HM Treasury – Written Evidence (STA0069)

Written evidence - Lords Financial Services Regulation Committee inquiry into the growth and proposed regulation of stablecoins in the United Kingdom

Introduction

Stablecoins have the potential to act as tokenised payments and settlement instruments, and as such unlock benefits in cost and efficiency both in retail payments and wholesale transactions. Alongside these opportunities, stablecoins also carry risks to both financial stability and consumers directly. To ensure the UK is able to benefit from the opportunities of stablecoins while managing the risks they present, the government has legislated through the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (the SI) to create a financial services regulatory regime for cryptoassets, including for the issuance of stablecoins in the UK.

This follows provisions in the Financial Services and Markets Act 2023 (FSMA 2023) which provided the Bank of England with powers to regulate and supervise systemically important Digital Settlement Asset (DSA) systems and services providers, which includes stablecoin issuers. It is for HM Treasury to recognise DSA providers as being systemically important and bring them into the Bank of England's regulatory regime.

The government has further plans to bring certain stablecoins - where they are robustly regulated to ensure their stability - into the UK regulatory perimeter for payments. It intends to do this as part of broader planned changes to update the UK's regulatory framework for payments. The government's approach to cryptoassets, and to stablecoins, is to find the right balance between supporting growth and investment and protecting against the risks associated with these innovations.

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?

HM Treasury does not itself collect information relating to stablecoin markets. Instead, we rely on publicly available information. Based on data from major cryptoasset exchanges, the global market cap for

stablecoins has grown significantly in recent years; increasing from less than $10bn in 2020 to over $250bn as of 2026.1

Stablecoins have primarily been used for the buying and selling of other cryptoassets on exchanges, with the second largest use-case being remittances. Transaction data

suggests this remains the case today with 67% of transaction volumes related to cryptoasset trading and 15% related to remittances.2 A large stablecoin issuer has previously advised us that another key use case is not transactional at all, with users opting to hold stablecoin as a store of value.

With regards to how the UK market for stablecoins compares to that in the United States and the European Union, the global market is dominated by USD-denominated stablecoins, which comprise more than 99% of the total market cap. Over 80% of the global stablecoin market is comprised of Tether's USDT ($184bn, c.58% of the global market cap) and Circle's USDC ($79bn, c.25% of the global market cap).3 Importantly, while Tether's USDT is USO-denominated, Tether is not a United States company and USDT is not issued in the United States.

The market for EUR-denominated stablecoins is still relatively small at c. €566mn ($656mn)4, but since the introduction of the Markets in Crypto Assets Regulation (MiCAR) - which sets out the EU's stablecoins regulatory regime - it has grown from €50mn5 at the start of 2024 to €566mn today.6

The market cap of GBP-denominated stablecoins is currently approximately c. £12mn ($16mn).7 Relative to the prevalence of GBP as a global currency, GBP-denominated stablecoins currently have a small share of the global stablecoin market cap. While the UK market is still nascent, twenty firms applied to participate in the Financial Conduct Authority's (FCA) cohort for testing stablecoin in the Regulatory Sandbox, focussed primarily on issuance, and four firms

1 https://charts.coinmetrics.io/formulas/?id=8160

2 https://coinledger.io/research/stablecoin-market-share-and-transaction-volume#how-the-stablecoin-market-size-and-share-have-evolved-over-time

3 https://coinmarketcap.com/view/stablecoin/*

4 https://coinmarketcap.com/view/eur-stablecoin/*

5 https://www.ecb.europa.eu/press/financial-stability-publications/fsr/focus/2025/html/ecb.fsrbox202511_05~63636227b4.en.html

6 https://coinmarketcap.com/view/eur-stablecoin/*

7 https://www.coingecko.com/en/categories/gbp-stablecoin*

have been chosen to participate. The government takes this as an indication that there is appetite among firms to issue and use GBP denominated stablecoin in the United Kingdom.

How is the sterling denominated stablecoin market in the UK expected to develop in the coming years? Who uses stablecoins and for what purposes? Are there any existing rules impacting the growth of stablecoins in the UK?

It is difficult to forecast how the stablecoin market in the UK will develop in the coming years. Recently published research from the FCA suggests that awareness of stablecoins is growing among the UK population (58% in 2025 up from 34% in 2021).8 The same research indicates ownership of cryptoassets more generally among the UK population has increased from 4% in 2021 to 8% in 2025 (albeit this represented a fall from 12% in 2024).9

As noted previously, the largest current global use-cases for stablecoin transactions are the purchasing of other cryptoassets on exchanges, and remittances. However, the use cases for stablecoin continue to develop as the sector grows. The ability to make payments quickly and to program payments has potential to benefit wholesale payments including large scale international payments that can take days to clear, and treasury management for large business. The uses of stablecoins by specific countries are likely to be highly determined by domestic payments factors. In the case of the UK, where we have a diverse and well-functioning payment services sector that works well for end users, it is unclear where markets will derive the greatest benefits from adoption of stablecoins or other tokenised payments for domestic retail use. That is why the government's policy seeks to provide the right environment for safe innovation in stablecoins and other tokenised payments, so that the sector can determine the best use-cases.

The extent to which the market will develop in the UK will also be determined to a large degree by the regulatory environment, including ensuring the right balance between growth and stability for the regulation of systemic and non-systemic stablecoin. As detailed in the introduction, the government has legislated to create a

8  https://www.fca.org.uk/publication/research-notes/cryptoasset-consumer-research-2025-wave-6.pdf,

page 72

9 Ibid., page 24

financial services regulatory regime for cryptoassets - including stablecoin issuance - and intends to bring certain stablecoins within the regulatory perimeter for payments. The FCA is at an advanced stage of consulting on its detailed rules and plans to publish its final approach this year. Separately, the Bank of England has consulted on its approach to regulating systemic stablecoins.

These developments are already giving firms the certainty needed to pursue stablecoin business in the UK. In February the FCA confirmed that four firms were approved from twenty applications to start testing UK stablecoin products in the Regulatory Sandbox. This is a good indication of the interest in bringing products to market once the UK's cryptoasset regulatory regime is fully up and running.

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?

The main opportunities presented by stablecoins derive from their ability to act as a payments instrument or 'money-like' instrument on a blockchain, including the ability to interact with other tokenised assets such as tokenised securities directly on the blockchain. This allows for programmable payments facilitated by smart contracts. Programmable payments offer users the ability to affect a transaction automatically when certain pre-determined conditions are met and offer the potential for more sophisticated payments that require less direct input and administration on the part of users across both retail and wholesale payments.

Stablecoins also potentially allow for the simultaneous and instantaneous settlement of financial transactions involving stablecoins and tokenised securities, often referred to as 'atomic settlement', where a transaction is completed on the blockchain according to terms facilitated by smart contracts. Such a model negates the need for various financial intermediaries. Efficiencies in terms of both time and cost are particularly acute in the context of international payments. Unlike traditional payments that may need to be facilitated by a chain of correspondent banking relationships, resulting in time delays and fees being levied at multiple points in the

chain, a stablecoin can be sent near-instantly anywhere in the world. Its conversion back into local currency simply requires a provider that is prepared to buy it for local currency.

Stablecoin also comes with risks that UK authorities are working to mitigate. There are stablecoin specific financial stability risks that could manifest in the event of a stress scenario. These could materialise due to a loss of confidence in a stablecoin, or a loss of confidence in the banking sector, resulting in a 'flight to safety' to stablecoin. Similarly, there are financial crime risks associated with the ability of stablecoin to be utilised with both self-hosted wallets and decentralised services. However, in the cases of both financial stability and financial crime, these risks can be mitigated with effective regulation and international cooperation where possible.

Much UK stablecoin activity already falls within scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). For instance, firms in the UK that buy or sell stablecoins, or provide wallet services in connection with them, have been required since 2020 to register with the FCA for money laundering supervision. The forthcoming cryptoasset regulatory regime will require authorised firms to comply with the provisions of the Financial Services and Markets Act 2000 (FSMA 2000) framework aimed at combatting financial crime and money laundering. The FCA and Bank of England's respective regulatory regimes will further assist in managing these risks.

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 regulators' objectives are set by government and parliament and, in combination with resources such as the remit letters, position the regulators well to effectively regulate the UK financial services sector. We will continue to regularly engage with regulators and hold them accountable for delivering their objectives.

In developing the regulatory regime - including for stablecoin issuance - the government decided to bring cryptoassets into the framework provided by FSMA 2000, and thus within scope of FCA regulation. The government considers that the FCA's objectives are

appropriate for the regulation of stablecoins, as they are for the wider financial services sector.

HM Treasury gave the Bank of England powers in the Financial Services and Markets Act 2023 (FSMA 2023) to supervise systemic digital settlement asset (DSA) and service providers on the similar basis to that of traditional payments systems. The decision of whether to designate a DSA system or service provider as systemic is for HM Treasury and it does so on the basis of criteria set out in the Banking Act 2009 (amended by FSMA 2023). The government considers the Bank is well-placed to mitigate the risks arising from the activities of such systemic DSA systems and service providers and to do so within the framework of its present objectives.

The government is working with the FCA and Bank of England to better understand how to responsibly harness the benefits of stablecoins across both retail and wholesale uses in support of the government's wider growth agenda. Through legislation, HM Treasury has launched the Digital Securities Sandbox (DSS) which is a live regulated environment run by the Bank of England and FCA that provides temporary modifications to UK legislation, so that participating firms are able to trade and settle digital regulated securities. The regulators are considering the use of stablecoins as a settlement asset in the DSS. The FCA has also launched a cohort in its Regulatory Sandbox for firms intending to issue UK stablecoins under forthcoming regulated activity. Proposals from these firms represent a range of stablecoin use cases, including payments, wholesale settlement and crypto trading.

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? Are there any aspects of the Bank of England and FCA's proposed stablecoin regulatory regimes that present challenges or require further consideration?

Cryptoasset firms have highlighted the importance of having clarity on the UK's regulatory approach to cryptoassets and stablecoins in order to support investment and the development of digital asset markets here. The passage of the government's recent legislation and the fact that the FCA and the Bank of England are at advanced stages of consultation on their regulatory regime's is positive progress with regards to the growth of the sector in the UK.

In development its cryptoasset legislation, the government worked closely with the FCA to ensure the legislation provided the tools needed to effectively regulate stablecoin issuers and reflected the government's priorities for driving growth in a way that protects against consumer detriment.

The government recognises that businesses have raised some concerns with the FCA's proposed regime. One noted focus of these concerns has been on FCA resourcing for providing authorisations under the new regime. Firms have also questioned the proposed prudential requirements for stablecoin issues, and whether these position the UK competitively relative to other key jurisdictions. Finally, the application of financial promotions regime for cryptoassets continues to be an area for industry feedback, including questions on its proportionality. The FCA has reassured the government that it has adequate resources to meet the authorisations demands of the new regime. The FCA has also offered firms pre-engagement meetings and new innovations such as the Office for Investment: Financial Services should help smooth firms' progress through the application process.

As explained above, the Bank of England's powers to regulate systemic stablecoins derive from the Financial Services and Markets Act 2023, which gave them oversight of systemic DSA systems and service providers (including stablecoin issuers) recognised by HM Treasury. The Bank published its initial discussion paper on the regime in November 2023, and a subsequent consultation was launched on 10 November 2025 and closed on 10 February 2026.

The sector has raised ongoing concerns over the Bank's proposals. Concerns have focused primarily on the extent to which stablecoin issuers can earn income on their backing assets, and the requirement for holding limits for individuals and businesses to place caps on the amount of any one coin that can be held. Following the closing if its consultation, the Bank is expected to finalise its rules later this year.

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

HM Treasury engages extensively with other jurisdictions both bilaterally  and  through  multilateral  fora  and  looks  closely  at

international developments as part of formulating its own approach to the regulation of stablecoins and other crypto and digital assets.

Of particular significance have been developments in the United States and the European Union, and while the UK's approach does not entirely reflect either of these jurisdictions' they are aligned in many key respects. The government sees this as an important enabler of cross border activity and international cooperation.

One important area of distinction between the UK and the European Union's regime has been our decision not to regulate stablecoins as electronic money. HM Treasury understands this has led to some challenges around stablecoins - e-money tokens in the EU - falling within scope of both the Second Payment Services Directive (PSD2) and the Markets in Crypto-Assets Regulations (MiCA). The UK's approach has avoided this perimeter conflict materialising by default. However, the government is planning reforms to the UK payments services regulations, including to bring UK stablecoins into regulated payments. In doing this, HM Treasury recognises the importance of having a clear regulatory perimeter between payments and authorised activities under the new cryptoasset regulatory regime.

25 March 2026