UK House of Lords Examines Stablecoin Regulation Amid Concerns

The United Kingdom's House of Lords recently engaged in a critical discussion regarding stablecoins, with experts suggesting that these tokens primarily serve as "on- and off-ramps into crypto" rather than representing the future of money. According to Cointelegraph, the House of Lords conducted a public session as part of its inquiry into the regulation of stablecoins, focusing on their role in payments, banking, and financial stability. The Financial Services Regulation Committee (FSRC) questioned witnesses about stablecoins' competition with banks, their cross-border applications, risks associated with illicit finance, and their treatment under the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act. The session featured contrasting perspectives from Financial Times economics commentator Chris Giles and U.S. law professor Arthur E. Wilmarth Jr. Giles expressed skepticism about the adoption of stablecoins in the UK, citing the lack of "clear legal underpinning and clear regulation," which makes it risky for households to hold them as money. He suggested that with a robust regulatory framework, stablecoins could enhance transaction efficiency, reduce costs, and potentially expedite cross-border and large corporate transfers. However, domestically, he doubted that sterling stablecoins could significantly disrupt banks, given the existing instant, low-cost payment systems. Giles characterized stablecoins as primarily serving as "on- and off-ramps" to crypto, describing them as "not massively interesting or going to take over the world." Giles also addressed the issue of interest, noting that whether stablecoins should offer yields is central to their purpose and the structure of the UK's financial system. He argued that if stablecoins function solely as a payment technology, there is no need to pay interest, as interest-bearing current accounts have not dominated the financial system. He welcomed the Bank of England's approach to regulating stablecoins "like money," with strict backing rules and liquidity backstops, while cautioning that stablecoins could be attractive for illicit use. He emphasized the need for international oversight of exchanges and stronger Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. Wilmarth, on the other hand, criticized the GENIUS Act, describing it as a "disastrous mistake" for allowing non-banks to issue dollar-denominated stablecoins. He argued that tokenized deposits could better serve the financial system and described stablecoins as a form of "regulatory arbitrage" that allows lightly regulated firms to enter "the money business," undermining the prudential framework established over centuries within the banking system. Wilmarth expressed strong disagreement with the bill, noting that the U.S. had made "many unfortunate choices," but acknowledged that the Bank of England was proposing a more robust regulatory regime.