The Financial Services Regulation Committee, affiliated with the House of Lords, the upper house of the British Parliament, called on the Bank of England to re-evaluate the limits it plans to impose on consumers’ stablecoin assets. In the report titled “Stablecoins: waiting for regulation” published on Wednesday, it was stated that the compatibility of the proposed framework with the current development level of the market should be reconsidered.
Proposed limits spark controversy
The Bank of England had suggested a limit of £20,000 per coin for individuals and £10 million for companies. Some industry representatives argued that this approach could make the UK less competitive than nearby markets that did not impose similar restrictions.
The report emphasized that the sterling-linked stablecoin market is still in its early stages. Therefore, instead of limiting growth from the beginning, the committee considered a more appropriate approach to monitor the development of the market, but to impose limits if a clear risk to financial stability emerges.
The committee noted that the sterling-based stablecoin market is still in its early stages and recommended monitoring market growth rather than preemptively imposing asset limits and imposing limits only if financial stability risks are clearly justified.
Reservations regarding the collateral structure
The report challenged not only holding limits but also rules regarding the reserve structure of stablecoin issuers. Accordingly, the committee also recommended that the requirement for issuers to keep at least 40% of their collateral assets in non-interest-bearing central bank deposits be reconsidered.
The committee noted that this obligation could seriously affect the business model of stablecoin issuers wishing to operate in the UK. In the evaluation, it was stated that the rule in question could create significant pressure on the commercial sustainability of industry players.
Mini glossary: A stablecoin is a type of digital token whose value seeks to be pegged to a traditional asset, usually the US dollar or pound sterling. Collateral assets held by issuers refer to the reserves used to maintain this constant.
Softening signal from the central bank
The Bank of England has recently signaled a more flexible approach on this issue. Sarah Breeden, vice president for financial stability, acknowledged last month that the proposed restrictions remained “overly cautious.”
In his interview with the Financial Times, Breeden said that they are carefully examining whether there are different ways to manage the significant risks that may arise when stablecoins enter the financial system. This statement stood out as one of the clearest messages indicating that the central bank may make changes to the first draft framework.
Stablecoins are defined as digital tokens pegged to fiat currencies such as the US dollar or pound sterling or other traditional financial assets. While central banks and lawmakers have been creating regulatory frameworks in this field in recent years, the Bank of England’s proposals were considered a relatively harsher approach within the sector.
