UK Cryptoasset Business Council – Written Evidence (STA0041)

 

 

UK Cryptoasset Business Council (UKCBC)

Response to Financial Services Regulation Committee on ‘Growth and proposed regulation of stablecoins in the UK’

 

The UK Cryptoasset Business Council (UKCBC) represents the interests of the UK’s crypto-economy. It brings together select business leaders in the cryptoasset sector operating in the UK and aims to identify and shape policy pathways to ensure that the UK becomes a global crypto hub.

 

Should the Committee wish to discuss any of the points raised in this submission, please do not hesitate to contact Executive Director of UKCBC, Simon Jennings at [redacted].

 

The Development of Stablecoins (Qs 1 and 2)

 

  1. Since stablecoins first emerged in July 2014, the market has expanded substantially. Total stablecoin market capitalisation has increased from approximately £3 billion in January 2020 to more than £200 billion by the beginning of 2026. The two largest stablecoins - Tether (USDT), issued by Tether, and USD Coin (USDC), issued by Circle - account for roughly £170 billion combined, with US dollar-denominated stablecoins comprising more than 95% of the overall market.

 

  1. A recent report by Citibank estimated $100 trillion in transaction activity by 2030. Importantly, a rapidly growing portion of this volume is expected to come from real-world use cases. This includes B2B payments, cross-border settlement, and the tokenisation of real-world assets (RWAs) such as bonds, private credit, and funds. Recent analysis by McKinsey & Company suggests that approximately $400 billion of current on-chain activity is already linked to real-world use cases.

 

  1. Despite global expansion in both scale and range of use cases, the UK stablecoin market has developed more slowly than that of the US and now lags behind the EU. The enactment of the GENIUS Act in July 2025 has supported strong growth in the US stablecoin sector, while the introduction of the Markets in Crypto-Assets Regulation (MiCAR) in the European Union in 2024 has coincided with a significant rise in euro-denominated stablecoins from a single euro stablecoin in 2020 to 22 by the end of 2025.

 

  1. To date there has been only one GBP Stablecoin. In contrast, USD stablecoins such as USDT and USDC are widely available on most cryptoasset exchanges, including in the UK market. The British pound stablecoin market remains negligible, accounting for less than 0.1% of global issuance.

 

  1. A September 2025 report by Imperial College London found that the absence of a regulated GBP stablecoin market is driving UK consumers and businesses toward dollar and euro-denominated alternatives.

 

 

 

  1. Stablecoins serve a wide range of functions, and the market’s expansion has been accompanied by increasing diversification in their use cases. In addition to their original role as on and off ramps and trading pairs within crypto markets, stablecoins are now widely used for cross-border remittances and retail payments, offering lower transaction costs for businesses and consumers.

 

  1. Importantly, stablecoins play a unique role as digital bearer instruments: once transferred on-chain, settlement is final and does not rely on interbank reconciliation or correspondent banking chains. This bearer characteristic underpins many of their emerging use cases, particularly in B2B cross-border payments and on-chain settlement of tokenised assets, where programmability and atomic settlement materially reduce counterparty and settlement risk. By contrast, tokenised bank deposits, while valuable in certain contexts, cannot fully replicate this benefit.

 

  1. For institutions, stablecoins support treasury management and capital raising, and are increasingly used as the “cash leg” in tokenised funds and securities transactions, helping to avoid the operational frictions associated with moving off-chain for settlement.

 

  1. According to the Boston Consulting Group’s White Paper on Stablecoin Payments the breakdown of use is as follows. B2B payments (about 40% of the total): B2B payments represent the largest share of real economy stablecoin volumes. That’s because B2B transfer needs to align most directly with stablecoins’ core advantages: 24x7/365, speed, finality, and USD settlement without correspondent banking. These benefits are particularly valuable for activities including liquidity pooling, treasury positioning, and intercompany funding, especially when traditional banking rails are closed, such as at weekends and during holidays.

 

  1.         C2C stablecoin payments (about 25% of the total): C2C payments are primarily driven by cross-border remittances and peer-to-peer transfers, particularly in regions with limited access to USD banking, volatile local currencies, or expensive remittance corridors. In these contexts, stablecoins provide a faster, cheaper, and more reliable alternative to traditional money transfers and informal cash networks.

 

  1.         C2B stablecoin payments (about 25% of the total): C2B payments consist of consumers paying businesses for digital and cross-border services, often where traditional card acceptance may be limited, costly, or operationally complex. These flows are most common in sectors such as gaming, gambling, online subscriptions, and digital services with globally distributed customer bases.

 

  1.         B2C stablecoin payments (about 10% of the total): B2C payments account for the smallest share of real economy stablecoin volume. They include business-to-individual payouts such as contractor payments, creator earnings, refunds, and rebates. Whilst currently standing at 10%, there is growing interest from established financial institutions in issuing or supporting stablecoins to facilitate such flows. For example, Qivalis has been established as a bank-backed initiative focused on regulated stablecoin issuance and cross-border use cases. In addition, major banks including Barclays and Deutsche Bank have reportedly explored participation.

 

 

Opportunities (Qs 3 and 4)

 

  1.         The UK is one of the world’s leading financial centres - financial innovation remains central to our national competitiveness and economic growth. However global finance is being rewritten across the globe as consensus sets in around the opportunity associated with stablecoins. Jurisdictions such as Singapore and Hong Kong have been creating regulatory environments to accommodate and attract investment. As a global financial hub, the City of London has everything to gain from leading in digital assets – and everything to lose if it lags behind.

 

  1.         By establishing a forward-looking stablecoin framework, the Government can secure international investment, support high-value fintech growth, and reinforce the UK’s position as a global hub for innovation - delivering both economic and geopolitical advantages.

 

Business and consumers

 

  1.         B2B payments can take up to seven days to clear, with associated costs and passing through as many as five intermediaries along the way, each of whom takes a cut. Stablecoins help bypass legacy systems and silos like the international SWIFT network and associated clearing and settlement processes, to make these transactions nearly free and instant.

 

  1.         In a 2026 survey conducted by YouGov and BVNK, stablecoin users reported average fee savings of 40% compared with traditional payment and remittance services. Even in regions with well-developed payments infrastructures, including the European Union and North America, respondents reported average savings of 35%.

 

  1.         Whilst it might be assumed that the businesses to adopt stablecoins first will be the most internet-native ones in reality margin-sensitive businesses like restaurants, coffee shops, and other brick-and-mortar retailers have much more to gain by accepting stablecoins. These businesses are hurt the most by transaction fees; they also don’t benefit from many of the features credit card companies offer that might justify paying more.

 

Competition in the money system

  1.         Supporting the development of high-quality, low-risk stablecoins could encourage traditional financial services providers to enhance the quality of their offerings and the benefits delivered to customers.

 

  1.         Stablecoins also have the potential to introduce greater competition into the UK monetary system, to the advantage of consumers and businesses. Both the Bank of England and the FCA have identified consumer inertia and limited competition in the cash savings market as persistent challenges. If GBP stablecoins are afforded a regulatory framework that enables competitive propositions, their emergence could prompt improved returns on other forms of money in response.

 

 

 

Supporting the UK economy and sterling

 

  1.   GBP stablecoins could play a strategic role in safeguarding sterling’s international relevance as financial markets become increasingly tokenised.

 

  1.   As 24/7, near-instant settlement becomes more embedded in market infrastructure - illustrated by the New York Stock Exchange’s plans for tokenised securities using stablecoin-based funding - the currency denomination of settlement assets will matter. UK-regulated sterling stablecoins would be fully backed by sterling reserves, including sovereign debt under the rules of the FCA and the Bank of England. Growth in issuance would therefore increase demand for gilts, potentially lowering public borrowing costs and supporting wider growth objectives.

 

  1.   GBP stablecoins offer an important route in modernised financial markets to preserve the international role of sterling, with potentially significant macroeconomic benefits. Supporting a competitive UK stablecoin regulatory framework is vital for providing the conditions to realise these benefits.

 

  1.         In Financial Stability Paper No. 53, the Bank of England noted concerns that rapid stablecoin growth might trigger unsustainable outflows from commercial bank deposits, potentially reducing credit availability in the UK. The Bank’s analysis is based on a theoretical stress scenario, rather than observed market behaviour. As such, while vigilance is appropriate, the more severe outcomes outlined in the paper remain hypothetical rather than evidence-based. In addition, comparable outflows did not occur following the widespread introduction of yield-bearing money market funds in the UK, which are functionally similar instruments. Nor have such effects been observed in the United States, despite significant expansion of the stablecoin market there.

 

  1.         The UK credit landscape has also become increasingly diversified: 55% of lending to UK businesses is now provided by non-bank institutions, and the strongest growth in lending since 2008 has come from non-bank activity. This evolution illustrates the capacity of credit intermediation to adapt over time and provides limited basis for restricting the use or regulatory design of stablecoins on macro-financial stability grounds.

 

Regulator’s Proposed Rules (Qs 5 and 6)

 

  1.         The UKCBC has submitted a response to the Bank of England’s consultation on its proposed regulatory regime for sterling-denominated systemic stablecoin which outlined a number of concerns. For our full response, please read here.

 

  1.         The UKCBC is concerned that Bank of England’s proposals risk preventing the UK from fully capitalising on the opportunities associated with stablecoins and risks undermining the Government’s ambitions to lead in digital assets and financial innovation, in some cases positioning the UK as a global outlier. The UKCBC has three overarching concerns:

 

  1.         Firstly, the use of stablecoins in wholesale markets. Stablecoins are the most widely used on-chain digital settlement instruments. Barring their use in wholesale finance outside of the Digital Securities Sandbox could lock the UK out of the next wave of capital markets innovation - including tokenised securities, real-time settlement, and programmable money.

 

  1.         Secondly, the proposals to prohibit interest on stablecoin reserves do not make sense from both an economic and competitive perspective. By requiring issuers to hold a significant portion of reserves in non-interest-bearing accounts at the Bank of England, the framework undermines the efficiency and attractiveness of pound-backed stablecoins. This approach places UK issuers at a disadvantage compared with international counterparts, such as in the US, where in some instances, 100% of HQLA can earn interest.

 

  1.         Thirdly, the proposed caps are impractical and anti-innovation. Such limits risk constraining access to tokenised assets and yield opportunities that rely on deep stablecoin liquidity. With a £20,000 cap, meaningful participation in on-chain markets becomes unfeasible for high-value or institutional-grade activity. Instead of mitigating systemic risk, these restrictions could simply drive capital offshore. Investors are likely to migrate towards non-GBP stablecoins such as USDC and USDT - instruments that are not bound by UK regulations and fall outside the Bank of England’s oversight. The outcome would be a flight from pound-backed digital assets to dollar-based ones, creating a two-tier market in which most on-chain activity is denominated and settled in US dollars. This would erode the pound’s position in the digital economy and weaken the UK’s aspiration to be a global hub for digital finance.

 

  1.         Similarly, the FCA and the Bank’s proposal that all reserves must be held in the UK is incompatible with EU and US requirements for overseas stablecoins to hold some reserves in their jurisdictions. This would prevent UK regulated stablecoins being used in EU and US and once again jeopardize the international role of GBP.

 

The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026

 

  1.         The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 was laid before parliament on 15th December 2025 and signed into law on 4th February 2026. The statutory instrument (SI) introduced a comprehensive UK regulatory framework for cryptoassets.

 

  1.         As it stands it is detrimental with real-world consequences for the UK’s crypto and stablecoin ecosystem. The specific flaw is the failure to adequately distinguish between unbacked cryptoassets like bitcoin on the one hand and fiat-backed stablecoins when used in their functional role as a means of settlement rather than as an investment asset on the other. This means that the new regulated ‘dealing’ and ‘arranging’ activities, which relate primarily to buying and selling assets, risk applying to fiat-backed stablecoins without sufficient differentiation for their role as a digital settlement asset, as opposed to a digital investment asset such as bitcoin.

 

  1.         From a practical perspective, applying the new ‘dealing’ and ‘arranging’ activities to regulated stablecoins has the effect of potentially requiring market participants seeking to use, or facilitate the use of, regulated stablecoins for the purposes of making payments, settling capital markets and FX transactions, and for collateral and corporate treasury management – to require new licences from the FCA, purely because they are using regulated stablecoins instead of traditional fiat money. In that world, market participants simply will not use them, and the principal benefit and advantage of stablecoins will never be realised.

 

 

11 March 2026