The UK's financial regulator, the Financial Conduct Authority (FCA), has declared sterling-pegged stablecoins a key priority for 2026, aiming to establish a clear regulatory framework before the market scales significantly. This initiative runs parallel to consultations led by the Bank of England to understand the economic impact of private sector money issuance.
Industry leaders see this as a strategic opportunity to avoid the fragmented oversight seen in the United States. "UK regulators and industry are likely keen to avoid repeating that pattern by setting clear expectations early, while the market is still small enough to shape responsibly," said Javed Khattak, CEO of Cheqd. The UK stablecoin market is currently valued at just over $5 million across three products, a stark contrast to the dominant US dollar market.
The proposed UK framework is built on five key pillars: 1) Requiring at least 40% of backing assets to be held with the Bank of England, with the remainder in higher-yielding gilts; 2) Guaranteeing same-day redemption for fiat; 3) Imposing controversial holding caps of £10,000-£20,000 for individuals and £10 million for businesses; 4) Mandating operation through a legal trust to protect user funds in bankruptcy; and 5) Prohibiting issuers from offering yield to holders, mirroring initial US rules.
"The UK has an opportunity to set clear, upfront rules that allow innovation while embedding safeguards early, rather than retrofitting regulation after adoption," stated Benoit Marzouk, CEO of stablecoin provider tGBP. The FCA has clarified that stablecoins used for payments, not investment, are the top priority this year.
This regulatory push coincides with the global stablecoin market reaching a new milestone of $284 billion in circulation, reviving debates about its relationship with traditional banking. The market is dominated by Tether's USDT ($186 billion) and Circle's USDC ($72 billion), which together command over 90% of the supply. Following the passage of the U.S. GENIUS Act in 2025, which established a federal framework for payment stablecoins, the sector has expanded rapidly.
Banking groups, including the American Bankers Association and JPMorgan, have raised alarms, warning that interest-bearing stablecoins could draw deposits away, raising banks' funding costs. However, prominent analysts like historian Niall Ferguson and economist Manny Rincon-Cruz argue these fears are overstated, framing stablecoins as payment instruments that complement, rather than threaten, the banking system.
"There is zero evidence–zero–that stablecoin interest, yield or rewards destabilizes the banking system," asserted Coinbase Chief Legal Officer Paul Grewal. Data shows that since USDC's launch in 2018, US bank deposits have grown by over $6 trillion alongside stablecoin growth. Furthermore, global stablecoin transaction value soared to $33 trillion in 2025, with USDC processing $18.3 trillion and USDT handling $13.3 trillion, highlighting their utility beyond speculation.
