A fundamental restructuring of the British monetary landscape is underway as the House of Lords Financial Services Regulation Committee formally initiated an inquiry into the future of digital fiat. On Thursday, January 29, 2026, the committee invited industry experts and the public to scrutinize the ambitious regulatory frameworks proposed by the Bank of England (BoE) and the Financial Conduct Authority (FCA). Led by Baroness Noakes, the inquiry seeks to determine if these "measured and proportionate" rules can safeguard the economy without stifling the innovation promised by systemic stablecoins. As the Bank of England moves to finalize its regime by the end of 2026, the stakes are remarkably high; regulators are balancing the potential for faster, programmable payments against the risk of a "deposit drain" that could significantly reduce credit to the real economy. With written evidence due by March 11, the UK is racing to establish a definitive "multi-money" system that integrates blockchain efficiency with the stability of the sterling.

• A high-level parliamentary review is now assessing whether proposed "holding limits" for individuals will protect or hinder market growth.
• Regulators are detailing a unique backing model that requires 40% of reserves to be held directly with the central bank.
• Public hearings are set to explore the competitive gap between the UK’s centralized regulatory approach and the bifurcated US CLARITY Act.

The core of the UK's strategy revolves around the concept of systemic stablecoins—tokens so widely used for everyday payments that their failure would threaten national financial stability. Sasha Mills, the BoE’s Executive Director for Financial Market Infrastructure, emphasized at the Tokenisation Summit that these assets must meet the same rigorous standards as traditional commercial bank money. To achieve this, the BoE proposes a landmark "backstop" facility: systemic issuers will receive a central bank deposit account, provided they maintain a strict 60/40 reserve split between short-term government debt and unremunerated BoE deposits.

This "multi-money" vision acknowledges that systemic stablecoins have the potential to modernize retail and wholesale payments, yet it introduces a cautious "holding limit" of £20,000 for individuals. This measure is designed to prevent a rapid exodus of funds from traditional banks during periods of market stress. This cautious approach contrasts with recent US moves to align prediction markets with financial ethics, showing that while the US focuses on market conduct, the UK is prioritizing the structural integrity of the money supply itself.

A key pillar of the Bank of England's 2026 priorities is ensuring that these new forms of money don't exist in a vacuum. Through the Digital Securities Sandbox, the BoE and FCA are allowing firms to test how systemic stablecoins can be used as settlement assets for tokenized bonds and equities. This experimental phase is critical for the UK to maintain its global standing as a fintech hub, especially as other jurisdictions like the EU implement their own MiCA-compliant frameworks.

The shift toward a programmable financial infrastructure is already mirrored in the private sector. For instance, the NYSE's recent development of a 24/7 blockchain platform demonstrates that the global demand for instant settlement is no longer a niche crypto interest but a baseline requirement for modern exchanges. Similarly, MEXC’s expansion of zero-fee tokenized stocks highlights how digital assets are increasingly being used to bridge the gap between traditional and decentralized finance. For the UK, the goal is to ensure that when these technologies mature, they operate within a secure, BoE-backed environment.

The House of Lords inquiry is particularly focused on the "real economy" impact of these rules. Baroness Noakes noted that the committee must assess if the current proposals sufficiently mitigate the risk of stablecoins draining bank deposits, which could inadvertently lead to a reduction in mortgage and business lending. Conversely, if the regulatory burden is too high, the UK risks losing the programmable benefits of blockchain—such as automated smart contract payments—to more permissive markets.

As the inquiry progresses toward its March 11 deadline for evidence, the debate will likely center on the "proportionality" of the FCA's ten key proposals. Unlike the US CLARITY Act, which seeks to delineate the often-conflicting jurisdictions of the SEC and CFTC, the UK’s centralized model under the FCA provides a single point of accountability. Whether this streamlined approach leads to a safer, more innovative British economy will depend on the "oral evidence" provided in the coming weeks and the finalization of the BoE’s systemic regime by the end of December.

Quotes and Expert Opinions

“We have launched this inquiry to assess the opportunities and risks that the growth of stablecoins may present for the UK financial services sector and the wider economy, and whether the Bank of England and FCA's proposed regulatory frameworks provide measured and proportionate responses to these developments.” — Baroness Noakes, Chair of the Financial Services Regulation Committee

FAQs

What is the UK House of Lords stablecoin inquiry?
The inquiry is a formal investigation by the Financial Services Regulation Committee into how systemic stablecoins should be regulated. It seeks to ensure that the rules proposed by the Bank of England and the FCA are fair, protect consumers, and don't harm the stability of traditional banks.

What are "systemic stablecoins" according to the Bank of England?
The Bank of England defines systemic stablecoins as fiat-linked digital tokens that are so widely used for payments (retail or corporate) in the UK that they could affect the country's financial stability. These tokens will be held to the same high standards as traditional cash.

Why is there a 2026 deadline for these rules?
The Bank of England has made digital finance a top priority for 2026. By finalizing the regime by the end of the year, they aim to provide the market with the "rules of the road" necessary for widespread adoption while preparing for the full implementation of crypto laws in 2027.

How do the proposed UK rules differ from the US CLARITY Act?
The US CLARITY Act focuses on defining which agency (SEC or CFTC) has power over specific crypto assets. In contrast, the UK centralizes authority under the FCA and focuses on structural requirements, such as requiring systemic issuers to hold 40% of their reserves directly at the Bank of England.

Can I provide evidence to the House of Lords inquiry?
Yes. The committee is accepting written submissions from industry participants, academics, and the general public until March 11, 2026. This input will help shape the final report on the proportionality of the proposed stablecoin laws.