IIF warns UK stablecoin rules may hurt competitiveness against MiCA

The Institute of International Finance (IIF) formally responded to the Bank of England (BoE) regulatory consultation in a comment letter submitted on Tuesday. The letter covered topics such as capital norms, cross-border supervision, and reserve-asset requirements.

The response came as UK policymakers considered rules for sterling-denominated stablecoins.

The Bank of England launched a consultation late last year to determine how systemic sterling-backed stablecoins should be regulated if used extensively for payments. 

According to the BoE, stablecoins could enable faster, cheaper, and more efficient payments if widely adopted in the UK. The Bank’s mandate was expanded under the Financial Services and Markets Act of 2023 to include digital settlement assets, such as systemic stablecoins, that may affect financial stability. 

BoE stablecoin framework draws industry scrutiny and debate

The central banks’ report revealed that these tokens would be jointly supervised by the Bank and the Financial Conduct Authority, following HM Treasury’s identification of them as systemically important.

HM Treasury assesses whether a payment system or service provider poses a systemic risk. 

Issuers would be subject to the Banking Act’s oversight authorities once designated. This includes the ability to request information, establish rules, and take enforcement action against non-compliance.

Stablecoins widely used for retail or corporate payments would be subject to joint Bank and FCA regulation. According to the BoE, non-systemic tokens or those mainly used for crypto trading would fall under FCA-only supervision.  

The Bank further proposed specific reserve requirements for systemic stablecoin issuers to ensure these regulations achieve stability and liquidity. It proposed that issuers keep up to 60% of short-term UK government debt and at least 40% of underlying assets as unpaid central bank deposits.  The officials claimed that the split of 60% and 40% would maintain liquidity while permitting issuers to earn modest returns. 

UK policymakers, however, refused to permit a larger share of the national debt, up to 60%. They claimed that if issuers didn’t have enough cash on hand to fulfil quick redemption demands, doing so may erode confidence. 

The Bank of England argued that the 40% deposit provides instant liquidity in the event of a market shock and reflects stress-scenario withdrawal calculations.

The IFF questioned whether the Bank’s proposed 40% non-interest-bearing backing requirement would be competitive with other regimes, such as Europe’s MiCA framework. 

The industry advocacy group also voiced doubts about the viability of imposing restrictions on permissionless blockchains, along with calling for more precise definitions of terms like “digital settlement” and “qualifying stablecoin.”  

The industry group recommended to BoE that it allow alternative remunerated assets, such as commercial bank deposits or special-purpose money market funds. BoE should cooperate with global norms and the UK’s Financial Conduct Authority’s regulations regarding non-systemic tokens. It also advocated for more transparent criteria for scenario testing and greater freedom for internal modelling methodologies. The IFF further proposed alignment with international regulatory frameworks to prevent arbitrage between bank-affiliated and non-bank issuers.

UK launches stablecoin inquiry, invites industry feedback

The UK is stepping up its scrutiny of the cryptocurrency industry with a new parliamentary investigation into stablecoins and central bank-level discussions on deposit protection currently in progress.

The House of Lords Financial Services Regulation Committee invited submissions to its new inquiry on the growth and proposed regulations of stablecoins in the UK last month. The committee sought data on the opportunities and threats to the UK economy posed by he rise of stablecoins, which are valued in USD and GBP. 

The committee also sought evidence on how the sterling-denominated stablecoin market in the UK is expected to develop in the coming years. They asked, “Are there any existing regulatory rules impacting the growth of stablecoins in the UK?”

Lord Forsyth of Drumlean, Chair of the Financial Services Regulation Committee, commented that the committee welcomes evidence and views from anyone with expertise or interest in this area. 

The deadline for submitting written evidence will be 23:59 on Wednesday, 11 March 2026.

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