Implementing The GENIUS Act: The FDIC Proposes Comprehensive Rulemaking Governing Payment Stablecoins Issuance

On April 7, 2026, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking (the Proposal) to implement key provisions of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act) applicable to FDIC-supervised institutions, including permitted payment stablecoin issuers (PPSIs) and insured depository institutions (IDIs) engaged in related custodial or safekeeping services.¹

The Proposal would amend Part 350 of the FDIC's regulations to establish a principles-based regime addressing issuance, reserves, liquidity, capital, risk management, and custody. It also clarifies that deposits held as payment stablecoin reserves would be insured to the PPSI (not on a pass-through basis to holders), and that tokenized deposits remain subject to existing deposit insurance frameworks.

The Proposal is part of a broader interagency effort under the GENIUS Act — alongside parallel rulemakings by the Office of the Comptroller of the Currency (OCC), the U.S. Department of the Treasury (Treasury), and the National Credit Union Administration — to implement a unified federal framework for payment stablecoin regulation. For an overview and analysis of the OCC's recently proposed rule, please see our Advisory, Implementing the GENIUS Act: The OCC Proposes Comprehensive Rulemaking Governing Payment Stablecoins Issuance, along with earlier posts in Arnold & Porter's series of Advisories on the evolving digital asset landscape.

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PPSI Requirements

The Proposal establishes proposed prudential and operational requirements for PPSIs, including limitations on permissible activities; restrictions on yield and other prohibited conduct; requirements relating to reserves, liquidity, and redemptions; capital and operational resilience standards; risk management expectations; and custodial requirements. Each of these areas is discussed in greater detail below.

Permissible and Prohibited Activities

Consistent with the GENIUS Act, the Proposal would limit PPSIs to a narrow set of core activities: issuing and redeeming payment stablecoins, managing reserve assets relating to the issuance or redemption of payment stablecoins, and providing custodial or safekeeping services of payment stablecoin assets.² A PPSI could also engage in activities that directly support these core activities,³ as well as incidental activities that are authorized by the FDIC.⁴ The Proposal would also prohibit PPSIs, directly or through implication, from misrepresenting payment stablecoins as legal tender, covered by FDIC deposit insurance, or as being backed by the U.S. government. Consistent with the statute, the Proposal also would prohibit PPSIs from pledging or rehypothecating reserve assets (outside of certain narrow exceptions, including satisfying margining requirements relating to reserves and redemption events), and providing credit to customers for the purchase of payment stablecoins.⁵

Payment Stablecoin Yield

The Proposal would prohibit a PPSI from paying any form of interest or yield — whether in cash, tokens, or other consideration — to payment stablecoin holders solely in connection with the holding, use, or retention of such payment stablecoin.⁶ Consistent with the OCC's approach to this issue, the Proposal includes a presumption that certain compensation arrangements with affiliates or "related third parties"⁷ constitute prohibited indirect yield payments. A PPSI would be presumed to violate the prohibition if the PPSI, or any affiliate or related third party, has a contract to pay interest or yield to payment stablecoin holders. PPSIs may rebut the presumption by submitting written materials demonstrating that the contract or agreement is not prohibited and does not evade the prohibition. While the Proposal effectively would prohibit many forms of indirect arrangements to pay yield to payment stablecoin holders, certain aspects of the rule provision are ambiguous (for example, the interpretation of which agreements are solely in connection with holding, use, or retention of payment stablecoins) and the FDIC, like the OCC under its rule proposal, would possess considerable discretion to determine forms of indirect payment arrangements that could be viewed as acceptable notwithstanding the general prohibition. In enforcing this prohibition, the FDIC may look to its former practices during the period in which Regulation Q was in effect and prohibited banks from paying interest on demand deposit accounts, which gave rise to the use of "earnings credits."⁸ This issue has attracted significant attention, from the banking and digital asset sectors alike, since the enactment of the GENIUS Act, and we expect this to continue as the FDIC's and OCC's rule proposals are further considered and finalized.

Reserve Assets Composition, Management, and Disclosure

Consistent with the GENIUS Act, the Proposal would require PPSIs to maintain identifiable reserves fully backing outstanding payment stablecoins on at least a one-to-one basis: the aggregate fair value of reserves would, at all times, be required to meet or exceed their total outstanding issuance value.⁹ PPSIs would be required to monitor issuance and redemption activity for ongoing compliance¹⁰ and notify the FDIC in writing upon determining or having reasonable grounds to suspect a reserve shortfall.¹¹ The FDIC may then direct the PPSI to: suspend or reduce issuance, take measures to restore reserve levels consistent with the terms of the PPSI's written restoration plan, or commence an orderly redemption of the payment stablecoin.¹²

The Proposal would limit eligible reserve assets to the following categories:

• U.S. coins and currency, including Federal Reserve notes
• Funds in an account with a Federal Reserve Bank
• Demand deposits withdrawable upon request at an IDI or insured shares at an insured credit union (including any foreign branches, agents, or correspondent banks of an IDI)
• Treasury bills, notes, or bonds with a remaining maturity of 93 days or less
• Overnight repurchase agreements backed by eligible Treasury securities
• Overnight reverse repurchase agreements collateralized by Treasury securities (tri-party, centrally cleared through an SEC-registered clearinghouse, or bilateral with an adequately creditworthy counterparty)
• Securities issued by an investment company registered with the SEC or a registered government money market fund invested solely in eligible assets¹³

Pledging, rehypothecating, or reusing reserve assets would be permitted only to satisfy margin obligations for investments in required reserves, satisfy standard custodial service obligations, or create liquidity for redemptions through the sale of eligible Treasury securities in qualifying repurchase agreements.

The Proposal also would implement reserve asset diversification requirements and require a PPSI to limit its total exposure to any single eligible financial institution — regardless of reserve asset type and across all brands of payment stablecoins issued — to no more than 40% of its reserve assets.¹⁴PPSIs would be required to publish monthly reports on the composition of reserves, and a registered public accounting firm would examine the report and issue its findings to the audit committee (or Board of Directors), and the PPSI would be required to publish the report on its website.¹⁵ The CEO and CFO would also be required to certify the accuracy of the monthly report to the FDIC.

Liquidity and Redemptions

Under the Proposal, a PPSI would be required to publicly disclose its redemption policy with clear and conspicuous procedures for timely redemption.¹⁶ "Timely" in this regard generally would mean no later than two business days following a valid redemption request, with exceptions for discretionary limits that may be imposed only by the FDIC. To that end, for "significant redemption requests" — aggregate requests exceeding 10% of outstanding issuance value within a single 24-hour period — the PPSI would be required to immediately notify the FDIC and may request an extension of the general timeframe for redemption requests.¹⁷ The FDIC, in its discretion, may grant or deny any such requests. Notably, the proposed framework for responding to significant redemption events under the Proposal is somewhat more flexible than the OCC's corresponding proposal, which would require an automatic extension of the redemption period to seven days upon the occurrence of such events, which extended redemption period could be lifted only by the OCC in its discretion.

At a minimum, a PPSI's redemption policy must include:

• The minimum number of payment stablecoins the PPSI will redeem, which may not exceed one payment stablecoin
• The timeframe for redemption of payment stablecoins
• A statement that discretionary limitations on timely redemptions may only be imposed by the FDIC
• An explanation of the circumstances under which the redemption period may be extended
• Clear instructions on how a payment stablecoin holder can redeem¹⁸

Capital Requirements

Under the Proposal, regulatory capital for PPSIs would consist of two capital elements: common equity tier 1 capital (e.g., common stock, retained earnings, and accumulated other comprehensive income, or AOCI, as reported under GAAP) and additional tier 1 capital (generally consistent with noncumulative perpetual preferred stock classified as equity under GAAP).¹⁹ The Proposal would establish an initial minimum capital requirement for a de novo period (generally three years), with a floor of $5 million that the FDIC may elect to increase by order.²⁰ The Proposal does not establish any specific minimum capital amount or ratio that must be maintained by a PPSI for ongoing operations, nor does it propose a framework for determining a minimum capital requirement; rather, a PPSI would be required to determine appropriate capital levels based on the level and nature of its risk exposures, including on- and off-balance sheet exposures. The FDIC is seeking comment on the appropriateness of this framework.

In addition to the proposed capital requirements, PPSIs would also need to maintain an operational backstop of highly liquid assets — U.S. currency, demand deposits at an IDI, or eligible Treasury securities — sufficient to fund ongoing operations during a business disruption.²¹ The backstop amount would be calculated quarterly based on the total expenses over the four most recent quarters and must be held separately from reserve assets.²²

If a PPSI fails to meet the minimum capital requirement or maintain sufficient backstop assets at the end of a quarter, it would need to notify the FDIC in writing and describe its proposed remediation measures.²³ If the FDIC determines those measures are not viable, it may direct the PPSI to issue additional capital instruments or acquire additional liquid assets, suspend or reduce issuance of payment stablecoins, execute an orderly redemption of all outstanding payment stablecoins, or take other appropriate action.

Risk Management Procedures

The Proposal would also implement the GENIUS Act's risk management requirements through principles-based operational, technology, and compliance standards calibrated to the nature and complexity of a PPSI's activities.²⁴

The Proposal sets forth principles-based operational risk management standards calibrated to the nature, complexity, and risk of a PPSI's activities.²⁵ Key operational and managerial requirements would include:

• Internal controls and information systems providing clear lines of authority, effective risk assessment, accurate financial and regulatory reporting, and procedures to monitor, safeguard, and control assets
• An independent internal audit function with adequate monitoring of internal controls, qualified personnel, and testing and documentation
• Interest rate risk management controls appropriate for the PPSI's size and complexity and the nature of its assets and liabilities
• Asset growth monitoring and controls commensurate with risk management capabilities
• Arms-length standards for transactions with insiders or affiliates
• Liquidity risk monitoring and management appropriate to the PPSI's business model and risk profile

The Proposal also sets forth information technology and security requirements, including risk assessments, controls over systems integrity and smart contracts, periodic independent testing, incident response programs, private key management, and business continuity planning — recognizing the 24/7 nature of blockchain networks.²⁶

Finally, the Proposal would implement the anti-money laundering (AML) and economic sanctions compliance programs certification requirements of the GENIUS Act. A PPSI would be required to file an initial AML and economic sanctions compliance certification with the FDIC within 180 days of approval, with annual certifications due each April 1 thereafter.²⁷ We note that Treasury, through the Financial Crimes Enforcement Network (FinCEN), separately has proposed a rule to further implement the GENIUS Act's requirements regarding AML and economic sanctions compliance and measures to counter illicit finance.²⁸

Examination, Supervision, and Reporting

The Proposal provides that the FDIC will fulfill its examination responsibilities under the GENIUS Act consistent with the examination timelines established for the parent IDI under § 337.12 of the FDIC's regulations, which generally require examinations at least once every 12 months (extendable to 18 months under conditions).²⁹ The scope of each examination will include an assessment of the nature of the PPSI's operations and financial condition; the financial, operational, technological, and other risks associated with the payment stablecoin; and the PPSI's systems for monitoring and controlling those risks. Under the Proposal, PPSIs must, upon FDIC request, grant prompt and complete access to all officers, directors, employees, agents, and relevant books, records, or documents of any type, including distributed ledgers.³⁰

Under the Proposal's multi-tiered reporting framework, PPSIs would submit a confidential weekly report to the FDIC and quarterly reports of financial condition.³¹ PPSIs with more than $50 billion total outstanding issuance value would also need to submit publicly available audited annual financial statements.³²

Custodian Requirements

The Proposal also establishes regulatory requirements for FDIC-supervised entities — including insured state nonmember banks, insured state-licensed branches of foreign banks, insured state savings associations, and PPSIs for which the FDIC is the primary regulator — that provide custodial or safekeeping services for payment stablecoin reserves, payment stablecoins used as collateral, or private keys used to issue payment stablecoins.³³

Custodians would be required to treat payment stablecoin reserves, payment stablecoins used as collateral, private keys, cash, and other property as belonging to the customer and not to the custodian, and take appropriate steps to protect customer property from the claims of the custodian's (and any sub-custodian's) creditors.³⁴ Custodians would be required to "maintain control" of customer property, meaning that no other party, including the customer or any custodian affiliate, can control or transfer the payment stablecoin or payment stablecoin reserve without the custodian's affirmative consent.³⁵ Sub-custody is permitted if consistent with applicable law and subject to adequate safeguards and internal controls for oversight of the sub-custodian's compliance.³⁶

Custodians would generally be prohibited from commingling customer assets with their own and would need to separately account for and segregate customer property.³⁷ Three exceptions would apply to the segregation requirement: (1) holding customer property in an omnibus account with other customers' assets, provided reserves remain identifiable; (2) holding cash reserves in the form of a deposit liability; and (3) withdrawing customer property to cover routine operational charges such as commissions, taxes, or storage fees.³⁸

Deposit Insurance for Payment Stablecoins

The FDIC proposes to amend its deposit insurance rules for payment stablecoins. First, the Proposal would clarify that deposits held as reserves for a payment stablecoin would be insured as corporate deposits of the owner (i.e., the PPSI), but would not be insured on a pass-through basis.³⁹ Second, the Proposal clarifies the treatment of tokenized deposits under the FDI Act by amending its deposit insurance rules to clarify that the application of deposit insurance to deposits does not depend upon the technology or recordkeeping used to record a bank's deposit liabilities.⁴⁰

Comment Period and Next Steps

Given the breadth of the Proposal, a wide range of FDIC-supervised institutions and market participants will need to consider whether the Proposal serves their operational and compliance interests. Comments are due 60 days after publication in the Federal Register. Key areas for comment identified in the Proposal include:

• Permissibility clarification process: Whether a formal process for clarifying the scope of permissible activities is appropriate
• Yield prohibition: Whether the FDIC's proposed interpretation and implementation of the interest and yield prohibition in Section 4(a)(11) of the GENIUS Act is appropriate
• Credit prohibition: Whether prohibiting PPSIs from extending credit to customers for the purchase of payment stablecoins is appropriate, and whether alternatives would better achieve the act's objectives
• Multi-brand issuance: How to appropriately manage reserve assets for PPSIs that issue multiple payment stablecoin brands, including whether each PPSI should be limited to one brand or whether separate-subsidiary approaches would be preferable
• Redemption timelines: Whether two business days is the appropriate standard for "timely" redemption, and whether 10% of outstanding issuance value within 24 hours is the appropriate threshold for a significant redemption request
• Capital and backstop requirements: Whether additional objective capital requirements or ratios should be established by regulation, including whether there should be any deductions from regulatory capital for PPSIs
• Diversification requirements: Whether additional limitations on specific reserve asset categories or other concentration restrictions are appropriate
• Custodian reporting: Whether custodians should be subject to revised or new reporting requirements under Subpart B, including whether to revise Schedule RC-T.
• Deposit insurance: Whether additional amendments to the deposit insurance pass-through rules are needed to address tokenized deposit arrangements

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