The Payments Association Flags Risks in UK Stablecoin Regulatory Framework
Stablecoin Use Cases and Industry Analysis
The Payments Association has released a report titled Stablecoins across the payment stack: Applications, adoption and regulatory readiness. The report, developed by the Digital Currencies Working Group with input from major industry players, examines stablecoin applications in global financial infrastructure and the UK's position in this evolving sector.
Key Areas of Stablecoin Deployment
- Cross-border settlement
- Merchant payment cost reduction
- Trade finance automation
- Tokenisation of real-world assets
- Agentic commerce for AI-driven transactions
The report notes that stablecoins can reduce transaction costs by over 99% in certain cross-border scenarios and enable automation of complex trade finance workflows through smart contracts.
Regulatory Concerns and Competitive Risks
In its response to the Bank of England's consultation on systemic stablecoins, the association raises concerns about the proposed regulatory framework. Key issues include the requirement for issuers to hold 40% of backing assets in unremunerated central bank deposits and strict holding limits for individuals and businesses. The association argues these measures could restrict institutional adoption and deter international participation.
The industry suggests revising the asset backing requirements to an 80:20 split between government debt and central bank deposits. This adjustment is seen as necessary for supporting sustainable issuer business models and maintaining the UK's competitiveness.
International Context and Market Structure
The report warns that without a more flexible regulatory approach, aligned with frameworks in the EU, Singapore, and the US, the UK risks losing investment in digital financial services. It also highlights the dominance of US dollar-denominated stablecoins, which make up 99% of the global market, posing a challenge for the international role of sterling-backed stablecoins.
