Britain is still behind the US and EU in setting clear rules for the stablecoin market, according to a new House of Lords report.

The warning lands as dollar-backed stablecoins continue to dominate global activity, while sterling-backed coins remain a tiny part of the market. For UK policymakers, the issue is not only the pace of regulation. Peers also questioned whether parts of the proposed framework could make Britain a harder place for issuers to build and scale.

Stablecoins are digital tokens designed to hold their value against a currency such as the dollar, euro or pound. They are still mainly used in crypto trading, but firms are increasingly testing them for cross-border payments, treasury management, tokenised asset settlement and automated payments.

UK market remains small

The Lords report says more than 99% of stablecoins are pegged to the US dollar, with Tether and Circle accounting for around 90% of the market.

By comparison, the UK stablecoin market remains small. Tokenised GBP, the only UK-issued fiat-referenced stablecoin cited in the report, had a market cap of $1.53 million on 11 March 2026.

The report places that against the wider regulatory picture. The EU’s MiCA regime is already in force, while the US has passed the GENIUS Act for payment stablecoins. The UK is still finalising its own framework.

 Holding limits under scrutiny

One of the most debated areas is the Bank of England’s proposed temporary holding limits for systemic stablecoins. These would cap individual holdings at £20,000 and business holdings at £10 million.

The Lords committee said these limits should be reconsidered, warning they could unnecessarily inhibit the growth of sterling stablecoins and prove difficult to implement.

Carl Grimstad, CEO of Lydian, said the caps risk slowing adoption.

“Capping stablecoin holdings at £20,000 for individuals and £10 million for businesses feels like an attempt to slow a financial system that’s already beyond established,” Grimstad said. “The risk is that well-intentioned safeguards become barriers to adoption, pushing innovation and liquidity to jurisdictions that are already embracing digital assets as core financial infrastructure.”

He added that stablecoins are increasingly being used as an operational layer for global commerce, particularly for real-time settlement across borders and outside conventional banking hours.

Industry calls for a rethink

The committee also raised concerns about the Bank of England’s proposal that systemic stablecoin issuers hold at least 40% of backing assets in unremunerated central bank deposits.

It said the requirement had attracted significant criticism, with some witnesses arguing it could weaken the commercial viability of issuers and reduce the international competitiveness of the UK market.

Nick Jones, founder and CEO of digital assets company Zumo, said the report should act as a warning.

“The report by the Financial Services Regulation Committee is a timely reminder that the UK is at a very real risk of being left behind in an already heavily-dollarised stablecoin market,” Jones said.

Jones pointed to recent comments from Bank of England Deputy Governor Sarah Breeden, who signalled that the Bank could revisit parts of its approach, including the 40% reserve requirement and holding caps.

“Our hope is today’s report cements that change in direction,” he added.

Dual regulation creates uncertainty

Another point of concern is the UK’s proposed two-regime structure. Under current plans, non-systemic stablecoins would be regulated by the Financial Conduct Authority, while systemic stablecoins would be overseen by both the Bank of England and the FCA.

The Lords committee said more clarity is needed on how a stablecoin would move from FCA-only supervision into dual regulation. HM Treasury is responsible for deciding when a stablecoin becomes systemic, but the report said issuers remain unclear on how that judgement would be made.

Jones said this divergence from other markets could create problems for firms trying to build in the UK.

“Many in the industry have warned that overlapping mandates are stalling the UK’s bid to become a major global digital assets hub,” he said. “We need policymakers to take on board today’s recommendations and ensure they are singing from the same hymn sheet.”

Stablecoins move into payments

Derek Corcoran, CEO of crypto payments provider Confirmo Limited, said regulation is becoming one of the main drivers of stablecoin adoption.

“Thanks to frameworks such as MiCA in Europe and the GENIUS Act in the US, stablecoins are transitioning from a regulatory system in development into a robust, recognised payments infrastructure in the same realm as traditional finance,” Corcoran said.

He said euro-backed and dollar-backed stablecoin infrastructure is growing, while sterling-backed stablecoins account for less than half a per cent of the market.

“The UK has every reason to be a serious player in the stablecoin space,” Corcoran added. “There are encouraging signs that regulators are prepared to readjust.”

Risk remains part of the debate

The report also sets out the risks regulators are trying to manage, including consumer protection, financial crime and financial stability. It also points to concerns that wider use of stablecoins could draw deposits away from commercial banks if adoption grows significantly.

However, it said regulation should be proportionate and flexible enough to allow new use cases to develop.

Baroness Noakes, chair of the committee, said the UK is “now moving in the right direction”, but warned that parts of the proposed regime should be reconsidered.

“No-one knows whether or how a UK-based stablecoin market could develop,” she said. “Regulation needs to allow innovation while ensuring that risks are effectively mitigated.”