OCC Finalizes GENIUS Act Stablecoin Rule, SEC Staff Releases Innovation Exemption FAQs, and CFTC and SEC Officials Discuss AI

The OCC issued its final rule implementing the GENIUS Act regarding the issuance of payment stablecoins and certain related activities by entities subject to the OCC’s jurisdiction. The rule also implements the Act’s ban on stablecoin issuers paying holders interest or yield “solely in connection with the holding, use, or retention” of a payment stablecoin. However, the OCC dropped a proposed rebuttable presumption that would have treated certain arrangements between issuers and their affiliates or related third parties as prohibited yield payments.

SEC Division of Trading and Markets staff released FAQs on the Innovation Exemption, which grants conditional relief for certain distributed ledger trading venues and liquidity providers for tokenized NMS stocks. The SEC Division of Examinations released its fiscal year 2027 examination priorities, which include risks from tokenization. CFTC Chairman Michael Selig said the agency is building its own in-house AI for enforcement and monitoring. Brian Daly, Director of the SEC’s Division of Investment Management, urged advisers and fund sponsors to use AI responsibly and not to wait for regulatory guidance. The SEC also announced a roundtable on machine-understandable data and super intelligence.

In Illinois, the rules implementing the state’s Digital Assets and Consumer Protection Act include a new definition of “control.” The definition makes clear that a company’s ability to block transactions in response to fraud or unauthorized activity does not, by itself, give it control. In prediction market developments, a platform sued Ohio officials to block threatened enforcement of the state’s gambling laws, and Utah sued a platform and its market makers, alleging that its event contracts are illegal gambling under Utah law.

Regulatory Updates

OCC Releases Final Stablecoin Rule to Implement GENIUS Act

• On Oct. 21, the OCC issued its final rule to implement the GENIUS Act regarding the issuance of payment stablecoins and certain related activities by entities subject to the OCC’s jurisdiction.
  • Effective Date. The final rule will be effective on Jan. 18, 2027.
  • Stablecoin Yield. The final rule implements the GENIUS Act’s ban on stablecoin issuers paying holders interest or yield “solely in connection with the holding, use, or retention” of a payment stablecoin. However, the OCC dropped a proposed rebuttable presumption that would have treated certain arrangements with affiliates or related third parties as prohibited yield payments.
  • Capital Requirements. Issuers must keep at least $5 million in capital as a financial cushion to absorb losses. They must also set aside a separate pool of highly liquid assets, such as cash and short-term U.S. Treasuries, called an “operational backstop” to cover 12 months of total expenses so they can keep running through a business disruption. Uninsured national trust banks can ask the OCC for permission to follow these rules instead of the standard bank capital rules, whether or not they issue stablecoins. This option may be less attractive to some trust banks, since the 12-month backstop is roughly double the six months of operating expenses the OCC has required in recent conditional approvals for national trust banks.
  • Waivers and Applications for Existing Issuers. The OCC also issued a bulletin on how existing stablecoin issuers can request a waiver to continue issuing payment stablecoins and apply to become a permitted payment stablecoin issuer. The OCC generally expects to grant waivers that allow existing U.S. issuers to keep issuing while their applications are pending. The OCC has not yet begun accepting applications or waiver requests.

SEC Releases Innovation Exemption FAQs

• On Oct. 21, the SEC Division of Trading and Markets staff released FAQs on the Innovation Exemption, which grants conditional exemptive relief from the definition of “exchange” for certain distributed ledger trading venues for tokenized NMS stocks and from the definition of "dealer” for certain liquidity providers in tokenized NMS stocks.
  • Publishing Notice 30 Days Before Operating. Asked when a “Tokenized Securities Venue” (TSV) must publish its notice, the staff said a TSV must publish a notice prominently on its publicly available website, containing the disclosures required by the Order, at least 30 calendar days before it begins operations. The public notice must be in plain English and be clear, concise and understandable.
  • Identifying Tokenized NMS Stocks During the Objection Period. The staff stated that a TSV must identify in its public notice the tokenized NMS stocks, non-security crypto assets and tokenized money market funds that it makes available for trading in pairs with a tokenized NMS stock. Because a TSV cannot operate or trade tokenized NMS stocks before the end of the 30-calendar-day public notice period, it can list in its public notice the tokenized NMS stocks for which it has provided issuer notice and indicate that the objection period for that issuer notice is still pending.
  • Current List of Notified TSV Operators. The SEC publishes a list of persons that have notified the SEC in writing that they intend to operate under the TSV Exemption. 

SEC Announces Fiscal Year 2027 Examination Priorities

• On Oct. 23, the SEC Division of Examinations released its fiscal year 2027 examination priorities, which include risks from evolving market infrastructure such as tokenization. Examinations of clearing agencies will focus on high-risk areas, including tokenization, and examinations under Regulation Systems Compliance and Integrity (SCI) will focus on emerging trends, including tokenization of securities. The Regulation SCI focus also covers super intelligence, extended trading hours and quantum computing.

CFTC and SEC Officials Discuss AI Use

• On Oct. 20, at the Securities Industry and Financial Markets Association (SIFMA) Annual Meeting, CFTC Chairman Michael Selig said the agency is building its own in-house AI for enforcement and monitoring, in addition to Claude and Copilot software, which agency staff already use. He also said AI tools cannot replace agency staff and that the CFTC is “building up staffing.”
• On Oct. 16, Brian Daly, Director of the SEC’s Division of Investment Management, urged advisers and fund sponsors to use AI responsibly and not to wait for regulatory guidance, which he said may be “too limited and too late.” He invited advisers to contact the SEC about specific laws, regulations or SEC staff positions that prevent them from using AI tools.

SEC to Hold Roundtable on Machine-Understandable Data and Super Intelligence

• On Oct. 19, the SEC announced it will hold a roundtable titled “Machine-Understandable Data in the Age of Super Intelligence (SI)” on Nov. 9. The panels will explore how market participants use SI and machine-understandable data, the associated risks and costs, and ways the SEC can further support and enhance the use of these technologies. Chairman Paul Atkins will give closing remarks.

Additional Updates

Illinois Advances DACPA Implementing Rules With New ‘Control’ Definition

• The Illinois rules implementing the Digital Assets and Consumer Protection Act (DACPA), which were reviewed by the state’s Joint Committee on Administrative Rules on Oct. 20, include a new definition of “control.” The rules define control of a digital asset as the “power to execute unilaterally or prevent indefinitely a digital asset transaction, unless the power to prevent indefinitely is limited to the ability to terminate, suspend, or interrupt a transaction solely in response to unauthorized or fraudulent activity.”
• The carve-out is similar to language in Delaware’s money transmission and virtual currency statute. It clarifies that a company’s ability to block transactions in response to fraud or unauthorized activity does not, by itself, give it control.
• If adopted as drafted, the rules would allow businesses active in Illinois before Nov. 1 to continue operating while their registration applications are pending, provided they apply by July 1, 2027.

Prediction Market Updates

• On Oct. 16, a prediction markets platform filed a lawsuit in federal court against the Ohio Attorney General and Ohio Casino Control Commission officials, seeking declaratory and injunctive relief to block threatened enforcement under the state’s gambling laws. The suit follows an Oct. 2 cease-and-desist letter in which the Commission demanded that the platform stop offering sports event contracts to people in Ohio without a state license. The platform argues that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event contracts traded on CFTC-regulated exchanges, which preempts Ohio law, and that Ohio’s licensing regime violates the Commerce Clause.
• On Oct. 20, Utah filed a lawsuit against a prediction markets platform and its market makers for offering event contracts that it alleges are illegal gambling under Utah law. In the complaint, Utah Attorney General Derek Brown said the platform “plays the same role as a traditional sportsbook” and asked the court to block the company from offering event contracts related to sports, politics, elections, culture or mentions in Utah. The state also seeks damages, restitution and disgorgement of profits.
• The criminal trial of a U.S. Army soldier who prosecutors say used confidential information about the capture of then-Venezuelan leader Nicolás Maduro to bet on it through a prediction markets platform is set to begin in early December, but the defense has moved to dismiss the indictment, arguing that a prediction market bet is not a “swap” and therefore cannot be prosecuted under the Commodity Exchange Act.