As the Treasury Department crafts regulations to implement the Genius Act, it should seek to preserve the benefits of payment stablecoins without causing unnecessary risks for customers, credit availability and financial stability, the American Bankers Association and four associations said in a joint letter.
The Treasury Department in September issued an advance notice of proposed rulemaking seeking public input on how it should implement the Genius Act, which creates a regulatory framework for payment stablecoins. In their letter, the associations made several recommendations for how that can be done without negatively affecting the broader financial system:
- Implement the GENIUS Act’s prohibition on the payment of interest or yield on payment stablecoins in a manner that is consistent with Congress’s intent that such payments will be broadly prohibited.
- Limit the risk of harmful regulatory arbitrage by requiring large permitted payment stablecoin issuers, or PPSIs, to be subject to federal regulation and by precluding the possibility that material differences will arise among federal, state and foreign payment stablecoin regulatory regimes.
- Establish appropriate anti-illicit finance-related requirements and oversight for PPSIs to mitigate relevant risks and to ensure consistent obligations for PPSIs and other federally regulated financial institutions.
- Interpret the GENIUS Act’s prohibition on payment stablecoin issuance by public or foreign companies not predominantly engaged in financial activities in a fashion that respects the longstanding U.S. policy of separating banking and commercial activities and prevents the emergence of associated risks, including undue concentration of economic power.
- Ensure that any person who acts as a custodian for payment stablecoins or related reserves satisfies the highest standards for custody to protect customers, maintain market integrity, foster confidence and minimize conflicts of interest.
- Interpret the obligations applicable to digital asset service providers to uphold, and prevent evasion of, the requirement that the only payment stablecoins that those providers may offer or sell in the U.S. are those issued by a PPSI or by a qualifying foreign payment stablecoin issuer.
- Address other important points that will be necessary to implement in a manner aligned with the objectives of the GENIUS Act, including clarifying how the statute applies to tokenized bank deposits, what consumer protection requirements apply to payment stablecoins and how sanctions compliance obligations apply to interactions with distributed ledgers.
In related news, the Conference of State Bank Supervisors released two separate letters yesterday calling for “strict compliance with GENIUS Act limitations on financial activities by payment stablecoin issuers,” including the law’s prohibition on paying interest or yield on payment stableoins.
