The need for stablecoins in the UK
The UK stands at a crossroads where stablecoin innovation, regulatory clarity and the future of sterling’s role in the digital economy intersect. So, what is at stake? Despite the UK Government stating its aspirations for being a “global cryptoasset hub” back in 2022, the UK itself currently lacks the required regulatory clarity to allow a GBP-pegged stablecoin or a domestic issuer of global prominence. So, will the UK seize the moment to re-invent the future of sterling? The alternative would be to allow London’s role as a financial centre to fall behind other countries as they race ahead with new digital asset rules and major market deployment. Whilst the US’s GENIUS Act, the EU’s MiCA and Asia’s frameworks place their jurisdictions at the heart of the emerging digital finance landscape, the UK’s consultation-stage proposals by the Financial Conduct Authority (FCA) and the Bank of England (BoE) highlight regulatory uncertainty and a policy regime that appears reactive, not strategic. So does this raise concerns? Well, according to EY Parthenon: “Stablecoins are used by 13% of financial institutions and corporates globally, with 54% of non-users expecting to adopt them in the next 6 to 12 months. Furthermore 5%-10% of cross-border payments will be made using stablecoins by 2030, equating to $2.1trillion to $4.2trillion, p.a.”
Source: X
Lack of clarity, caution and contradiction are words often mooted when discussing the UK’s stance on digital money. Regulators shy away, even from the word “crypto”, and shudder when programmable money is discussed as they fear UK citizens are concerned about a dystopian economy akin to a “Big Brother” style of monitoring payments. Yet the evidence of such fears in the UK are scant. Certainly, there was a petition asking the UK Government to commit to preventing any digital pound that is “programmable” or that could restrict how money is spent (which collected over 31,000 signatures), and the government responded by assuring that there are “no plans” to program how money is spent via a CBDC. Indeed, Bank of England documents stipulate that: “A digital pound, if introduced, would not replace cash, that holding money in digital pound wallets would preserve choice, and that neither the government nor the Bank would have the power to restrict or control how people spend their money.” Back in 1919, the Anti-CBDC Surveillance State Act was designed to protect the financial privacy and liberties of all Americans: “The United States will never allow the creation of a central bank digital currency (CBDC) that could be used to control, or deplatform American citizens”. Significantly now, this year’s Clarity Act provides legal and regulatory clarity to enable banks and non-financial entities both in the US and overseas to issue US stablecoins.
Meanwhile, this September, the FCA Cryptoasset consultation has proposed stablecoins be backed by reserves of high-quality liquid assets, explicit redemption rights, segregation of assets, operational resilience standards and extensive disclosures. No interest earned on reserves can be passed to users whereby reflecting global trends akin to MiCA’s ban on stablecoin yield. For stablecoins of systemic importance, BoE proposals go further: 100% backing with unremunerated central bank deposits - making profitability challenging for issuers (unless transaction fees are added), which may kill competitiveness against US and Asian peers. This architecture creates real friction. On the one hand, it recognises the potential for systemic risk, bank disintermediation and monetary instability - concerns long raised by entities such as the Financial Stability Board; on the other, it risks rendering UK regulation to be both more demanding and less attractive than rival frameworks. There is an argument that ‘second-mover advantage’ could let the UK learn from early failures in other regimes, and therefore design more balanced, flexible rules. But this window is rapidly closing as Europe and the US solidify standards and ‘vacuum up’ global capital and talent. Ultimately, without prompt and decisive regulation for GBP-backed stablecoins, the UK risks:
· loss of innovation leadership to jurisdictions offering greater regulatory clarity.
· exposure to currency risk and erosion of sterling’s role if transactions default to USD- or EUR-pegged tokens.
· reduced competitiveness for UK FinTechs who find themselves locked out of a harmonised global digital asset market.
A compelling case can be made, as outlined by Circle’s IPO and Goldman Sachs initiatives, that the real opportunity for London is to serve as a global base for next-generation issuers and infrastructure builders, provided the rules encourage rather than deter market entry. Every passing week of uncertainty raises real, compounding risks - over 99% of global stablecoin value is USD-pegged. UK market participants increasingly default to USD tokens, potentially “dollarising” parts of the UK’s digital economy and thus weakening the influence of the Bank of England. Furthermore, on-going worry exists that an absence of regulation means UK users primarily rely on offshore, often opaque, stablecoin issuers whereby raising risks of misrepresentation, operational failure and loss without recourse. Moreover, weak oversight increases the likelihood stablecoins could facilitate financial crime, fraud or sanctions evasion. This, in turn, raises the challenges regarding financial stability and potential loss in confidence in financial markets. That is, if a stablecoin suddenly becomes systemic and faces crisis, the UK could be forced into emergency, crisis-driven regulation whereby destabilising wider markets in the process. Notwithstanding, unless the UK acts, it risks irreversibly anchoring its financial infrastructure to external digital money systems it cannot regulate or influence.
The GENIUS Act in the US and MiCA in Europe show two different philosophies: risk-based pragmatism and harmonisation versus stringent consumer safeguards. But both have proven nimbler than the UK. Meanwhile, MiCA, Singapore, Hong Kong and Japan all now have GBP, EUR or USD stablecoin issuers operating under tightly defined, nationally tailored frameworks. UK regulators can and should cherry-pick best practices rather than mirror errors - for example, the FCA’s consultation on banning interest for non-investment stablecoins protects monetary policy, but risks stifling innovation or incentivising regulatory arbitrage to DeFi protocols or synthetic yield wrappers. Drawing lines between non-yield and yield-bearing stablecoins, and distinguishing between retail and institutional products, aligns with calls from industry leaders for nuanced rules. Rigid capital and liquidity requirements could stifle smaller entrants without increasing systemic safety - a one-size-fits-all model may simply push innovation offshore. Instead, proportional rules that focus on the risk profile of each stablecoin (asset, algorithmic, hybrid or commodity-backed) would support a broader range of business models. Major players, from Tether and Circle to retail-forward FinTechs, such as Stripe and Revolut, need access to the UK’s payments infrastructure and a path to clear, competitive licensing. Without this, business and liquidity will simply flow to friendlier regimes. The digital evolution of cash - where sterling could become the programmable, low-friction medium for retail payments, cross-border trade and capital markets - requires more than policy ambition. It needs rapid delivery of fit-for-purpose rules that:
· anchor innovation domestically by opening the market to GBP-backed stablecoins and competitive foreign issuers under rigorous British regulatory oversight, which is the envy of many jurisdictions.
· ensure interoperability and access to payments infrastructure, so innovation in open banking and FinTech is not stymied by legacy rails.
· set technical and legal standards for reserves, custody and redemption, minimising consumer risk and maximising confidence.
· clarify the boundaries between payments, investment and banking, so that tokenised money markets, DeFi and fintech can co-exist responsibly.
A credible sterling stablecoin would have material impact, reducing unnecessary FX costs in cross-border trade and reinforcing London’s position as a global financial hub. According to the Bank of International Settlement: “London has more foreign banking institutions than any other financial centre, and it is the largest financial centre for cross-border bank lending. London is the world's leading centre for foreign exchange business, with average daily net turnover six times that of Frankfurt”, whereby giving UK authorities a lasting voice in international standards-setting for digital assets. Indeed, a report, “Mind the gap: how stablecoins can secure the UK’s financial future”, led by Imperial Business School, ends with a striking warning: “Delay is not a passive choice, it is an active risk. The real question isn’t whether the UK should regulate stablecoins, but whether it wants to shape the future of money or be shaped by it.” Four core recommendations emerge:
· accelerate rulemaking and implementation for UK-linked and GBP-backed stablecoins, balancing innovation, competition and consumer protection.
· align regulatory efforts between BoE and FCA, avoiding unnecessary complexity or duplication.
· create strong, positive incentives to attract stablecoin issuers and support GBP liquidity, encouraging high-quality foreign issuers to choose the UK.
· enable access to key infrastructure under robust safeguards, integrating stablecoins into traditional banking and payments rails.
Certainly, for policymakers, industry and the public, these imperatives are inseparable from the broader challenge of digital sovereignty and financial innovation. So, will the UK seize the moment
to re-invent the future of sterling or allow London’s role as a financial centre to fade as the world’s digital assets orbit around other currencies and jurisdictions....?
This article first appeared in Digital Bytes (23rd of September, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.