A bipartisan assembly from the UK Parliament has called on Chancellor Rachel Reeves to take decisive action against the Bank of England’s outlined stablecoin regulation plans. They fear that the new regulatory environment could inadvertently push innovation and investments to other jurisdictions.

In their open letter, members emphasized that the proposed regulation risks positioning the UK as a “global outlier” and could severely limit the potential market for stablecoins. These assets are already observed to be integral to the digital economy and their effective regulation is paramount.

The Risks of Overregulation

Parliamentarians highlighted limitations such as prohibiting interest on reserves and imposing strict use cases that might displace activities to dollar-backed stablecoins like USDC and USDT. They insisted that instead of curbing risks, the current regulatory approach might simply divert economic activity to less restrictive regions, undermining the UK’s status in global finance.

Open letter to the chancellor shared with Cointelegraph

In discussing global frameworks, the UK currently stands to adopt much stricter conditions compared to the EU’s Markets in Crypto-Assets Regulation (MiCA), which allows more straightforward operations with fewer barriers to entry.

Overview of Proposed Regulations

The new enforcement structure from the Bank could impose individual limits on the value of stablecoins held, alongside significant caps for business users, possibly spurring a withdrawal of capital from the UK market.

Tan remarked that such limitations may not address the underlying risks but instead shift activities to jurisdictions that offer better regulatory clarity.

A final word from Kronbichler underscored that if the UK’s regulatory framework results in instability compared to international alternatives, the economic activities tied to pound-linked stablecoins may vanish, relocating overseas where conditions are more favorable.