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Changes in latest Genius Act bill – applies to non-interest bearing stablecoins
March 18, 2025
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The US Senate Banking Committee passed the GENIUS Act to regulate payment stablecoins. There are two sets of changes to the draft legislation. They include amendments passed as part of yesterday’s markup hearing plus changes to the Bill before the hearing.

One important addition is the Bill now excludes stablecoins that offer interest or yield. However, it’s not clear that it explicitly bans such stablecoins. It’s likely that interest bearing stablecoins will be considered securities.

Amendments passed during the markup session

At the start of the session a package of bipartisan amendments were approved. These aimed to:

  • clarify the treatment of payment stablecoins that are not issued by a permitted issuer
  • consider the competence, experience and integrity of key leaders at an applicant’s company
  • prohibit the use of deceptive names by a payment stablecoin
  • maintain the status quo as it relates to the master account access at the Federal Reserve
  • give customers of a stablecoin super priority over other creditors in bankruptcy
  • clarify the stablecoin reserve requirements.

These topics were only mentioned in brief, and several of the descriptions appear to expand on other amendments to the published draft.

Key changes in latest GENIUS stablecoin draft

These are the changes to the updated draft published before the above amendments.

Tightens up the payment stablecoin definition:

  • excludes those earning interest or yield
  • excludes tokenized deposits or DLT based bank accounts
  • also excludes certain types of securities
  • a payment stablecoin not authorized under the Act (presumably offshore) cannot be used for interbank settlement
  • the issuer of an unauthorized stablecoin in the US is subject to penalties of $1m for each infraction or up to 5 years prison

Reserves:

  • expands cash to include “money standing to the credit of an account with a Federal Reserve Bank” (yet one of the amendments implies no master account access for issuers)
  • repo shortened to overnight (from seven days)
  • previous version included money market funds. What qualifies as a money market fund has been tightened
  • additional liquid assets with “similar profiles” can be approved by the Federal regulator
  • any of the specified reserve assets can be in tokenized form.
    (we’d observe the big variance in quality, custody and oversight between tokenization firms. Without caveats, this is risky in an FTX kind of way.)

Capital requirements:

  • are tailored to the business model and risk profile of issuers
  • stablecoin subsidiary of a bank doesn’t need to hold any extra capital (leverage or risk-based) other than required by the issuer under the Act

AML:

  • Issuer treated as a financial institution under the Bank Secrecy Act. This was included in first draft, but now adds details such as AML/sanction programs, record retention, monitoring and reporting, etc
  • FinCEN has to tailor rules to size and complexity of stablecoin issuer
  • Beyond AML, the stablecoin issuer must have the technical ability to block the digital assets of a foreign person if instructed to do so by the Treasury or by a court order.
  • Foreign stablecoin issuers cannot distribute stablecoins in the United States unless they can comply with the above clause.
  • There is a new major section dealing with non compliant foreign stablecoin issuers. They will be listed on the Federal Register and digital asset service providers (DASP) are not allowed to provide secondary trading for these non-compliant stablecoins.
  • There are hefty penalties on the foreign issuer and any DASP allowing trading

Prohibition on tying of services:

  • A stablecoin issuer cannot require a user of one of its services to also use another paid service. Nor can it link the use of a service to blocking the use of a competitor’s offering.

Governance:

  • A stablecoin issuer with more than $50 billion issuance must get an audit. Smaller issuers might need an audit if SEC rules require it.
  • Marketing: Issuers don’t have a government backstop nor do they have federal insurance (FDIC or otherwise), so it’s unlawful to misrepresent their insurance status.
  • A person convicted of certain felonies cannot act as an officer of a stablecoin issuer. Relevant felonies include insider trading, embezzlement, cybercrime, money laundering, financing of terrorism, or financial fraud.

State – Federal regulation boundaries: (only some highlights):

  • Previously bank subsidiary stablecoin issuers had to be federally regulated. Now they can be state regulated if under $10 billion.
  • The bank’s Federal regulator can sanction or stop a Federally regulated stablecoin issuer, but not a state regulated one.
  • In exigent circumstances, the Fed or Comptroller could already step in regarding a State regulated stablecoin, provided it gave five days notice. That’s reduced to two days

Bankruptcy:

  • The wording is substantially expanded with a target of starting to distribute reserves to stablecoin holders within 14 days of the relevant hearing.

Reciprocity:

  • The existing clause relating to reciprocal arrangements with foreign jurisdictions with similar laws has been expanded in two ways:

    • added details regarding ‘similar’ – reserve requirements, supervision, anti-money laundering and counter-terrorism features, sanctions compliance standards, liquidity requirements, and risk management standards
    • added a two year deadline for the Treasury to implement the arrangements

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The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

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The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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If you find value in my content, consider showing your support via:

💳 PayPal: 
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Founders, investors, ecosystem builders:

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If you find value in my content, consider showing your support via:

💳 PayPal: 
1) Simply scan the QR code below 📲
2) or visit https://www.paypal.me/thedinarian

🔗 Crypto – Support via Coinbase Wallet to: [email protected]

Or Buy me a coffee: https://buymeacoffee.com/thedinarian

Your generosity keeps this mission alive, for all! Namasté 🙏 Crypto Michael ⚡  The Dinarian

 

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