US Treasury introduces compliance rules for stablecoin issuers

The United States Department of the Treasury has outlined new regulatory measures for stablecoin issuers, aimed at bolstering financial crime compliance. On April 8, the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) jointly released a notice of proposed rulemaking (NPRM) under the GENIUS Act, detailing compliance requirements for permitted payment stablecoin issuers (PPSIs). These rules are set to take effect with the full implementation of the GENIUS Act in January 2027.

Strengthening AML and Sanctions Compliance

The proposed regulations would hold stablecoin issuers to the same standards as other U.S. financial institutions in combatting illicit finance. Issuers will need to establish anti-money laundering (AML) and countering the financing of terrorism (CFT) programs, with oversight from senior management. Specific measures include risk assessments, customer due diligence policies, appointing a compliance officer, employee training programs, and independent audits.

Moreover, the NPRM designates relationships between PPSIs and their partners, such as cryptoasset exchanges, as correspondent accounts. This classification obligates issuers to comply with additional AML requirements, including measures outlined under Section 311 of the USA PATRIOT Act.

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Key Areas of Focus for Stablecoin Issuers

The NPRM emphasizes the importance of financial crime risk management tailored to the unique characteristics of stablecoins and their underlying blockchains. Issuers are expected to assess how features like smart contracts, including the ability to freeze or block funds, affect overall risk. FinCEN also advises that risk assessments be updated when smart contract functionalities change or new blockchains are adopted.

One of the most notable aspects of the NPRM addresses compliance distinctions between primary and secondary market activities. While issuers are fully responsible for AML/CFT and sanctions compliance in primary market transactions, they are not required to monitor secondary market activities - transactions in which they are not direct participants. According to FinCEN, requiring issuers to monitor such activities would lead to an abundance of defensive suspicious activity reports (SARs) with limited intelligence value.

However, the NPRM does outline two crucial secondary market compliance requirements:

1. Freezing or Blocking Transactions: Issuers must maintain the technical ability to freeze or block funds in secondary markets in response to lawful orders, such as those from law enforcement or courts.
2. Preventing Sanctioned Party Participation: Issuers are responsible for ensuring that their stablecoins are not issued to or used by sanctioned entities, including individuals or groups on OFAC’s sanctions list or located in jurisdictions like Iran.

The NPRM suggests that blockchain analytics tools and programmable smart contracts could help issuers meet these obligations by identifying and blocking transactions involving sanctioned parties.

Public Input and Related Developments

The NPRM is open for public comment for 60 days following its publication in the Federal Register. These comments will inform the final rulemaking process by FinCEN and OFAC.

The Treasury has also issued a separate NPRM on April 1, focusing on aligning state-level regulatory regimes with the GENIUS Act. Additionally, on April 7, the Federal Deposit Insurance Corporation (FDIC) introduced a proposed prudential supervisory framework for PPSIs.

Conclusion

This latest regulatory push underscores the U.S. Treasury’s focus on establishing robust compliance standards for stablecoin issuers as part of the broader GENIUS Act framework. By introducing these measures, the government seeks to enhance financial crime prevention while addressing the unique challenges posed by stablecoins in both primary and secondary markets.

Further updates are expected as public comments are reviewed and final rules are drafted. The stablecoin market, which continues to grow as a vital component of the digital asset landscape, will likely face increased scrutiny as the GENIUS Act takes full effect in 2027.

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