The Payments Association Warns of Stablecoin Regulation Risk

In a comprehensive new report, The Payments Association has called for more regulatory focus around stablecoins to prevent the UK from losing its edge as a fintech hub. 

The industry body warns in the report, called Stablecoins across the payment stack: Applications, adoption and regulator readiness, that current regulatory proposals could stifle the domestic market before it truly begins.

While the technical analysis confirms that stablecoins could overhaul the global financial infrastructure, the commercial reality suggests the UK is currently fighting an uphill battle against the dominance of the US dollar.

Addressing the 99% cost gap

The report, developed by the association’s Digital Currencies Working Group, identifies five key pillars where stablecoins are transforming the fintech landscape. 

These include merchant payment costs, trade finance, the rise of agentic commerce, the tokenisation of real-world assets and cross-border settlements – where technology has the “potential” to slash transaction costs by more than 99% in specific scenarios, the report states. 

However, the report highlights a significant structural barrier: US dollar-denominated stablecoins currently command 99% of the market, which it calls a “challenge to the future international role of sterling”. 

Regulatory friction and holding limits

Accompanying the research is a formal response to the Bank of England’s consultation on systemic stablecoins. 

The Payments Association argues that the proposed framework is too restrictive to foster a thriving ecosystem.

Specifically, the mandate for issuers to hold 40% of backing assets in unremunerated central bank deposits has been flagged as a threat to sustainable business models.

Riccardo Tordera-Ricchi, Vice President of Policy and Government Relations at The Payments Association, explains that the necessary foundation for a competitive systemic stablecoin ecosystem has not yet been proposed and suggests an 80:20 split between government debt and central bank deposits as a more sustainable solution. 

He also suggests that the proposed holding limits, which are currently set at £20,000 (US$27,030) for individuals and £10m (US$13.5m) for businesses, could discourage institutional adoption and may send a restrictive signal to the international market.

Riccardo says: “Our community’s committed engagement on the recent stablecoin regulation consultations from the Financial Conduct Authority and Bank of England reflects that agreeing on the right framework is an important topic for our members. 

“Their interest underscores the industry’s collective commitment to ensuring that the UK payments sector continues to meet the needs of all those who make and receive payments.

“Nonetheless, it’s evident that the current proposal falls short of providing an adequate foundation for a competitive and attractive stablecoin framework.”