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On April 1, the U.S. Department of the Treasury issued its first notice of proposed rulemaking under the GENIUS Act, proposing broad-based principles for determining when a state stablecoin regime is “substantially similar” to the federal framework. The Treasury’s proposal would apply to payment stablecoin issuers with consolidated outstanding issuance of $10 billion or less that seek to operate under state oversight rather than directly under a federal regime.
The proposal makes clear that the Treasury does not view state oversight as a lighter-touch alternative. Instead, the Treasury proposes a framework under which state regimes would need to meet federal regulatory standards in core prudential areas, while retaining some flexibility on licensing, supervision, and other state-designed features. The Treasury also tied the proposal closely to the OCC’s pending GENIUS Act rulemaking (previously discussed here) and requested comment on various implementation questions.
Key provisions of the proposal include:
- Definition of the federal regulatory framework. The Treasury proposed to define the “federal regulatory framework” to include the text of the GENIUS Act, OCC interpretations and regulations published in the Federal Register, and certain Treasury and Federal Reserve materials for specific AML, sanctions, lawful-order, and anti-tying requirements.
- Requirement that state regimes meet or exceed core standards. With respect to requirements for payment stablecoin issuers, the proposal includes that state regimes must implement uniform requirements consistently with the federal framework and implement state-calibrated requirements in a manner that leads to outcomes at least as stringent and protective as the federal regime.
- Allowance for procedural flexibility. The Treasury proposed to allow state regimes to deviate from the federal framework on non-substantive matters of form or procedure, while still requiring close alignment on substantive standards.
- Framework for state oversight. The proposal addresses state approaches to reserve assets, redemption, rehypothecation, certifications, capital, liquidity, risk management, transition to federal oversight, licensing, supervision, custody, and insolvency.
Putting It Into Practice: This proposal reflects several of the points Governor Barr raised about the GENIUS Act, particularly the need for more detailed standards around supervision, capital, liquidity, and alignment between state and federal regimes (previously discussed here). The Treasury’s proposed rulemaking begins to show how those issues may be resolved by requiring closer alignment in core prudential areas while still allowing some flexibility in how states structure their regimes. Firms planning to pursue state-level authorization to issue payment stablecoins should note where the Treasury expects uniformity with federal standards and where it appears willing to permit some state-level flexibility.
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