On July 18, the U.S. Congress enacted the “Guiding and Establishing National Innovation for U.S. Stablecoins Act,” or the “GENIUS Act,” to regulate the issuance and treatment of payment stablecoins, which are digital assets to be used as a means of payment or settlement, issuers of which are obligated to convert, redeem or repurchase for a fixed amount of monetary value. Stablecoins are designed to maintain a stable value relative to a fixed amount of monetary value, but are not considered national currency, deposits, securities or commodities under federal law, and are not (and may not be represented as being) backed or guaranteed by the U.S. Government. The law aims to promote financial stability and innovation for the digital assets while providing regulatory boundaries and definitions for payment stablecoins and their issuers.
The law specifies issuers may apply and be approved to legally issue payment stablecoins. On oversight, the appropriate federal banking agency will approve issuers that are subsidiaries of an insured depository institution, the NCUA will approve issuers that are insured credit unions or their subsidiaries, and the OCC will approve “Federal qualified payment stablecoin issuers” including certain nonbanks and U.S. branches of foreign banks. State agencies may approve and regulate certain state-qualified stablecoin issuers who opt for such regulation, provided such issuers have a total outstanding issuance of not more than $10 billion, provided that the state-level regulatory regime is substantially similar to the federal regulatory framework.
The GENIUS Act requires stablecoin issuers to maintain one-to-one reserves in approved assets and limits their activities to issuance, redemption, management of reserves, and related custodial or safekeeping services.
The GENIUS Act provides for new supervision and enforcement. Permitted payment stablecoin issuers, except certain smaller state issuers, are subject to supervision by their federal regulator and must submit reports. Regulators may suspend or revoke registrations for violations and may initiate cease-and-desist proceedings. Civil and criminal penalties for unapproved issuance of stablecoins include fines up to $1 million per violation and five years’ imprisonment.
The GENIUS Act takes effect on the earlier of 18 months after enactment or 120 days after final regulations are issued by the primary federal payment stablecoin regulators. Barring any safe harbor, no digital asset service provider may offer or sell a payment stablecoin to a person in the U.S., unless the payment stablecoin is issued by a permitted payment stablecoin issuer three years after the date of enactment.
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