Fed Takes First Step Toward Stricter Stablecoin Rules
The central bank is further fleshing out the GENIUS Act with reserve and capital requirements for issuers, while Fed Governor Barr is also warning about AML risks.
Key Takeaways
- The Federal Reserve is proposing stricter rules for stablecoin issuers, with full backing by short-term U.S. Treasury bills or other liquid assets.
- The Fed also wants to introduce standard capital requirements and a separate application process for banks that want to issue stablecoins.
- Fed Governor Michael Barr warns that extra attention to anti-money laundering is still needed because of possible illicit money flows.
The Federal Reserve has proposed new rules for stablecoin issuers, with stricter reserve requirements, standard capital requirements, and a separate application process for banks that want to issue stablecoins. With that, the central bank is taking another step in carrying out the GENIUS Act, the federal stablecoin law that was signed by President Donald Trump last year.
Stricter Reserve Requirements
Under the proposal, payment stablecoin issuers would have to fully back their tokens with short-term U.S. Treasury bills or other highly liquid assets. The Fed wants to make sure there are enough qualifying reserves for every stablecoin issued. That lines up with the law itself, which requires stablecoins to be fully backed by U.S. dollars or similarly liquid assets, among other things.
On top of that reserve requirement, the Fed is also proposing standardized capital requirements. These are meant to better manage risks at firms that issue stablecoins. For banks supervised by the board that want to issue a stablecoin, there would also be a specific application process.
More Focus on Oversight
The GENIUS Act also includes annual audits and has an effective date in January 2027. The original deadline was in July, but regulators often take more time to work out new rules. For the crypto market, what matters most is that the law is now being filled in further, making it clearer what requirements will soon apply to stablecoin issuers in the U.S. That fits into the broader shift where banks and payment companies increasingly see stablecoins as infrastructure for payments and settlement, such as bank settlement via stablecoins.
Barr Warns About AML Risks
Fed Governor Michael Barr supported the latest proposal, but he also said he wants to see more work on anti-money laundering. He pointed out that stablecoins can be used in illicit money flows, especially because customer identification is not always present on secondary markets. Barr said effective enforcement is still needed to make sure institutions set up and maintain their compliance programs properly. In doing so, the Fed is not only discussing reserves and capital, but also how oversight should work in practice.
