The regulatory landscape for stablecoins continues to evolve rapidly, and the U.S. Department of the Treasury’s (“Treasury”) recent advance notice of proposed rulemaking (ANPRM) on GENIUS Act implementation marks another significant development. Issued on Sept. 18, the ANPRM seeks public input on a wide range of issues, from anti-money laundering compliance and foreign oversight to taxation and insurance, underscoring the federal government’s growing focus on digital assets. As policymakers grapple with how to balance innovation and risk, stablecoin issuers, service providers and market participants should be prepared for heightened scrutiny and potential new obligations. This is a critical opportunity for stakeholders, particularly smaller financial institutions, to weigh in on the potential impact of these rules.
Specifically, the Treasury issued the ANPRM to solicit public comment on questions relating to the implementation of the GENIUS Act (PL. 119-27). The ANPRM asks for input on how to implement the GENIUS Act across six areas: (1) stablecoin issuers and service providers, (2) illicit finance, (3) foreign payment stablecoin issuers (FPSI), (4) taxation, (5) insurance and (6) economic data. The ANPRM poses dozens of questions on these issues, including the application of stablecoin issuers into anti-money laundering rules, how foreign oversight of stablecoins should be considered and whether tax regulations should be updated. The goal of the Treasury’s rulemaking is to establish regulations that encourage responsible innovation while creating a regulatory regime that protects consumers, mitigates illicit finance risks and addresses potential financial stability concerns. Comments are due by Oct. 19.
GENIUS Act Background
The GENIUS Act was signed into law on July 18, after passing in the Senate 68-30 and in the House 308-122. The law establishes a regulatory framework for payment stablecoins; only a permitted issuer may issue a payment stablecoin. The bill establishes a framework that largely favors stablecoin issuers that operate as a subsidiary of an insured depository institution (IDI). However, the GENIUS Act also creates a pathway for public companies not predominantly engaged in financial services to operate a stablecoin issuer subsidiary, but only if that company has received approval from the Stablecoin Certification Review Committee (SCRC), a new oversight body created by the act. Notably, if any subsidiary has an issuance of less than $10 billion, it would have the option of choosing to operate under a state oversight regime, as long as that state’s regime is substantially similar to the federal framework. Upon exceeding that $10 billion issuance threshold, an issuer will become subject to the federal regulatory framework of the applicable primary federal stablecoin issuer. Section 3(d) of the bill gives the Treasury Department broad authority to issue rules and regulations to enforce the GENIUS Act. The Sept. 19 ANPRM is the first step in developing those regulations, asking 58 questions across the six areas of interest outlined above.
ANPRM Overview
Issuers and Service Providers
Questions are focused on whether to establish safe harbors and on what terms, how to clarify the scope and meaning of certain definitions (“payment stablecoin,” “digital asset provider,” “pay,” “interest” and “yield”), how to address whether a state-level regime is “substantially similar” to the federal framework, and what regulations need to be set in place for reserves, marketing and non-financial company limits.
In regard to the ANPRM question on defining the terms “pay,” “interest” and “yield,” Treasury’s final rulemaking will have a significant impact on determining whether stablecoin issuers and exchanges can institute any alternative forms of rewards programs that provide economic benefits to stablecoin holders.
Section 3(g) of the GENIUS Act states that payment stablecoins not issued by a PPSI may not be treated as cash or cash equivalents. The ANPRM asks how such non-PPSI coins should be accounted for, with a primary concern of avoiding accounting asymmetries between banks and nonbanks holding similar exposures.
Treasury also seeks input on the factors for deeming foreign regimes comparable to protect U.S. consumers and prevent regulatory arbitrage. Under the GENIUS Act, Treasury is explicitly tasked with establishing a framework for qualifying foreign regulatory regimes as comparable to U.S. standards. The ANPRM also inquires about the factors the SCRC should consider when determining if a non-financial company can issue a stablecoin.
Illicit Finance
Questions in the illicit finance section focus on whether permitted payment stablecoin issuers (PPSI) are subject to all federal anti-money laundering (AML) and sanctions programs, and if and how AML and sanctions programs might be appropriately tailored to account for the unique characteristics of stablecoins as digital assets and ensure that PPSIs are able to comply. This illicit finance section builds on the request for comment Treasury released last month. For FPSIs, questions are geared towards how to determine if FPSIs are compatible for the U.S. market and how to determine “interoperability.”
Taxation
Questions regarding taxation are focused on where Internal Revenue Service (IRS) guidance may be needed. Specifically, questions ask about the necessity of IRS guidance on the classification of payment stablecoins and if there are any other topics tax guidance should address.
Insurance
Questions regarding insurance are aimed at determining what types of coverage and what lines of coverage might be needed by various market participants and how the industry is likely to adjust to the new dynamics created by the GENIUS Act. Specifically, questions are posed as to how the GENIUS Act’s implementation should reflect insurance industry practices and market development around payment stablecoins, including what types and amounts of coverage PPSIs and FPSIs should carry, whether insurers themselves might act as issuers or service providers, and what related reserving and regulatory requirements should apply. Treasury also seeks input on priority issues for oversight, both domestic and foreign, that could shape how insurance interacts with the stablecoin market.
Economic Data
The economic data section’s questions are focused on ongoing cost estimates for legal expenses, licensing, disclosure and AML program compliance, as well as the benefits of registering under state versus federal regimes, aligning the U.S. regime with foreign regimes, and overall consumer protection. Outside of the six general groups, the ANPRM also asks questions regarding potential conflicts of interest, potential additional regulations that may be needed and overall demand for payment stablecoins.
Next Steps
With the GENIUS Act now law, there will be substantial opportunities for stakeholder input in the coming months and years as the Treasury Department and a number of other state and federal financial regulators, including the Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), will undertake a series of rulemakings and formulate guidance to implement the bill’s provisions.
The initial ANPRM follows Treasury’s separate request for comment (RFC) on methods regulated financial institutions use to detect illicit activity involving digital assets required by the GENIUS Act. Treasury acknowledges that AML tools can impose significant resource burdens and is evaluating associated costs in its rulemaking. Comments on the ANPRM are due by Oct. 19; comments on the related illicit-finance RFC are due by Oct. 17.
