UK Parliament Scrutinizes Future of Stablecoin Rules

The UK's approach to regulating stablecoins is now under review as the House of Lords Financial Services Regulation Committee initiates a formal inquiry. The committee is seeking public and expert input on the proposed regulatory frameworks drafted by the Bank of England (BoE) and the Financial Conduct Authority (FCA).

Baroness Noakes, the committee's chair, stated the goal is to determine if these proposals are "measured and proportionate" responses to the evolving stablecoin market. The inquiry will also explore the potential impact of stablecoins on traditional financial services like banking and payments, weighing the opportunities against the risks of their increasing adoption in the UK.

Industry participants, experts, and the public have until March 11 to provide written submissions. The committee is also set to hear oral evidence in a public session this Wednesday.

Inside the Bank of England's Proposed Framework

This parliamentary inquiry coincides with ongoing efforts by UK authorities to establish clear oversight for digital assets. The Bank of England has made developing a framework for "systemic stablecoins" a priority, aiming to finalize its approach by the end of the year.

Sasha Mills, the BoE's Executive Director for Financial Market Infrastructure, highlighted that these initiatives are crucial for shaping the future of digital finance in the UK. The central bank's proposed regime for systemic stablecoins includes several key features:

• Central Bank Access: Issuers of systemic stablecoins could hold a deposit account directly with the Bank of England.

• Liquidity Support: A potential liquidity facility would act as a backstop for stablecoin issuers.

• Backing Requirements: Stablecoins would need to be backed by a specific asset mix: 60% in short-term UK government bonds and 40% in Bank of England deposits.

• Holding Limits: To manage risk, temporary holding limits are proposed at £20,000 for individuals and £10 million for businesses.

The BoE defines "systemic stablecoins" as fiat-pegged tokens, particularly those denominated in pound sterling, that are widely used for retail or corporate payments within the UK and could pose a risk to financial stability.

Currently, popular stablecoins like USDC and USDT, which are primarily used for crypto trading, are not classified as regulated payment instruments in the UK. However, this is expected to change under the new regime, with full implementation targeted for October 2027.

How the UK Stacks Up: US Regulation vs. China's Ban

The UK's regulatory efforts are developing against a backdrop of starkly different international approaches to stablecoins.

The US Approach: Legislating Guardrails

In the United States, the GENIUS Act, signed in 2025, provides a clear regulatory path. The law mandates that stablecoins must be backed one-for-one by US dollars or equivalent high-quality liquid assets, such as short-term Treasury bills. Issuers are also subject to US banking and anti-money-laundering regulations. Regulators are expected to release detailed implementation rules under the CLARITY Act by mid-2026.

China's Stance: A Complete Prohibition

In contrast, mainland China maintains a strict ban on all cryptocurrency-related activities. In December, Chinese authorities reiterated that any business involving virtual currencies, including stablecoins, is considered an illegal financial operation. The government views them as a risk to monetary sovereignty, citing concerns about money laundering and uncontrolled cross-border capital flows. Instead of allowing private stablecoins, China is focusing its financial innovation efforts on its central bank digital currency, the digital yuan (e-CNY).