UK Lords tell Bank of England: cap pound stablecoins and the product dies

On 2 June 2026, a House of Lords committee told Andrew Bailey in plain language: cap pound-denominated stablecoins the way the Bank of England has proposed and the product dies in the cradle. The intervention, reported by CoinDesk on 2 June and Cointelegraph on 3 June, lands on a Bank consultation that would limit individual holdings of any single regulated sterling stablecoin to £20,000 and corporate holdings to £10 million — caps the Lords consider commercially unworkable for a market where institutions routinely move eight-figure sums.

This is not a small technical dispute. It is a question about whether the City of London, having already conceded the lead in dollar and euro stablecoin issuance to American and Swiss-based issuers, should also surrender the home-currency leg of the market to the same offshore operators. The Treasury and the Bank of England want a tightly supervised regime that prevents the kind of run-risk that hit TerraUSD in 2022 and SVB's deposit base in 2023. The Lords are asking whether the proposed cap achieves safety at the cost of utility — and whether that trade is one a global financial centre can afford.

The proposed limits

The Bank of England's consultation paper sets the framework under which issuers of payment stablecoins denominated in sterling can be authorised to operate in the UK. The headline restrictions: no individual can hold more than £20,000 of a single regulated stablecoin, and no business can hold more than £10 million. Issuers would also face strict reserve-composition rules, capital buffers and a redemption guarantee that promises par-value conversion to fiat within one business day.

In theory, the framework is one of the most conservative in any major jurisdiction. The European Union's Markets in Crypto-Assets Regulation, by contrast, imposes large-holder caps only above €200 million and relies on issuer-by-issuer authorisation. The United States, still working through the Genius Act implementation, has settled on a $5 billion issuer capital floor and a one-to-one reserve requirement without per-holder caps of the kind the Bank is proposing.

The Bank's argument is that the caps prevent stablecoins from becoming a parallel deposit system. If a regulated sterling token cannot accumulate more than £10 million with any single corporate user, the theory goes, it cannot meaningfully replace commercial-bank deposits — and the systemic risk that flows from any deposit-displacement event is held down. The Treasury and the Prudential Regulation Authority have endorsed this logic in their joint statements on the consultation.

The Lords' objection

The Lords committee's criticism is that the limits confuse scale with risk. A £10 million cap on corporate holdings, the committee argues, is below the level at which any treasury operation could use the product for more than trivial payments. UK corporates that already use dollar stablecoins for cross-border settlement — commodities traders, freight forwarders, several FTSE-listed retailers — operate daily flows measured in tens of millions. They would not be able to migrate those flows to a regulated pound token under the proposed regime.

For individuals, the £20,000 cap is also tight. The committee points out that median UK savings balances sit comfortably above £20,000, meaning any user wishing to hold a regulated stablecoin as a cash-equivalent store of value would hit the ceiling before completing a meaningful diversification.

The Lords do not contest the prudential intent. They argue that the Bank has under-priced the consequence of pushing demand offshore. A user who cannot hold more than £20,000 of a UK-regulated pound stablecoin will simply hold a dollar or euro token from a Swiss or American issuer instead. The product exists, the conversion is frictionless, and the resulting flow still settles in sterling on UK bank rails — but the issuance, the reserve-management fees and the regulatory leverage all sit in Zug or New York rather than London.

The competitive picture

This is where the policy question meets a strategic one. London is already not the centre of the dollar stablecoin market. Tether and Circle, the two issuers that dominate the global float, are domiciled in El Salvador and the United States respectively. The euro leg is led by issuers authorised under the EU's MiCA framework — French, German and Lithuanian firms among them. Pound sterling is the only G7 currency whose on-chain representation remains marginal. Sterling-backed tokens are a small share of the global stablecoin float, well behind the dollar, the euro and the offshore Chinese yuan.

The Bank of England's framework is, in this light, an attempt to build a domestic regulated tier rather than to regulate an existing market. The Lords' worry is that the framework, as proposed, will not build that tier; it will simply create a niche product that nobody uses, while the underlying demand for on-chain sterling migrates to dollar and euro tokens that already exist.

The counter-argument is that the Bank's caution is the price of credibility. A sterling stablecoin that breaks the buck the way TerraUSD did, or that triggers a run on a UK issuer the way the Silicon Valley Bank episode threatened regional banks, would damage the City of London's reputation in a way that no marginal market share is worth. The Treasury's insistence on par-redemption guarantees and conservative reserve composition is, on this reading, a deliberate trade of growth for trust.

The stakes

The decision Andrew Bailey and Chancellor Rachel Reeves now have to make is whether the trust the Bank is buying is trust the market will actually demand. The Lords' letter gives the Treasury political cover to revisit the cap regime before the framework enters statute. The likely path is a re-consultation with revised thresholds — possibly a £1 million individual cap and no corporate cap beyond what anti-money-laundering rules already impose.

The deeper question is whether the UK, having chosen to be a rule-maker rather than a rule-taker in stablecoin policy, can afford to set rules that push the underlying market elsewhere. The dollar and euro already dominate. The yuan is growing. If sterling is to have a meaningful on-chain presence by the end of the decade, the issuing infrastructure has to be commercially usable — and that, the Lords are saying, the Bank's current draft is not.

What remains contested is the empirical question: whether a more permissive framework would in fact attract issuers, or whether the absence of large sterling-denominated issuance in London reflects deeper structural factors — time-zone competition, the depth of US Treasury markets, the network effects of incumbent dollar tokens — that no UK cap regime can offset. The Lords assume the framework is the binding constraint. The Bank's modelling, which the consultation paper alludes to but does not publish in full, assumes it is not. That disagreement is the real story.

Monexus framed this as a strategic question about whether the City of London chooses to compete for the on-chain pound market or concedes it; the wire coverage has been more narrowly focused on the consultation-paper mechanics.

Wire provenance

This editorial synthesis draws on the following public wire/social posts:

• https://en.wikipedia.org/wiki/Stablecoin
• https://en.wikipedia.org/wiki/Bank_of_England