The American Bankers Association and 52 state bankers associations yesterday urged lawmakers to use upcoming market structure legislation to close several legal loopholes created by the recently enacted GENIUS Act.
The GENIUS Act, which created a regulatory framework for payment stablecoin issuers, was signed into law in July. In a joint letter to Senate committee leaders, the associations recommended three fixes that could be incorporated in a market structure bill.
“The decisions made in this space will shape the future of our financial system — its structure, efficiency and fairness — for decades to come,” they said.
The recommendations are:
- Strengthen the GENIUS Act’s prohibition on interest payments for payment stablecoins by extending it to brokers, dealers, exchanges and affiliates of payment stablecoin issuers.
- Repeal Section 16(d) of the GENIUS Act to restore state authority over out-of-state-chartered financial institutions. Section 16(d) allows any state-chartered uninsured depository institution with a stablecoin subsidiary to perform traditional money transmission and custody activities nationwide through that subsidiary. “States have both the constitutional authority and practical responsibility to license and supervise financial institutions that serve their residents,” the associations said.
- Close loopholes in the prohibition on nonfinancial companies being payment stablecoin issuers by removing all approval pathways and prohibiting both public and private nonfinancial entities.
“By closing regulatory gaps, preserving the dual banking system and upholding the longstanding separation between banking and commerce, Congress can foster responsible innovation while protecting consumers, preserving access to credit and promoting economic stability,” the associations said.
National associations seek Section 16(d) repeal
In related news, ABA today joined the Conference of State Bank Supervisors and five other national associations in requesting that lawmakers use the market structure bill to repeal Section 16(d).
“Uninsured depository institutions present distinct risks, and individual states have a strong interest in safeguarding their residents from the heightened risk of financial harm if such institutions fail or if they harm consumers,” the associations said. “Consequently, some state legislatures have chosen to limit or even prohibit the operation of uninsured depositories in their state.”
The associations added that while the GENIUS Act preserves state consumer protection laws, “it does not clearly subject state-chartered uninsured depository institutions to host state laws or establish host state regulators’ power to enforce them.”
“Ignoring state law in this regard invites regulatory arbitrage, allowing certain uninsured depository institutions special privileges to operate across state lines as federally insured banks currently do, but without the panoply of regulatory and supervisory requirements, or limitations on preemption applicable to those institutions,” they said.
