Cross-Party UK Lawmakers Press Chancellor to Challenge BoE Stablecoin Rules

A cross-party group of U.K. lawmakers has urged Chancellor Rachel Reeves to challenge the Bank of England's proposed restrictions on stablecoins, warning that the rules could undermine the country's position as a fintech leader. The lawmakers argue that the proposed framework would drive innovation and capital overseas, weakening the U.K.'s influence in the digital asset space. The letter, signed by prominent figures including Sir Gavin Williamson and Baroness Verma, highlights concerns over the central bank's draft rules, which include caps on stablecoin holdings and limitations on interest on reserves according to a report.

The lawmakers emphasize that stablecoins are rapidly becoming a foundational part of the digital economy, with transactions reaching $27.6 trillion in 2024—nearly 8% more than combined Visa and Mastercard activity. They cite projections suggesting this figure could surpass $100 trillion by 2030, reinforcing the urgency of a forward-looking regulatory approach. The group warns that the Bank of England's restrictive policies risk creating a "two-tier market" where most digital transactions default to U.S. dollar-based stablecoins like USDC and USDT, which fall outside U.K. regulatory jurisdiction.

The proposed rules, including a £20,000 cap on individual stablecoin holdings and a £10 million limit for businesses, have drawn significant criticism from the crypto industry. The central bank also plans to require issuers of pound-pegged stablecoins to hold 40% of their reserves as unremunerated deposits at the Bank of England. Lawmakers argue that such measures, while aimed at mitigating risks, could instead deter innovation and adoption, pushing activity to more favorable jurisdictions.

Risks to the Outlook

The lawmakers stress that the U.K. risks becoming a bystander in the next wave of financial innovation if its regulatory approach remains fragmented and overly cautious. They warn that the restrictions could lead to a "flight of capital" from pound-backed digital assets to dollar-based alternatives, diminishing the U.K.'s ability to shape the future of the global financial system. This shift, they argue, would not only weaken the City of London's competitive edge but also reduce opportunities for U.K.-based fintech firms to innovate and thrive according to experts.

The concerns come amid growing political interest in digital assets, with opposition parties leveraging crypto as a platform to attract younger voters and high-profile donors. The debate over stablecoins is intensifying as governments worldwide grapple with how to balance innovation with financial stability. Critics of the Bank of England's proposals argue that a more balanced framework could foster trust, encourage adoption, and attract international investment to the U.K..

What This Means for Investors

For investors, the outcome of this policy debate could shape the future of digital asset markets in the U.K. and beyond. A pro-innovation regulatory framework could make the U.K. a more attractive destination for stablecoin issuance and fintech development, offering greater flexibility and opportunities for growth. Conversely, overly restrictive rules may push investors toward alternative markets where regulatory environments are more accommodating. Lawmakers are urging the government to adopt a forward-looking approach that supports innovation without compromising stability according to a cross-party group.

The cross-party group's intervention underscores the broader implications of how stablecoins are regulated. As digital assets become increasingly integrated into the global financial system, the U.K. has an opportunity to position itself as a leader in shaping the future of finance. The challenge, according to the lawmakers, lies in striking the right balance between risk mitigation and fostering an environment where innovation can thrive without unnecessary barriers according to experts.