I. Overview
The US House of Representatives has passed stablecoin legislation as part of “Crypto Week” on Capitol Hill. S. 1582, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS or the Act), passed the US Senate in June and passed the US House of Representatives yesterday (July 17). The bill is expected to be signed into law as early as today (July 18), as the White House has been urging Congress to deliver both GENIUS and the crypto market structure legislation (the CLARITY Act) before the August recess.
GENIUS establishes a clear regulatory framework for the issuance of “payment stablecoins”—digital assets backed by low-risk reserves like cash or Treasuries and designed to maintain a fixed value attached to a national currency, such as the US dollar. Unlike crypto assets that may have speculative value, payment stablecoins are designed to serve as a convenient and cost-effective payment method. This is particularly true for cross-border payments, where payment stablecoins typically have lower transaction fees than do traditional bank transfers. Despite their growing use in the United States, these products have operated with little, if any, direct federal oversight. GENIUS addresses this gap by seeking to prioritize consumer protection, encourage responsible innovation and reinforce the US dollar’s role as the world’s reserve currency.
II. Motivating Policy Concerns
GENIUS aims to address key concerns regarding who may issue stablecoins into the growing stablecoin market:
- Financial stability: The Act addresses financial stability risks by requiring, among other things, that stablecoins be backed by high-quality assets. This set of requirements addresses the concern that, if a stablecoin were backed by risky assets, a loss of confidence could trigger a wave of redemptions (similar to a bank run), potentially leading to a fire sale of reserves and broader market disruption. Critics of the GENIUS today, though, have expressed concern that if a large portion of stablecoin reserves is held in Treasuries, rapid redemptions could force issuers to sell those Treasuries quickly, putting downward pressure on prices and disrupting the Treasury market. To mitigate this risk, GENIUS requires payment stablecoin issuers to hold high-quality reserve assets, safeguard them with qualified custodians, provide monthly reserve disclosures and publish redemption policies. The Act also includes bankruptcy provisions to ensure stablecoin holders have priority claims on reserve assets.
- Cross-border parity: GENIUS also seeks to ensure that foreign issuers are subject to the same rules as US issuers for preventing money laundering, terrorist financing and sanctions violations if they issue stablecoins “in the United States.” Without such requirements, US issuers would have remained at a disadvantage, because they must comply with obligations under the Bank Secrecy Act (BSA) and the Treasury Department’s sanctions regulations, while foreign permitted stablecoin issuers could have accessed US markets without equivalent obligations. The Act includes anti-money laundering (AML) and sanctions compliance provisions that require foreign issuers to meet AML and sanctions compliance requirements before issuing payment stablecoins to holders in the United States.
- Regulatory clarity: GENIUS establishes a coherent framework for the stablecoin market in the United States to facilitate enhanced adoption of digital assets and the growth of the digital asset ecosystem. This framework also aims to attract stablecoin activity to the United States and increase demand for Treasuries by providing clear rules that will make payment stablecoins from US issuers more attractive in the global marketplace and by restricting the use of foreign entity-issued stablecoins in the US market unless they are regulated by a comparable regime.
III. Key Provisions of GENIUS
A. Timing
GENIUS will take effect either 18 months after its passage or 120 days after final regulations are issued—whichever comes first. Regulations implementing the Act must be issued within one year of enactment.
B. Scope and Function
GENIUS prohibits the issuance of payment stablecoins in the United States except by an approved US-based “permitted payment stablecoin issuer” regulated under GENIUS or a registered foreign issuer operating under a comparable regulatory regime and supervised by the Office of the Comptroller of the Currency (OCC). Permitted payment stablecoin issuers are US entities authorized under the Act, which are (1) approved bank subsidiaries, (2) federally approved nonbanks (pursuant to a new process established by the statute) or OCC-chartered uninsured banks or federal branches, or state-chartered issuers approved by state regulators. The Act also controls which payment stablecoins are eligible for secondary market trading in the United States: After three years, unauthorized stablecoins generally may not be offered or sold in the United States by digital asset service providers (digital asset custodians, exchanges, etc.).
These restrictions are intended to ensure that the US stablecoin market will consist of issuers operating under US state and federal supervision and contributing to the US economy through tax obligations and the generation of demand for US Treasuries, and to ensure that US-licensed issuers are not put at a competitive disadvantage vis-à-vis foreign competitors. GENIUS allows for limited exceptions, which are established by the Treasury Secretary and are only applicable to very low or de minimis transaction volumes or in unusual or emergency circumstances.
C. State and Federal Regulatory Pathways
Under GENIUS, permitted issuers may be regulated either at the federal level or under a state regime determined to be substantially similar to the federal framework by federal regulators on the Stablecoin Certification Review Committee. This approach aims to balance state-level flexibility with federal oversight while preventing issuers from engaging in regulatory arbitrage to avoid federal standards that may be perceived as stricter.
Certain issuers are excluded from state regulation: insured depository institutions, OCC-chartered uninsured national banks, federal branches, and large state-qualified issuers with more than $10 billion in outstanding stablecoin issuance, all of which must be regulated under the federal regulatory regime.
For issuers that qualify for state-level oversight, the state payment stablecoin regulator holds primary supervisory, examination and enforcement authority. Federal regulators may intervene in exceptional cases if they determine that the state regulator has failed to act. State regulators may also choose to collaborate with federal regulators under memoranda of understanding, even outside of exigent circumstances. The Act also establishes standards for state-regulated issuers to operate in other states.
D. Becoming a Permitted Issuer
To become a permitted payment stablecoin issuer, an entity must apply to its state or federal regulator, as applicable. Foreign issuers may also register to issue payment stablecoins in the United States if they are regulated under a foreign regime deemed comparable to the US framework by the Treasury Secretary. Applicants are designated as “state qualified payment stablecoin issuers,” “federal qualified payment stablecoin issuers” or “foreign payment stablecoin issuers,” depending on the regime under which they were originally approved. This can differ from the regime under which they are primarily regulated; for example, a large state qualified payment stablecoin issuer with more than $10 billion in outstanding payment stablecoin issuance must be regulated under the federal regulatory regime, despite being originally licensed by a state regulator.
State vs. Federal Qualification Processes
Entities that apply to be state qualified payment stablecoin issuers must apply to a state regulator that has been approved by the Stablecoin Certification Review Committee as having requirements that are substantially similar to those of the federal system.
To become a federal qualified issuer, an entity must follow procedures laid out in GENIUS. The process begins with the applicant identifying its primary federal regulator and submitting an application. The regulator then has 120 days to decide whether to grant the application. An application may be denied only if the applicant’s activities are deemed unsafe or unsound, based on certain factors, such as the issuer’s leadership team, redemption policy and ability to comply with GENIUS requirements. Denials must include a regulator’s written explanation and specific recommendations to improve the application for resubmission. If the regulator fails to render a decision on a complete application within 120 days, the application is automatically approved.
Restriction on Nonfinancial Issuers
Another important restriction applies to issuers that are foreign or public companies not primarily engaged in financial activities. Unless they receive unanimous approval from the Stablecoin Certification Review Committee, such nonfinancial companies are generally ineligible to become permitted issuers. In order for the committee to approve a nonfinancial company to issue payment stablecoins, it must consider heightened standards compared to those applied to other applicants.
This restriction reflects a historic concern about the separation of banking and commerce, which has taken new shape in the digital age. Some concerns with a nonfinancial (i.e., commercial) company entering the financial space are the potential disruption to the nonfinancial activities of the “real economy” and the fear that nonfinancial companies with captive stablecoin issuers may be able to give themselves preferential access to payment services. Because financial markets are vulnerable to disruption, regulators have also long sought to protect the broader economy by prohibiting certain financial and nonfinancial activities from occurring within the same company. (For example, should a bank fail due to a disruption in financial markets, it is preferable that the bank is not simultaneously operating an airline or a hospital.) In our increasingly data-driven economy, there is an additional concern that large commercial companies undertaking financial activities may have an unfair advantage over financial companies due to superior access to consumer data.
Treatment of Foreign Issuers
While foreign issuers that are not licensed in the United States as permitted issuers would ordinarily be prohibited from issuing payment stablecoins or having them traded in the United States, an exception applies for those regulated under foreign regimes deemed comparable to the Act’s framework. The Treasury Secretary, with the approval of all Stablecoin Certification Review Committee members, may designate a foreign regime as sufficiently comparable to the US framework. Foreign issuers under such regimes may issue payment stablecoins in the United States provided that they (1) register with the OCC and consent to reporting, supervision, examination and enforcement required by US regulators; (2) hold reserve assets in US financial institutions sufficient to satisfy any redemption requests from any US payment stablecoin holders; and (3) are not domiciled in jurisdictions that have been determined to be of primary money laundering concern or are subject to an embargo. The OCC will issue additional regulations applicable to these foreign issuers regulated by comparable foreign regimes that register to do business in the United States.
To facilitate technological interoperability with comparable foreign stablecoin regimes, GENIUS directs federal regulators to collaborate with state governments and technology-standards organizations, such as the National Institute of Standards and Technology.
E. Requirements for Permitted Issuers
In order to maintain their status and ability to issue stablecoins, permitted issuers must comply with several requirements: They must maintain high-quality reserve assets, meet their disclosure obligations, and comply with sanctions and AML regulations.
Reserve Assets
Permitted issuers must maintain reserves of certain high-quality, liquid assets backing their outstanding payment stablecoins on a 1:1 basis. This stringent requirement helps ensure payment stablecoins are trusted as a method of payment and can be issued in large volume without creating undue risks to payment stablecoin holders or financial stability.
The approved reserve assets include US currency, deposits at insured depository institutions, short-term Treasuries and overnight short-term Treasury repurchase (“repo”) agreements (or overnight reverse repo agreements in Treasuries, provided that they are tri-party, use a clearing agency or are with a highly creditworthy counterparty). Permitted issuers may also hold as reserve assets any other similarly liquid asset issued by the federal government and approved by their primary federal payment stablecoin regulator, shares in money market funds invested solely in approved reserve assets, or a tokenized version of any of the above except repo and reverse repo agreements. Reserves generally may not be pledged, rehypothecated or reused by issuers.
Finally, permitted issuers are required to publish on a monthly basis on their websites information about the makeup of their reserves, including the total number of outstanding payment stablecoins issued.
Disclosure Obligations
Permitted issuers must disclose their redemption policies, and an issuer’s CEO and CFO must disclose and personally certify a monthly report on the composition of the issuer’s reserve asset holdings. The permitted issuer must also hire an independent public accountant to examine each monthly report before submitting the following month’s report.
Issuers with more than $50 billion in outstanding payment stablecoin issuance must annually publish on their websites and submit to their primary federal payment stablecoin regulators audited financial statements prepared in accordance with Generally Accepted Accounting Principles. Issuers already publishing annual financial statements as public companies (i.e., filing a 10-K) are exempt from this requirement.
AML and Sanctions Compliance
Permitted issuers are subject to the BSA and must comply with requests by their primary regulator for information about their compliance efforts. Foreign issuers must comply with certain lawful US orders, and the Treasury Secretary may publicly designate noncompliant foreign issuers. Moreover, digital asset service providers are prohibited from facilitating transactions in stablecoins from foreign issuers unless such issuers have the technological ability to comply and do comply with such sanctions orders. Foreign issuers can never be eligible to have their payment stablecoins traded in the United States if located in a country of primary money laundering concern or that is subject to comprehensive sanctions.
F. Restrictions on Permitted Issuers
In addition to their affirmative obligations, permitted issuers face certain limitations on their conduct, including:
- Limitations on Stablecoin Activities: Permitted issuers are only allowed to (1) issue, redeem and custody payment stablecoins; (2) manage, custody and secure payment stablecoin reserves; or (3) undertake activities to directly support the above activities.
- Prohibitions on Tying: Permitted issuers are prohibited from requiring customers to purchase other products/services offered by the issuer (or to not use services from a competitor) as a condition of using their services.
- FDIC Coverage: Stablecoins are not backed by federal deposit insurance or subject to share insurance by the National Credit Union Administration (NCUA). Permitted issuers may not represent that stablecoins are backed by the federal government or federal deposit insurance.
- Yield: Permitted issuers are prohibited from offering payments of interest or yield to holders of payment stablecoins solely in connection with their holding of such payment stablecoins.
G. Additional Protections for Stablecoin Holders
Although in large part GENIUS defers to the CLARITY Act on the rules applicable to non-issuers, there are some specific GENIUS rules designed to protect payment stablecoin holders, including:
- Custody: Entities may only engage in custodial and safekeeping services for stablecoin reserves if they are subject to supervision by a primary federal payment stablecoin regulator, a primary financial regulatory agency or certain state supervisors. Custodians are prohibited from commingling customer assets and stablecoin reserves. This provision excludes entities that provide hardware or software to facilitate a customer’s own custody of stablecoins or private keys.
- Custody by Banking Institutions: The Act confirms it shall not be construed as limiting the authority of banks to engage in a range of activities, including providing custodial services for payment stablecoins. Additionally, regulators may not require banks to hold additional regulatory capital for engaging in custodial activities except specifically to mitigate risks inherent in such custody.
- Bankruptcy Protections: Payment stablecoin holders will receive preferential treatment in bankruptcy with respect to the reserves, meaning first priority as to all other claims against an issuer up to the value of the reserves required under GENIUS. The Act also requires a study on the treatment of payment stablecoin issuers in bankruptcy.
H. Allocation of Regulatory Authority
Each issuer is assigned a primary federal payment stablecoin regulator depending on the type of entity: Subsidiaries of insured depository institutions are assigned the appropriate federal banking agency (the Federal Deposit Insurance Corporation (FDIC), the OCC or the Federal Reserve); subsidiaries of insured credit unions are assigned the NCUA; other state-chartered depository institutions are assigned the FDIC, the OCC or the Federal Reserve; and federal qualified payment stablecoin issuers are assigned the OCC.
Each primary federal payment stablecoin regulator may take suspension, prohibition, cease-and-desist and civil money penalty actions against the issuers it regulates and their institution-affiliated parties (such as directors and officers).
I. Rulemaking and Reports to Congress
Permitted issuers will also be required to conform with additional requirements to be issued within one year by the coordinated rulemaking efforts of the Treasury Secretary, each primary federal payment stablecoin regulator and each state regulator. These regulations are to include regulatory capital requirements tailored to the risks associated with payment stablecoins, liquidity and risk management practices for reserves and operational requirements for cybersecurity and sanctions compliance. Regulators must also report to Congress on GENIUS’ implementing regulations within 180 days of the Act becoming effective, and the Treasury Secretary must provide a report on non-payment stablecoins within one year of enactment in collaboration with the Federal Reserve, the OCC, the FDIC, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The primary federal payment stablecoin regulators will also consult with state regulators to create annual reports on the payment stablecoin industry for publication in Financial Stability Oversight Council’s annual report, beginning one year from GENIUS’ enactment date.
IV. Other Crypto Week Legislation: The CLARITY Act
GENIUS focuses narrowly on the issuance of payment stablecoins and the regulation of their issuers. The CLARITY Act, which the House passed alongside GENIUS, addresses the market structure for the listing and trading of digital assets, including the roles of intermediaries and trading platforms, and provides both the SEC and CFTC with regulatory jurisdiction over certain entities, products, and activities.
V. Conclusion
GENIUS provides long-awaited regulatory guidance for the issuance and custody of payment stablecoins and creates a structured path for issuers, banks and custodians to participate in this rapidly growing market. For issuers, depository institutions and custodians, GENIUS presents a timely opportunity to take a leading position in the growing stablecoin market by acting early to meet compliance and operational requirements.
Issuers should assess whether federal or state qualification best aligns with their structure and commercial objectives and begin preparing internal systems to meet GENIUS’ standards for reserve management, disclosures and compliance. Banks are now better positioned to expand into custody and tokenization services, as the Act removes key regulatory hurdles and supports blockchain integration into traditional infrastructure. Custodians, facing new supervisory and operational expectations, should proactively review custody arrangements, segregation protocols and reporting practices. Although it is not the final step in developing a comprehensive digital asset regulatory system, GENIUS plays a foundational role in establishing a coherent legal framework that promotes consumer protection, responsible innovation and the continued strength of the US dollar in the global financial system.1
Exhibit A: Key Definitions in the GENIUS Act
| Term | Description |
|---|---|
| Appropriate Federal Banking Agency | The primary federal agency responsible for overseeing banks, as defined in the Federal Deposit Insurance Act (12 U.S.C. 1813). This means the OCC for any national banking association, any federal branch or agency of a foreign bank, and any federal savings association; the FDIC for any state nonmember-insured bank, any foreign bank having an insured branch, and any state savings association; and the Federal Reserve for any state member bank, foreign bank branches/agencies, uninsured foreign banks, nonfederal lending agencies, IB Act supervisory proceedings, and non-depository bank or savings and loan holding companies. |
| Banking Secrecy Act | The law that creates AML program obligations for financial institutions (31 U.S.C. 5311 et seq.). |
| Digital Asset Service Provider | Any business in the United States exchanging, transferring or providing custodial services for digital assets, or providing financial services related to digital assets issuance. Engagement with distributed ledger protocols, self-custodial software interfaces, validators and decentralized liquidity pools does not fall within the definition. |
| Federal Qualified Payment Stablecoin Issuer | An entity approved to issue payment stablecoins by the OCC under Section 5 of GENIUS. This may include (1) a nonbank entity that is not state qualified, (2) an OCC-chartered or -approved uninsured national bank, and (3) a federal branch approved by the OCC. |
| Payment Stablecoin | A type of digital asset designed to be redeemed for a fixed amount of monetary value relative to a fixed benchmark. The definition excludes digital national currencies, deposits (including tokenized deposits) and securities. GENIUS requires all entities issuing payment stablecoins to US persons to apply to be “permitted payment stablecoin issuers” or to otherwise consent to regulation under GENIUS; the CLARITY Act then refers to payment stablecoins from those approved issuers as “permitted payment stablecoins.” |
| Permitted Payment Stablecoin Issuer | A US-formed entity authorized to issue payment stablecoins under this Act, which is (1) an approved subsidiary of an insured depository institution, (2) a federally approved nonbank entity or OCC-chartered or -approved uninsured national bank or federal branch, or (3) a state-chartered issuer authorized by a state payment stablecoin regulator. |
| Primary Federal Payment Stablecoin Regulator | A federal regulatory authority assigned to each permitted payment stablecoin issuer depending on the issuer’s entity type: for subsidiaries of insured depository institutions, the appropriate federal banking agency under the Federal Deposit Insurance Act; for insured credit unions and their subsidiaries, the NCUA; for other state-chartered depository institutions, the FDIC, the OCC or the Fed; and for federal qualified payment stablecoin issuers, the OCC. |
| Stablecoin Certification Review Committee | The committee that certifies state regulatory regimes as substantially similar to the federal regulatory framework, approves nonfinancial companies as issuers and approves comparable foreign regulatory regimes for foreign issuer eligibility. It consists of the Treasury Secretary, the FDIC Chair and the Federal Reserve Chair (who may delegate to the Vice Chair for Supervision). |