Stablecoins are a type of cryptoasset designed to maintain a stable value, typically by being linked to a fiat currency. The market has grown rapidly in recent years, with the global stablecoin market capitalisation estimated at more than $310 billion in 2026. The market remains overwhelmingly dominated by US dollar-denominated stablecoins, particularly those issued by Tether and Circle, while the UK market is still at an early stage. Although stablecoin use is still concentrated in cryptoasset trading and cross-border payments, the market is developing quickly.

As the stablecoin market has expanded, jurisdictions including the US and the EU have moved ahead with regulatory frameworks intended to address both the opportunities and the risks these products present. The UK is still developing its own regime, although the FCA and the Bank of England have recently published important proposals.

Against that backdrop, the House of Lords Financial Services Regulation Select Committee launched an inquiry in January into the growth of stablecoins in the UK and the proposed regulatory approach, focusing on the proposals from the Bank of England and the FCA.

The committee's report highlights the following main points:

• The UK is currently behind the US and the EU in developing a stablecoin regulatory regime.
• The committee says regulators should stick to current timelines and avoid further delay in finalising the regime.
• Several features of the proposed UK regime would diverge from international approaches, including the requirement for systemic issuers to hold unremunerated backing assets, proposed holding limits for stablecoins, and restrictions on commercial banks issuing them.
• The Bank of England should undertake more detailed modelling of how holding limits could affect high-value use cases.
• HM Treasury, the Bank of England and the FCA should consider whether existing legal frameworks are sufficient to detect and deter illicit activity involving private, unhosted and unregulated wallets, and whether further legislation may be needed.
• HM Treasury should provide more detail on how it will determine when a stablecoin becomes systemic.
• The FCA should reconsider whether it is appropriate to apply a k-factor requirement that increases with the volume of stablecoins issued.

Why this matters

The report highlights that the UK is reaching a critical point in the development of its stablecoin regime. For firms looking at sterling-backed stablecoins, payments innovation or digital asset services, the direction of travel is becoming clearer, but so too are the areas of regulatory uncertainty. The committee's call for faster progress, combined with its concerns about holding limits, backing asset requirements and market competitiveness, signals that the final shape of the regime will matter not only for compliance, but also for whether the UK can develop an attractive environment for stablecoin-related business. Firms should continue to monitor the FCA's and the Bank of England's next steps closely.