Stablecoins have moved from a niche trading instrument to a systemically significant on-chain asset class, with a global market capitalisation of over $310 billion by 2026 according to the Committee. Yet sterling barely features. The market is overwhelmingly dominated by US Dollar-denominated stablecoins – principally Tether and Circle – while, in the Committee’s words, “the UK stablecoin market is nascent”. The asymmetry is, in our view, a structural underrepresentation of the pound in tokenised money infrastructure, and a question of UK monetary and regulatory sovereignty.

In March 2026 the Digital Trust Centre of Excellence submitted written evidence (STA0038) to the House of Lords Financial Services Regulation Committee‘s inquiry into the growth and proposed regulation of stablecoins. The submission was drafted by the Centre’s CEO Peter Ferry and James Ball, a visiting academic, drawing on an online survey of Centre members across Scottish fintech, finance and academia. The Committee’s published report picks up five of our specific phrasings, and broadly endorses the substance of our calibration arguments on holding limits, backing requirements and the systemic-transition pathway.

Why this matters for Scotland

Scotland’s financial and related professional services sector employs around 151,000 people and supports roughly £690 billion of assets under management from Edinburgh and Glasgow, according to Scottish Financial Enterprise. Financial services is the single biggest sectoral contributor to Scotland’s economy, accounting for around a tenth of national gross value added. That activity depends on settlement infrastructure that is competitive, resilient and denominated in sterling. As institutional financial markets migrate towards on-chain settlement, UK firms without access to a regulated sterling stablecoin face a choice: route through USD-denominated instruments and the regulatory conditions that govern them – OFAC rather than OFSI, FinCEN rather than the FCA – or operate at a disadvantage to counterparts that have a regulated domestic option. (OFAC and FinCEN are the US Treasury bureaux for sanctions and anti-money-laundering supervision; OFSI and the FCA are their UK counterparts.) Members were clear: that is not a theoretical concern for asset managers north of the border. It is already shaping product decisions.

What we told the Committee – and how it landed

Our submission backs the development of a regulated sterling stablecoin market and treats the current legislative programme as the precondition for it. But it argues, in detail, that the proposed framework is calibrated for a market scale that does not yet exist, and that the calibration risks preventing the market it is intended to govern. Four positions sat at the centre of the evidence, all four directly engaged by the published report.

Regulatory delay as systemic risk. The submission argued that “regulatory uncertainty is not a neutral condition … it functions as an active suppressor of investment.” The Committee quoted that phrase directly at paragraph 99 of its report and adopted the framing in its summary, observing that “the absence of a clear regulatory regime has suppressed stablecoin development and investment in the UK”. We also argued that the Bank of England’s November 2023 “Dear CEO” letter on stablecoins was issued “before any legislative regime existed and without clear legal authority to do so” — language the Committee quoted verbatim at paragraph 130, characterising the letter as “overreach” operating through supervisory expectation rather than formal prohibition.

The FCA-to-Bank cliff edge. Our submission described “the binary systemic / non-systemic distinction as a structural weakness that may deter issuers from scaling in the UK market”. The Committee quoted that phrase at paragraph 221 and called on HM Treasury to “set out further details about how it will determine whether stablecoins are systemic, and … whether indicative quantitative thresholds would be appropriate”. We also argued that “fragmentation of regulatory responsibility across the FCA, [the Bank], [Payment Systems Regulator], and [HM Treasury] compounds [regulatory] uncertainty” — language the Committee quoted at paragraph 231.

Calibration over restriction. The submission argued that “the prudent position is to build a regime capable of managing systemic risk as the market develops, rather than one that pre-empts market development entirely” — quoted by the Committee at paragraph 229. On the specific calibration points: the Committee agreed that the proposed holding limits “need to be reconsidered, as they could unnecessarily inhibit the growth of GBP stablecoins”; that the Bank’s 40% unremunerated central bank deposit requirement has “attracted considerable criticism, with some arguing it would impact negatively on the viability of stablecoin issuers”; and that the proposed redemption requirements “should also be reevaluated”. MiCAR’s split between e-money tokens and asset-referenced tokens remains, in our view, the clearer reference framework — and the Committee’s recommendations move the UK regime closer to that direction of travel.

The decentralised gap. Crypto-collateralised stablecoins — DAI, GHO and others — operate on permissionless ledgers with no issuer to regulate and no segregable backing assets. The current proposals do not address them. The Committee’s report focuses on the regulated perimeter rather than that gap. We continue to regard it as a material question regulators should not leave indefinitely outside the framework, and it remains live.

What the Committee concluded

The Committee’s overall message is captured in its title: ‘Stablecoins: waiting for regulation‘. Its headline observation is that the UK is “lagging behind”, that the 25 October 2027 commencement date must hold, and that the proposed framework needs recalibration on the specific points above. Holding limits, backing requirements, redemption design and the systemic-transition pathway all need further work before the regime goes live. The Committee took oral evidence from the Bank of England (Deputy Governor Sarah Breeden and Sasha Mills on 11 March), HM Treasury (Economic Secretary Lucy Rigby KC MP), the FCA (David Geale and Matthew Long) and issuers including Circle, Mastercard, Coinbase, Revolut and Agant. Scotland was not represented at the oral sessions; our contribution sat in the written record as STA0038. Reading the report next to that submission, the two are recognisably in the same conversation — a fair outcome for an evidence process.

From members’ input to the public record

The Digital Trust Centre of Excellence exists to turn industry and academic expertise into evidence that reaches policymakers, and to do that work from Scotland for Scotland’s financial-services strength. Our submission focuses on the institutional end of the market — wholesale settlement, treasury operations, asset management — and sits alongside our work with the Bank of England on the DLT Innovation Challenge.

At the other end of the spectrum, two of the innovators selected for our second Innovation Challenge Call — Stabledrop (B2B stablecoin payments with built-in buyer protection) and Stableport (B2B cross-border payments) — are looking at what stablecoins can do for the SME end of the market, where late payments and slow invoice finance still hold small businesses back. Although not all SME use cases sit in the same regulatory frame, innovators’ products and decisions on where to base themselves will be shaped by what the Committee – and the regulators – decide next.

Further reading

• House of Lords Financial Services Regulation Committee – Stablecoins: waiting for regulation (HL Paper 6, 1st Report of Session 2026-27, published 3 June 2026)
• Digital Trust Centre of Excellence – written evidence to the inquiry (STA0038)
• House of Lords Financial Services Regulation Committee – inquiry page
• Bank of England oral evidence – Sarah Breeden and Sasha Mills, 11 March 2026
• James Ball – commentary on the submission
• European Union – Markets in Crypto-Assets Regulation (MiCAR)