial regulators to stick to their planned timetable for stablecoin regulation, warning that delays could leave the UK behind the United States and European Union in the rapidly evolving digital payments market.
In a report titled Stablecoins: waiting for regulation, the House of Lords Financial Services Regulation Committee called on the Bank of England, the Financial Conduct Authority (FCA) and HM Treasury to move forward without hesitation. Peers warned that hesitation risks locking UK businesses out of a sector increasingly dominated by dollar-backed digital tokens.
Committee chair Baroness Noakes said the global stablecoin market is already largely shaped by US dollar-linked assets, while regulatory frameworks are being developed more quickly abroad. She said Britain is still catching up, but now has a chance to position itself more competitively if it acts decisively.
Stablecoins, digital assets pegged to traditional currencies such as the pound, are presented in the report as a potential boost for the UK economy. Lawmakers pointed to faster settlement times, cheaper cross-border payments and automated financial processes that could benefit small and medium-sized businesses. A sterling-backed stablecoin, they argued, could strengthen London’s role in global finance while supporting fintech innovation.
At the same time, the committee acknowledged the risks, including financial instability, consumer misunderstanding and potential use in illicit transactions. Self-custody digital wallets were highlighted as a particular concern due to their limited regulatory oversight.
While the Lords broadly support the Bank of England’s proposed framework for sterling stablecoins, they raised concerns over several elements. These include a requirement for issuers to hold a large share of reserves in non-interest-bearing central bank deposits, proposed caps on stablecoin holdings, and limits on commercial banks issuing their own tokens. Peers warned that such measures could weaken the UK’s competitiveness and discourage market participation before it fully develops.
The report recommends a flexible, “use-case agnostic” approach that allows innovation across payments, trade settlement and digital commerce while maintaining safeguards for financial stability and consumer protection. It also cautions against imposing stricter rules on stablecoins than on existing payment systems such as card networks and traditional banking rails.
Lawmakers also raised concerns that uncertainty could push UK fintech firms to relocate abroad or build on foreign currency-backed systems if regulatory clarity is not provided quickly.
The committee has asked regulators and the Treasury to assess whether current laws are sufficient to manage risks linked to unhosted wallets and, if necessary, consider new legislation.
Peers said the UK now faces a narrow window to shape the future of digital money. The outcome, they warned, will determine whether Britain becomes a leading hub for sterling-based digital payments or falls behind in a market increasingly defined by US and EU standards.
