The GENIUS Act: What Stablecoin Issuers Need to Know

The U.S. Senate has passed the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), marking a major milestone in the regulation of payment stablecoins in the United States. This new law aims to provide clarity and consumer protection for stablecoin issuers, but it also introduces new complexities—especially regarding overlapping regulatory authority and ongoing compliance risks.

What Is the GENIUS Act?

The GENIUS Act is the first comprehensive federal framework for regulating payment stablecoins—digital assets pegged to the U.S. dollar or other national currencies and designed for payment or settlement purposes. The law sets out who can issue stablecoins, how they must be backed, and what compliance standards must be met.

Key Provisions for Stablecoin Issuers

Who Can Issue Stablecoins?

Only insured banks, credit unions, federally-qualified non-bank issuers, or state-qualified issuers (with less than $10 billion in outstanding stablecoins) may issue payment stablecoins in the U.S.

Large tech companies are restricted from direct issuance unless they partner with regulated entities.

Reserve Requirements

Issuers must maintain 100% reserves, fully backing all outstanding stablecoins with cash or high-quality liquid assets such as U.S. Treasury securities.

Rehypothecation of reserves is generally prohibited, ensuring assets remain available for redemption.

Transparency and Audits

Monthly public disclosures of reserve composition and redemption policies are required.

For issuers with over $50 billion in market cap, annual financial audits are mandatory.

Regulatory Oversight

Issuers can choose federal oversight (Comptroller of the Currency) or state oversight if their market cap is under $10 billion.

Once a state-regulated issuer exceeds $10 billion, it must transition to federal regulation within 360 days.

The Comptroller has exclusive authority over federally-qualified nonbank issuers.

AML and Compliance

All issuers are subject to the Bank Secrecy Act, anti-money laundering (AML), and sanctions compliance requirements.

Issuers must implement transaction monitoring, customer identification, and suspicious activity reporting.

Foreign Issuers

Foreign stablecoin issuers can operate in the U.S. if their home country’s regulatory regime is certified as equivalent by the U.S. Treasury and they comply with U.S. law.

Legal Status

Compliant stablecoins are explicitly defined as non-securities, limiting SEC jurisdiction and reducing regulatory uncertainty for issuers.

Penalties

Unauthorized issuance can result in fines up to $1 million and imprisonment for up to five years per violation.

What’s Been Fixed—and What’s Still Uncertain

The Act clarifies who can issue stablecoins and what assets must back them, addressing previous ambiguity around reserve requirements and issuer eligibility. It also provides a clear path for both banks and nonbanks to participate, and for state-level innovation to continue for smaller issuers.

The Act clearly limits the SEC’s reach, reducing the risk of conflicting interpretations about whether stablecoins are securities.

Ongoing Uncertainty and Overlapping Authority

The dual regulatory regime means some issuers may face both state and federal oversight, especially during transitions as they grow. While the Act answers questions regarding issuer eligibility, it remains ambiguous in other areas.

For example, the Treasury has broad discretion to determine whether state or foreign regimes are “substantially similar” to federal standards, which could lead to inconsistent application or sudden changes in oversight.

The Act’s enforcement provisions allow for rapid intervention by federal authorities in “exigent circumstances,” but the criteria for such intervention are not fully defined, creating potential compliance risks for issuers.

The GENIUS Act Summary

What Stablecoin Issuers Should Do Now

1. Review Issuer Eligibility: Ensure your entity structure and regulatory status align with the Act’s requirements.

2. Strengthen Compliance: Prepare for rigorous AML, reserve, and reporting standards.

3. Monitor Regulatory Developments: Stay alert for further rulemaking, especially regarding state-federal transitions and Treasury certifications.

4. Plan for Growth: If you’re a state-regulated issuer, have a strategy for transitioning to federal oversight as your market cap grows.

The GENIUS Act is a landmark for stablecoin regulation in the U.S., offering much-needed clarity and consumer protection. While the bill’s amendments have resolved many longstanding issues, stablecoin issuers must navigate a complex landscape of overlapping authorities and evolving compliance risks. Careful planning and proactive compliance will be essential as the regulatory environment continues to develop. For tailored legal advice on stablecoin compliance and the GENIUS Act, contact our attorneys today.