New legislation sets clear federal rules for stablecoin issuers and reserves
The US Senate passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act on June 17, the first federal legislation to regulate payment stablecoins.
The Act introduces a framework aimed at ensuring issuers are properly supervised, reserves are safely held, and consumers are protected.
The bill, which passed with bipartisan support, was sponsored by Senator Bill Hagerty and co-sponsored by Senator Tim Scott, Senator Kirsten Gillibrand, Senator Cynthia Lummis, and Senator Angela Alsobrooks. It advanced through the Senate Banking Committee in March with support from all Republicans and five Democrats.
“With the GENIUS Act, we’re bringing clarity to a sector that’s been clouded by uncertainty,” said Senator Scott, Chair of the Banking Committee, following the 68-30 Senate vote.
The GENIUS Act will now go before the House of Representatives. If approved, it will move to President Donald Trump for signature. Regulatory agencies have 180 days from the date of enactment to finalise implementing rules.
Stablecoin issuers must meet new standards
The GENIUS Act permits only approved entities to issue payment stablecoins—digital tokens designed for use in payments and redemptions at a fixed monetary value.
- Eligible issuers include:
- Subsidiaries of insured depository institutions
- Nonbank entities approved by a federal regulator
- State-qualified issuers, if their home state meets federal equivalency standards
Each issuer must maintain reserves backed 1:1 by safe, highly liquid assets. These can include US coins and currency, Treasury bills maturing within 93 days, short-term repurchase agreements, and demand deposits at insured institutions. The use of these reserves is restricted, with rehypothecation allowed only to meet short-term redemption needs and only under specific conditions.
Issuers are required to publicly disclose their reserve composition monthly and provide redemption terms. Each report must be certified by the issuer’s CEO and CFO and reviewed by an external accounting firm.
Federal oversight and supervisory powers
The Act divides oversight responsibilities among federal regulators, including the Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA).
Issuers that exceed $10 billion in market capitalisation must transition from state to federal regulation within 360 days. Failing to do so will prohibit further issuance.
The Act also establishes a strict application and approval process for new issuers, requiring decisions within 120 days. It mandates transparent denial notices and offers applicants a right to appeal.
New rules for custodians and transparency
Entities offering custodial services for payment stablecoins or their private keys must also meet regulatory standards. They must segregate customer assets, avoid unauthorised commingling, and be regulated by either a federal financial agency or a state-level supervisor.
Under the Act, stablecoin holders will receive priority treatment in insolvency proceedings, ranking ahead of all other creditors if an issuer enters bankruptcy.
The Act includes strong enforcement powers. Regulators may:
- Suspend or revoke an issuer’s right to operate
- Order corrective action
- Impose civil penalties of up to $100,000 per day for violations
- Prohibit unauthorised parties from issuing payment stablecoins
False reporting of reserve data may result in criminal penalties under existing federal statutes.
Optional state-level supervision, with limits
Smaller stablecoin issuers (with under $10 billion in circulation) may operate under state-based regulatory regimes, provided those regimes are deemed “substantially similar” to federal rules. States must certify their frameworks with the US Treasury annually.
The Treasury may override a state certification if it determines the regime lacks parity with the federal framework. In such cases, the issuer must either register federally or cease issuance.
Payment and digital asset firms will need to review their operations in light of the Act. Key areas for compliance include:
- Reserve asset quality and segregation
- Redemption procedures
- Monthly reporting and audit requirements
- AML and sanctions screening obligations under the Bank Secrecy Act
Issuers will also need to ensure they only engage in stablecoin-related business activities unless specifically permitted otherwise.
In parallel with the GENIUS Act, the Senate Banking Committee also approved the FIRM Act, which would prohibit regulators from using “reputational risk” to justify denying banking services. While the FIRM Act is not yet law, it reflects ongoing interest in limiting perceived political bias in financial regulation.
