A New Era For The Stablecoin Industry: The GENIUS Act

Key Takeaways

• The U.S. House of Representatives passed the GENIUS Act on July 17, clearing it to be signed into law by President Donald J. Trump on July 18. The GENIUS Act is historic legislation that will shape the stablecoin industry's growth in the United States and beyond.

• The GENIUS Act allows a permitted payment stablecoin issuer (PPSI) to issue "payment stablecoins," which are non-interest-bearing stablecoins used as a means of payment or settlement. PPSI status is granted through a bank subsidiary, application to the Office of the Comptroller of the Currency (OCC) (for nonbanks) or a state regulator.

• The GENIUS Act includes consumer protection provisions, such as requirements that PPSIs disclose details about their reserves and redemption policies and that they maintain one-to-one U.S. dollar (USD)-equivalent liquid reserves backing their stablecoins.

• The U.S. Department of the Treasury (Treasury) will lead the efforts to determine the oversight and jurisdiction of foreign stablecoin issuers that wish to operate in the United States.

• The work of implementing the GENIUS Act now shifts to Treasury, the OCC, the other prudential regulators and the states.¹

• At the July 18 bill-signing ceremony, President Trump stated that stablecoins will be used for "ultra-low cost transactions that are cleared and settled in a matter of seconds rather than weeks and months."

• The GENIUS Act brings USD-backed stablecoins into the mainstream financial system as a new method for global money transfers among businesses, institutions, individuals and e-commerce merchants.

• The GENIUS Act will likely have broader effects on the digital asset industry, including in the nascent decentralized finance (DeFi) markets, which rely on stablecoins for liquidity, and in foreign jurisdictions where demand for USD-backed stablecoins is growing.

• The Act positions regulated USD-backed stablecoins to become the premier reserve currency and preferred method of storing and transferring value in the rapidly evolving global digital assets market.

Introduction

On Friday, July 18, President Donald J. Trump signed into law historic legislation to establish a legal framework for the payment stablecoin industry in the United States, S.1582, the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (the GENIUS Act or the Act) (P.L. 119-27). The GENIUS Act creates a regulatory regime, with both the federal prudential regulatory agencies and the states, for payment stablecoin issuers to follow. The sponsor of the Act, Sen. Bill Hagerty, R-Tenn., commented that the GENIUS Act "takes a payment system that was designed in the 1970s out of business. We go into the blockchain – much more efficient, much more effective. Trades that took five or 10 days to clear now can be done almost instantaneously. If you think about the working capital that comes out of the system, the counterparty risk that goes away, the currency risk if you're doing a cross-border transaction – all of that is minimized because of the speed of these transactions."²

The Act requires PPSIs to have a 1-to-1 reserve requirement, strong anti-money laundering programs and consumer protections. It also establishes a pathway for Treasury to determine the ability of foreign issuers to operate in the United States. The Act prohibits certain industries from issuing stablecoins without the approval of a special committee and makes it clear that payment stablecoins are not a security or a commodity. Sen. Tim Scott, R-S.C., Chairman of the Senate Banking, Housing and Urban Affairs Committee, applauded the House's passage of the bill: "For the first time in history, Congress has passed bipartisan digital assets legislation through both the Senate and the House. The GENIUS Act marks a major milestone in securing America's leadership in payments innovation while protecting consumers and strengthening our national security."³

Legislation Summary

The following is a summary of the Act's key provisions, organized by topic with references to the applicable sections of the Act.

Key Definitions

Section 2 of the Act provides a list of defined terms. Notable terms include:

Digital Asset Service Provider: Refers to U.S. businesses that exchange digital assets for monetary value or for other digital assets or that otherwise transfer digital assets to third parties. The term also includes U.S. businesses that act as digital asset custodians and those that participate in financial services relating to digital asset insurance. Excluded from the definition are U.S. businesses that develop, operate or engage in the business of developing ledger protocols or self-custodial software interfaces; validate transactions on or operate a distributed ledger; or participate in a liquidity pool or other similar mechanism for the provision of liquidity for peer-to-peer transactions.⁴

Distributed Ledger: Refers generally to technology in which data is shared across a network that creates a public digital ledger of verified transactions or information among network participants where cryptography is used to link the data to maintain the integrity of the public ledger and execute other functions.⁵

Distributed Ledger Protocol: Refers to any publicly available and accessible executable software deployed to a distributed ledger, such as smart contracts.⁶

Federal Qualified Payment Stablecoin Issuer: Refers to any nonbank entity (other than a state qualified payment stablecoin issuer), uninsured national bank that is chartered by the OCC, and federal branch that is approved by the OCC to issue payment stablecoins.⁷

Foreign Payment Stablecoin Issuer: Refers to any payment stablecoin issuer that is not a "permitted payment stablecoin issuer" (seebelow definition) and is either organized under the law of or domiciled in any jurisdiction outside of the United States, a U.S. territory, Puerto Rico, Guam, American Samoa or the Virgin Islands.⁸

Payment Stablecoin: Refers to a digital asset that is intended to be used as a means of payment or settlement. The payment stablecoin must have a fixed value. For a stablecoin to meet the statutory definition, its issuer must be able to convert the stablecoin to a monetary value – not another stablecoin. The definition also requires the stablecoin issuer to make representations it will maintain the value of the stablecoin relative to a fixed monetary value. The Act excludes from the payment stablecoin definition national currencies, deposits as defined in the Federal Deposit Insurance Act, and securities. ⁹

Permitted Payment Stablecoin Issuer: Under the Act, payment stablecoins may be issued only by a permitted payment stablecoin issuer (PPSI). A PPSI is an entity formed in the United States that meets one of three criteria: (1) the entity is a subsidiary of an insured bank or savings association that has been approved to issue stablecoins under Section 5 of the Act; (2) the entity is a Federal Qualified Payment Stablecoin Issuer (see above definition); or (3) the entity is a State Qualified Payment Stablecoin Issuer (see below definition).¹⁰

Primary Federal Payment Stablecoin Regulator: The Act assigns different entities to be the Primary Federal Payment Stablecoin Regulator based on the entity issuing the payment stablecoins. If the entity is a subsidiary of an insured bank or savings association, the Primary Federal Payment Stablecoin Regulator will be the entity's federal banking agency. If the regulated entity is an insured credit union or its subsidiary, the federal regulator will be the National Credit Union Administration. For state-chartered banks (which are not regulated by a federal banking agency) the stablecoin regulator is the Federal Deposit Insurance Corporation (FDIC), the OCC or the Federal Reserve Board (Board). For any other Federal Qualified Payment Stablecoin Issuer, the regulator is the OCC.¹¹

State Payment Stablecoin Regulators: Refers to the state agency with primary regulatory and supervisory authority over payment stablecoin issuers in that state.¹²

Stablecoin Certification Review Committee: The Act establishes the Stablecoin Certification Review Committee (Review Committee), which will be chaired by the secretary of the Treasury and have at least the Chair of the Board and the Chair of the FDIC as members. The Act tasks the Review Committee with approving or denying certification requests made by issuers and grants the Review Committee limited rulemaking authority to clarify provisions of the Act. The Review Committee must also give accelerated review to issuers from states with stablecoin regulatory regimes that meet certain requirements of the Act.¹³

State Qualified Payment Stablecoin Issuer: Refers to any entity approved by a state payment stablecoin regulator to issue payment stablecoins. The Act excepts from this definition any uninsured national bank chartered by the OCC, a federal branch, an FDIC-insured bank or savings association, or any subsidiary of a national bank, federal branch, or FDIC-insured bank or savings association.¹⁴

Stablecoin Issuers

Sections 3-4 of the Act address requirements for issuers, including:

Issuers. The Act makes it unlawful for anyone to issue a payment stablecoin in the U.S. unless that person is a PPSI.¹⁵ A payment stablecoin that is not issued by a PPSI may not be (1) treated as cash/a cash equivalent for accounting purposes; (2) 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 (3) acceptable as a settlement asset to facilitate wholesale payments or exchange and settlement between banking organizations.¹⁶

Offers or Sales. The Act allows a digital asset service provider to offer and/or sell a payment stablecoin in the U.S. and/or to U.S.-based persons if the provider is either (1) a PPSI or (2) a foreign issuer that has appropriate technical capability and complies with the terms of any lawful U.S. order or "reciprocal arrangement."¹⁷

Penalties for Violations. Persons that issue payment stablecoins in the U.S. or to U.S.-based persons without qualifying as a PPSI face a fine of up to $1 million per violation, up to five years' imprisonment or both.¹⁸ Violations of the Act can be referred to the U.S. Attorney General.¹⁹

Exemptions and Safe Harbor. The Act does not apply to (1) the direct transfer of assets between two individuals without involvement of an intermediary (i.e., peer-to-peer); (2) interaccount transactions between accounts owned by the same individual, if those accounts are offered by the same parent company; or (3) transfers of digital assets between wallets owned and custodied by the same individual.²⁰ Further, the Secretary of the Treasury has discretion to issue limited-scope regulations that (i) can apply to a de minimis volume of transactions or (ii) upon justification to the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services, would respond to unusual and exigent circumstances.²¹

PPSI Limitations. The Act limits the activities of PPSIs to (1) issuing stablecoins, (2) redeeming stablecoins, (3) providing custodial services for stablecoins, (4) managing reserves related to stablecoins and (5) undertaking other activities that directly support the foregoing activities.²²

PPSI Prohibitions. The Act prohibits PPSIs from (1) requiring customers, as a condition of purchasing stablecoins, to obtain additional paid products/services or refrain from obtaining products/services from a competitor; (2) marketing a stablecoin to suggest that it constitutes legal tender, is issued by the U.S., or is guaranteed or approved by the U.S. government; or (3) using any combination of terms relating to the U.S. government in the name of its stablecoin; however, reference to "USD" in the name relating to the currency to which the stablecoin is pegged is permitted.²³

Required Reserves. PPSIs must maintain identifiable reserves backing issued payment stablecoins on a 1-to-1 basis.²⁴ These reserves may be comprised of the following liquid assets (generally considered cash equivalents):

These reserves may not be pledged, rehypothecated or reused by the PPSI, directly or indirectly, unless such use is to (1) satisfy margin obligations in connection with investment in permitted reserves; (2) satisfy obligations associated with use, receipt or provision of custodial services; or (3) create liquidity to meet reasonable requests to redeem stablecoins (in each case subject to certain additional requirements).²⁵

Redemption Policy. PPSIs must publicly disclose their redemption policies, which must be clear and conspicuous and include (1) procedures for timely redemption and (2) all fees associated with the purchase or redemption of payment stablecoins, which cannot be changed without at least seven days' prior notice to consumers.²⁶

Composition of Reserves. On a monthly basis, PPSIs must publish on their websites (1) the total number of outstanding stablecoins issued and (2) the amount and composition of each reserve, including the average tenor and geographic location of each instrument.²⁷

Monthly Certification. The Act requires the monthly report of reserves to be examined by a registered public accounting firm²⁸ and certified for accuracy by the PPSI's CEO or CFO.²⁹ Failure to properly certify these reports carries a fine of up to $1 million (increased to $5 million, if willful) and/or imprisonment of up to 10 years (increased to 20 years, if willful).³⁰

Audited Financials. PPSIs with more than $50 billion in consolidated total outstanding issuance, and not otherwise subject to the reporting requirements under Section 13(a) or 15(d) of the Securities Exchange Act, are required to prepare annual financial statements, audited by a registered public accounting firm.³¹ These audited financial statements must be made available on the PPSI's website and submitted annually to its primary federal payment stablecoin regulator.³²

Treatment Under Bank Secrecy Act (BSA). The Act provides that PPSIs will be considered financial institutions subject to the BSA and all applicable laws, rules, regulations and recordkeeping requirements.³³

Interest Prohibition. The Act prohibits PPSIs and foreign issuers from paying interest to any payment stablecoin holder, if such interest is solely in connection with the holding, use or retention of the stablecoin.³⁴

State-Level Regimes. The Act provides that notwithstanding the federal regulatory framework established under the Act, a state qualified payment stablecoin issuer with a consolidated total outstanding issuance of not more than $10 billion may opt for regulation under a state-level regulatory regime, provided that the state-level regulatory regime is substantially similar to the federal regulatory framework established under the Act.³⁵

Marketing Prohibitions. The Act prohibits PPSIs from marketing a payment stablecoin in the U.S. unless the stablecoin is issued pursuant to the terms of the Act.³⁶ Each violation carries a fine of up to $500,000.³⁷ Additionally, the Act prohibits PPSIs from representing that stablecoins are (1) backed by the full faith and credit of the U.S., (2) guaranteed by the U.S. government, or (3) subject to FDIC or federal share insurance.³⁸ Violations are subject to fines, injunctive relief, or imprisonment (if by an individual).³⁹

Supervision and Enforcement

Sections 5-7 of the Act address oversight of issuers, including:

Application Review. The Act directs the primary federal payment stablecoin regulators to review applications to become a federal qualified payment stablecoin issuer; establish a process and framework for the licensing, regulation, examination and supervision of such entities that prioritizes safety and soundness; issue regulations; and accept applications no later than one year after the enactment of the Act. The Act requires that in evaluating applications, primary federal payment stablecoin regulators consider (1) the applicant's ability to meet the requirements for PPSIsas described in Section 4 of the Act (discussed above); (2) whether an officer or director of the applicant has been convicted of certain felony offenses; (3) the competence, experience and integrity of the officers, directors and principal shareholders of the applicant, its subsidiaries and parent company; (4) whether the applicant's redemption policy meets the standards of the Act; and (5) any other factors established by the primary federal payment stablecoin regulators.⁴⁰

Decisions and Appeals. The Act requires the primary federal payment stablecoin regulators to render a decision on applications no later than 120 days after receiving a substantially complete application and requires them to notify applicants as to whether their application is substantially complete or, if not, what additional information is needed, within 30 days after receiving an application. The Act provides that substantially complete applications can be denied only if the primary federal payment stablecoin regulatorfinds that the applicant's activities would be unsafe or unsound based on the evaluation factors. In the event that an application is denied, the primary federal payment stablecoin regulator must provide the applicant with "written notice explaining the denial with specificity," including all "identified material shortcomings" and "actionable recommendations" to address the shortcomings. If an application is denied, the applicant has 30 days to request an appeal and hearing. The primary federal payment stablecoin regulator is required to issue a final determination on the application within 60 days of the hearing.⁴¹

Safe Harbor for Pending Applications. The Act provides that the primary federal payment stablecoin regulators "may" waive the requirements of the Act for a period "not to exceed 12 months beginning on the effective date of this Act" with respect to qualified applicants that have applications pending as of the effective date. The Act is effective on the earlier of (1) 18 months from July 18, 2025, or (2) 120 days after the date on which the primary federal payment stablecoin regulators issue final regulations implementing the Act. Accordingly, at the discretion of the primary federal payment stablecoin regulators, applicants that file applications before the effective date may be allowed to operate as an issuer for up to 12 months from the effective date while their application is being reviewed.⁴²

Certifications. Within 180 days of an approved application, a PPSI must submit to its applicable federal or state regulator a certification that the PPSI has implemented anti-money laundering and economic sanctions compliance programs that are reasonably designed to prevent the PPSI from facilitating money laundering – in particular, facilitating money laundering for cartels and organizations designated as foreign terrorist organizations. The Act provides that a person who knowingly submits a false certification shall be subject to criminal penalties.⁴³

Supervision. Upon request, permitted federal qualified payment stablecoin issuers must submit reports to the appropriate primary federal payment stablecoin regulator. The reports must address the PPSI's financial condition, systems for monitoring and controlling financial and operating risks, compliance with the Act, and compliance with the BSA and sanctions laws. The Act directs the primary federal payment stablecoin regulatorsto examine such PPSIs to assess the nature of their operations and financial condition; financial, operational, technological and other risks that may pose a threat to the PPSI's safety and soundness or the stability of the U.S. financial system; and the PPSI's systems for monitoring and controlling such risks.⁴⁴

Enforcement. The primary federal payment stablecoin regulator of a PPSI may prohibit a PPSI from issuing payment stablecoins if the regulator determines that the PPSI, or an affiliated party, is or has been in willful or reckless violation of the Act, any regulation or order issued under the Act, or any condition imposed in writing by the primary federal payment stablecoin regulators. In the event of a violation, the primary federal payment stablecoin regulatorsmay order a PPSI to cease and desist from the activity giving rise to a violation, take affirmative action to correct the conditions resulting from any such violation, and remove persons from participating in PPSI activities. The primary federal payment stablecoin regulators may also issue temporary cease and desist orders in the event that a violation or attempted violation of the Act is likely to cause insolvency or significant dissipation of assets or earnings of a PPSI, weaken the condition of the PPSI, or prejudice the interests of its customers.⁴⁵

Penalties. The Act provides for penalties of $100,000 per day for violations related to issuing a stablecoin without approval and material violations of the Act or any applicable regulation or order, as well as additional penalties of $100,000 per day for knowing violations.⁴⁶

State Qualified Payment Stablecoin Issuers. Section 7 of the Act covers state qualified payment stablecoin issuers and provides that a state payment stablecoin regulator shall have supervisory, examination and enforcement authority over all state qualified payment stablecoin issuers of such state and may issue related orders and rules. A state payment stablecoin regulator may enter into an agreement to allow the Board to participate in oversight of state qualified payment stablecoin issuers. The Act requires state payment stablecoin regulators and the Board to share information about state qualified payment stablecoin issuers, including an issuer's initial application and any accompanying documents.⁴⁷

Federal Action Against State Issuers. In the event of "unusual and exigent circumstances," the Act allows the Board or the OCC, upon not less than 48 hours' written notice to a state, to take enforcement action pursuant to a directive against a state qualified payment stablecoin issuer or an institution-affiliated party of such issuer for violations of the Act. The Act requires the Board and OCC to issue rules setting forth the "unusual and exigent circumstances" under which they may take such action. After unusual and exigent circumstances are determined to exist, if the Board or OCC determines that a state qualified payment stablecoin issuer is engaged in activity that constitutes a serious risk to the issuer's financial safety, soundness or stability, they may impose restrictions necessary to address such risk, including limitations on redemptions of payment stablecoins and limiting certain activities of a state qualified payment stablecoin issuer and its holding company, subsidiaries or affiliates. The Act also provides procedures for a state qualified payment stablecoin issuer to appeal such directives.⁴⁸

Host State Laws. The laws of a host state, including consumer protection laws, shall apply to state qualified payment stablecoin issuerswith respect to activities conducted in the host state.⁴⁹

Other Oversight

Sections 12-17 of the Act provide the following additional oversight mechanisms:

Interoperability Standards. The Act requires the primary federal payment stablecoin regulators to work with the National Institute of Standards and Technology, other standards organizations and state regulators to determine if standards are required to promote stablecoin interoperability. The Act grants the federal payment stablecoin regulators rulemaking authority to prescribe any standards it deems necessary. The standards should promote compatibility and interoperability among PPSIs and between PPSIs and the broader digital finance ecosystem.⁵⁰

Rulemaking. The Act sets a one-year deadline for federal payment stablecoin regulators, the Secretary of the Treasury and each state payment stablecoin regulator to coordinate in the promulgation of regulations to carry out the Act. The regulations must be promulgated through notice and comment rulemaking. By Jan. 14, 2026, each federal banking agency must submit reports to the relevant legislative committees confirming and describing the regulations that have been promulgated to carry out the Act.⁵¹

Study on Non-Payment Stablecoins. The Act tasks the Secretary of the Treasury to study and issue a report on non-payment stablecoins. The report must be submitted to the relevant legislative committees no later than July 18, 2026. The report must analyze the risk and benefits of several categories of non-payment stablecoins, who uses non-payment stablecoins, any utilization or potential utilization of non-payment stablecoins, the composition of reserves for non-payment stablecoins, the algorithms used for non-payment stablecoins, the decentralization or governance of non-payment stablecoins, and the clarity and availability of consumer notices for non-payment stablecoins.⁵²

Study on Collateralized Payment Stablecoins. The Act also defines and asks the Secretary of the Treasury to study "endogenously collateralized payment stablecoins," which are payment stablecoins that maintain their fixed value by relying on the collateral value of another digital asset created or maintained by the stablecoin issuer. These differ from payment stablecoins that maintain their value through the reliance on, and a maintained reserve of, monetary value.⁵³

Annual Reports. The Act requires the primary federal payment stablecoin regulators to submit a yearly report to the relevant legislative committees. The report must detail the status of the payment stablecoin industry. The federal regulators are encouraged to consult with state regulators as necessary for the report. The report must include a summary of payment stablecoin trends, the number of approved PPSI applications, the number of rejected PPSI applications and a description of any potential financial stability risks to the broader financial system due to payment stablecoins. The Financial Stability Oversight Council must incorporate the report findings into its annual report.⁵⁴

Bank Institution Authority. The Act provides several exceptions for banking institutions and carves out authority for these institutions to trade in payment stablecoins. Nothing in the Act is to be construed as limiting the authority of any depository institution, federal credit union, state credit union, national bank or trust company. The Act states that these entities should not be limited in (1) accepting or receiving deposits in exchange for digital assets that represent those deposits; (2) using a distributed ledger for recordkeeping or intrabank transfers; or (3) providing custodial services for payment stablecoins, the private keys of payment stablecoins or reserves backing payment stablecoins.⁵⁵

Regulated Entity Activities. The Act authorizes any entity regulated by the primary federal payment stablecoin regulators to engage in payment stablecoin activities and investments. These activities include paying fees to facilitate customer transactions and acting as the principal or agent with respect to any payment stablecoin. The primary federal payment stablecoin regulators are required to review all existing regulations and amend them as necessary to effectuate this.⁵⁶

Capital Requirements. The Act prevents federal regulators from requiring any banking institution to include digital assets held on behalf of customers as balance sheet liabilities or to hold in custody enough capital to back stablecoins held on behalf of the institution's customers. The entities are required to maintain enough capital to mitigate operational risks inherent in custody or safekeeping services, but this amount of capital is to be determined by the appropriate federal or state regulator.⁵⁷

State-Chartered Activities. The Act allows banks or savings associations chartered under state law to engage in the business of money transmission or custodial services through a PPSI subsidiary as long as the state institution meets certain requirements. First, the state entity must have a subsidiary that is a PPSI. Second, the entity must be required by their home state's laws to maintain adequate liquidity and capital as assessed by the home state banking regulator.⁵⁸

Clarifying Amendments. The Act amends several prior acts to explicitly remove payment stablecoins from those acts' definitions of securities. Additionally, the Act removes payment stablecoins from the definition of commodities. The amended acts include the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(18)), the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the Securities Act of 1933 (15 U.S.C. 77(b)(a)(1)), the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(10)), the Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(14)) and the Commodity Exchange Act (7 U.S.C. 1a(9)).⁵⁹

Custody and Redemption Requirements

Sections 10-11 of the Act address custody and redemption requirements, including:

Reserve Custodians. Only certain entities may provide custodial or safekeeping services for a payment stablecoin reserve, payment stablecoins used as collateral, or the private keys used to issue permitted payment stablecoins (collectively, Stablecoin Property).⁶⁰ These include custodians that are subject to supervision or regulation by a primary federal payment stablecoin regulator, a primary financial regulatory agency (as defined under the Dodd-Frank Wall Street Reform and Consumer Protection Act), a state bank supervisor (as defined under the Federal Deposit Insurance Act) or a state credit union supervisor (as defined under the Anti-Money Laundering Act).⁶¹

Custodian Requirements. The Act requires custodians to treat Stablecoin Property as belonging to the customer and take appropriate steps to protect Stablecoin Property from the customers' creditors.⁶² The Act generally prohibits commingling Stablecoin Property.⁶³ However, custodians may commingle Stablecoin Property in certain instances, such as in an omnibus account at certain state- or federal-regulated depository institutions, national banks, or trust companies; in an amount necessary to settle transactions and other incidental costs; or in accordance with any rule or regulation prescribed by a federal payment stablecoin regulator.⁶⁴ If the custodian is an insured depository institution, it may commingle Stablecoin Property in the form of cash on deposit to the extent allowed under federal law.⁶⁵ Custodians must also submit to the applicable federal payment stablecoin regulator information about their business operations and processes to protect customer assets.⁶⁶ The above requirements do not apply to entities that solely provide hardware or software to facilitate a customer's own custody or safekeeping of Stablecoin Property.⁶⁷

Insolvency Priority. In the event of insolvency involving payment stablecoins held by a custodian, the claims of a customer have priority over those of the custodian,⁶⁸ and the claims of the custodian have priority over those of the PPSI.⁶⁹

Foreign Issuers

Section 18 of the Act establishes requirements for foreign issuers, including:

Foreign Issuer Exception. The Act generally prohibits the offer or sale of payment stablecoins in the U.S. by foreign issuers, except for foreign issuers that meet all of the following criteria: (1) the foreign issuer is subject to regulation and supervision by a foreign payment stablecoin regulator of either a foreign country, a U.S. territory, Puerto Rico, Guam, American Samoa or the Virgin Islands that has a payment stablecoin regulatory and supervisory regime that is determined by the Treasury Secretary to be comparable to the regulatory and supervisory regime established under the Act, particularly with respect to the Act's requirements for issuing payment stablecoins; (2) the foreign issuer is registered with the OCC; (3) the foreign issuer holds reserves in a U.S. financial institution sufficient to meet liquidity demands of U.S. customers, unless otherwise permitted under a reciprocal arrangement; and (4) the foreign country in which the foreign issuer is domiciled and regulated is not subject to U.S. sanctions and is not a jurisdiction determined by the Treasury Secretary to be one of primary money laundering concern.⁷⁰

Treasury Secretary Determination. Foreign issuers and foreign payment stablecoin regulators may request a determination from the Treasury Secretary as to whether a foreign country has a regulatory and supervisory regime that is comparable to the requirements established under the Act. If requested, the Treasury Secretary is required to render a decision on such determination no later than 210 days following receipt of a substantially complete determination request. Subsequent to the rendering of a positive determination by the Treasury Secretary, the Treasury Secretary has the ability, upon consultation with the federal payment stablecoin regulators, to rescind its original determination if the Treasury Secretary determines that the regulatory regime of such foreign country is no longer comparable to the requirements established under the Act.⁷¹

Limited Safe Harbor. In the event the Treasury Secretary determines a foreign regulatory regime is no longer comparable to the Act, a digital asset service provider that is engaged in the offer or sale of a payment stablecoin issued by a foreign issuer that is the subject of a rescinded determination will have a limited safe harbor period of 90 days before its offer or sale of such payment stablecoin is determined to violate the Act.⁷²

Registration and Monitoring. A foreign issuer that qualifies for an exception may offer or sell payment stablecoins using a digital asset service provider upon registration with the OCC. Unless otherwise rejected, a foreign issuer registration filed in accordance with the Act is deemed approved 30 days following the OCC's receipt of the registration. Should a foreign issuer registration be rejected by the OCC for reasons specified in the Act, which include whether the foreign issuer presents illicit finance risk or risk to U.S. financial stability, the foreign issuer may appeal the rejection no later than 30 days following receipt.⁷³

Reciprocal Arrangements. The Act gives the Treasury Secretary authority to create and implement reciprocal arrangements or other bilateral agreements between the U.S. and jurisdictions with comparable payment stablecoin regulatory regimes. In determining whether to create and implement such reciprocal arrangements, the Treasury Secretary must consider whether the foreign jurisdiction's payment stablecoin issuer regulatory regime includes requirements similar to those set forth under Section 4(a) of the Act; adequate standards related to anti-money laundering, counter-financing of terrorism and sanctions compliance; and adequate supervisory and enforcement capacity to facilitate international transactions and interoperability with USD-denominated payment stablecoins that are issued overseas.⁷⁴

Anti-Money Laundering and Illicit Finance Requirements

Sections 8-9 of the Act address anti-money laundering and illicit finance requirements, including:

Foreign Issuer Designations. The Act prohibits the issuance of payment stablecoins by foreign issuers unless such an issuer "has the technological capability to comply and complies with the terms of any lawful order."⁷⁵ The Act vests the Secretary of the Treasury with the power to designate a foreign issuer as noncompliant with this requirement and notify them of such noncompliance in writing within 30 days of such designation.⁷⁶ Subject to certain waivers,⁷⁷ if such an issuer does not come into compliance within 30 days from the notice, the secretary of the Treasury must prohibit digital asset service providers from facilitating secondary trading of the issuer's payment stablecoins through notification in the Federal Register.⁷⁸

Penalties. The Act imposes penalties for violations of the prohibitions discussed above, including a civil monetary penalty of not more than $100,000 per violation per day for digital asset service providers and of not more than $1 million per violation per day for foreign issuers.⁷⁹ Issuers have the right to appeal such designations before the U.S. Court of Appeals for the District of Columbia Circuit.⁸⁰

Public Comment. Within 30 days of the Act's enactment, the Act directs the Secretary of the Treasury to seek public comment over a 60-day period "to identify innovative or novel methods, techniques, or strategies that regulated financial institutions use, or have the potential to use, to detect illicit activity, such as money laundering, involving digital assets, including comments with respect to – (1) application program interfaces; (2) artificial intelligence; (3) digital identity verification; and (4) use of blockchain technology and monitoring."⁸¹

Research. The Act requires the Secretary of the Treasury to conduct further research on combating illicit finance. Specifically, the Act requires the U.S. Financial Crimes Enforcement Network (FinCEN) to evaluate and consider the following factors against existing methods, techniques or strategies: (1) improvements in the ability of financial institutions to detect illicit activity involving digital assets; (2) costs to regulated financial institutions; (3) the amount and sensitivity of information that is collected or reviewed; (4) privacy risks associated with the information that is collected or reviewed; (5) operational challenges and efficiency considerations; (6) cybersecurity risks; and (7) effectiveness of methods, techniques or strategies at mitigating illicit finance.⁸²

Risk Assessment. The Act directs the Secretary of the Treasury to conduct a risk assessment on the effectiveness of existing methods and regulatory framework in detecting illicit activity⁸³ and directs FinCEN to conduct a notice and comment rulemaking based on such research and risk assessments.⁸⁴ Additionally, within 180 days of the Act's enactment, the Secretary of the Treasury is required to submit to Congress a report on legislative and regulatory proposals and research and risk assessment findings "to develop and implement novel and innovative methods, techniques, or strategies to detect illicit activity."⁸⁵

Conclusion

The enactment of the GENIUS Act is a watershed moment for the digital assets industry that will have a profound impact on the growth of the stablecoin market; the broader digital assets, financial technology, payments and financial services markets; and other industries in the United States and abroad. The Act is the culmination of more than four years of Congressional hearings, stakeholder engagement and support from the Trump administration to make the stablecoin legal regime a reality. House Financial Services Committee Chairman French Hill, R-Ark., commented following the House's adoption of the bill, "I look forward to President Trump signing GENIUS into law in short order and working with our regulators on implementing this important bill to establish U.S. leadership in this space." The Act will protect stablecoin holders, provide clear rules for stablecoin issuers to continue to innovate, and give regulators a clear directive from Congress to oversee the stablecoin industry.

The focus now shifts to the Treasury Department, the prudential regulators and the states to implement the Act and promulgate rules to meet the statutory deadlines. The GENIUS Act will take time to become effective, and market participants should focus on the rule proposals and regulatory announcements over the next 18 months. With the U.S. crypto regulatory landscape continuing to evolve, BakerHostetler's Digital and Innovative Markets team and Web3 and Digital Assets team are ready and able to assist market participants with their regulatory, public policy and advocacy, litigation, and transactional needs.

Footnotes

1. The Act is effective on the earlier of (1) 18 months from July 18, 2025, or (2) 120 days after the date on which the primary federal payment stablecoin regulators issue final regulations implementing the Act. § 20.

2. ICYMI – Hagerty Joins Kudlow on Fox Business to Discuss GENIUS Act Signing, July 21, 2025, https://www.hagerty.senate.gov/press-releases/2025/07/21/icymi-hagerty-joins-kudlow-on-fox-business-to-discuss-genius-act-signing/.

3. Scott Applauds House Passage of GENIUS Act, July 17, 2025, https://www.banking.senate.gov/newsroom/majority/scott-applauds-house-passage-of-genius-act.

4. § 2(7).

5. § 2(8).

6. § 2(9).

7. § 2(11).

8. § 2(12).

9. § 2(22).

10. § 2(23).

11. § 2(25).

12. § 2(30).

13. § 2(27).

14. § 2(31).

15. § 3(a).

16. § 3(g).

17. § 3(b)(1)-(2), 3(e). Notably, Section 3(b)(1) does not take effect until three years from the date of enactment.

18. § 3(f)(1).

19. § 3(f)(2).

20. § 3(h)(1)(A)-(C).

21. § 3(c).

22. § 4(a)(7).

23. § 4(a)(8)-(9).

24. § 4(a)(1)(A).

25. § 4(a)(2).

26. § 4(a)(1)(B).

27. § 4(a)(1)(C).

28. § 4(a)(3)(A).

29. § 4(a)(3)(B).

30. § 4(a)(3)(C).

31. § 4(a)(10)(A).

32. § 4(a)(10)(B).

33. § 4(a)(5).

34. § 4(a)(11).

35. § 4(c)(1).

36. § 4(e)(3)(A).

37. § 4(e)(3)(B).

38. § 4(e)(1)-(2).

39. § 4(e)(2)(B).

40. § 5(a)-(c).

41. § 5(d)-(e).

42. § 5(f).

43. § 5(h)(i).

44. § 6(a)(2)-(3).

45. § 6(b).

46. § 6(b)(5).

47. § 7(a)-(d).

48. § 7(e).

49. § 7(f).

50. § 12.

51. § 13.

52. § 14(a).

53. § 14(b).

54. § 15.

55. § 16(a).

56. § 16(b).

57. § 16(c).

58. § 16(d).

59. § 17.

60. See generally § 10(a).

61. § 10(a)(1).

62. § 10(b).

63. § 10(c)(1).

64. § 10(c)(2)(A)-(C).

65. § 10(c)(2)(D).

66. § 10(d).

67. § 10(e).

68. § 10(c)(3).

69. § 11(a)(1).

70. § 18(a).

71. § 18(b).

72. § 18(b)(4)(B).

73. § 18(c).

74. § 18(d).

75. § 8(a)(1).

76. § 8(a)(2)(A)-(B); 8(b)(1).

77. § 8(c).

78. § 8(b).

79. § 8(b)(4).

80. § 8(a)(3).

81. § 9(a).

82. § 9(b).

83. § 9(c).

84. § 9(d).

85. § 9(e).

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