Treasury Takes Initial Steps Towards GENIUS Act Rulemaking

In July, Congress passed, and President Donald Trump signed, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”). The GENIUS Act was a watershed moment in the history of cryptocurrency. It establishes a comprehensive federal regulatory scheme for a type of cryptoasset—specifically, stablecoins. It also broadly preempts state regulation in this area.

A key part of GENIUS Act implementation are the regulations that will be issued by the Treasury Department. On September 18, the Treasury Department kicked off its rulemaking process with an advance notice of proposed rulemaking (the “ANPRM”). In it, Treasury seeks input on a variety of topics related to the forthcoming rules.

The ANPRM process provides interested parties with an early opportunity to guide the approach that the Treasury Department will take in this historic rulemaking endeavor.  As such, all stakeholders should review the ANPRM carefully and consider submitting comments, which are due by November 4, 2025.  

In this Legal Update, we provide some additional background on the GENIUS Act and summarize some of the questions and focus areas that Treasury highlights in the ANPRM.

Background

The GENIUS Act, enacted on July 18, establishes a comprehensive federal regulatory framework for payment stablecoins.

The GENIUS Act defines a payment stablecoin as a digital representation of value:

• that is recorded on a cryptographically secured distributed ledger;¹
• that is, or is designed to be, used as a means of payment or settlement;
• the issuer of which is obligated to convert, redeem, or repurchase for a fixed amount of monetary value (other than another digital asset); and
• the issuer of which represents that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value.

Excluded from the definition of payment stablecoin are digital assets that are (1) national currencies; (2) a deposit (as defined in Section 3 of the Federal Deposit Insurance Act), even if the deposit is recorded using distributed ledger technology; and (3) securities (excluding bonds, notes, evidences of indebtedness, and investment contracts issued by permitted payment stablecoin issuers that qualify as securities solely because they satisfy the elements in the definition of payment stablecoin).

Once the GENIUS Act becomes effective, only permitted payment stablecoin issuers (“PPSIs”) may issue payment stablecoins in the United States, subject to certain limited exceptions. Beginning July 18, 2028, digital asset service providers may not offer or sell payment stablecoins to US persons unless the stablecoin is issued by a PPSI or a qualifying foreign payment stablecoin issuer (“FPSI”).

The Act defines a PPSI as a person formed in the United States that is one of the following:

• A subsidiary of an insured depository institution that has been approved to issue payment stablecoins pursuant to Section 5 of the GENIUS Act (discussed below);
• A Federal qualified payment stablecoin issuer (“FQPSI”); or
• A State qualified payment stablecoin issuer (“SQPSI”).

A FQPSI is an entity, other than an insured depository institution, that has been approved by the Office of the Comptroller of the Currency (“OCC”) to issue payment stablecoins. A SQPSI is a state-chartered entity that has been approved to issue payment stablecoins by a state payment stablecoin regulator, excluding certain uninsured national banks, insured depository institutions, federal branches of foreign banks, and subsidiaries of the foregoing.

Rulemaking Under the GENIUS Act

Several different agencies have rulemaking responsibilities under the GENIUS Act.

The Treasury Department is responsible for issuing regulations that, among other things:

• Implement the GENIUS Act’s limitations on the issuance of payment stablecoins in the United States;
• Establish principles for determining whether a state-level regulatory regime is substantially similar to the federal regulatory framework (which is a critical determination for several provisions of the Act); and
• Implement requirements that PPSIs be subject to all federal laws applicable to US financial institutions relating sanctions, anti-money laundering, customer identification, and customer due diligence.

The Treasury Department is also responsible for making determinations as to whether a foreign stablecoin regulatory regime is comparable to the US framework, which is a requirement for stablecoins issued by a FPSI to be issued or sold in the United States.

Several other federal agencies are also required to adopt regulations to implement GENIUS Act provisions. These include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the OCC. The GENIUS Act requires these agencies to adopt regulations relating to (1) the licensing, regulation, examination, and supervision of PPSIs; (2) capital and liquidity requirements for PPSIs; and (3) the payment stablecoin-related activities of depository institutions.

The ANPRM makes clear that it is only soliciting comments related to the Treasury Department’s forthcoming regulations. Interested parties are directed to send comments related to the other agencies’ rulemakings to the relevant agencies.

Requests for Comment

The ANPRM solicits public comment on 58 questions across six key topic areas:

1. Stablecoin Issuers and Service Providers

a. Treasury seeks input on the definitions of “payment stablecoin” and “digital asset service provider,” including whether additional clarification is needed, as well as the extraterritorial effect of the GENIUS Act and treatment of payment stablecoins not issued by PPSIs, including their accounting treatment.

b. Treasury also invites comment on requirements for PPSI reserves and related disclosures, marketing practices and consumer protections, and the process for determining whether state-level regulatory regimes are substantially similar to the federal framework.

c. Treasury asks for comments on the factors that Treasury (through the Stablecoin Certification Review Committee) should consider in evaluating whether a non-financial public company poses a risk to the US financial system in connection with the unanimous approval requirements for such companies under the GENIUS Act. Notably, Treasury did not seek comment on the resolution of an apparent drafting error in the GENIUS Act that may limit the scope of the foreign non-financial parent company prohibition to only public companies.

d. Finally, Treasury seeks comment on the GENIUS Act’s restrictions on interest or yield payments, including whether any regulations be issued to clarify whether, and to what extent, indirect yield payments are prohibited, which is an issue that has garnered significant attention from industry participants since the enactment of the GENIUS Act.

2. Illicit Finance

a. Treasury requests comment on the implementation of anti-money laundering (“AML”) and sanctions compliance requirements for payment stablecoin issuers, including the design of effective programs for monitoring, reporting suspicious activity, and customer identification and due diligence, particularly for elements that are unique to PPSIs.

b. Treasury seeks input on issuers’ anticipated approaches to technical capabilities needed to block, freeze, or reject impermissible transactions, including those involving sanctioned persons or countries, and how these requirements should apply to both domestic and foreign issuers.

3. Foreign Payment Stablecoin Regimes

b. Treasury invites feedback on the criteria and factors for determining whether a foreign regime for payment stablecoins is comparable to the US framework established by the GENIUS Act.

c. Treasury asks for comment on the interpretation of “interoperability” between US- and foreign-issued payment stablecoins, including technical, legal, and regulatory measures. Treasury also seeks comment on information requirements for FPSIs to ensure that US customers understand redemption requirements.

4. Taxation

a. Treasury seeks input on whether guidance from the IRS is needed regarding the federal income tax classification of payment stablecoins, as well as any other priority topics for guidance regarding payment stablecoins.

5. Insurance

a. Treasury requests comment on how the implementation of the GENIUS Act may affect insurance industry practices related to payment stablecoins, including the development of insurance markets related to stablecoins and the types and amounts of coverage that may be purchased by issues.

b. Treasury also requests comment regarding the possibility of insurance companies acting as issuers or digital asset service providers, including with respect to practices and requirements for reserves.

6. Economic Data

a. Treasury asks for data and analysis on the estimated one-time and ongoing costs for PPSIs and FPSIs to comply with the GENIUS Act, including licensing, disclosure, AML, and sanctions program requirements.

b. Treasury requests comment on the expected legal and enforcement costs, the comparative costs and benefits of state versus federal registration, and the potential economic impacts of regulatory clarity, consumer protection, and alignment with foreign regulatory regimes.

c. Treasury also seeks input on the projected effects of the GENIUS Act on innovation, start-up formation and venture investment, as well as expected impacts on transaction costs and functionality relative to existing payment systems.

In addition to these six key topic areas, Treasury requests comment as to whether further guidance is necessary to address resolution of bankrupt or failed PPSIs, conflicts of interest issues for stablecoin issuers, and Treasury’s approach to sequencing and prioritizing its rulemakings in connection with the GENIUS Act.

Conclusion

The ANPRM represents a significant early step in the implementation of the GENIUS Act, with Treasury seeking broad public input to inform the development of a regulatory framework for payment stablecoins. Stakeholders are encouraged to submit comments within the relatively short comment period addressing the wide range of issues identified in the ANPRM in order to help shape the future of digital asset regulation in the United States. It is likely that the ANPRM will be followed by one or more notices of proposed rulemaking (“NPRs”) that put forward specific language to implement the various requirements of the GENIUS Act.

Stakeholders, including potential stablecoin issuers, financial institutions that may service issuers, and businesses that may decide to accept stablecoins as payment for goods and services should also be on the lookout for additional opportunities to provide public comment from both Treasury and the primary federal payment stablecoin regulators over the coming months. These opportunities may come in the form of NPRs from the Treasury Department or ANPRMs from other relevant regulators, such as the OCC.

¹ The definition of payment stablecoin limits the definition to assets that qualify as digital assets. Digital asset, in turn, is defined as a “digital representation of value that is recorded on a cryptographically secured distributed ledger.”