What MPs and Peers Are Saying
A cross-party group of UK legislators from both the House of Commons and the House of Lords has publicly challenged the Bank of England’s proposed regulatory framework for stablecoins, urging Chancellor Rachel Reeves to intervene. They argue that key elements of the proposals could stifle innovation and push business, capital, and talent offshore. (coinglass)
Main Concerns
1. Risk of making the UK a “global outlier”
Lawmakers warn the framework could fragment the UK’s regulatory landscape and make it less competitive compared with other major jurisdictions like the US or EU. They say this risks weakening London’s position as a global financial and fintech hub. (coinglass)
2. Restrictions on use and scale of stablecoins
Under the Bank of England’s draft regime for “systemic” sterling-denominated stablecoins:
- There would be holding caps — roughly £20,000 (~$26,500) per individual stablecoin and £10–13 million for businesses — limiting how much any one actor could hold.
- Issuers would have to hold at least 40% of reserves as unremunerated (non-interest-bearing) deposits at the Bank of England, with the remainder in short-term UK government debt.
- Wholesale uses outside the central bank’s Digital Securities Sandbox could be constrained. (coinglass)
MPs call these conditions “impractical and anti-innovation” and say they would make British-pound stablecoins relatively unattractive. (coinglass)
3. Incentives to shift activity overseas
Because other regions’ stablecoin frameworks (such as the US GENIUS Act) do not impose similar strict caps or reserve constraints, legislators argue that developers and capital will gravitate toward markets with less restrictive rules — particularly toward dollar-backed tokens like USDC and USDT, which already dominate global on-chain activity. (coinglass)
4. Threat to the pound’s digital presence
Several MPs warned that if pound-pegged tokens are made uncompetitive relative to US-dollar stablecoins, most blockchain transactions involving UK users could end up denominated in foreign currency, eroding the digital role of the pound. (MEXC)
What the Bank of England Is Proposing
The Bank’s framework — currently in a consultation phase — is meant to oversee “systemic” stablecoins that could be widely used for payments and settlement. Key features include: (Bank of England)
- A dedicated regulated regime for stablecoins that reach a certain scale and importance.
- Joint oversight by the Bank of England (prudential/resilience) and the Financial Conduct Authority (conduct).
- Temporary holding limits and reserve requirements, with the goal of limiting potential financial stability risks while allowing stablecoins to integrate into mainstream finance.
- Restrictions — such as limits on wholesale use and caps on holdings — intended to prevent rapid shifts of money out of the traditional banking system.
While the Bank says these measures are designed to safeguard credit access and financial stability, critics argue they go beyond what is necessary and could have negative competitive effects. (investingLive)
Industry & Expert Reactions
Crypto firms and trade associations — including CryptoUK and executives from digital asset platforms — have broadly echoed the lawmakers’ concerns:
- They warn that the UK’s rules, if too restrictive, could deter adoption and innovation domestically.
- Some argue that the proposals may contradict the UK government’s broader aims of becoming a global digital finance hub, as expressed in recent crypto regulatory reforms. (The Currency analytics)
Comparisons with other global frameworks highlight the tension: MiCA (EU) and the GENIUS Act (US) are often seen as more innovation-friendly by industry stakeholders, without imposing strict per-wallet caps. (coinglass)
Broader Regulatory Context
- The UK’s crypto regulation regime is set to fully take effect by October 2027, extending traditional financial laws to crypto assets and aiming to harmonize oversight across exchanges, stablecoins, and other digital assets. (Reuters)
- Government and regulators say they want to support innovation while protecting consumers and markets, with the Financial Conduct Authority prioritizing stablecoin payments as part of broader digital finance modernization. (DL News)
- Political pushback underlines ongoing debate within the UK about how far to lean toward caution vs innovation in digital finance.
Bottom Line
UK MPs are urging a rethink of the Bank of England’s stablecoin regime, warning that:
- Strict limits and reserve rules could make the UK less attractive for stablecoin innovators.
- Capital and talent may flow to jurisdictions with more flexible frameworks.
- The UK risks losing its competitive edge in an increasingly digital global financial landscape.
They are calling for a more proportionate, internationally aligned framework that balances financial stability with innovation — to avoid seeing activity shift offshore. (coinglass)
Below are case studies and expert comments expanding on UK MPs’ warning that the Bank of England’s stablecoin plans may push innovation offshore, drawing on recent parliamentary letters, industry responses, and comparable international examples.
Case Studies
Case Study 1: UK Stablecoin Startups vs US Dollar Dominance
Several UK-based fintech and crypto startups have warned that the Bank of England’s proposed holding caps and reserve requirements make it commercially difficult to launch or scale GBP-backed stablecoins.
What’s happening
- Developers report that investors prefer backing USD-denominated stablecoins (like USDC) because they face fewer constraints in the US.
- As a result, UK firms increasingly incorporate overseas or issue tokens under foreign regulatory regimes.
Impact
- Reduced incentive to innovate around the digital pound.
- Growing dependence on foreign-currency stablecoins for UK-based blockchain payments.
Why MPs are concerned
Lawmakers say this undermines the UK’s goal of strengthening the pound’s role in digital finance and risks making the UK a net importer of crypto infrastructure rather than a builder of it
Case Study 2: Lessons from the EU’s MiCA Framework
The European Union’s Markets in Crypto-Assets (MiCA) regulation offers a contrasting approach.
Key differences
- No strict per-wallet holding caps.
- Clear passporting rules across member states.
- Predictable reserve and disclosure requirements.
Observed outcome
- Several global stablecoin issuers have chosen EU countries as their European base rather than the UK.
- Venture capital activity around stablecoins has been more concentrated in the EU than in the UK since MiCA clarity emerged.
MPs’ takeaway
UK lawmakers argue that if Britain’s rules are more restrictive than MiCA, the UK risks becoming a “regulatory outlier” instead of a competitive alternative
Case Study 3: Singapore’s Proportionate Stablecoin Rules
Singapore’s Monetary Authority (MAS) introduced a stablecoin regime focused on:
- Full reserve backing
- Strong consumer protection
- No artificial holding caps
Result
- Stablecoin issuers and Web3 payment firms have expanded operations in Singapore.
- The country is now a preferred hub for Asia-Pacific stablecoin innovation.
Relevance to the UK
MPs cite Singapore as evidence that financial stability and innovation can coexist, without pushing firms offshore
Comments & Reactions
UK MPs (Cross-Party Letter)
“Overly restrictive limits risk driving stablecoin innovation, investment and talent away from the UK at a critical moment for digital finance.”
MPs argue that the Bank of England’s approach, while well-intentioned, may overshoot the actual risk posed by stablecoins at their current scale
CryptoUK (Industry Body)
CryptoUK warned that:
- Mandatory non-interest-bearing reserves at the Bank of England could make UK-issued stablecoins economically unviable.
- Firms will naturally choose jurisdictions where capital efficiency is higher.
They called for alignment with international standards rather than uniquely strict UK rules
Bank of England Response
The Bank of England has defended its proposals, stating that:
- Temporary limits are designed to protect financial stability.
- Rules could be relaxed as the market matures and risks become clearer.
However, critics argue that innovation may already have moved elsewhere by the time adjustments are made
Key Insight
Across these case studies, MPs see a consistent pattern:
- Stricter-than-global-norm rules →
- Higher costs and lower flexibility for issuers →
- Relocation of innovation offshore
Their core message is not to remove regulation, but to ensure the UK’s stablecoin framework is proportionate, competitive, and internationally aligned, so innovation stays onshore rather than moving abroad.