GENIUS Act Proposes New Framework For Stablecoin Regulation

According to CoinDesk, the latest draft of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, introduced ahead of a hearing on Tuesday, suggests a major change in the oversight of stablecoins. The proposal aims to divide regulatory responsibilities between state and federal authorities while implementing new enforcement and transparency standards for issuers. The GENIUS Act, initially introduced by Senator Bill Hagerty in February, is backed by Senators Tim Scott, Chairman of the Senate Banking Committee, Kirsten Gillibrand, Cynthia Lummis, and Angela Alsobrooks. A key feature of the draft is the increased threshold for state regulatory authority over stablecoins. States would now have the power to regulate stablecoin issuers with a market cap of up to $10 billion, in collaboration with federal authorities, thereby expanding their influence over a significant portion of the stablecoin market. Additionally, the draft includes a waiver process that allows larger issuers to remain under state supervision if they meet certain criteria, such as demonstrating strong capital, maintaining a good track record, and being overseen by an experienced state regulator. The updated bill also introduces new transparency and disclosure requirements for stablecoin issuers. Issuers would need to publish monthly liquidity reports detailing their reserve compositions, including the total number of outstanding stablecoins. Reserves must consist of U.S. currency, demand deposits, Treasuries, or other approved assets. Furthermore, stablecoin issuers would be required to establish mechanisms to comply with transaction freeze orders, and the Secretary of the Treasury would have the authority to block and prohibit transactions involving stablecoins issued by foreign entities. While previous versions of the bill included provisions for enhanced know your customer (KYC) and anti-money laundering (AML) requirements, the latest draft explicitly categorizes stablecoin issuers as financial institutions for AML purposes. This designation mandates the establishment of compliance programs and due diligence on high-value transactions. The GENIUS Act is now set to undergo amendments by the Senate Banking Committee before being referred to the full Senate for debate and a final vote.