- UK lawmakers warn stablecoin limits may slow growth of pound-backed digital tokens.
- Committee questions 40% reserve deposit rule over concerns about issuer viability.
- Proposed holding caps and reward restrictions face scrutiny before rules are finalized.
The United Kingdom’s effort to establish a regulatory framework for stablecoins has entered a new phase after a House of Lords committee warned that several proposed restrictions could limit the issuance of pound-sterling-backed digital tokens.
The concerns were outlined in a report published by the House of Lords Financial Services Regulation Committee, which reviewed proposals from the Bank of England (BoE) and the Financial Conduct Authority (FCA). The committee said a clear regulatory structure remains necessary but cautioned that some measures could discourage participation in a sector that is still in its early stages.
Committee Raises Concerns Over Reserve Requirements
Among the measures attracting consideration is the Bank of England’s proposal requiring systemic stablecoin issuers to hold at least 40% of their backing assets in non-interest-bearing central bank deposits. The committee noted that the requirement has received opposition from industry participants who argue it could affect the financial sustainability of stablecoin issuers.
Lawmakers stated that while upholding financial stability remains key, regulatory requirements should not make it difficult for viable firms to operate. The report highlighted that the UK should remain mindful of competitiveness as other jurisdictions continue to advance their own stablecoin frameworks.
Holding Caps Face Additional Review
The report also examined proposed limits on stablecoin holdings. Under the BoE’s current plans, individuals would be restricted to holding up to £20,000 in stablecoins, while businesses would face a £10 million limit.
The central bank has argued that the caps could reduce the risk of large-scale deposit movements from commercial banks if stablecoins become widely used for payments. However, the committee questioned whether such restrictions are necessary at the current stage of market development.
Lawmakers said the proposed limits could create operational challenges for businesses and possibly slow the growth of sterling-backed stablecoins. The committee recommended that authorities continue monitoring market developments and only impose restrictions if financial stability concerns become evident.
Questions Remain Over Rewards and Incentives
Another area highlighted in the report involves the treatment of rewards and incentives for stablecoin users. Current proposals would prevent issuers from passing interest earned on reserve assets to token holders. Regulators have also not yet reached a final decision on whether other forms of rewards would be permitted.
Lawmakers argued that any restrictions on stablecoin incentives should be backed by clear, transparent, and risk-based justifications from regulators.
Related: UK House of Lords Committee Launches Review of Stablecoin Regulation
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