by Jeffrey Steiner, Jason Cabral, Ro Spaziani, and Sara Weed
Left to Proper: Jeffrey Steiner, Jason Cabral, Ro Spaziani, and Sara Weed (Photographs courtesy of the authors)
The Act is probably the most vital United States regulation affecting the digital belongings trade so far and displays the Administration’s and Congress’ priorities of creating a complete framework for the US’ method to digital belongings and associated actions.
On July 18, 2025, the President signed the Guiding and Establishing Nationwide Innovation for U.S. Stablecoins Act (the GENIUS Act or the Act) into regulation. The GENIUS Act is probably the most vital United States regulation affecting the digital belongings trade so far and displays the Administration’s and Congress’ priorities of creating a complete framework for the US’ method to digital belongings and associated actions. The laws, which benefited from sturdy bipartisan assist, was adopted on June 17, 2025 within the U.S. Senate by a vote of 68 to 30, and within the U.S. Home of Representatives by a vote of 308 to 122, on July 17, 2025.
The Act is described as a client safety invoice that establishes Federal safeguards to guard stablecoin holders and improve client confidence within the fee stablecoin market. To attain these ends, the Act establishes a transparent Federal regulatory framework for the issuance of “fee stablecoins,” whereas preserving a pathway for sure State-regulated entities to situation fee stablecoins. The Act additionally supplies restrictions on “digital asset providers suppliers” (e.g., cryptocurrency exchanges) with respect to the supply and sale of sure fee stablecoins. Given its broad scope, each inside the US and extraterritorially, the GENIUS Act is anticipated to have vital impacts on the worldwide cryptocurrency markets, market contributors, and the broader monetary system.
The Act takes impact on the sooner of (i) the date that’s 18 months after the enactment of the Act or (ii) the date that’s 120 days after the date on which the first Federal fee stablecoin regulators situation any ultimate rules implementing the Act. In that regard, the Act directs the Secretary of the Treasury (the Secretary), main Federal fee stablecoin regulators, and State fee stablecoin regulators to situation rules supposed to ascertain a course of and framework for the licensing, regulation, examination, and supervision of permitted fee stablecoin issuers and the issuance of fee stablecoins.
This text, which features a Q&A beneath, covers among the key questions and solutions relating to the provisions and implications of the Act and incorporates a dialogue of the Act’s impacts on State regulation preemption.
What stablecoins are coated?
The GENIUS Act establishes a brand new regulatory framework for “fee stablecoins,” that are outlined as any digital asset that:
- is, or is designed to be, used as a method of fee or settlement, and
- the issuer of which:
- is obligated to transform, redeem, or repurchase for a set quantity of financial worth, not together with a digital asset denominated in a set quantity of financial worth; and
- represents that such issuer will preserve, or create the affordable expectation that it’s going to preserve, a steady worth tied to a set quantity of financial worth.
The definition of “fee stablecoin” doesn’t embrace a digital asset that’s (i) a nationwide forex; (ii) a deposit (together with deposits recorded utilizing distributed ledger expertise); or (iii) a safety. The Act additional clarifies that fee stablecoins will not be securities (underneath the jurisdiction of the U.S. Securities and Alternate Fee (the SEC)) or commodities (underneath the jurisdiction of the Commodity Futures Buying and selling Fee (the CFTC)) and will not be permitted to pay holders yield or curiosity solely in reference to the holding, use, or retention of such fee stablecoins.[1]
Who can situation fee stablecoins?
The GENIUS Act makes it illegal for any particular person aside from a “permitted fee stablecoin issuer” to situation fee stablecoins in the US. A permitted fee stablecoin issuer means a U.S. entity that’s any of the next:
- a subsidiary of insured depository establishments (IDIs), whether or not nationwide or state-chartered, that’s permitted by the mother or father IDI’s main Federal regulator (e.g., the Board of Governors of the Federal Reserve System (the Federal Reserve), the Workplace of the Comptroller of the Forex (the OCC), or the Nationwide Credit score Union Administration or the Federal Deposit Insurance coverage Company (the FDIC)).[2]
- Federal certified fee stablecoin issuers, which embrace the next entities which can be permitted by the OCC to situation fee stablecoins:
- non-bank entities, aside from State-qualified fee stablecoin issuers;
- uninsured nationwide banks; and
- Federal branches of international banks.
- State certified fee stablecoin issuers, that are entities established underneath the legal guidelines of the related State with a consolidated whole excellent fee stablecoin issuance of lower than $10 billion (except a waiver is obtained) that’s not an IDI, subsidiary of an IDI, an uninsured nationwide financial institution, or a Federal department of a international financial institution; offered that the related State’s oversight framework aligns with the certification necessities underneath the Act.
The Act units forth secondary Federal oversight with regard to the State regulatory framework and State certified fee stablecoin issuers. The SCRC (as outlined beneath) is chargeable for approving certifications from State regulators that their State’s regime is considerably just like the Federal regime. The SCRC should unanimously approve or deny such certifications inside 30 days after the State fee stablecoin regulator submits the certification. As well as, the Federal Reserve and the OCC have authority to take enforcement motion in opposition to sure State certified fee stablecoin issuer in uncommon and exigent circumstances (which might be outlined in a future rulemaking).
A public firm (and its wholly or majority-owned subsidiaries) that’s not predominantly engaged in a number of “monetary” actions (as outlined and interpreted underneath Part 4(okay) of the Financial institution Holding Firm Act of 1956 and together with these actions permitted for permitted fee stablecoin issuers and digital asset service suppliers underneath the Act) is usually prohibited from issuing a fee stablecoin except the general public firm receives a unanimous vote from the SCRC guaranteeing specified findings.
What are fee stablecoins issuers permitted to do?
The GENIUS Act limits the actions through which a permitted fee stablecoin issuer might have interaction to the next:
- issuing fee stablecoins;
- redeeming fee stablecoins;
- managing associated reserves, together with buying, promoting, and holding reserve belongings or offering custodial providers for reserve belongings (in line with State and Federal regulation);
- offering custodial or safekeeping providers for fee stablecoins, required reserves, or non-public keys of fee stablecoins; and
- endeavor different actions that straight assist any of the actions set forth above.
As well as, the Act supplies that permitted fee stablecoin issuers will not be prohibited from partaking in fee stablecoin actions or digital asset service supplier actions specified by this Act, and “actions incidental thereto,” which can be approved by the first Federal fee stablecoin regulator or the State fee stablecoin regulator, as relevant.
What are the necessities for fee stablecoin issuers?
Though extra specificity on the necessities for fee stablecoin issuers is anticipated to be applied by regulation, the Act supplies sure key necessities, together with the next:
- permitted fee stablecoin issuers should maintain reserves of U.S. {dollars} or high-quality liquid belongings not less than equal to the whole worth of excellent fee stablecoins (i.e., on not less than a 1:1 backing). The reserves have to be held in segregated accounts and can’t be commingled with belongings of the custodian.
- reserves are restricted to money, financial institution deposits and short-term, low-risk securities (e.g., U.S. Treasuries). Different varieties of belongings corresponding to cryptocurrencies and different securities are prohibited from getting used as reserves.
- reserves can’t be rehypothecated or reused for every other objective—aside from satisfying sure margin obligations, obligations related to custodial providers, or creating liquidity to redeem fee stablecoins in slim circumstances.
- permitted fee stablecoin issuers are anticipated to file month-to-month studies of the composition of reserves that have to be examined by third-party auditors. If a permitted fee stablecoin issuer has greater than $50 billion in consolidated whole excellent issuance (and isn’t a public firm), then it should present annual audited monetary statements which can be filed with regulators and are publicly out there.
Cost stablecoin issuers are designated as “monetary establishments” underneath the Financial institution Secrecy Act due to this fact subjecting them to strong anti-money laundering, buyer due diligence (i.e., know your buyer checks), and transaction monitoring necessities. Cost stablecoin issuers additionally might be required to supply suspicious exercise studies to the Monetary Crimes Enforcement Community (FinCEN) and Workplace of Overseas Asset Controls sanctions compliance.
Lastly, the Act units forth sure danger administration necessities for fee stablecoin issuers, together with necessities across the diversification of the reserve portfolio, capital and liquidity necessities, and stress testing.
Are international entities permitted to situation fee stablecoins in the US?
No. The GENIUS Act makes it illegal for any particular person aside from a permitted fee stablecoin issuer to situation a fee stablecoin in the US. Nevertheless, the Act permits a international fee stablecoin issuer to supply or promote fee stablecoins utilizing a digital asset service supplier if the international fee stablecoin issuer:
- is topic to a comparable non-U.S. regulatory and supervisory regime, as decided by the Secretary upon advice of the members of SCRC;
- registers with the OCC;
- holds reserves in the US adequate to fulfill U.S. buyer liquidity calls for (except in any other case permitted underneath a reciprocity association);
- will not be domiciled or regulated in a jurisdiction that’s topic to complete United States sanctions or is decided by the Secretary to be a jurisdiction of main cash laundering concern; and
- complies with lawful orders to grab, freeze, burn, or forestall the switch of excellent stablecoins.
The requirements for comparability determinations will not be outlined within the Act and the Secretary could make such willpower upon a advice from the opposite members of the SCRC. The Secretary may enter into reciprocal agreements and different agreements with jurisdictions which can be deemed to have comparable fee stablecoin regulatory regimes.
As well as, the Act doesn’t expressly prohibit a international fee stablecoin issuer from establishing a permitted fee stablecoin issuer in the US to situation a fee stablecoin in the US.
What occurs if fee stablecoins will not be issued by permitted fee stablecoin issuers?
If a fee stablecoin will not be issued by a permitted fee stablecoin issuer, then it can’t be (i) handled as money or money equal for accounting functions; (ii) eligible as money or money equal margin or collateral for broker-dealers, swap sellers, and different CFTC and SEC intermediaries; or (iii) accepted as a settlement asset to facilitate wholesale funds between banking organizations.
Does the Act place any limitations on the supply or sale of fee stablecoins within the secondary market?
Sure. The Act supplies that, except a secure harbor is accessible, starting on the date that’s three years after the enactment of the Act, it shall be illegal for a digital asset service supplier to supply or promote fee stablecoins to an individual in the US except the fee stablecoin is issued by a permitted fee stablecoin issuer. Moreover, digital asset service suppliers are prohibited from providing, promoting, or in any other case making out there a fee stablecoin issued by a international fee stablecoin issuer except the international fee stablecoin issuer has the technological functionality to conform, and can comply, with the phrases of any lawful order and reciprocal settlement (as described above).
Underneath the Act, the Secretary may present secure harbors from the prohibition on any particular person aside from a permitted fee stablecoin issuer to situation a fee stablecoin within the U.S.; these secure harbors would then allow digital asset service suppliers to supply or promote that issuer’s fee stablecoins to an individual in the US.
Can permitted fee stablecoin issuers pay curiosity on stablecoins?
No. The GENIUS Act prohibits permitted fee stablecoin issuers and international fee steady issuers from paying the holder of any fee stablecoin any type of curiosity or yield solely in reference to the holding, use, or retention of such fee stablecoin.
Are decentralized protocols prohibited from providing sure fee stablecoins?
No. Distributed ledger protocols, the operators of distributed ledger protocols, and different decentralized finance actions are explicitly excluded from the definition of “digital asset service supplier.” Nevertheless, the Act requires a examine to be performed by the Secretary that features legislative suggestions on the scope of the time period “digital asset service supplier” and the applying to decentralized finance.
Does the Act regulate peer-to-peer transfers or self-custody of fee stablecoins?
No. The Act doesn’t regulate “the direct switch of digital belongings between 2 people performing on their very own behalf and for lawful functions, with out the involvement of an middleman” or “to any transaction by the use of software program or {hardware} pockets that facilitates a person’s personal custody of digital belongings.”
What’s the Stablecoin Certification Assessment Committee?
The GENIUS Act establishes the “Stablecoin Certification Assessment Committee” (the SCRC) which is comprised of (i) the Secretary (who serves because the Chair); (ii) the Chair of the Federal Reserve (or the Vice Chair for Supervision) and (iii) the Chair of the FDIC. Choices by the SCRC require a two-thirds vote at any assembly or by unanimous written consent. The SCRC is tasked with the next:
- reviewing certifications from the States that State-level regulatory regimes meet the standards for substantial similarity;
- granting approval for a non-financial providers public firm to situation fee stablecoins; and
- offering further steerage, corresponding to interpretive guidelines addressing the prohibition in opposition to non-financial public corporations and the type of preliminary and annual State-level regulatory regime certifications.
One another member of the SCRC additionally should make a advice to the Secretary relating to whether or not a international nation has a regulatory and supervisory regime that’s corresponding to the necessities established underneath the Act.
Does the Act direct any Federal businesses to have interaction in rulemaking, situation studies, or conduct additional research?
Sure. The Act directs the Secretary and the first Federal fee stablecoin regulators, amongst others, to promulgate a sequence of guidelines and steerage and to check or report on quite a few subjects. Collectively, these provisions be sure that the regulatory panorama will proceed to evolve after the chance for additional enter from market contributors.
Do permitted fee stablecoin issuers profit from preemption of State licensing legal guidelines?
In brief, sure, permitted fee stablecoin issuers, whether or not a subsidiary of an IDI, a Federal certified fee stablecoin issuer, or a State certified fee stablecoin issuer, would profit from preemption of State licensing legal guidelines, together with these relevant to cash transmitters.
A subsidiary of an IDI’s or a Federal certified fee stablecoin issuer’s approval to situation fee stablecoins (i.e., topic to the Federal pathway) expressly supersedes and preempts all State licensing necessities.
A State certified fee stablecoin issuer’s approval to situation fee stablecoins (i.e., topic to the State pathway) would additionally expressly supersede and preempt State licensing necessities, aside from the State certified fee stablecoin issuer’s dwelling State legal guidelines. The house State’s legal guidelines relating to a constitution, license, or different authorization to do enterprise nonetheless apply to the State certified fee stablecoin issuer. Nevertheless, because of the certification course of, we might anticipate that the house State regulation relevant to a fee stablecoin issuer working underneath a State pathway would look considerably just like the necessities relevant to Federal certified stablecoin issuers.
Whatever the path to change into a permitted fee stablecoin issuer, the preemption of State licensing legal guidelines is a definite function of the framework established by the GENIUS Act and, relying on the scope of exercise which may be undertaken by permitted fee stablecoin issuers, could possibly be fairly far-reaching with respect to sure State licensing necessities.
Do permitted fee stablecoin issuers profit from preemption of State client safety legal guidelines?
No. State client safety legal guidelines will not be broadly preempted by the GENIUS Act.
There’s, nevertheless, one notable exception: host State legal guidelines regarding client safety are solely relevant to out-of-State State certified fee stablecoin issuers to the identical extent the host State legal guidelines would apply to out-of-State Federal certified fee stablecoin issuers. Due to this fact, to the extent that host State client safety regulation is preempted underneath different regulation with respect to an out-of-State Federal certified fee stablecoin issuer, the host State client safety regulation would even be preempted with respect to the out-of-State State certified fee stablecoin issuer.
As famous above, the GENIUS Act doesn’t have instant effectiveness. As an alternative, the Act takes impact on the sooner of (i) the date that’s 18 months after the enactment of the Act or (ii) the date that’s 120 days after the date on which the first Federal fee stablecoin regulators situation any ultimate rules implementing the Act. The Act additionally features a three-year secure harbor for digital asset service suppliers from the prohibition on providing or promoting fee stablecoins to U.S. individuals “except the fee stablecoin is a permitted fee stablecoin.”
The Act directs the Secretary, main Federal fee stablecoin regulators, and State fee stablecoin regulators to situation, by discover and remark rulemaking, further rules supposed to ascertain a course of and framework for the licensing, regulation, examination, and supervision of permitted fee stablecoin issuers and the issuance of fee stablecoins, together with the licensing and utility course of; course of to authorize international fee stablecoin issuers; capital, liquidity, and danger administration necessities; reserve asset requirements; custody requirements; and BSA/AML and sanctions compliance, amongst different issues. In most situations, rules are required to be promulgated by July 18, 2026, one 12 months following the GENIUS Act’s enactment. Certainly, the Act directs the Federal banking businesses to undergo the Senate Banking Committee and Home Monetary Companies Committee “a report that confirms and describes the rules promulgated to hold out this Act” inside 180 days after enactment of the Act.
Nonetheless, the trade ought to anticipate a prolonged rulemaking course of earlier than ultimate rules are totally phased in (and a few rulemakings, like capital and liquidity necessities, might embrace transition durations earlier than full effectiveness). It’s essential for all market contributors to contemplate the implications of the Act and potential rulemakings on their enterprise fashions as a result of there might be significant alternatives for market contributors to take part in advocacy efforts and the rulemaking course of with each Federal and State regulators and different Federal and State policymakers in shaping the substance of the ultimate guidelines designed to implement the twin Federal-State stablecoin issuance framework in the US.
Please view the whole replace and attachments on the following hyperlink: https://www.gibsondunn.com/the-genius-act-a-new-era-of-stablecoin-regulation/.
Jeffrey Steiner, Jason Cabral, Ro Spaziani, Sara Weed are Companions at Gibson Dunn. Further contributors embrace Paul Yu, Akila Bhargava, Rachel Jackson, Karin Thrasher, Alexis Levine, Simon Moskovitz, and Alice Wang, Affiliate Attorneys on the agency. Alice Wang, an affiliate within the agency’s Washington, D.C. workplace, will not be admitted to apply regulation.
The views, opinions and positions expressed inside all posts are these of the writer(s) alone and don’t signify these of the Program on Company Compliance and Enforcement (PCCE) or of the New York College College of Legislation. PCCE makes no representations as to the accuracy, completeness and validity or any statements made on this web site and won’t be liable any errors, omissions or representations. The copyright of this content material belongs to the writer(s) and any legal responsibility close to infringement of mental property rights stays with the writer(s).
by Jeffrey Steiner, Jason Cabral, Ro Spaziani, and Sara Weed
Left to Proper: Jeffrey Steiner, Jason Cabral, Ro Spaziani, and Sara Weed (Photographs courtesy of the authors)
The Act is probably the most vital United States regulation affecting the digital belongings trade so far and displays the Administration’s and Congress’ priorities of creating a complete framework for the US’ method to digital belongings and associated actions.
On July 18, 2025, the President signed the Guiding and Establishing Nationwide Innovation for U.S. Stablecoins Act (the GENIUS Act or the Act) into regulation. The GENIUS Act is probably the most vital United States regulation affecting the digital belongings trade so far and displays the Administration’s and Congress’ priorities of creating a complete framework for the US’ method to digital belongings and associated actions. The laws, which benefited from sturdy bipartisan assist, was adopted on June 17, 2025 within the U.S. Senate by a vote of 68 to 30, and within the U.S. Home of Representatives by a vote of 308 to 122, on July 17, 2025.
The Act is described as a client safety invoice that establishes Federal safeguards to guard stablecoin holders and improve client confidence within the fee stablecoin market. To attain these ends, the Act establishes a transparent Federal regulatory framework for the issuance of “fee stablecoins,” whereas preserving a pathway for sure State-regulated entities to situation fee stablecoins. The Act additionally supplies restrictions on “digital asset providers suppliers” (e.g., cryptocurrency exchanges) with respect to the supply and sale of sure fee stablecoins. Given its broad scope, each inside the US and extraterritorially, the GENIUS Act is anticipated to have vital impacts on the worldwide cryptocurrency markets, market contributors, and the broader monetary system.
The Act takes impact on the sooner of (i) the date that’s 18 months after the enactment of the Act or (ii) the date that’s 120 days after the date on which the first Federal fee stablecoin regulators situation any ultimate rules implementing the Act. In that regard, the Act directs the Secretary of the Treasury (the Secretary), main Federal fee stablecoin regulators, and State fee stablecoin regulators to situation rules supposed to ascertain a course of and framework for the licensing, regulation, examination, and supervision of permitted fee stablecoin issuers and the issuance of fee stablecoins.
This text, which features a Q&A beneath, covers among the key questions and solutions relating to the provisions and implications of the Act and incorporates a dialogue of the Act’s impacts on State regulation preemption.
What stablecoins are coated?
The GENIUS Act establishes a brand new regulatory framework for “fee stablecoins,” that are outlined as any digital asset that:
- is, or is designed to be, used as a method of fee or settlement, and
- the issuer of which:
- is obligated to transform, redeem, or repurchase for a set quantity of financial worth, not together with a digital asset denominated in a set quantity of financial worth; and
- represents that such issuer will preserve, or create the affordable expectation that it’s going to preserve, a steady worth tied to a set quantity of financial worth.
The definition of “fee stablecoin” doesn’t embrace a digital asset that’s (i) a nationwide forex; (ii) a deposit (together with deposits recorded utilizing distributed ledger expertise); or (iii) a safety. The Act additional clarifies that fee stablecoins will not be securities (underneath the jurisdiction of the U.S. Securities and Alternate Fee (the SEC)) or commodities (underneath the jurisdiction of the Commodity Futures Buying and selling Fee (the CFTC)) and will not be permitted to pay holders yield or curiosity solely in reference to the holding, use, or retention of such fee stablecoins.[1]
Who can situation fee stablecoins?
The GENIUS Act makes it illegal for any particular person aside from a “permitted fee stablecoin issuer” to situation fee stablecoins in the US. A permitted fee stablecoin issuer means a U.S. entity that’s any of the next:
- a subsidiary of insured depository establishments (IDIs), whether or not nationwide or state-chartered, that’s permitted by the mother or father IDI’s main Federal regulator (e.g., the Board of Governors of the Federal Reserve System (the Federal Reserve), the Workplace of the Comptroller of the Forex (the OCC), or the Nationwide Credit score Union Administration or the Federal Deposit Insurance coverage Company (the FDIC)).[2]
- Federal certified fee stablecoin issuers, which embrace the next entities which can be permitted by the OCC to situation fee stablecoins:
- non-bank entities, aside from State-qualified fee stablecoin issuers;
- uninsured nationwide banks; and
- Federal branches of international banks.
- State certified fee stablecoin issuers, that are entities established underneath the legal guidelines of the related State with a consolidated whole excellent fee stablecoin issuance of lower than $10 billion (except a waiver is obtained) that’s not an IDI, subsidiary of an IDI, an uninsured nationwide financial institution, or a Federal department of a international financial institution; offered that the related State’s oversight framework aligns with the certification necessities underneath the Act.
The Act units forth secondary Federal oversight with regard to the State regulatory framework and State certified fee stablecoin issuers. The SCRC (as outlined beneath) is chargeable for approving certifications from State regulators that their State’s regime is considerably just like the Federal regime. The SCRC should unanimously approve or deny such certifications inside 30 days after the State fee stablecoin regulator submits the certification. As well as, the Federal Reserve and the OCC have authority to take enforcement motion in opposition to sure State certified fee stablecoin issuer in uncommon and exigent circumstances (which might be outlined in a future rulemaking).
A public firm (and its wholly or majority-owned subsidiaries) that’s not predominantly engaged in a number of “monetary” actions (as outlined and interpreted underneath Part 4(okay) of the Financial institution Holding Firm Act of 1956 and together with these actions permitted for permitted fee stablecoin issuers and digital asset service suppliers underneath the Act) is usually prohibited from issuing a fee stablecoin except the general public firm receives a unanimous vote from the SCRC guaranteeing specified findings.
What are fee stablecoins issuers permitted to do?
The GENIUS Act limits the actions through which a permitted fee stablecoin issuer might have interaction to the next:
- issuing fee stablecoins;
- redeeming fee stablecoins;
- managing associated reserves, together with buying, promoting, and holding reserve belongings or offering custodial providers for reserve belongings (in line with State and Federal regulation);
- offering custodial or safekeeping providers for fee stablecoins, required reserves, or non-public keys of fee stablecoins; and
- endeavor different actions that straight assist any of the actions set forth above.
As well as, the Act supplies that permitted fee stablecoin issuers will not be prohibited from partaking in fee stablecoin actions or digital asset service supplier actions specified by this Act, and “actions incidental thereto,” which can be approved by the first Federal fee stablecoin regulator or the State fee stablecoin regulator, as relevant.
What are the necessities for fee stablecoin issuers?
Though extra specificity on the necessities for fee stablecoin issuers is anticipated to be applied by regulation, the Act supplies sure key necessities, together with the next:
- permitted fee stablecoin issuers should maintain reserves of U.S. {dollars} or high-quality liquid belongings not less than equal to the whole worth of excellent fee stablecoins (i.e., on not less than a 1:1 backing). The reserves have to be held in segregated accounts and can’t be commingled with belongings of the custodian.
- reserves are restricted to money, financial institution deposits and short-term, low-risk securities (e.g., U.S. Treasuries). Different varieties of belongings corresponding to cryptocurrencies and different securities are prohibited from getting used as reserves.
- reserves can’t be rehypothecated or reused for every other objective—aside from satisfying sure margin obligations, obligations related to custodial providers, or creating liquidity to redeem fee stablecoins in slim circumstances.
- permitted fee stablecoin issuers are anticipated to file month-to-month studies of the composition of reserves that have to be examined by third-party auditors. If a permitted fee stablecoin issuer has greater than $50 billion in consolidated whole excellent issuance (and isn’t a public firm), then it should present annual audited monetary statements which can be filed with regulators and are publicly out there.
Cost stablecoin issuers are designated as “monetary establishments” underneath the Financial institution Secrecy Act due to this fact subjecting them to strong anti-money laundering, buyer due diligence (i.e., know your buyer checks), and transaction monitoring necessities. Cost stablecoin issuers additionally might be required to supply suspicious exercise studies to the Monetary Crimes Enforcement Community (FinCEN) and Workplace of Overseas Asset Controls sanctions compliance.
Lastly, the Act units forth sure danger administration necessities for fee stablecoin issuers, together with necessities across the diversification of the reserve portfolio, capital and liquidity necessities, and stress testing.
Are international entities permitted to situation fee stablecoins in the US?
No. The GENIUS Act makes it illegal for any particular person aside from a permitted fee stablecoin issuer to situation a fee stablecoin in the US. Nevertheless, the Act permits a international fee stablecoin issuer to supply or promote fee stablecoins utilizing a digital asset service supplier if the international fee stablecoin issuer:
- is topic to a comparable non-U.S. regulatory and supervisory regime, as decided by the Secretary upon advice of the members of SCRC;
- registers with the OCC;
- holds reserves in the US adequate to fulfill U.S. buyer liquidity calls for (except in any other case permitted underneath a reciprocity association);
- will not be domiciled or regulated in a jurisdiction that’s topic to complete United States sanctions or is decided by the Secretary to be a jurisdiction of main cash laundering concern; and
- complies with lawful orders to grab, freeze, burn, or forestall the switch of excellent stablecoins.
The requirements for comparability determinations will not be outlined within the Act and the Secretary could make such willpower upon a advice from the opposite members of the SCRC. The Secretary may enter into reciprocal agreements and different agreements with jurisdictions which can be deemed to have comparable fee stablecoin regulatory regimes.
As well as, the Act doesn’t expressly prohibit a international fee stablecoin issuer from establishing a permitted fee stablecoin issuer in the US to situation a fee stablecoin in the US.
What occurs if fee stablecoins will not be issued by permitted fee stablecoin issuers?
If a fee stablecoin will not be issued by a permitted fee stablecoin issuer, then it can’t be (i) handled as money or money equal for accounting functions; (ii) eligible as money or money equal margin or collateral for broker-dealers, swap sellers, and different CFTC and SEC intermediaries; or (iii) accepted as a settlement asset to facilitate wholesale funds between banking organizations.
Does the Act place any limitations on the supply or sale of fee stablecoins within the secondary market?
Sure. The Act supplies that, except a secure harbor is accessible, starting on the date that’s three years after the enactment of the Act, it shall be illegal for a digital asset service supplier to supply or promote fee stablecoins to an individual in the US except the fee stablecoin is issued by a permitted fee stablecoin issuer. Moreover, digital asset service suppliers are prohibited from providing, promoting, or in any other case making out there a fee stablecoin issued by a international fee stablecoin issuer except the international fee stablecoin issuer has the technological functionality to conform, and can comply, with the phrases of any lawful order and reciprocal settlement (as described above).
Underneath the Act, the Secretary may present secure harbors from the prohibition on any particular person aside from a permitted fee stablecoin issuer to situation a fee stablecoin within the U.S.; these secure harbors would then allow digital asset service suppliers to supply or promote that issuer’s fee stablecoins to an individual in the US.
Can permitted fee stablecoin issuers pay curiosity on stablecoins?
No. The GENIUS Act prohibits permitted fee stablecoin issuers and international fee steady issuers from paying the holder of any fee stablecoin any type of curiosity or yield solely in reference to the holding, use, or retention of such fee stablecoin.
Are decentralized protocols prohibited from providing sure fee stablecoins?
No. Distributed ledger protocols, the operators of distributed ledger protocols, and different decentralized finance actions are explicitly excluded from the definition of “digital asset service supplier.” Nevertheless, the Act requires a examine to be performed by the Secretary that features legislative suggestions on the scope of the time period “digital asset service supplier” and the applying to decentralized finance.
Does the Act regulate peer-to-peer transfers or self-custody of fee stablecoins?
No. The Act doesn’t regulate “the direct switch of digital belongings between 2 people performing on their very own behalf and for lawful functions, with out the involvement of an middleman” or “to any transaction by the use of software program or {hardware} pockets that facilitates a person’s personal custody of digital belongings.”
What’s the Stablecoin Certification Assessment Committee?
The GENIUS Act establishes the “Stablecoin Certification Assessment Committee” (the SCRC) which is comprised of (i) the Secretary (who serves because the Chair); (ii) the Chair of the Federal Reserve (or the Vice Chair for Supervision) and (iii) the Chair of the FDIC. Choices by the SCRC require a two-thirds vote at any assembly or by unanimous written consent. The SCRC is tasked with the next:
- reviewing certifications from the States that State-level regulatory regimes meet the standards for substantial similarity;
- granting approval for a non-financial providers public firm to situation fee stablecoins; and
- offering further steerage, corresponding to interpretive guidelines addressing the prohibition in opposition to non-financial public corporations and the type of preliminary and annual State-level regulatory regime certifications.
One another member of the SCRC additionally should make a advice to the Secretary relating to whether or not a international nation has a regulatory and supervisory regime that’s corresponding to the necessities established underneath the Act.
Does the Act direct any Federal businesses to have interaction in rulemaking, situation studies, or conduct additional research?
Sure. The Act directs the Secretary and the first Federal fee stablecoin regulators, amongst others, to promulgate a sequence of guidelines and steerage and to check or report on quite a few subjects. Collectively, these provisions be sure that the regulatory panorama will proceed to evolve after the chance for additional enter from market contributors.
Do permitted fee stablecoin issuers profit from preemption of State licensing legal guidelines?
In brief, sure, permitted fee stablecoin issuers, whether or not a subsidiary of an IDI, a Federal certified fee stablecoin issuer, or a State certified fee stablecoin issuer, would profit from preemption of State licensing legal guidelines, together with these relevant to cash transmitters.
A subsidiary of an IDI’s or a Federal certified fee stablecoin issuer’s approval to situation fee stablecoins (i.e., topic to the Federal pathway) expressly supersedes and preempts all State licensing necessities.
A State certified fee stablecoin issuer’s approval to situation fee stablecoins (i.e., topic to the State pathway) would additionally expressly supersede and preempt State licensing necessities, aside from the State certified fee stablecoin issuer’s dwelling State legal guidelines. The house State’s legal guidelines relating to a constitution, license, or different authorization to do enterprise nonetheless apply to the State certified fee stablecoin issuer. Nevertheless, because of the certification course of, we might anticipate that the house State regulation relevant to a fee stablecoin issuer working underneath a State pathway would look considerably just like the necessities relevant to Federal certified stablecoin issuers.
Whatever the path to change into a permitted fee stablecoin issuer, the preemption of State licensing legal guidelines is a definite function of the framework established by the GENIUS Act and, relying on the scope of exercise which may be undertaken by permitted fee stablecoin issuers, could possibly be fairly far-reaching with respect to sure State licensing necessities.
Do permitted fee stablecoin issuers profit from preemption of State client safety legal guidelines?
No. State client safety legal guidelines will not be broadly preempted by the GENIUS Act.
There’s, nevertheless, one notable exception: host State legal guidelines regarding client safety are solely relevant to out-of-State State certified fee stablecoin issuers to the identical extent the host State legal guidelines would apply to out-of-State Federal certified fee stablecoin issuers. Due to this fact, to the extent that host State client safety regulation is preempted underneath different regulation with respect to an out-of-State Federal certified fee stablecoin issuer, the host State client safety regulation would even be preempted with respect to the out-of-State State certified fee stablecoin issuer.
As famous above, the GENIUS Act doesn’t have instant effectiveness. As an alternative, the Act takes impact on the sooner of (i) the date that’s 18 months after the enactment of the Act or (ii) the date that’s 120 days after the date on which the first Federal fee stablecoin regulators situation any ultimate rules implementing the Act. The Act additionally features a three-year secure harbor for digital asset service suppliers from the prohibition on providing or promoting fee stablecoins to U.S. individuals “except the fee stablecoin is a permitted fee stablecoin.”
The Act directs the Secretary, main Federal fee stablecoin regulators, and State fee stablecoin regulators to situation, by discover and remark rulemaking, further rules supposed to ascertain a course of and framework for the licensing, regulation, examination, and supervision of permitted fee stablecoin issuers and the issuance of fee stablecoins, together with the licensing and utility course of; course of to authorize international fee stablecoin issuers; capital, liquidity, and danger administration necessities; reserve asset requirements; custody requirements; and BSA/AML and sanctions compliance, amongst different issues. In most situations, rules are required to be promulgated by July 18, 2026, one 12 months following the GENIUS Act’s enactment. Certainly, the Act directs the Federal banking businesses to undergo the Senate Banking Committee and Home Monetary Companies Committee “a report that confirms and describes the rules promulgated to hold out this Act” inside 180 days after enactment of the Act.
Nonetheless, the trade ought to anticipate a prolonged rulemaking course of earlier than ultimate rules are totally phased in (and a few rulemakings, like capital and liquidity necessities, might embrace transition durations earlier than full effectiveness). It’s essential for all market contributors to contemplate the implications of the Act and potential rulemakings on their enterprise fashions as a result of there might be significant alternatives for market contributors to take part in advocacy efforts and the rulemaking course of with each Federal and State regulators and different Federal and State policymakers in shaping the substance of the ultimate guidelines designed to implement the twin Federal-State stablecoin issuance framework in the US.
Please view the whole replace and attachments on the following hyperlink: https://www.gibsondunn.com/the-genius-act-a-new-era-of-stablecoin-regulation/.
Jeffrey Steiner, Jason Cabral, Ro Spaziani, Sara Weed are Companions at Gibson Dunn. Further contributors embrace Paul Yu, Akila Bhargava, Rachel Jackson, Karin Thrasher, Alexis Levine, Simon Moskovitz, and Alice Wang, Affiliate Attorneys on the agency. Alice Wang, an affiliate within the agency’s Washington, D.C. workplace, will not be admitted to apply regulation.
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