Key Takeaways
- The GENIUS Act, which recently passed in the U.S. Senate, would establish regulation surrounding "payment stablecoins."
- The Act defines what entities are permitted to issue and redeem stablecoins, manage related services, provide custodial/safekeeping services, and more.
- While federally regulated banking institutions and credit unions would be able to engage in stablecoin-related activities, there are restrictions on both foreign issuers and certain public companies.
- Stablecoin issuers and custodians would need to adhere to stringent requirements from existing and emerging federal and state regulatory bodies.
- As the GENIUS Act moves to the House of Representatives, it is important to monitor new developments in this area.
Overview
The U.S. Senate passed the Guiding and Establishing National Innovation for U.S. Stablecoins Act or GENIUS Act (S.1582) (the Act) in a 68-30 bipartisan vote on June 17, 2025. The GENIUS Act would provide a clear regulatory framework for the issuance of "payment stablecoins," a subset of stablecoins which are designed for payment or settlement and for which the issuer is obligated to convert, redeem, or repurchase the asset for a fixed amount of monetary value. The GENIUS Act's scope does not include so-called "algorithmic stablecoins" or yield-earning stablecoins. The legislation will now advance to the House of Representatives. The president, on social media, has encouraged the House to move "lightning fast" to pass a "clean" bill without "delays" or "add ons."
Permitted Types of Stablecoin Issuers
The GENIUS Act establishes a comprehensive federal and state regulatory framework over payment stablecoins that addresses licensing, examinations, enforcement, operational risks, and consumer protections. It defines and limits the activities of a permitted payment stablecoin issuer to: (1) issue payment stablecoins; (2) redeem payment stablecoins; (3) manage related reserves, including purchasing, selling, and holding reserve assets or providing custodial services for reserve assets; (4) provide custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins; and (5) undertake other activities that directly support any of these activities. The Act also permits any activities deemed incidental to these activities that are authorized by the primary federal or state payment stablecoin regulator. The GENIUS Act establishes three categories of permitted payment stablecoin issuers as follows:
- Subsidiaries of insured depository institutions (IDIs). An IDI includes a bank or savings corporation that is insured by the Federal Deposit Insurance Corporation (FDIC) and insured credit unions. These subsidiaries will be licensed, regulated, and examined by the appropriate federal banking agency that regulates the IDI (i.e., Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Federal Reserve), National Credit Union Administration, or FDIC (together, the "appropriate federal payment stablecoin regulator")).
- Federal-qualified issuers. These include nonbank entities approved by the OCC to issue payment stablecoins, uninsured national banks (such as a national trust company or any other uninsured national bank that is approved by the OCC to issue payment stablecoins), or federal branches that are approved by the OCC to issue payment stablecoins. Federal-qualified issuers will be licensed, regulated, and examined by the OCC.
- State-qualified issuers. These include entities that are regulated by the relevant state regulator as long as their frameworks are "substantially similar" to the federal framework. It is likely many state laws will not meet this standard without further action from their legislatures. State regulators must submit to the secretary of the treasury an initial certification that their state-level regulatory regime is substantially similar to the federal regulatory framework, which may be rejected by the secretary. State-qualified payment stablecoin issuers are exempt from having to transition to federal oversight so long as (1) they maintain consolidated total outstanding issuance of no more than $10 billion or (2) the appropriate federal payment stablecoin regulator otherwise exempts them from federal oversight. State-qualified issuers will be licensed, regulated, and examined by the appropriate state agency that has primary regulatory and supervisory authority over entities that issue payment stablecoins (state payment stablecoin regulators).
A permitted payment stablecoin subsidiary of a state-chartered depository institution may engage in money transmission and custody activities in any state subject to specified criteria concerning capital and liquidity. In these situations, the host-state bank regulator may perform examinations to ensure compliance with host-state consumer protection laws. In addition, the laws of a host state, including laws relating to consumer protection, will only apply to the activities conducted in the host state by an out-of-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. If any host-state law is determined to not be applicable, the laws of the home state of the state qualified payment stablecoin issuer shall govern the activities conducted in the host state.
For issuers under the IDI or federal-qualified issuer categories, the GENIUS Act imposes a 120-day window in which federal regulators must act on an application and provides for a 12-month safe harbor period for subsidiaries of IDIs and federal-qualified nonbank issuers with pending applications as of the bill's effective date.
To maintain the character of stablecoins as a form of digital currency and limit their appeal as an investment, the GENIUS Act restricts both permitted payment stablecoin issuers and foreign payment stablecoin issuers from paying the holder any form of interest or yield (whether in cash, tokens, or other consideration).
There are also important anti-money laundering requirements, which specify that a permitted payment stablecoin issuer is a "financial institution" for purposes of the Bank Secrecy Act, subject to both an anti-money laundering and a sanctions program rule, suspicious activity reporting requirements, and a customer identification program. From a sanctions and fraud perspective, the Act also provides that permitted payment stablecoin issuers must have the technical capabilities, policies, and procedures to block, freeze, and reject specific or impermissible transactions, as well as the technological capability to comply with the terms of a "lawful order." A lawful order is any order or similar decree promulgated under federal law that requires a person to seize, freeze, burn, or prevent the transfer of payment stablecoins issued by the person and specifies the payment stablecoins or accounts subject to blocking with reasonable particularity. In addition, permitted payment stablecoin issuers must submit to appropriate stablecoin regulators initial and annual certifications that the issuer has implemented anti-money laundering and economic sanctions programs that are reasonably designed to prevent the issuer from facilitating money laundering or financing terrorist activities.
Authority of Banking Institutions
The GENIUS Act also expressly permits banking institutions and credit unions regulated by the primary federal payment stablecoin regulators to engage in payment stablecoin activities and investments, including acting as a principal or agent with respect to any payment stablecoin and payment of fees to facilitate customer transactions.
The Act codifies some of the original authorities granted by the OCC and the other federal banking agencies in 2020 and 2021 by specifying that the Act may not be construed to limit the authority of a depository institution, federal credit union, state credit union, or trust company to engage in activities permissible pursuant to applicable state and federal law, including: (1) accepting or receiving deposits and issuing digital assets that represent those deposits; (2) utilizing a distributed ledger for the books and records of the entity and to affect intrabank transfers; and (3) providing custodial services for payment stablecoins, private keys of payment stablecoins, or reserves backing payment stablecoins.1
The Act also forbids the federal banking agencies and the U.S. Securities Exchange Commission (SEC) from requiring institutions to include digital assets held in custody as a liability on any financial statement or balance sheet, including payment stablecoin custody or safekeeping activities, or requiring institutions to hold additional regulatory capital against digital assets in custody or safekeeping, except as necessary to mitigate against operational risks inherent with the custody or safekeeping services. These restrictions are not limited to stablecoins and apply to digital assets, defined as any digital representation of value that is recorded on a cryptographically secured distributed ledger.
Foreign Payment Stablecoin Issuers
The GENIUS Act restricts any digital asset service provider from offering, selling, or otherwise making available in the United States a payment stablecoin issued by a foreign payment stablecoin issuer unless the foreign payment stablecoin issuer is subject to regulation and supervision by a foreign stablecoin regulator that has a supervisory regime comparable to the regime established under the GENIUS Act (as determined by the treasury secretary and published in the Federal Register) and has the technological capability to comply (and will comply) with the terms of any lawful order and any reciprocal arrangement approved by the treasury secretary. In addition, the foreign payment stablecoin issuer must be registered with and subject to reporting, supervision, and examination by the OCC and must maintain its reserves in the United States (subject to any reserve reciprocity arrangements). This provision will be effective three years after enactment, but it may present significant challenges for certain foreign payment stablecoin issuers, which may prompt some to establish U.S. affiliates for these activities in lieu of any anticipated approval uncertainties and other issues (including the strict U.S. reserve requirements).
Restrictions on Public Companies
Another notable restriction on issuers in the GENIUS Act states that any U.S. public company or non-U.S. company that is not predominantly engaged in financial activities (as defined in the Bank Holding Company Act) may not issue a payment stablecoin unless they obtain unanimous approval from the Stablecoin Certification Review Committee, comprising the secretary of the treasury, the chair of the Federal Reserve Board, and the chair of the FDIC. If approval is received, these companies would also be subject to strict limitations on the use of transaction and consumer data, as well as limitations on tying. These restrictions will likely limit the ability of certain Big Tech companies to enter the payment stablecoin space unless they are predominantly engaged in financial activities.
Strict Requirements for Issuers and Custodians
The GENIUS Act includes strict reserve obligations requiring issuers to maintain 1:1 backing of their tokens with segregated funds and prohibiting the commingling of reserves with the operational funds of the issuer. Assets eligible to back a payment stablecoin include U.S. dollars, short-term treasuries (defined as those with maturities of 93 days or less), overnight reverse repos, a limited set of money market funds, and tokenized versions of any of these assets. The bill also includes a catch-all for "similarly liquid federal Government-issued assets" that are approved by regulators. Issuers will also be financial institutions subject to the requirements of the Bank Secrecy Act and sanctions laws. Issuers must publish the monthly composition of their reserves, including the total number of outstanding stablecoins and the amount and composition of the reserves, and the average tenor and geographic location of custody of each category of reserves.
The GENIUS Act also addresses custody and safekeeping services for the payment stablecoin reserve, payment stablecoins used as collateral, and private keys used to issue permitted payment stablecoins. A person may only engage in the business of custody and safekeeping services if they are subject to supervision or regulation by the primary federal payment stablecoin regulator, the SEC, the Commodities Futures Trading Commission, or a state bank or credit union supervisor. Such person engaged in custody or safekeeping services must treat and deal with the property as belonging to the customer, take appropriate steps to protect the property from the claims of creditors, and segregate the assets except in the case of an omnibus account as set forth in the Act.
Issuers of payment stablecoins must maintain and disclose clear redemption policies and procedures, including regulator-imposed redemption limitations and the fees associated with the purchase or redemption of payment stablecoins.
Federal Oversight Over State Frameworks
As noted, state depository institutions that are state-qualified payment stablecoin issuers and whose consolidated total outstanding issuance exceeds $10 billion are required to transition to the federal regulatory framework within 360 days and become subject to joint supervision and regulation by both the applicable primary federal regulator and the applicable state. There is no requirement for a charter conversion. Joint supervision would likely be similar to the oversight processes regarding insured state member and nonmember banks that are supervised and regulated by both the applicable state and the Federal Reserve (member bank) or the FDIC (nonmember bank).
The applicable primary federal payment stablecoin regulator may grant a waiver from these transitions based on the strength of state supervision and other criteria. The Act provides that such waivers are presumptively approved unless the applicable primary federal payment stablecoin regulator finds, by clear and convincing evidence, that the specific criteria are not substantially met with respect to that issuer or that the issuer poses significant safety and soundness risks to the financial system of the United States. The presumption of approval language in the Act creates a relatively high threshold—clear and convincing evidence—for the primary federal payment stablecoin regulator to reject a waiver. The industry should carefully monitor how this provision is used by the primary federal stablecoin regulators to reject particular waiver requests.
There is also a state certification process in the GENIUS Act. The Act requires that states must obtain a certification (and recertifications) from the Stablecoin Certification Review Committee that the state-level regulatory regime meets the criteria for substantial similarity to federal framework. In addition, a state payment stablecoin regulator may enter into a memorandum of understanding with the Federal Reserve by mutual agreement, under which the Federal Reserve may carry out the supervision, examination, and enforcement authority with respect to the state-qualified payment stablecoin issuers of the state.
With respect to federal preemption over state laws, the GENIUS Act expressly provides that (except for state laws relating to the chartering, licensure, or other authorization to do business as a permitted payment stablecoin issuer) state consumer protection laws, including common law, and the remedies available thereunder are not preempted.
There is also a broad grant of federal enforcement authority under unusual or exigent circumstances. Specifically, if the Federal Reserve determines that unusual and exigent circumstances exist based on specified criteria, it may, after prior written notice to the applicable state payment stablecoin regulator, take an enforcement action against a state-qualified payment stablecoin issuer or an institution-affiliated party of such issuer for violations of this Act. There is a similar provision that authorizes the OCC to take an enforcement action against a state-qualified payment stablecoin issuer that is a nonbank entity, but, unlike the grant of authority to the Federal Reserve, the OCC may not enforce against institution-affiliated parties.
Next Steps
The industry should anticipate detailed rules and regulations, industry guidance, and government processes to be developed and implemented before firms will be able to operate under this contemplated stablecoin framework. The states will also need to enact legislation to meet the criteria specified in the Act. In addition, as we have seen with other pieces of major legislation that impose specific timing requirements on agencies to issue regulations (e.g., the Anti-Money Laundering Act of 2020), the agencies sometimes are unable to meet the statutory deadlines due to lack of resources, lack of funding, or interagency process challenges. In fact, we are already seeing backlogs developing in various agency licensing processes that will likely only get worse as new chartering opportunities are created. As a result, it is unclear how state processes will fare, and we expect significant delays in state certification processes, other state-centric frameworks, and the federal waiver processes being established under the GENIUS Act. These anticipated delays may justify consideration of the use of an OCC national trust charter to initially launch into these stablecoin activities or to provide an institution with an option if it has already launched at the state level for the following reasons:
- The OCC national trust charter is a vehicle that can engage in permitted stablecoin activities based upon previous OCC issuances and approvals.
- The OCC has been designated under the GENIUS Act as the primary federal stablecoin regulator.
- The national trust charter can be converted into or otherwise establish an OCC-supervised permitted stablecoin issuer once the regulations and framework under the GENIUS Act are implemented over time.
- The OCC is an appropriate federal agency that is authorized to supervise a state-chartered stablecoin issuer converting at $10 billion.
Institutions choosing this route should consider scheduling an exploratory meeting with the OCC as a first step in the process.
The GENIUS Act now moves to the House of Representatives. The House Financial Services Committee previously advanced its own stablecoin legislation in April 2025, known as the STABLE Act, which shares many similar concepts with the GENIUS Act but contains some key differences—the most notable being the STABLE Act's lack of restrictions on issuance for U.S. public companies and non-U.S. companies. In addition, the National Conference of State Legislators (NCSL) has expressed concern with the GENIUS Act provision that permits permitted payment stablecoin issuer subsidiaries of state-chartered depository institutions to engage in money transmission and custody activities in any state subject to certain specified criteria regarding capital and liquidity. Under this provision, an uninsured depository institution could engage in a wide range of financial activities without the consent of the host state's banking commissioner or approval by the state legislature. The NCSL indicates in a letter to the Senate that states have a constitutional and practical responsibility to protect their residents by establishing licensing and oversight requirements for financial institutions and that multiple states have reviewed and ultimately rejected authorizing uninsured depository institutions.
Despite the differences between the GENIUS and STABLE Act, both signal the existence of strong bipartisan support for a basic regulatory framework for payment stablecoins. And the many shared similarities between the bills provide strong indications to companies wishing to enter the stablecoin space on their potential regulatory pathways when any final legislation reaches the president's desk.
Footnote
1. See OCC Interpretive Letter 1170 (July 2020), 1172 (Oct. 2020) and 1174 (Jan. 2021); see also, OCC Interpretive Letter 1183 (Mar. 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
