Implications of the GENIUS Act for issuers of stablecoins, banks, and custodians
The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) is a groundbreaking piece of legislation that sets the first comprehensive federal regulatory framework for "payment stablecoins" - digital assets pegged to fiat currency values for payment or settlement purposes.
The key provisions of the GENIUS Act include requiring stablecoins to be backed 1:1 with high-quality liquid assets such as U.S. dollars or short-term Treasuries, and for issuers to publish monthly reserve breakdowns and undergo monthly audits. Other provisions include marketing restrictions, consumer protection measures, and eligibility and compliance requirements for issuers.
The regulatory framework established by the GENIUS Act includes a dual oversight system, with both federal and state oversight, and the requirement for companies issuing stablecoins to either obtain a federal license or comply with a qualifying state regime that meets baseline federal standards. Payment stablecoin issuers are also designated as financial institutions subject to the Bank Secrecy Act.
The objectives of the GENIUS Act are to protect consumers by ensuring that stablecoins are backed by sufficient reserves and that issuers operate transparently, maintain financial stability by imposing rigorous banking-like standards, and provide regulatory clarity and uniformity by establishing a unified national framework while allowing for state regulatory flexibility.
The GENIUS Act aims to address concerns regarding financial stability, cross-border parity, and regulatory clarity in the stablecoin market. It also seeks to prevent money laundering, terrorist financing, and sanctions violations by foreign issuers if they issue stablecoins in the United States.
The bill includes bankruptcy provisions to ensure stablecoin holders have priority claims on reserve assets, and prohibits digital asset service providers from facilitating transactions in stablecoins from foreign issuers unless such issuers have the technological ability to comply and do comply with certain lawful U.S. orders.
The US House of Representatives has passed the GENIUS Act, and it is expected to be signed into law as early as July 18, 2022. The bill 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.
Under the GENIUS Act, permitted issuers are required to hold high-quality reserve assets, safeguard them with qualified custodians, provide monthly reserve disclosures, and publish redemption policies. Issuers with more than $50 billion in outstanding payment stablecoin issuance must annually publish audited financial statements prepared in accordance with Generally Accepted Accounting Principles. The CEO and CFO of permitted issuers must personally certify the monthly report on the composition of their reserve asset holdings.
Payment stablecoins are designed to serve as a convenient and cost-effective payment method, particularly for cross-border payments. Issuers are required to publish monthly information about the makeup of their reserves on their websites. Reserves generally may not be pledged, rehypothecated or reused by issuers, and permitted issuers are subject to the Bank Secrecy Act and must comply with requests by their primary regulator for information about their compliance efforts.
Overall, the GENIUS Act is designed to foster innovation in the stablecoin sector while ensuring robust consumer protections and maintaining financial stability.
- The GENIUS Act establishes a federal regulatory framework for payment stablecoins, which are digital assets pegged to fiat currency values for payment or settlement purposes.
- High-quality liquid assets, such as U.S. dollars or short-term Treasuries, will be required to back stablecoins on a 1:1 basis.
- Issuers will be required to publish monthly reserve breakdowns and undergo monthly audits.
- The bill includes marketing restrictions, consumer protection measures, and eligibility and compliance requirements for issuers.
- A dual oversight system will be put in place, with both federal and state oversight.
- Issuers must obtain a federal license or comply with a qualifying state regime that meets baseline federal standards.
- Payment stablecoin issuers will be subject to the Bank Secrecy Act.
- The objective is to protect consumers and maintain financial stability through rigorous banking-like standards.
- The GENIUS Act aims to address concerns regarding financial stability, cross-border parity, and regulatory clarity in the stablecoin market.
- It seeks to prevent money laundering, terrorist financing, and sanctions violations by foreign issuers.
- Stablecoin holders will have priority claims on reserve assets during bankruptcy proceedings.
- Digital asset service providers are prohibited from facilitating transactions in stablecoins from foreign issuers unless certain conditions are met.
- Issuers are required to hold high-quality reserve assets and safeguard them with qualified custodians.
- Reserves may not be pledged, rehypothecated, or reused by issuers.
- Issuers with more than $50 billion in outstanding payment stablecoin issuance must annually publish audited financial statements.
- The CEO and CFO of permitted issuers must personally certify the monthly report on the composition of their reserve asset holdings.
- Payment stablecoins are intended to serve as a convenient and cost-effective payment method, particularly for cross-border payments.
- Regulations implementing the GENIUS Act must be issued within one year of enactment.
- The GENIUS Act is designed to foster innovation in the stablecoin sector while ensuring robust consumer protections and maintaining financial stability.
- The bill is expected to be signed into law as early as July 18, 2022, and will take effect either 18 months after its passage or 120 days after final regulations are issued, whichever comes first.
