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On October 16, Federal Reserve Governor Michael Barr delivered remarks highlighting the significant implementation gaps regulators must bridge under the GENIUS Act, the newly enacted federal framework for payment stablecoins (previously discussed here).Barr's comments centered on areas where the statute leaves critical details to regulators, including reserve composition, supervisory authority, and consumer safeguards, which will determine whether the framework effectively mitigates systemic and operational risks.
Barr identified several areas requiring close regulatory coordination to ensure the framework functions as intended:
- Reserve asset oversight. Although the act limits permissible reserve assets to highly liquid instruments, as drafted, the act may permit holdings such as uninsured deposits and foreign-currency or digital-asset repos to back stablecoin deposits, which may expose issuers (and thus depositors) to losses during market stress.
- Supervisory consistency. Because multiple federal and state regulators are authorized to charter and oversee issuers, inconsistent interpretations could invite regulatory arbitrage and uneven enforcement.
- Expanded issuer activities. Despite the act's requirement that state stablecoin oversight frameworks be substantially similar to the federal framework, the act allows stablecoin issuers to engage in certain digital-asset and related financial activities beyond issuance, which could introduce new operational and prudential risks if federal and state regulators do not carefully coordinate to ensure uniformity in oversight standards.
- Capital and consolidation gaps. Barr warns that the act's broad scope for permissible activities for stablecoin issuers could allow bank-affiliated issuers to take on significant risk outside traditional banking oversight structures. Because the act exempts bank-affiliate issuers from consolidated capital requirements, such issuers could engage in risky stablecoin activities without holding capital against those risks at the consolidated level.
- Consumer protection shortfalls. The act excludes certain digital tokens that function like payment stablecoins but fall outside the act's legal definitionand does not extend fraud or error-resolution protections equivalent to those applicable to traditional payment systems. Barr argues this could create confusion and lead consumers to rely on payment instruments they believe are regulated, even though those products lack any prudential safeguards.
Putting It Into Practice: Overall, Barr's remarks indicate that the GENIUS Act's success will depend on coordinated rulemaking efforts of state regulators rather than statutory design. Stablecoin issuers and bank–fintech partners should monitor forthcoming guidance on reserve standards, capital treatment, and consumer protections, as these rules will shape compliance obligations and supervisory expectations. Entities offering payment tokens outside the act's scope should reassess disclosures and risk frameworks to avoid consumer confusion and regulatory scrutiny.
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