Lords hearing over Bank of England caps

Lawmakers intensified their review of UK stablecoins during a House of Lords hearing, as Coinbase defended reserve-backed tokens and challenged proposed Bank of England limits.

House of Lords hearing probes risks and reserves

The UK House of Lords Financial Services Regulation Committee questioned Coinbase on 2026 policy choices for digital money. Moreover, peers tested whether reserve-backed stablecoins could weaken banks or increase financial crime. The discussion focused on systemic tokens and their treatment under a future stablecoin regulatory framework.

Tom Duff Gordon, Vice President for International Policy at Coinbase, told members that fully reserved tokens are, in his view, safer than uninsured bank deposits. He stressed that leading instruments are backed one-to-one by cash and short-term government securities, rather than engaging in classic bank-style intermediation.

Peers pressed him on whether these structures might still trigger Silicon Valley Bank-style runs during market stress. However, Duff Gordon argued that redemption risks are different because stablecoin issuers do not perform maturity transformation, unlike commercial banks that lend against deposits.

Bank of England caps and the future of sterling tokens

A central flashpoint was the Bank of England caps proposed for systemic sterling tokens. Under the consultation, the Bank suggested temporary holding limits of £20,000 per individual and £10 million per business. These thresholds would apply to systemic sterling tokens that are widely used in UK payments and settlements.

Duff Gordon warned that these sterling stablecoin caps would curb growth and prevent scale. He told peers that meaningful settlement infrastructure, especially for institutional users, demands larger balances. If balances are constrained, he said, tokens will struggle to compete with existing bank-based rails.

“If sterling stablecoins cannot be held at meaningful scale, they cannot function as settlement infrastructure,” he said, framing the issue as fundamental to the UK’s role in global payments. That said, he acknowledged that authorities want phased safeguards while the market is still maturing.

Under the draft regime, systemic sterling instruments would fall under Bank of England prudential oversight. Meanwhile, the Financial Conduct Authority would supervise conduct and consumer protection. Non-sterling tokens such as USDT and USDC would remain under existing FCA rules rather than moving into a separate prudential perimeter.

Coinbase pushes for reserve flexibility and liquidity tools

Beyond caps, Duff Gordon urged regulators to adjust reserve composition rules. He asked that issuers be allowed to hold a higher share of backing assets in short-dated UK government debt. Moreover, he argued this would support market liquidity and ease pressure during large-scale redemptions.

He also pointed to a proposed Bank of England liquidity facility, which would let issuers repo high-quality assets for cash in a stress scenario. In his view, such a mechanism could limit fire sales and provide orderly redemptions for token holders, while still preserving strong safeguards.

Lawmakers further examined who ultimately bears redemption risk in a crisis. Duff Gordon responded that holders of regulated UK stablecoins should have direct claims on segregated reserves. He said transparency, frequent disclosure and strict segregation of client assets are essential to reduce uncertainty during stressful episodes.

KYC, AML and financial crime concerns

Committee members devoted significant time to kyc aml compliance and sanctions issues. They questioned whether tokens might offer new channels for illicit finance or sanctions evasion, particularly when combined with pseudonymous wallets and cross-border platforms.

However, Duff Gordon rejected the notion that Coinbase seeks to bypass its obligations. He said the exchange applies full Know Your Customer and Anti-Money Laundering checks, alongside sanctions screening. He also cited transaction monitoring tools designed to flag suspicious flows on public blockchains.

He argued that onchain transparency can, in some cases, make tracing flows easier than tracking cash. Moreover, he highlighted that Coinbase cooperates with law enforcement requests and uses analytics to identify high-risk counterparties, rather than promoting anonymous usage.

Impact on UK banks and deposit drain concerns

Peers raised broader deposit drain concerns, asking whether large-scale adoption of tokens could pull money from traditional UK bank deposits. They also questioned potential knock-on effects for lending capacity if households and businesses shift balances into digital instruments.

Duff Gordon responded that fully reserved tokens sit on top of underlying cash and sovereign debt, rather than funding long-term loans. That said, he accepted that policymakers must consider how flows between bank accounts and digital wallets might affect liquidity management in the banking system.

He emphasized that design choices, such as limits on systemic holdings and prudential safeguards, can mitigate disruption. Moreover, he said close coordination between the Treasury, the Bank of England and the FCA will be critical as rules are finalized.

Global competition and the UK’s strategic position

The hearing also examined how UK stablecoins fit into global competition. Duff Gordon warned that restrictive rules could push innovation towards more permissive jurisdictions. He mentioned the US GENIUS Act and the European Union’s MiCA rules as examples of competing frameworks moving ahead.

Adam Jackson, Chief Strategy Officer at Innovate Finance, cautioned that the UK may end up less competitive than early movers. Moreover, he argued that an overly prescriptive regime could deter issuers from locating in London, even as demand for regulated digital settlement tools grows worldwide.

Earlier sessions featured critical voices, including Arthur E. Wilmarth Jr., who described the US approach to tokens as a “disastrous mistake.” He strongly opposed allowing non-banks into the money business, warning of systemic risks if private issuers expand too quickly.

2026 as a pivotal year for UK policy

Looking ahead, Duff Gordon characterized 2026 as a pivotal year for UK digital payments and markets policy. He said tokens could reduce cross-border costs, improve settlement for tokenized assets and support a more competitive financial sector. However, he stressed that ambition must be matched by workable rules and timely authorizations.

He urged lawmakers to balance innovation and safety as the UK to regulate stablecoins moves from consultation to implementation. Moreover, he called for clear guidance so that exchanges, issuers and banks can invest confidently in infrastructure, rather than waiting on uncertain timelines.

Outlook for UK digital assets and regulation

In summary, the House of Lords hearing underscored the high stakes for the UK’s digital asset strategy. Peers scrutinized caps, reserves, crime risks and competitiveness while weighing consequences for banks and consumers. That said, most participants agreed that regulated frameworks, if calibrated carefully, could unlock safer growth in tokens and modernize UK payments.