UK House of Lords opens inquiry into sterling stablecoins and proposed regulation

The UK House of Lords Financial Services Regulation Committee has launched a formal inquiry into the growth and proposed regulation of stablecoins, with written submissions due by 11 March 2026. The committee seeks evidence on global stablecoin market developments since 2014, comparisons with the US and EU, projected growth of sterling-denominated stablecoins, use cases, and current UK regulatory barriers. It will evaluate risks and opportunities for the UK economy and financial stability, and potential impacts on the Bank of England (BoE), Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). This inquiry follows a sequence of regulatory moves: the FCA named locally issued stablecoins a 2026 priority and issued December 2025 consultations covering issuance, custody and a prudential regime. Proposed FCA measures include third-party custodians for reserves, segregation of reserve assets, a 5% on‑demand reserve minimum, a ban on paying interest to holders, direct redemption rights with one-business-day execution, and a permanent minimum capital requirement of £350,000. The BoE has separately signalled rules for “systemic stablecoins” — tokens widely used for UK payments — with final rules targeted in 2026 and proposals that could require at least 40% of reserves to be held at the BoE and consider issuer access to BoE accounts and liquidity backstops. Regulators warn that widespread stablecoin adoption could drain bank deposits and reduce bank-lending capacity. The FCA plans to open its regulatory sandbox to stablecoin experiments and to publish final rules this year, but primary legislation giving the FCA explicit digital-asset rulemaking powers remains in draft. The Lords’ inquiry could influence or revise the FCA/BoE approach, keeping the regulatory path for UK-issued sterling stablecoins uncertain despite official momentum. For traders, this means regulatory design and timing remain key drivers of market structure, custodial requirements, issuance viability and potential on‑ and off‑ramp liquidity for sterling stablecoins.