New Federal Regulatory Regime Provides Foundation for Financial Institutions to be Stablecoin Issuers and Accept Cryptocurrency Payments

There has been a flurry of activity in Congress and the White House to liberalize and encourage the development of cryptocurrency as a payment method, including creating a legal regime for depository and non-depository institutions to be registered stablecoin issuers for use in commercial payments. 

In particular, the enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 bill (“Genius Act”) creates a federal system of regulations and oversight to allow depository institutions and non-depository institutions to be registered as stablecoin issuers and offer such products to the public.

Previously, federal law enforcement and regulators provided little guidance to financial institutions and cryptocurrency companies and users regarding the legality of digital assets. Before this year and the new administration, federal law enforcement and regulators aggressively prosecuted and litigated all manner of digital assets. The Securities and Exchange Commission (“SEC”), the Commodities Future Trading Commission (“CFTC”) and the Internal Revenue Service (“IRS”) brought a number of enforcement actions alleging that cryptocurrency and similar digital assets are variously securities, commodities, currency, and other assets under a variety of federal U.S. laws and regulations.

By ratifying the Genius Act, the federal government is signaling a friendlier attitude toward cryptocurrency.  One significant regulatory shift includes making the Office of the Comptroller of the Currency (“OCC”) as the primary stablecoin regulator at the federal level. 

At the same time, the White House issued a report with recommendations to create a coherent regulatory system for digital assets, and the House of Representatives has passed two bills, one creating a regulatory regime for cryptocurrency and one controlling the Federal Reserve’s use of central bank digital currencies.

THE GENIUS ACT

Regulators

The primary regulator shall be:

• For any entity charted by the OCC, the OCC;
• For any federal qualified issuer that is not a national bank, the OCC;
• For an insured depository institution or its subsidiary, whatever federal banking agency is the appropriate general federal regulator;
• For an insured credit union or its subsidiary, the National Credit Union Administration;

State Regulators

An issuer with total market capitalization of not more than $10 billion may choose to operate under a state qualified payment stablecoin issuer that adheres to the requirements of the Genius Act, unless and until its market capitalization exceeds $10 billion and it does not have a waiver from the applicable federal regulator.

Foreign Entities

A non-U.S. issuer must be subject to its home country’s regulations deemed as equivalent by the U.S. Treasury.

What Types of Stablecoins Are Covered by the Genius Act

The Genius Act applies to stablecoins that are:

• Used for settlements or payments;
• Redeemable for a fixed amount of money;
• Intended to maintain a stable value; or
• Not a national currency or a security issued by a registered investment company.

The Genius Act does not regulate the following personal use of stablecoins:

• Peer-to-peer transfers;
• Transfers between personal financial accounts; and
• Transactions utilizing self-custody wallets.

Illegal Stablecoin Activity and Requirements for Offering Stablecoins:

Following a three year transition period, it will be unlawful to issue or sell payment stablecoins without proper authorization. 

Approved stablecoin issuers must:

• Maintain reserves on a one-to-one basis;
• Reserves must be in liquid, low risk assets (including cash, government securities with short maturity periods, and funds held as demand deposits);
• Only issue and redeem stablecoins and manage reserves;
• Follow the appropriate regulator’s requirements relating to capital requirements, liquidity and interest rate risk management standards, operational, compliance and information technology risk management standards;
• Publish monthly reserve disclosures and have the CEO and CFO certify the accuracy of the monthly report;
• Have independent audits;
• Clearly disclose redemption terms and fees;
• Not offer interest or yield on any stablecoin;
• Comply with the anti-money laundering (“AML”) provisions of the Bank Secrecy Act (“BSA”), the country’s AML legal regime, which covers financial institutions, cash transactions, and a variety of other financial regulations;
• Not commingle stable coins, cash or related assets of a customer with the issuer.

Criminal Liability and Penalties

Violators can be fined up to $1 million per infraction and 5 years in prison.

The Financial Crimes Network (“FinCEN”), which sits within the Treasury Department, will continue to regulate and enforce the BSA.

Effective Date

Federal regulators will issue regulations within 180 days of enactment of the Genius Act on July 18.  The Act takes effect 18 months after its enactment, or 120 days after the primary federal stablecoin regulators issue final regulations.

THE WHITE HOUSE REPORT

The Administration is also focused on payment stablecoin digital assets. Consistent with the Trump Administration’s more favorable view of cryptocurrency, the White House on July 29 issued a report from the President’s Working Group on Digital Asset Markets (“Strengthening American Leadership in Digital Financial Technology” (READ HERE).

The report recognizes areas that have complex legal issues, such as standards for crypto engagement, use of crypto in capital markets, banking and taxation. The report calls on the SEC and CFTC to promulgate how existing standards apply to activities related to digital assets, as well as exceptions and safe harbors.  The report also further requires FinCEN to work with the SEC and CFTC in developing guidance on AML regulations, including customer identification programs.

The report also called on the Treasury Department and federal banking regulators to take a number of steps to implement the Genius Act quickly and effectively.

THE CLARITY ACT

The House of Representatives passed the Digital Asset Market Clarity Act (“Clarity Act”) and sent it to the Senate for consideration. Among other things, the Clarity Act:

• Creates a regulatory framework for digital assets besides payment stablecoins;
• Makes the CFTC the primary regulator for digital commodities—i.e., “Digital assets intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system.” Upon passing, the Clarity Act would require regulated entities to register with the CFTC.
• The SEC would have anti-fraud jurisdiction over certain digital commodities.

THE ANTI-CBDC ACT

The House of Representatives also passed the Anti-CBDC Surveillance State Act (“Anti-CBDC Act”) and passed it to the Senate.  “CBDC” refers to “central bank digital currency”. The Anti-CBDC Act prohibits the Federal Reserve from issuing any CBDC to customers directly or indirectly and prohibits the Federal Reserve from studying, testing or using any CBDC as a means to implement any monetary policy.

Buchalter is a leading national law firm, with over 90 years of experience representing large, medium and small financial institutions in regards to transactions, products and regulatory needs. 

Buchalter’s Financial Institutions Law, Financial Institutions Regulatory and Technology Industry Groups have broad experience in financial services products and the use of new technologies. Any attorneys in those groups can assist you in navigating the intricacies of cryptocurrency regulation and products.

Michael Flynn

Daniel Silva

Melissa Richards

Valerie Bantner Peo

Steve Segal

Ernest Bootsma

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