The Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”), which would comprehensively regulate stablecoins in the United States, was adopted by the U.S. Senate on June 17 by a bipartisan 68-30 vote. The legislation must be approved by the House of Representatives and signed the President before it becomes law.
Similar legislation—the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act—is pending in the House. There are some key differences between the two bills, including:
- The GENIUS Act would restrict public companies and companies not domiciled in the United States from issuing payment stablecoins if the company is not predominantly engaged in one or more financial activities. The STABLE Act does not include this limitation.
- Both the GENIUS Act and the STABLE Act contemplate parallel federal and state licensing and regulatory frameworks for payment stablecoin issuers, but the GENIUS Act would require state qualified payment stablecoin issuers to transition to a federal regulator once they reach $10 billion in outstanding issuance.
If some version of these bills ultimately become law, the legislation would create for the first time a comprehensive regulatory regime governing the issuance of payment stablecoins in the United States and providing for the regulation and supervision of payment stablecoin issuers. This summary describes the provisions of the GENIUS Act as adopted by the Senate.
How does the GENIUS Act define a “payment stablecoin”?
The GENIUS Act defines a “payment stablecoin” as a digital asset:
(i) that is, or is designed to be, used as a means of payment or settlement; and
(ii) the issuer of which (a) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value (not including a digital asset denominated in a fixed amount of monetary value), and (b) represents that the issuer will maintain, or create the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value.
However, a “payment stablecoin” would not include:
(i) national currency,
(ii) a bank deposit, or
(iii) a security.
Who would be permitted to issue or offer and sell a payment stablecoin in the United States?
The GENIUS Act would make it unlawful for any person other than the following types of permitted payment stablecoin issuers to issue a payment stablecoin in the United States:
(i) a subsidiary of an insured depository institution that has been approved to issue payment stablecoins.
(ii) a federal qualified payment stablecoin issuer—nonbank entities, uninsured national banks, and federally licensed branches of foreign banks, in each case, that have been approved by the Office of the Comptroller of the Currency (the “OCC”) to issue payment stablecoins.
(iii) a state qualified payment stablecoin issuer—entities established under state law and approved to issue payment stablecoins by a state payment stablecoin regulator. However, uninsured national banks, federally licensed branches of foreign banks, insured depository institutions, and subsidiaries of these types of entities would not be eligible to be state qualified stablecoin issuers.
In addition, beginning three years from the date of enactment of the GENIUS Act, digital asset service providers will be prohibited from offering or selling a payment stablecoin to a person in the United States unless the payment stablecoin is issued by a permitted payment stablecoin issuer. Digital asset service providers will not be permitted to offer, sell, or otherwise make available in the United States a payment stablecoin issued by a foreign payment stablecoin issuer unless the issuer meets certain requirements of the GENIUS Act.
A “digital asset service provider” generally would include any person that, for compensation or profit, engages in the business in the United States (including on behalf of customers or users in the United States) of:
(i) exchanging digital assets for monetary value;
(ii) exchanging digital assets for other digital assets;
(iii) transferring digital assets to a third party;
(iv) acting as a digital asset custodian; or
(v) participating in financial services relating to digital asset issuance.
The GENIUS Act would make it unlawful to market a product in the United States as a payment stablecoin unless the product is issued pursuant to the GENIUS Act.
Would other sales of payment stablecoins be permitted?
The prohibition on issuing and offering and selling payment stablecoins in the United States appears limited to issuers and digital asset service providers and does not appear to limit a privately negotiated transaction involving a seller that is not an issuer or digital asset service provider.
In addition, the GENIUS Act provides that it would not prohibit:
(1) the direct transfer of digital assets between two individuals acting on their own behalf and for their own lawful purposes, without the involvement of an intermediary;
(2) to any transaction involving the receipt of digital assets by an individual between an account owned by the individual in the United States and an account owned by the individual abroad that are offered by the same parent company; or
(3) to any transaction by means of a software or hardware wallet that facilitates an individual's own custody of digital assets.
However, a payment stablecoin that is not issued by a permitted payment stablecoin issuer could not be:
(1) treated as cash or a cash equivalent for accounting purposes;
(2) eligible as cash or a cash equivalent margin and collateral for futures commission merchants, derivative clearing organizations, broker-dealers, registered clearing agencies, and swap dealers; or
(3) acceptable as a settlement asset to facilitate wholesale payments between banking organizations or by a payment infrastructure to facilitate exchange and settlement among banking organizations.
Would the GENIUS Act apply outside the United States?
Yes. Limitations on issuing, offering and selling payment stablecoins are intended to have extraterritorial effect and would prohibit conduct outside the United States involving the offer or sale of a payment stablecoin to a person located in the United States if the transaction would not otherwise comply with the GENIUS Act.
Can payment stablecoins pay interest?
No.
How would insured depository institutions be permitted to issue stablecoins?
Insured depository institutions (including, for purposes of the GENIUS Act, insured credit unions) are not included in the definition of permitted stablecoin issuer. This means that an insured depository institution would not be permitted to directly issue payment stablecoins. However, a subsidiary of an insured depository institution (including a credit union service organization and certain other entities) would be allowed to become a permitted stablecoin issuer by obtaining approval of the appropriate federal banking agency regulator of its parent institution.
How are stablecoins issued by a foreign payment stablecoin issuer treated?
The GENIUS Act would make it unlawful for a payment stablecoin issued by a foreign payment stablecoin issuer to be publicly offered, sold, or otherwise made available for trading in the United States by a digital asset service provider unless the foreign payment stablecoin issuer has the technological capability to comply, and will comply, with the terms of any “lawful order” to seize, freeze, burn, or prevent the transfer of payment stablecoins and any “reciprocal arrangement” between the United States and jurisdictions with a payment stablecoin regulatory regime that is comparable to the requirements established under the GENIUS Act.
A foreign stablecoin issuer will not be permitted to issue payment stablecoins in the United States unless the foreign stablecoin issuer is subject to regulation and supervision that the U.S. Treasury Department has determined is comparable to the regulatory regime applicable under the GENIUS Act, the foreign issuer is registered with the OCC and meets certain additional requirements.
What requirements would the GENIUS Act establish for issuing payment stablecoins?
The GENIUS Act would establish a comprehensive framework governing permitted payment stablecoin issuers.
Reserves
Permitted payment stablecoin issuers would be required to maintain reserves backing outstanding payment stablecoins on a 1:1 basis. Reserves would need to consist of certain permitted high quality, liquid assets, including:
- U.S. currency (including money credited to an account at a Federal Reserve Bank)
- Funds held as demand deposits at an insured depository institution
- Treasury bills, notes or bonds issued with a maturity of 93 days or less or with a remaining maturity of 93 days of less.
- Overnight repurchase agreements (with the permitted payment stablecoin issuer acting as seller) backed by Treasury securities with a maturity of 93 days or less
- Overnight reverse repurchase agreements backed by Treasury securities (any maturity)
- Shares of a registered investment company that invests solely in underlying assets of the type described above that are permissible reserve assets for a permitted payment stablecoin issuer.
A permitted payment stablecoin issuer will also be allowed to hold reserves in the form of any other liquid federal government-issued obligation approved by its primary federal payment stablecoin regulator, in consultation with its state payment stablecoin regulator, if applicable.
Disclosure
Permitted payment stablecoin issuers would be required to publicly disclose their redemption policies and any associated fees.
Each permitted payment stablecoin issuer would also be required publish the monthly composition of its reserves on its website and disclose:
(i) the total number of its outstanding payment stablecoins; and
(ii) the amount and composition of its reserves, including the average tenor and geographic location of custody of each category of reserve instruments.
Prohibition on Encumbrances
Required reserve assets may not be pledged, rehypothecated, or reused by a permitted payment stablecoin issuer, either directly or indirectly, except for certain limited purposes.
Monthly Certification
Each permitted payment stablecoin issuer would be required on a monthly basis to have its previous month-end report examined by a registered public accounting firm. Each month, the Chief Executive Officer and Chief Financial Officer of a permitted payment stablecoin issuer would be required to certify as to the accuracy of its monthly report.
Capital, Liquidity and Risk Management Standards
Federal and state payment stablecoin regulators would be required to issue tailored regulations implementing capital requirements, liquidity standards, reserve asset diversification requirements, and operational, compliance, and information technology risk management principles-based requirements and standards. Federal payment stablecoins regulators would also be permitted to require additional tailored capital buffers.
Anti-Money Laundering and Sanctions
Permitted payment stablecoin issuers will be considered financial institutions for purposes of the Bank Secrecy Act and will be required to comply with laws applicable to a financial institution located in the United States relating to economic sanctions, prevention of money laundering, customer identification, and due diligence, including:
(i) maintenance of an effective anti-money laundering and economic sanctions compliance program, including appropriate risk assessments, verification of sanctions lists, and designation of an officer to supervise the programs;
(ii) retention of appropriate records;
(iii) monitoring and reporting of any suspicious transaction relevant to a possible violation of law or regulation;
(iv) technical capabilities, policies and procedures to block, freeze, and reject specific or impermissible transactions that violate federal or state laws, rules, or regulations;
(v) maintenance of an effective customer identification program, including identification and verification of account holders with the permitted payment stablecoin issuer, high-value transactions, and appropriate enhanced due diligence; and
(vi) maintenance of an effective economic sanctions compliance program, including verification of sanctions lists, consistent with federal law.
Permissible Activities
A permitted payment stablecoin issuer would only be permitted to engage in the following activities:
(i) issuing and redeeming payment stablecoins;
(ii) managing related reserves, including purchasing, selling, and holding reserve assets or providing custodial services for reserve assets;
(iv) providing custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins; and
(v) other activities that directly support any of the activities described above.
In addition, the GENIUS Act provides that it does not limit a permitted payment stablecoin issuer from engaging in payment stablecoin activities or digital asset service provider activities specified by the GENIUS Act, and activities incidental thereto, that are authorized by its primary federal payment stablecoin regulator or the state payment stablecoin regulator, as applicable, consistent with other applicable law, as long as the claims of payment stablecoin holders rank senior to any potential claims of non-stablecoin creditors with respect to reserve assets.
Tying Prohibition
A permitted payment stablecoin issuer would not be permitted to provide services to a customer on the condition that the customer obtain an additional paid product or service from the permitted payment stablecoin issuer, or any of its subsidiaries, or agree to not obtain an additional product or service from a competitor.
Deceptive Practices
Permitted payment stablecoin issuers are prohibited from:
(A) using any combination of terms relating to the United States government, including “United States”, “United States Government”, and “USG” in the name of a payment stablecoin; or
(B) marketing a payment stablecoin in such a way that a reasonable person would perceive the payment stablecoin to be legal tender or issued, guaranteed or approved by the United States government.
This prohibition does not prohibit use of an abbreviation directly relating to the currency to which a payment stablecoin is pegged (such as USD).
Existing laws prohibit misrepresentations related to the existence or extent of deposit insurance provided by the Federal Deposit Insurance Corporation (the “FDIC”).
Audits and reports
The GENIUS Act would require each permitted payment stablecoin issuer that is not a public reporting company under the Securities Exchange Act of 1934 and that has more than $50 billion in consolidated total outstanding issuance to prepare, in accordance with generally accepted accounting principles, an annual financial statement, including disclosure of any related party transactions. The annual financial statement would be required to be audited by a registered public accounting firm in accordance with all applicable auditing standards established by the Public Company Accounting Oversight Board, including those relating to auditor independence, internal controls, and related party transactions. The annual financial statement would need to be made publicly available by the permitted payment stablecoin issuer on its website and submitted to its federal payment stablecoin regulator.
Limitations on Public Companies and Foreign Companies
A public company required to file reports under the Securities Exchange Act that is not predominantly engaged in one or more financial activities as defined for purposes of the Bank Holding Company Act and its wholly or majority owned subsidiaries or affiliates generally would not be permitted to issue a payment stablecoin, subject to a limited exception for companies that have been determined not to pose a risk to the safety and soundness of the United States banking system, the financial stability of the United States, or the Deposit Insurance Fund and that meet certain additional requirements related to data use. A similar prohibition will apply to a company not domiciled in the United States or its territories that is not predominantly engaged in one or more financial activities.
These limitations could restrict certain technology companies from issuing payment stablecoins.
How would the GENIUS Act allocate responsibility between federal and state regulators?
The GENIUS Act would permit an entity with consolidated total outstanding issuance of not more than $10 billion that is eligible to be a state qualified payment stablecoin issuer to elect to be regulated under a state regulatory regime that meets certain requirements and is substantially similar to the federal regulatory framework. In general, entities that would exceed this threshold would need to transition to a federal regulator or cease issuing new stablecoins.
A state would need to initially and annually self-certify that its regulatory regime is substantially similar to the federal regulatory framework in accordance with criteria identified by the U.S. Treasury Department, but a federal Stablecoin Certification Review Committee (comprised of the Secretary of the Treasury (as Chair), the Chair or Vice Chair for Supervision of the Federal Reserve Board and the Chair of the FDIC) could reject a state certification if it determines that the state regulatory regimes does not meet the federal standards.
Would the GENIUS Act preempt state money transmission or consumer protection laws?
The GENIUS Act provides that state licensing laws would be preempted with respect to a federal qualified payment stablecoin issuer or subsidiary of an insured depository institution or credit union that is approved to be a permitted payment stablecoin issuer.
It also provides that a depository institution chartered under the banking laws of a state that has a subsidiary that is a permitted payment stablecoin issuer may engage in the business of money transmission or provide custodial services through the permitted payment stablecoin issuer in any state if the state-chartered depository institution is subject to adequate capital and liquidity standards in its home state that take into account changes in the financial condition and risk profile of the institution, including risks related to uninsured deposits.
The GENIUS Act provides that it does not preempt state consumer protection laws.
Are payment stablecoins government guaranteed?
No, and the GENIUS Act would make it a crime to represent otherwise.
Would payment stablecoins be considered securities or commodities?
No. The GENIUS Act would amend the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934 and the Commodity Exchange Act accordingly. It would also clarify that permitted payment stablecoin issuers are not investment companies.
How would permitted payment stablecoin issuers be supervised?
The GENIUS Act provides that each permitted payment stablecoin issuer that is not a state qualified payment stablecoin issuer with a payment stablecoin with a consolidated total outstanding issuance of less than $10 billion would be subject to supervision and examination by an appropriate primary federal payment stablecoin regulator (e.g., the OCC, the FDIC, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) or the National Credit Union Administration (“NCUA”)). The regulators would be required to the fullest extent possible to avoid duplication of examination activities and reporting requirements, including by using existing reports and other supervisory information. State regulators would have similar examination authority over state qualified payment stablecoin issuers.
How would regulators enforce the GENIUS Act?
The federal payment stablecoin regulators would have enforcement powers that include the ability to suspend or revoke a permitted payment stablecoin issuer’s registration, issue cease and desist orders (including a requirement to take affirmative corrective action), remove a person associated with a permitted stablecoin issuer and prohibit such person from participating in the affairs of the permitted stablecoin issuer, and assess civil money penalties.
State payment stablecoin regulators would have supervisory, examination, and enforcement authority over all State qualified payment stablecoin issuers of such state.
Who would be permitted to hold custody of payment stablecoin reserves and collateral?
A person could only engage in the business of providing custodial or safekeeping services for the payment stablecoin reserve, the payment stablecoins used as collateral, or the private keys used to issue permitted payment stablecoins if the person is subject to supervision or regulation by a primary Federal payment stablecoin regulator, a state bank or credit union supervisor that makes information available to the Federal Reserve Board, the Securities and Exchange Commission (the “SEC”) or the Commodity Futures Trading Commission.
How would payment stablecoin issuers be treated in insolvency proceedings?
The claims of persons holding payment stablecoins issued by the permitted payment stablecoin issuer would have priority over the claims of the permitted payment stablecoin issuer and any other creditor of the permitted payment stablecoin issuer, with respect to required payment stablecoin reserves. If payment stablecoin holders are not able to redeem all outstanding payment stablecoin claims from required payment stablecoin reserves maintained by the permitted payment stablecoin issuer, any remaining claims of persons holding a payment stablecoin issued by the permitted payment stablecoin issuer would have first priority over any other claim, including over any expenses and claims that have priority, to the extent compliance with the GENIUS Act would have required additional reserves to be maintained by the permitted payment stablecoin issuer for payment stablecoin holders.
Will a custodian be required to reflect assets held in custody on its balance sheet?
No. The GENIUS Act provides that the federal banking agencies, the NCUA and the SEC could not require a depository institution, national bank, federal or state credit union, or trust company, or any affiliate thereof—
(1) to include digital assets held in custody that are not owned by the entity as a liability on the financial statement or balance sheet of the entity, including payment stablecoin custody or safekeeping activities; or
(2) to hold in custody or safekeeping regulatory capital against digital assets and reserves backing such assets except as necessary to mitigate against operational risks inherent in custody or safekeeping services, as determined by such regulatory agencies.
When would the GENIUS Act become effective?
If enacted into law, the GENIUS Act would become effective on the earlier of:
(1) the date that is 18 months after the date of enactment; or
(2) the date that is 120 days after the date on which the primary Federal payment stablecoin regulators issue any final regulations implementing the GENIUS Act.
The GENIUS Act requires the Secretary of the Treasury, each primary federal stablecoin regulators and each state stablecoin regulator to coordinate with one another and issue regulations to implement the GENIUS Act within one year of the date of enactment.
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