Introduction
On Wednesday, the Office of the Comptroller of the Currency (OCC) unveiled a proposed framework to govern the issuance and oversight of payment stablecoins in line with the GENIUS Act. This significant legislative initiative, which became law last July, is designed to establish the first federal guidelines for stablecoins, a type of digital currency that aims to maintain a stable value.
Public Commentary Phase
The OCC’s announcement initiated a public commentary phase lasting 60 days, inviting stakeholders to share their opinions on the proposed rules detailing how payment stablecoins are to be created, managed, and, if necessary, dismantled under federal oversight. According to the legislation, only designated entities labeled as “permitted payment stablecoin issuers” will have the authority to issue stablecoins, and it prohibits digital asset service providers from offering non-compliant alternatives to consumers in the United States.
Integration with Traditional Finance
Musheer Ahmed, managing director at Finstep Asia, highlighted that these regulations will effectively integrate the stablecoin sector into traditional finance, marking a shift that includes stringent monitoring in connection with banks. This move comes at a time when the U.S. is anticipating an influx of regulated stablecoins from various sectors such as payment facilitators and cryptocurrency firms, as they develop applications for tokenized traditional finance (TradFi).
Key Elements of the Draft Regulations
The draft regulations from the OCC address critical elements such as:
- Standards for reserve assets
- Requirements for mandatory redemption at par
- Comprehensive risk management and liquidity controls
- Protocols for audits and supervisory examinations
- Custody arrangements
- Application process for new issuers
Additionally, the proposal introduces a framework for capital backing and revises existing capital adequacy requirements.
Regulatory Oversight
Notably, the OCC intends to oversee not only domestic permitted payment stablecoin issuers, which include subsidiaries of national banks and federal savings associations but also foreign issuers hoping to access the U.S. market. This expansion of regulatory reach signals a significant move towards comprehensive governance over both U.S. and foreign stablecoin operations.
Collaboration with the Treasury Department
However, the proposed regulations do not include provisions regarding the Bank Secrecy Act or sanctions, as the OCC stated these issues will be tackled in collaboration with the Treasury Department. The new regulatory framework is expected to be finalized no later than January 2027, although it might be enacted sooner if the rule-making process accelerates, potentially taking effect in as little as 120 days after finalization.
Concerns from Banking Groups
Last August, a coalition of banking groups urged Congress to address multiple gaps within the GENIUS Act, particularly concerning yield offerings on stablecoins that could risk triggering significant deposit flight from traditional banks. Jonathan Gould, the OCC Chief, reassured stakeholders at an ABA conference that any substantial deposit movement would be gradual and noticeable, rather than occurring abruptly.
Potential Advantages of Regulated Stablecoins
According to Ahmed, regulated stablecoins may indeed provide a level of safety that exceeds traditional banking in times of financial strain, referencing that stablecoin issuers must hold full reserves for their tokens rather than managing a mere 10-20% capital ratio like typical banks. In extreme financial scenarios, Ahmed posited that the Federal Reserve could act as a “lender of last resort” by supporting the underlying assets used as reserves for stablecoins, which consist primarily of U.S. Treasuries and equivalent cash assets.
