The GENIUS Act: A Comprehensive Guide to US Stablecoin Regulation

Defined Term

Payment Stablecoin

Payment Stablecoin

The term ‘‘payment stablecoin’’ means a digital asset:

• Designed to be used as a means of payment or settlement;
• The issuer of which,
  • is obligated to convert, redeem or repurchase for a fixed amount of monetary value; and
  • will maintain a stable value relative to the value of a fixed amount of monetary value; and

• Is not a national currency, deposit or otherwise a security. Sec. 2(22).

Non-Permitted Issuance

A payment stablecoin that is not issued by a permitted payment stablecoin issuer shall not be:

• Treated as cash or as a cash equivalent for accounting purposes;
• Eligible as cash or as a cash equivalent margin and collateral for futures commission merchants, derivative clearing organizations, broker-dealers, registered clearing agencies and swap dealers; or
• 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. Sec. 3(g).

Defined Terms

Permitted Stablecoin Issuers

Permitted Stablecoin Issuer

Permitted payment stablecoin issuers would include a person formed in the U.S. that is:

• A subsidiary of an insured depository institution approved by the primary federal payment stablecoin regulator;
• A federal qualified payment stablecoin issuer (defined below); and
• A state qualified payment stablecoin issuer. Sec. 2(23).

A permitted stablecoin issuer cannot pay payment stablecoin holders any yield or interest. Sec. 4(a)(11).

Foreign issuers may issue stablecoins in certain circumstances. Sec. 18.

Federal Qualified Payment

Stablecoin Issuer

A federal qualified payment stablecoin issuer means:

• A nonbank entity (defined as a person that is not a depository institution or subsidiary of a depository institution);
• An uninsured national bank that is chartered by the OCC and is approved by the OCC to issue stablecoins; and
• A federal branch that is approved by the OCC to issue stablecoins. Sec. 2(11).

State Qualified Payment

Stablecoin Issuer

A state qualified payment stablecoin issuer means an entity that:

• Is legally established under state law and approved by a state regulator to issue payment stablecoins;
• Is not an uninsured national bank, a federal branch, an insured depository institution or a subsidiary of any of these entities. Sec. 2(31).

Dual-Track Framework

State Certification

A stablecoin issuer may opt for a state regulatory regime, and thereby become a State Qualified Payment Stablecoin Issuer, if:

• The issuer’s consolidated total outstanding issuance does not exceed $10 billion; and
• The “Stablecoin Certification Review Committee” determines the state’s regulatory regime meets or exceeds certain standards and requirements. Sec. 4(c).

The Secretary of the Treasury would establish principles for determining whether state regime is “substantially similar” to the federal regulatory framework. Sec. 4(c)(2).

Certification Review Committee

The “Stablecoin Certification Review Committee” would consist of:

• Treasury (as Chair);
• Federal Reserve Board; and
• Federal Deposit Insurance Corporation. Sec. 2(27).

Transition to Federal Oversight

State qualified issuers that exceed $10 billion cap on issuance must transition to GENIUS’s federal framework no later than 360 days after reaching the threshold, administered by the relevant state regulator and federal regulator acting jointly; or obtain a waiver. Sec. 4(d).

Waiver

The primary federal payment stablecoin regulator may issue a waiver to permit a state qualified issuer with an outstanding issuance of more than $10 billion to remain solely supervised by a state regulator. Sec. 4(d)(3).

The stablecoin federal regulator would consider the issuer’s capital and history, as well as the state regulator’s experience and supervisory framework.

Presumptive

Waiver

A state qualified issuer supervised by a state regulator that:

• Has established a prudential regulatory regime for the supervision of digital assets or payment stablecoins before the 90-day period after enactment of the Act; and
• Has approved one or more issuers to issue stablecoins,

Can be presumptively approved for waiver. Sec. 4(d)(3).

Full Reserve Backing

Permissible Reserve Assets

A permitted payment stablecoin issuer shall maintain identifiable reserves backing the outstanding payment stablecoins on at least a 1-to-1 basis, with reserves comprising:

• U.S. currency (including Federal Reserve notes);
• Funds held as demand deposits at insured depository institutions (including foreign branches) or approved foreign institutions;
• Treasury bills, notes or bonds with a remaining maturity of 93 days or less;
• Money received under repurchase agreements, with the issuer acting as the seller of securities and with an overnight maturity, backed by Treasury bills with a maturity date of 93 days or less;
• Reverse repurchase agreements, with the issuer acting as the purchaser with an overnight maturity, collateralized by Treasury notes or bonds on an overnight basis, subject to overcollateralization in line with standard market terms that are:
  • Tri-party;
  • Centrally cleared through clearing agency registered by the SEC; or
  • Bilateral with a counterparty that the issuer has determined to be adequately creditworthy even in the event of severe market stress;

• Securities issued by an investment company registered under Section 8(a) of the Investment Company Act of 1940, or other registered government money market fund;
• Any other similarly liquid federal government-issued assets approved by the primary federal regulator, and in consultation with the state regulator, if applicable; and
• Certain reserve assets in tokenized form, if in compliance with all applicable laws and regulations. Sec. 4(a)(1)(A).

Redemption and Disclosures

Redemption Policy

An issuer must publicly disclose its redemption policy, which shall:

• Establish clear procedures for the timely redemption of stablecoins; and
• Disclose in plain language all fees associated with purchasing or redeeming the stablecoins, provided that fees can only be changed upon seven days’ notice. Sec. 4(a)(1)(B).

Monthly Attestations

An issuer must publish the monthly composition of the issuer’s reserves on the website of the issuer, containing:

• The total number of outstanding payment stablecoins issued by the issuer; and
• The amount and composition of the reserves. Sec. 4(a)(1)(C).

A permitted stablecoin issuer shall, each month, have the information disclosed in the previous month-end report examined by a registered public accounting firm.

Monthly Certification

Each month, the CEO and CFO of the issuer shall submit a certification as to the accuracy of the monthly report. Sec. 4(a)(3).

Annual Financial Statement

A permitted stablecoin issuer with more than $50 billion in consolidated total outstanding issuance (that is not subject to reporting under the Securities Exchange Act of 1934) shall prepare an annual financial statement in accordance with generally accepted accounting principles, performed by a registered public accounting firm. Sec. 4(a)(10).

Capital, Liquidity and Risk Management Requirements

Capital Requirements

The relevant federal or state stablecoin regulator is tasked with setting additional capital and liquidity requirements for issuers, which:

• Are tailored to the business model and risk profile of the issuer;
• Does not exceed requirements that are sufficient to ensure the ongoing operations of the issuer; and
• A federal issuer may also have a capital buffer. Sec. 4(a)(4).

Bank Secrecy Act

A permitted payment stablecoin issuer would be treated as a financial institution for purposes of the Bank Secrecy Act, and would require:

• An anti-money laundering program with an officer to supervise the program:
• Reporting of suspicious transactions;
• Technical capabilities and procedures to block transactions;
• A customer identification program; and
• An economic sanctions program. Sec. 4(a)(5).

Limitation on Activities

A permitted stablecoin issuer may only:

• Issue payment stablecoins;
• Redeem payment stablecoins;
• Manage related services, such as purchasing, selling, holding reserve assets or providing custodial services for reserve assets;
• Provide custodial services for payment stablecoins, required reserves or private keys of stablecoins. Sec. 4(a)(7).

A permitted payment stablecoin issuer may not provide services to a customer on the condition that the customer obtains an additional paid product or service from the permitted payment stablecoin issuer. Sec. 4(a)(8).

Preemption

Federal Qualified Issuers

Subsidiaries of IDIs

The provisions of this section supersede and preempt any state requirement for a charter, license or other authorization to do business with respect to a federal qualified payment stablecoin issuer or subsidiary of an insured depository institution or credit union that is approved under this section to be a permitted payment stablecoin issuer.

Nothing in this subsection shall preempt or supersede the authority of a state to charter, license, supervise or regulate an insured depository institution or credit union chartered in such state or to supervise a subsidiary of such insured depository institution or credit union that is approved under this section to be a permitted payment stablecoin issuer. Sec. 5(h).

Host State Law

Notwithstanding any other provision of law, the laws of a host state, including laws relating to consumer protection, shall only apply to the activities conducted in the host state by an out-of-state state qualified payment stablecoin issuer to the same extent as such laws apply to the activities conducted in the host state by an out-of-state federal qualified payment stablecoin issuer. Sec. 7(f)(1).

Home State Law

If any host state law is determined not to apply under paragraph (1), the laws of the home state of the state qualified payment stablecoin issuer shall govern the activities of the permitted payment stablecoin issuer conducted in the host state. Sec. 7(f)(2).

State-Chartered Depository Institutions

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 such state-chartered depository institution is:

• Required by the laws or regulations of the home state to establish and maintain adequate liquidity, and such liquidity is regularly reassessed by the home state banking supervisor to take into account any changes in the financial condition and risk profile of the institution, including any uninsured deposits maintained by such institution; and
• Required by the laws or regulations of the home state to establish and maintain adequate capital, and such capital is regularly reassessed by the home state banking supervisor to take into account any changes in the financial condition and risk profile of the institution, including any uninsured deposits maintained by such institution. Sec. 16(d).

Exception for Foreign Issuers

Exception From General Prohibition

Foreign issuers may issue stablecoins in the U.S., and digital asset service providers may offer or sell such issuer’s payment stablecoin, if the foreign issuer:

• Is subject to regulation and supervision by a foreign regulator that the U.S. Treasury determines is comparable to the regulatory and supervisory regime under GENIUS, and only upon the recommendation from each other member of the Stablecoin Certification Review Committee;
• Is registered with the OCC;
• Holds reserves in a U.S. financial institution sufficient to meet liquidity demands of U.S. customers; and
• The foreign jurisdiction in which the issuer is based is not subject to comprehensive economic sanctions. Sec.18(a).

Timing for Treasury Determination

The Secretary of the Treasury would make a determination as to whether a foreign country has a regime that is comparable to the GENIUS Act. Sec.18(b)(1).

If a foreign issuer or regulator requests a determination, the Treasury shall render a decision no later than 210 days after the request. Sec.18(b)(3).

Foreign Registration

A foreign payment stablecoin issuer may offer or sell payment stablecoins using a digital asset service provider if the foreign payment stablecoin issuer is registered with the OCC. Sec.18(c).

Registration of a foreign issuer shall be deemed approved on the date that is 30 days after the date the OCC receives the registration, unless rejected.

A foreign issuer is subject to reporting, supervision and examination by the OCC, and consents to U.S. jurisdiction for enforcement.

Certain Restrictions

Non-Financial Public Companies

A public company that is not predominantly engaged in one or more financial activities (and any of its wholly or majority owned subsidiaries or affiliates) may not issue a payment stablecoin, unless the public company obtains a unanimous vote of the Stablecoin Certification Review Committee finding:

• The company will not pose a material risk to the safety and soundness of the U.S. banking system, the financial stability of the U.S. or the Deposit Insurance Fund;
• The company will comply with data use limitations (unless the public company receives consent from the customer); and
• The public company and its affiliates will comply with prohibitions against tying (issuer cannot require an additional paid product). Sec. 4(a)(12).

Within one year of enactment, the Stablecoin Certification Review Committee must issue an interpretive rule clarifying this paragraph.

Bankruptcy Treatment

Reserves Excluded from the Bankruptcy Estate

Section 541(b)(11) of the Bankruptcy Code, as amended by Section 11(e) of the GENIUS Act, provides that required payment stablecoin reserves are not property of the issuer’s bankruptcy estate. Sec. 11(e).

However, the Act clarifies that the automatic stay under Section 362 of the Bankruptcy Code still applies to these reserves, preventing unauthorized or premature distributions without court oversight.

Super Priority for Stablecoin Holders in Reserve Deficiency

If there is a shortfall in reserves, that is, if a stablecoin holder cannot redeem all of their stablecoin claims from the issuer’s reserves, the GENIUS Act creates a novel super priority claim for the shortfall amount. Specifically, Section 507(e) of the Bankruptcy Code, as added by Section 11(d) of the GENIUS Act, provides that any such remaining claim by a holder of a permitted payment stablecoin shall have first priority over all other claims, including expenses and administrative claims that traditionally enjoy top priority under the Bankruptcy Code. This priority is limited to the extent the issuer failed to maintain reserves required under Section 4 of the Act. Sec. 11(d).

Effective Dates and Rulemaking Process

Effective Date of Act

The GENIUS Act becomes effective on the earlier of:

• 18 months after the date of enactment, or
• 120 days after the date on which a primary federal payment stablecoin regulator issues final implementing regulations. Sec. 20(a)(1)-(2).

Effective Date of Stablecoin Issuance

Prohibitions

The Act also imposes staggered prohibitions on stablecoin issuance, with separate timelines for U.S. and foreign issuers:

• U.S. Issuers. The prohibition on issuing payment stablecoins without being a permitted stablecoin issuer takes effect three years after the date of enactment. Sec. 3(b)(1).
• Foreign Issuers. The prohibition on foreign issuers offering or selling payment stablecoins in the U.S. (absent compliance with Section 18) becomes effective immediately upon the Act’s effective date. Sec. 3(b)(2).

Rulemaking Timeline

Federal and state regulators are directed to undertake substantial rulemaking to implement the Act.

Specifically, each primary federal payment stablecoin regulator, the Secretary of the Treasury and each state regulator must promulgate regulations “as appropriate” through notice-and-comment rulemaking within one year of enactment. Sec. 13(a).

Congressional Reporting Requirement

To ensure oversight, the Act requires each federal banking agency to submit a report to the Senate Committee on Banking, Housing and Urban Affairs that:

• Describes the rules it has promulgated under the Act; and
• Confirms the agency’s implementation of its rulemaking obligations.

This report must be submitted within 180 days of enactment. Sec. 13(c).

Interoperability Standards

Interoperability

The primary federal payment stablecoin regulators, in consultation with the National Institute of Standards and Technology, other relevant standard-setting organizations, and state bank and credit union regulators, shall assess and, if necessary, may prescribe standards for permitted payment stablecoin issuers to promote compatibility and interoperability with:

• Other permitted payment stablecoin issuers; and
• The broader digital finance ecosystem, including accepted communications protocols and blockchains, permissioned or public. Sec. 12.