In a high-stakes evidence session at the Palace of Westminster, the House of Lords Financial Services Regulation Committee has cast a critical eye on the role of digital assets in Britain's economic future. On Wednesday, February 4, 2026, leading experts warned lawmakers that while the Bank of England prepares a robust systemic stablecoin regime, current tokens primarily function as "on- and off-ramps" for the speculative crypto market rather than a viable alternative to traditional sterling. Financial Times commentator Chris Giles and U.S. law professor Arthur E. Wilmarth Jr. presented a skeptical front, labeling some existing stablecoin frameworks—particularly the U.S. GENIUS Act—as a "disastrous mistake." This public inquiry arrives at a pivotal moment for the Bank of England, which aims to finalize its regulatory roadmap by the end of 2026. The central bank's goal is to marry the efficiency of blockchain technology with the safety of traditional banking, even as critics compare digital assets to "new suitcases of cash" that demand unprecedented levels of oversight to prevent systemic collapse or illicit finance.

• Skeptics argue that without a clear legal anchor, households are currently taking on excessive risk by treating tokens as a form of money.
• Domestic disruption of the banking sector remains unlikely in the short term due to the UK's already efficient, instant payment rails.
• Discover why some experts believe "tokenized deposits" from established banks are a superior path forward compared to unregulated private stablecoins.

During the inquiry, Chris Giles delivered a sobering assessment of the current state of the market. He argued that stablecoins have largely failed to achieve mainstream traction in the UK because they lack a "clear legal underpinning." To date, their primary utility has been facilitating the purchase of volatile cryptocurrencies, which Giles characterized as "intrinsically worthless assets." While he acknowledged that a robust regulatory regime could make cross-border and large corporate transfers "more efficient, cheaper, and potentially faster," he remained doubtful about their impact on domestic retail payments.

The committee explored the competitive landscape between these new digital tools and traditional banks. Unlike many other global markets, the UK already enjoys an instant, low-cost domestic payment infrastructure. This high baseline makes the value proposition of a sterling stablecoin less "interesting" to the average household. This sentiment mirrors recent findings in the ERC-20 stablecoin market, where capitalization dropped significantly as investors moved capital back into traditional safe havens. For the House of Lords, the challenge is determining whether to foster an industry that has yet to prove its necessity at home.

The most vocal criticism was reserved for the American approach to regulation. Professor Arthur E. Wilmarth Jr. slammed the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins), claiming it allows non-banks to enter the "money business" through a form of "regulatory arbitrage." He argued that allowing lightly regulated firms to issue dollar-denominated tokens undermines a prudential framework built over centuries within the banking system.

Wilmarth’s preference for "tokenized deposits"—where a bank-issued token is directly backed by the bank's balance sheet—aligns with the Bank of England’s own cautious shift. The BoE's proposed systemic stablecoin regime, slated for late 2026, involves strict 60/40 backing rules and a central bank liquidity backstop. This contrasts with the U.S. CLARITY Act's focus on defining agency jurisdiction, suggesting the UK may opt for a more "narrow bank" model that keeps digital money within the reach of central bank oversight.

Illicit finance and the risk of rapid "runs" were central themes of the Wednesday session. Giles warned that without rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, stablecoins could simply become "new suitcases of cash" for bad actors. This risk is amplified by the speed of digital transfers; a "very rapid run" on a stablecoin issuer could happen in minutes, far outpacing the response time of traditional bankruptcy or resolution plans.

As the NYSE develops its 24/7 blockchain trading platform, the pressure to integrate these digital "cash legs" is mounting. However, the House of Lords witnesses suggested that the UK should not let "perfect be the enemy of the good" when it comes to safeguards. The inquiry will continue to take evidence until March 11, with the goal of ensuring that if a systemic stablecoin does emerge in the UK, it behaves more like a regulated utility than a speculative experiment.

Quotes and Expert Opinions

"Stablecoins have not yet taken off in the UK because there is still no clear legal underpinning and clear regulation, making it risky for households to hold them as money." — Chris Giles, Economics Commentator at the Financial Times

"They have been described as 'your new suitcases of cash.' International oversight of exchanges and stronger KYC and AML checks would be essential if they moved beyond their current niche." — Chris Giles, Economics Commentator at the Financial Times

"I regard the GENIUS Act as a disastrous mistake for allowing non-banks to enter into 'the money business' while undermining a prudential framework that has been built up over centuries within the banking system." — Arthur E. Wilmarth Jr., Professor of Law

FAQs

What is a systemic stablecoin in the context of the UK inquiry?
A systemic stablecoin is a digital token linked to a fiat currency (like the Pound) that is used so widely for payments that its failure could threaten the UK's financial stability. The Bank of England plans to regulate these like traditional money, requiring them to be backed by secure assets held at the central bank.

Why did witnesses call the U.S. GENIUS Act a "disastrous mistake"
Professor Wilmarth argued that the GENIUS Act allows non-bank companies to issue money-like tokens without the strict safety rules that apply to traditional banks. He believes this creates "regulatory arbitrage," where firms can take risks that could eventually harm the broader financial system.

Will stablecoins replace bank accounts for UK households?
Witnesses like Chris Giles are skeptical. They noted that the UK already has instant, low-cost payment systems. Unless a systemic stablecoin offers a major new benefit, it is unlikely to "disintermediate" (or bypass) traditional banks for everyday domestic use.