A cross-party House of Lords committee published a report on June 3, 2026, calling on the Bank of England to substantially revise its proposed regulatory framework for sterling stablecoins, warning that the central bank's original draft could prevent a viable pound-denominated digital currency market from ever getting off the ground. The committee was established in early 2024 to scrutinize the impact of financial services regulation on stability, consumers, and UK competitiveness, a mandate that gave its findings considerable weight.

The House of Lords Financial Services Regulation Committee, chaired by Baroness Sheila Noakes DBE, warned that the BoE's November 2025 consultation proposals were too restrictive and risked choking a nascent industry before it could develop.

The committee's concerns centre on three provisions in particular. All three apply specifically to stablecoins designated as "systemic," meaning those widely used in UK payments that could pose financial stability risks. The provisions include: individual holding caps that would have limited each user to £20,000 per stablecoin; a £10 million business holding cap; and a reserve requirement forcing issuers to park 40% of backing assets in unremunerated (interest-free) accounts at the Bank of England, with the remaining 60% in short-term UK government gilts.

The 40% unremunerated reserve rule is the most structurally damaging of the three. For stablecoin issuers, yield earned on reserve assets is the primary source of revenue. Forcing a substantial portion of those reserves into zero-interest accounts at the BoE directly attacks the business model. By comparison, the EU's MiCA framework allows issuers to hold up to 30% of reserves in non-bank assets and imposes no zero-interest mandate.

Legal analysts at Travers Smith described the BoE's original proposals as "provocative and pleasing in equal measure."

The Bank of England has already signalled it heard the criticism. On May 19, 2026, Deputy Governor Sarah Breeden announced at CityWeek London that the BoE was dropping the individual £20,000 holding cap and replacing it with aggregate issuance caps applied to token providers at the platform level. She also acknowledged the 40:60 reserve split may be "overly conservative." The shift matters practically: wallet-level caps require issuers to implement per-user compliance checks, which creates friction. Aggregate caps reduce compliance friction for builders.

In earlier remarks from March 2026, Breeden had said she is "genuinely open" to changing proposals, though she has pushed back on industry responses that simply object without offering alternatives.

Revised draft rules are expected before the end of June 2026. The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, which passed in February, provides the statutory foundation. Full regime implementation is scheduled for October 2027, with FCA authorisation applications opening in September 2026 and final Codes of Practice targeted for H2 2026. The regulatory architecture divides responsibility three ways: the FCA handles issuance licensing, the BoE manages systemic oversight, and HM Treasury holds the power to formally designate a stablecoin as "systemic," which triggers BoE oversight. The FCA has already selected four firms for a regulatory sandbox to test sterling stablecoin issuance: Revolut, Monee Financial Technologies, ReStabilise, and VVTX. In a separate development, Agant registered with the FCA in February 2026 and is preparing to launch GBPA, a sterling stablecoin targeting institutional users.

The stakes extend well beyond UK financial markets. Sterling stablecoins currently represent a fraction of a fraction of the global market. Total GBP stablecoin market capitalisation sits at roughly $12 million, according to CoinGecko data from June 2026, against a global stablecoin market of approximately $318 billion. Dollar-denominated stablecoins account for more than 99% of that total. The leading GBP stablecoin, VNX VGBP, was trading at $1.43 with around $509,000 in 24-hour volume at time of writing.

If BoE rules make it structurally unworkable to issue or hold pound stablecoins at institutional scale, FCA official Matthew Long and others have warned that UK digital finance defaults to dollar rails. Analysts, including in a FintechWeekly analysis, have described that outcome as the effective dollarisation of the UK's digital payment infrastructure.

For users in South Asia and Sub-Saharan Africa, the regulatory outcome is directly material. The UK sends more than £4.24 billion annually to Pakistan and £4.17 billion to India, making them the two largest UK outbound remittance corridors. Nigeria is also among the UK's top three remittance destinations and one of Sub-Saharan Africa's largest crypto markets. The UK accounts for roughly 27% of all remittance inflows into Kenya. Research from PaymentsCMI indicates stablecoin payment rails can reduce remittance fees by up to 80% compared to traditional wire transfers. A workable sterling stablecoin framework, particularly one that allows Revolut to deploy GBP stablecoin infrastructure within the FCA sandbox, could meaningfully reduce costs on these corridors. A dysfunctional one leaves the status quo intact. The regional dimension carries an additional dimension in 2026: crypto regulatory reform is accelerating across Africa, with markets including Nigeria, Kenya, and South Africa tightening their own frameworks. A well-structured UK regime could serve as a reference model for interoperability with those markets; a poorly designed one risks deterring cooperation with African-regulated corridors entirely.

The BoE's revised draft rules, due this month, will be the first concrete test of whether the central bank can translate its stated openness into rules the market can actually operate under. Baroness Noakes framed the committee's inquiry around whether the BoE and FCA's frameworks offer "measured and proportionate responses" to stablecoin development. The June draft will provide the clearest answer yet.