What to Know:
- The latest draft of the GENIUS Act proposes a shift in stablecoin oversight, dividing it between state and federal authorities, and introduces new enforcement and transparency requirements for issuers.
- States can now oversee stablecoin issuers with a market cap of up to $10 billion, and larger issuers can remain under state supervision if they meet specific criteria.
- The updated bill mandates stablecoin issuers to publish monthly liquidity reports, comply with orders to freeze transactions, and establishes them as financial institutions for anti-money laundering purposes.
The latest draft of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, introduced before a hearing Tuesday, proposes a significant shift in the approach to stablecoin oversight.
The draft wants to split stablecoin regulation between state and federal authorities, while also introducing new enforcement and transparency requirements for issuers.
One of the most notable changes is the increased threshold for state regulatory authority over stablecoins.
States would now be allowed to oversee stablecoin issuers in collaboration with federal authorities with a market cap of up to $10 billion, giving them greater power in regulating a larger portion of the stablecoin market.
The newest draft of the bill also includes a waiver process, allowing larger issuers to remain solely under state supervision if they meet specific criteria.
To get a waiver and remain under state supervision, stablecoin issuers must demonstrate strong capital, a good track record, and be supervised by what the bills calls an experienced state regulator.
The updated bill also introduces new transparency and disclosure requirements for issuers. Issuers would be required to publish monthly liquidity reports detailing the composition of their reserves, including the total number of outstanding stablecoins.
Under the latest version of the bill, reserves are required to be U.S. currency, demand deposits, Treasuries, or other “approved assets.”
Stablecoin issuers would also be required to create mechanisms that would allow them to comply with orders to freeze transactions, and grants the Secretary of the Treasury the authority to block and prohibit transactions involving stablecoins issued by foreign persons or entities.
While earlier versions of the bill did have provisions related to enhanced know your customer (KYC) and anti money laundering (AML) requirements, the updated version of the bill explicitly designates stablecoin issuers as financial institutions for AML purposes requiring them to establish compliance programs and conduct due diligence on high-value transactions.
The bill now awaits amendments by the Senate Banking Committee before a referral to the full Senate for debate and a final vote.
