UK House of Lords press Coinbase exec on stablecoins, KYC and bank run fears

The United Kingdom House of Lords questioned Coinbase's top international policy executive regarding the potential risks stablecoins pose to the UK financial system, including concerns about draining bank deposits, Silicon Valley Bank-style runs, illicit finance, and Know Your Customer (KYC) rules.

Lords probe deposit drain and crime concerns

During a House of Lords inquiry into stablecoins, Tom Duff Gordon, Coinbase's vice president for international policy, asserted that fully reserved and regulated stablecoins are safer than uninsured bank deposits. He explained they are backed one-to-one by cash and high-quality government securities, allowing redemption at par.

Duff Gordon argued that stablecoins could significantly reduce payment costs, accelerate cross-border transactions, and support new AI-driven payment flows. He pushed back against suggestions that Coinbase aimed to evade KYC obligations.

He warned that overly strict proposals from the Bank of England and the Financial Conduct Authority (FCA) concerning capital, holding limits, and rewards could stifle competition. This, he contended, would cause the UK to fall behind regulatory frameworks like the US's Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act and Europe's Markets in Crypto Assets Regulation (MiCA) in attracting stablecoin innovation.

The Lords repeatedly questioned Duff Gordon about who bears redemption risk during a crisis, whether current arrangements simply shift risk from banks to non-bank issuers, and if stablecoin rewards could lead to a "deposit drain" from UK banks.

Duff Gordon countered these fears, calling concerns about disintermediation and credit creation "wildly exaggerated." He noted that major corporations and card schemes already utilize stablecoins to lower payment costs.

Regarding concerns about stablecoins facilitating crime, Duff Gordon highlighted Coinbase's implementation of KYC, Anti-Money Laundering (AML), and sanctions screening for customers. He argued that on-chain transparency and exchange-level controls could actually make policing illicit financial flows easier than with traditional cash.

UK could fall behind in stablecoin race

Adam Jackson, chief strategy officer at Innovate Finance, expressed concern that the UK might establish a regulatory regime that is "more prescriptive and less competitive" than the EU's MiCA rules, potentially making the UK a less attractive environment for innovation compared to other jurisdictions.

This hearing contrasted with a previous session where critics like Chris Giles and Arthur E. Wilmarth Jr. expressed skepticism about stablecoins becoming mainstream in the UK and advocated for a stricter approach from the Bank of England. Wilmarth Jr. specifically criticized the US GENIUS Act, calling it a "disastrous mistake" for allowing non-banks into the "money business."