UK MPs warn Bank of England stablecoin rules could curb adoption and drive activity overseas
UK lawmakers have criticised proposals from the Bank of England on regulating stablecoins, saying the draft rules risk limiting domestic adoption and pushing stablecoin activity overseas. Parliamentary committees argue that stringent operational, custody and prudential requirements could raise costs and complexity for issuers and payment services, deterring innovation and driving issuers to relocate or serve customers from more permissive jurisdictions. The debate centres on balancing financial stability and consumer protection against maintaining the UK’s competitiveness in crypto payments and tokenised finance. Lawmakers called for clearer proportionality, international coordination and regulatory sandboxes to avoid fragmentation. The scrutiny adds political pressure as the BoE and UK regulators refine rules that will affect payment rails, stablecoin issuers and crypto firms operating in Britain.
Bearish
Tighter regulation of stablecoins in a major market like the UK is likely to be interpreted negatively by traders. The proposed Bank of England measures—if implemented with high compliance costs, strict custody or capital demands—could reduce on‑shore issuance, lower liquidity in UK-linked stablecoin markets and shift transaction flow to offshore venues. Reduced competition and higher costs typically suppress activity in fiat-backed crypto payments and tokenised assets, creating downward pressure on related tokens and on exchange volumes. Historically, when major jurisdictions impose restrictive frameworks (for example, restrictive guidance or enforcement actions in the US or China), markets see short-term outflows, reduced trading volumes and price weakness for affected segments. In the short term, traders may see higher volatility and lower liquidity for UK-focused stablecoin pairs and payment tokens; longer term, unless international coordination and proportional rules emerge, the UK could lose market share to friendlier hubs, entrenching fragmented liquidity — a structural negative for adoption and onshore crypto service growth. That said, clear, proportionate rules could later reduce regulatory uncertainty and be neutral or mildly positive; the present political criticism signals risk that initial rules may err on the restrictive side.