UK Lawmakers Launch Stablecoin Probe as Bank of England Warns of Financial Risks

TLDR

• UK probes stablecoin risks as BOE advances strict systemic oversight rules
• Parliament reviews stablecoin impact on banks, credit, and payments stability
• BOE plans tighter rules as lawmakers assess fast-growing stablecoin adoption
• UK launches inquiry into stablecoin risks and regulatory framework upgrades
• Stablecoin scrutiny rises as BOE targets stronger safeguards and oversight

UK legislators opened a formal inquiry into the expansion of stablecoins as the BOE warned of emerging financial risks. The review aims to assess the impact of rapid stablecoin adoption on deposits and credit, while regulators refine new oversight plans. The committee began collecting evidence as the BOE intensified work on a regime for systemic stablecoins.

Stablecoin Oversight Moves Forward as Legislators Assess Market Impact

The committee initiated the inquiry to understand how stablecoins could shift deposits away from banks and affect credit supply. The BOE highlighted that widespread stablecoin use may alter payment flows and reduce banking sector liquidity. Lawmakers advanced the review to ensure the regulatory approach reflects these structural changes.

The inquiry will examine sterling and foreign-currency stablecoins used across payments and markets. The committee wants to understand how the sector evolved since early stablecoins emerged more than a decade ago. It also aims to evaluate the UK’s position relative to the United States and the European Union.

Submissions from industry, experts, and the public will remain open until March 11. The committee will hold oral hearings after reviewing written contributions. The process aims to produce clear findings on stablecoin use and related stability considerations.

Regulators Refine Rules as BOE Prepares Systemic Stablecoin Framework

The BOE confirmed that completing stablecoin regulation remains a priority within its broader digital finance agenda. The BOE advanced work with the FCA on standards for issuers that could operate at scale. The BOE intends to align stablecoin oversight with expectations applied to existing money forms.

The BOE plans to require systemic stablecoins to maintain at least 40% of reserves in deposits at the central bank. The BOE also outlined that issuers may access liquidity support to protect payment stability. Regulators aim to finalize the framework by the end of 2026.

Stablecoins classified as systemic would include pound-linked tokens used widely in retail or corporate payments. These tokens could affect settlement processes and influence the broader financial system. The BOE emphasized that these effects require strong safeguards.

Legislative Review Considers Broader Regulatory Objectives and Market Structure

Lawmakers will review whether the BOE and FCA proposals match the legislative goals of financial stability and consumer protection. They will also examine expected outcomes for competition within the financial sector. The committee expects the inquiry to inform policy choices as stablecoin activity expands.

The FCA recently released a consultation outlining key requirements for crypto markets. The regulator aims to complete this process in March before full implementation in 2027. The approach places crypto regulation under one authority to support consistent oversight.

The UK’s direction contrasts with the United States, which plans a split structure under the CLARITY Act. That model assigns asset supervision between two agencies based on market activity. However, UK authorities favor a unified system centered on the BOE and the FCA to streamline regulation.

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