Aisha Tariq – Written Evidence (STA0045)

Call for Evidence

Author information:

Aisha Tariq is a doctoral researcher at the School of Law, University College Cork. Her research examines regulatory challenges in combating money laundering in decentralised finance (DeFi), with a particular focus on the interaction between financial innovation, financial crime regulation, and emerging digital asset markets. Her doctoral research includes a comparative analysis of regulatory developments in the United Kingdom, the United States and the European Union. She is submitting this evidence in her academic capacity as part of her ongoing research on stablecoin regulation and financial crime risks in digital asset markets.

Summary of Submission:

This submission examines the development, regulatory challenges and policy implications of stablecoins within the United Kingdom in the context of rapidly evolving global digital finance markets. Since 2014, stablecoins have evolved from a niche component of cryptoasset markets into a significant digital settlement mechanism, particularly following the expansion of decentralised finance and crypto trading after 2020. The global market has grown rapidly and remains heavily concentrated in US-dollar-denominated tokens, while sterling-denominated stablecoins remain relatively limited in scale. The analysis therefore considers how the UK market compares with developments in the United States and the European Union, and how the emerging regulatory framework led by the Bank of England and the Financial Conduct Authority is shaping the future role of stablecoins within the UK financial system. Particular attention is given to the current uses of stablecoins in digital asset markets, their potential future applications in payments and settlement infrastructure, and the regulatory developments already influencing their growth.

The submission also evaluates the broader economic, regulatory and financial stability implications of stablecoin adoption. While stablecoins may contribute to innovation in payments, cross-border transfers and digital financial markets, they also raise significant policy concerns relating to reserve management, redemption risk, consumer protection and financial stability. Evidence from central bank and regulatory research suggests that wider adoption could affect monetary policy transmission and the structure of bank funding, particularly where stablecoins substitute for traditional deposits. The analysis further considers financial crime risks associated with cross-border digital assets, including vulnerabilities related to unhosted wallets and peer-to-peer transactions. Finally, the submission assesses the implications of the UK’s proposed regulatory framework for systemic and non-systemic stablecoins and identifies lessons from international approaches, particularly the European Union’s MiCAR regime. Overall, the submission argues that stablecoins have the potential to support financial innovation and market efficiency, but their benefits will depend on the development of credible, proportionate and internationally coherent regulatory frameworks that safeguard financial stability, consumer protection and effective AML/CFT controls.

AI Disclosure: Limited use of AI-assisted editing tools was made to improve clarity and language. The author takes full responsibility for the content, analysis, and sources cited in this submission.

1. How has the global market for, and the issuance of, stablecoins developed since 2014? How does the UK market compare to the US and the EU?

1)   Since 2014, stablecoins have developed from a small and experimental segment of cryptoasset markets into an important digital settlement layer. Early activity was limited, but issuance expanded significantly from 2020 onwards, alongside the growth of cryptoasset trading and decentralised finance (DeFi). Stablecoins increasingly function as a transactional unit within crypto markets, facilitating trading, lending and liquidity provision.[1]

2)   Stablecoin designs have diversified over time. However, the market is now dominated by fiat-referenced stablecoins that aim to maintain a 1:1 peg, most commonly to the US dollar, through reserve assets. Earlier attempts to maintain price stability through algorithmic mechanisms proved fragile during market stress events, reinforcing regulatory concerns regarding reserve quality, redemption arrangements and governance.[2]

3)   The scale of the market has grown substantially and now attracts macroprudential and regulatory attention. As of early March 2026, total stablecoin market capitalisation is approximately USD 313 billion, with issuance highly concentrated among a small number of large tokens, particularly USDT (Tether) and USDC (Circle).[3]

4)   The market is also concentrated in terms of currency denomination. The vast majority of stablecoins are pegged to the US dollar, while euro- and sterling-denominated stablecoins represent only a small proportion of total supply. This reflects the continuing global role of the US dollar in cryptoasset markets and cross-border settlement activity.[4]

5)   Compared with the United States, the UK stablecoin market remains relatively small, particularly in relation to sterling-denominated stablecoins.[5] However, the UK is actively developing its regulatory framework. The House of Lords Financial Services Regulation Committee inquiry itself reflects the UK’s interest in designing a proportionate regime that supports innovation while addressing financial stability, consumer protection and market integrity concerns.

6)   The Bank of England has consulted on a proposed regulatory regime for sterling-denominated systemic stablecoins, under which systemic payment stablecoins may fall within the Bank of England’s regulatory remit, alongside Financial Conduct Authority (FCA) oversight of certain activities. This suggests that the UK is currently positioning itself more as a regulatory and supervisory jurisdiction rather than a major global centre of stablecoin issuance.[6]

7)   In the European Union, Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCAR) establishes a harmonised framework for cryptoassets, including stablecoins. The regulation categorises certain stablecoins as asset-referenced tokens and e-money tokens, with requirements relating to authorisation, governance, reserve management and consumer protection. These provisions began applying to stablecoin issuers from 30 June 2024, with the broader regime for cryptoasset service providers applying from 30 December 2024. This regulatory clarity provides an important comparator for UK policy development.[7]

2. How is the sterling denominated stablecoin market in the UK expected to develop in the coming years?

a. Who uses stablecoins and for what purposes?

b. Are there any existing rules impacting the growth of stablecoins in the UK?

1)   The sterling-denominated stablecoin market in the UK is likely to develop gradually rather than rapidly in the coming years. Its growth will depend on whether regulated sterling stablecoins can demonstrate credible use cases in payments and settlement, rather than primarily serving speculative crypto trading activity. The Bank of England’s consultation on the regulation of systemic stablecoins indicates that sterling-denominated stablecoins are being considered primarily within the context of payment systems and financial stability.[8] This suggests that future development in the UK will likely be cautious and closely linked to regulatory oversight.

1. Who uses stablecoins and for what purposes?

2)   At present, stablecoins are primarily used by participants in cryptoasset markets, including traders, exchanges and decentralised finance (DeFi) users. Stablecoins provide a mechanism for maintaining value relative to fiat currencies while enabling transactions on distributed ledger networks. As noted in BIS research, stablecoins emerged partly because users of digital asset markets required instruments that could bridge blockchain-based systems and sovereign currencies, particularly the US dollar.[9] In practice, this means stablecoins are commonly used for trading, liquidity provision, lending, borrowing, collateralisation and settlement within decentralised finance platforms.

3)   Stablecoins may also support additional use cases beyond crypto trading. Policymakers and regulators have increasingly discussed their potential role in cross-border payments and wholesale settlement. In the UK context, regulated sterling-denominated stablecoins could potentially be used for retail payments and for settling wholesale financial market transactions, provided appropriate regulatory safeguards are in place.[10] In addition, international developments suggest that stablecoins may increasingly be integrated into mainstream payment infrastructure. For example, PayPal has launched its USD-denominated stablecoin PYUSD, while companies such as Stripe have invested in stablecoin infrastructure through the acquisition of platforms such as Bridge. These developments indicate how stablecoins could evolve beyond crypto-asset trading and potentially support broader payment and settlement functions in the future.[11]

2. Are there any existing rules impacting the growth of stablecoins in the UK?

4)   Existing regulatory developments are already likely to influence the growth of stablecoins in the UK. In February 2026, the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (SI 2026/102) were introduced, extending aspects of the UK financial regulatory framework to specified cryptoasset activities.[12]In addition, the Bank of England has proposed a regulatory regime for sterling-denominated systemic stablecoins, which would bring certain payment stablecoin arrangements under Bank of England oversight.[13]

5)   The Financial Conduct Authority (FCA) has also consulted on a broader regulatory framework for cryptoasset activities, including prudential requirements and conduct standards for authorised cryptoasset firms.[14] These measures indicate that the UK is moving toward a structured regulatory environment for stablecoins and related activities. While regulatory clarity may support market development, compliance obligations, authorisation requirements and consumer protection standards may also influence how quickly sterling-denominated stablecoins expand within the UK financial system.

3. What opportunities and risks does the growth of stablecoins (both denominated in sterling and in USD) pose for the UK’s economy and its financial services sector, and for retail customers? What evidence is there to suggest that this growth could disrupt the conduct of monetary policy and traditional financial intermediaries? Are there any additional financial crime considerations?

1)   The growth of stablecoins may create opportunities for the UK in payments, settlement, and financial market innovation. In particular, regulated stablecoins could support faster and more convenient payments, improve aspects of cross-border transfers, and potentially serve as a settlement asset in digital and tokenised financial markets. UK regulators themselves have linked stablecoins to innovation in payments and future market infrastructure, while the Bank of England has recognised that systemic stablecoins could be used for retail payments and wholesale settlement in the future.[15]

2)   At the same time, stablecoin growth also presents risks for the UK’s financial services sector and for retail customers. The main risks include de-pegging, redemption pressure, weaknesses in reserve management, liquidity and operational vulnerabilities, and spillovers into the wider financial system where stablecoins become more interconnected with traditional finance. Retail customers may also face consumer protection risks if they misunderstand the legal nature of stablecoin claims, the extent of safeguarding, or the difference between stablecoins and insured bank deposits.[16]

3)   There is also evidence that wider stablecoin adoption could affect monetary policy transmission and traditional financial intermediaries. Recent central bank research suggests that stablecoin adoption may encourage deposit substitution away from commercial banks, increasing banks’ reliance on wholesale funding and potentially constraining their intermediation capacity. That same research suggests that stablecoins may weaken the predictability and effectiveness of monetary policy transmission, particularly where foreign-currency stablecoins become widely used and transmit external monetary conditions into the domestic economy. In the UK context, these concerns help explain the Bank of England’s emphasis on holding limits, backing assets, and financial stability safeguards for sterling-denominated systemic stablecoins.[17],[18]

4)   Additional financial crime considerations are significant. Stablecoins are not inherently illicit, and they have legitimate uses in digital markets and payments. However, their speed, cross-border portability, interoperability across blockchains, and use through unhosted wallets can make them attractive for money laundering, terrorist financing, sanctions evasion, and other forms of illicit finance where controls are weak. The FATF’s March 2026 report highlights the misuse of stablecoins particularly through peer-to-peer transactions involving unhosted wallets, as well as difficulties in controlling cross-chain activity.[19] BIS research is also relevant here because it shows that differences in the design of payment instruments, especially the presence or absence of intermediaries, can create opportunities for regulatory arbitrage and may weaken the effectiveness of AML and CFT controls unless a consistent regulatory approach is adopted across payment instruments.[20]

5)   Overall, the opportunities associated with stablecoins should not be dismissed, especially in relation to payments efficiency, settlement innovation, and the UK’s competitiveness as a financial centre. However, these benefits are conditional on credible regulation. A proportionate UK framework should therefore seek to support innovation while maintaining reserve quality, redemption certainty, market integrity, consumer protection, and effective AML and CFT controls.[21]

4. How will the growth of stablecoins impact the Bank of England, PRA and FCA’s statutory objectives: price stability, financial stability, market integrity, consumer protection, competition and international competitiveness and growth?

The growth of stablecoins may affect several statutory objectives of UK regulators, including price stability, financial stability, market integrity, consumer protection, competition, and the international competitiveness of the UK financial sector.

1)   In relation to price stability, widespread adoption of stablecoins could affect the transmission of monetary policy if households and firms begin substituting traditional bank deposits with privately issued digital assets. Research by the European Central Bank suggests that stablecoin adoption may encourage deposit substitution away from commercial banks and increase banks’ reliance on wholesale funding, potentially weakening the effectiveness of monetary policy transmission.[22] These concerns may become particularly relevant where foreign-currency stablecoins, especially those denominated in US dollars, become widely used and transmit external monetary conditions into domestic financial systems.

2)   Stablecoins also have implications for financial stability, which is a core objective of the Bank of England and the Prudential Regulation Authority (PRA). Large-scale adoption of stablecoins could change the structure of bank funding and create new liquidity risks if stablecoin issuers hold significant reserve assets or face redemption pressures. In response to these potential risks, the Bank of England has proposed a regulatory framework for systemic stablecoins that includes safeguards relating to reserve backing, redemption rights, and prudential supervision to ensure that stablecoins used in payments meet standards comparable to traditional forms of money.[23]

3)   Stablecoins raise important considerations for market integrity and consumer protection, which fall within the remit of the Financial Conduct Authority (FCA). Retail users may not fully understand the legal status or risk profile of stablecoins, particularly where such products resemble traditional payment instruments or bank deposits. International standard-setting bodies have therefore emphasised the need for effective regulatory oversight, disclosure requirements, and safeguards to mitigate risks associated with money laundering, terrorist financing, and other illicit uses of virtual assets.[24]

4)   Finally, the development of a clear and proportionate regulatory framework for stablecoins may also affect the competitiveness and growth of the UK financial sector. If appropriately regulated, stablecoin innovation could support improvements in payments infrastructure and digital financial markets, potentially strengthening the UK’s position as a global financial centre. At the same time, regulators must balance innovation with robust safeguards to maintain financial stability, market integrity, and consumer trust.

5. What implications do the Bank of England and the FCA’s proposed regulatory regimes pose for the adoption and growth of systemic and non-systemic stablecoins in the UK, and internationally? a. Are there any aspects of the Bank of England and FCA’s proposed stablecoin regulatory regimes that present challenges or require further consideration?

1)   The Bank of England and the Financial Conduct Authority’s proposed regulatory regimes are likely to influence both the adoption and growth of stablecoins in the UK by introducing a clearer supervisory framework for issuers and related cryptoasset activities. The Bank of England’s proposals focus primarily on systemic sterling-denominated stablecoins used in payment systems, while the FCA’s proposals address a broader set of activities including stablecoin issuance, custody, safeguarding, and conduct requirements for cryptoasset firms. Together these regimes may strengthen legal certainty and market confidence, which could support responsible adoption of stablecoins within the UK financial system.[25]

2)   At the same time, the proposed frameworks may also shape the pace and structure of market growth. For systemic stablecoins, the Bank of England’s proposed regime emphasises prudential safeguards such as reserve backing, redemption arrangements, governance standards and supervisory oversight. These measures aim to ensure that payment stablecoins used at scale maintain confidence comparable to traditional forms of money and do not create risks for financial stability. While such safeguards may increase trust in stablecoins as payment instruments, they may also increase compliance costs and operational requirements for issuers, potentially slowing rapid expansion of sterling-denominated stablecoins.[26]

3)   For non-systemic stablecoins, the FCA’s proposed regulatory framework may facilitate adoption by bringing stablecoin issuance and related services within a clearer regulatory perimeter. Authorisation requirements, disclosure obligations, safeguarding arrangements and conduct standards may improve consumer confidence and reduce legal uncertainty surrounding stablecoin products. However, these same regulatory expectations may also raise barriers to entry for smaller firms and influence where stablecoin issuers choose to establish operations internationally.[27] Similar concerns have been raised in relation to other regulatory frameworks, including the European Union’s Markets in Crypto-Assets Regulation (MiCAR), where commentators such as Matthias Lehmann have argued that strict prudential and authorisation requirements may discourage certain issuers from operating within the jurisdiction.[28]

4)   Several aspects of the proposed regimes may therefore require further consideration. First, the boundary between systemic and non-systemic stablecoins may create uncertainty if firms are unsure when a stablecoin could fall within Bank of England oversight rather than FCA supervision. Second, the commercial viability of the proposed prudential framework, including reserve composition and holding-limit arrangements, may influence whether firms are willing to issue sterling-denominated stablecoins at scale. Finally, given the cross-border nature of stablecoin markets, the UK framework will also need to consider how domestic safeguards interact with international issuance, custody arrangements and AML/CFT enforcement mechanisms.[29]

6. What can the UK learn from the way other jurisdictions have approached the regulation of stablecoins, such as the US and the EU?

The UK can learn from other jurisdictions that regulatory clarity matters early, especially where stablecoins may move from being mainly crypto-market instruments to becoming more relevant for payments and settlement. The European Union’s Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114) (MiCAR) shows the value of a clearer legal classification for stablecoins, including the distinction between asset-referenced tokens and e-money tokens, together with rules on authorisation, governance, reserves, disclosure, and supervision.[30] This reduces legal uncertainty and provides a more predictable environment for market participants.

1)   One important lesson from the EU is the benefit of a harmonised framework. Under MiCAR, the provisions for asset-referenced tokens and e-money tokens have applied since 30 June 2024, and the wider regime has applied from 30 December 2024.[31] This gives the UK a clear example of how a jurisdiction can bring stablecoins into a formal regulatory perimeter rather than leaving them to develop through fragmented or overlapping rules. For the UK, this suggests that coherence between the Bank of England, the FCA, and HM Treasury will be particularly important.

2)   A second lesson is that regulatory credibility can support adoption, but regulation must also be commercially workable. European and wider international experience suggests that clearer rules can support confidence in stablecoin markets, but overly restrictive requirements may discourage issuance or push activity into other jurisdictions. The Bank of England itself has recognised that the UK regime should support responsible innovation while avoiding a disorderly transition as this new form of money is adopted.[32] This means the UK should aim for a framework that is both robust and proportionate.

3)   A third lesson is that the UK should pay close attention to the risks of foreign-currency stablecoin dominance, particularly because USD-denominated stablecoins continue to dominate global markets. ECB analysis shows that US dollar stablecoins account for the overwhelming majority of stablecoin supply, while euro-denominated stablecoins remain comparatively small.[33]For the UK, this suggests that if there is no credible domestic framework for sterling-denominated stablecoins, the future digital payments environment may become increasingly shaped by foreign-currency instruments instead.

4)   Finally, the UK can learn that stablecoin regulation cannot be approached only as a question of innovation policy. Other jurisdictions have shown that stablecoins also raise issues of financial stability, consumer protection, cross-border supervision, and AML/CFT enforcement. The UK should therefore continue to develop a framework that does not merely permit innovation, but ensures that reserve quality, redemption rights, disclosure, safeguarding, and financial crime controls are credible and enforceable in practice.[34]

11 March 2026