Background:
On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act (S. 1582) (“the Act”) into law. The law establishes a federal licensing and supervisory framework for payment stablecoins and their issuers. Implementation of the Act will require significant work from the U.S. Department of Treasury, federal banking agencies, state banking agencies, and other government agencies in the form of rulemakings and other actions. The law becomes effective the earlier of 18 months after its date of enactment or 120 days after federal agencies issue final regulations implementing the Act. In addition to the GENIUS Act, the House passed two other digital asset bills during the week of July 14th, Congress’s “Crypto Week,”—the Digital Asset Market Clarity Act of 2025 (“CLARITY Act of 2025”) (H.R. 3633) and the Anti-CBDC Surveillance State Act (H.R. 1919) —which, respectively, seek to establish a comprehensive regulatory market structure for digital assets and prevent federal issuance of a national central bank digital currency (“CBDC”).
As we reported in an earlier client alert, Senator Bill Hagerty (R-TN) introduced the GENIUS Act in February 2025 in collaboration with initial co-sponsors, the Committee on Banking, Housing, and Urban Affairs of the Senate (“Senate Banking Committee”) Chairman Tim Scott (R-SC) and Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY).
The law aims to balance federal and state regulatory authority, ensure transparency through audits and reporting, and establish clear enforcement mechanisms. While the House passed the GENIUS Act without amending the version it received from the Senate, the June 2025 version of the GENIUS Act approved by the Senate Banking Committee, known as the Hagerty substitute amendment (the “Hagerty Amendment”), updated the May 2025 version of the bill in several notable ways. Several key takeaways from the enacted GENIUS Act are outlined below:
1. Only certain federally or state-approved entities may issue payment stablecoins.
The GENIUS Act restricts the authority to issue payment stablecoins to entities that are either (1) subsidiaries of insured depository institutions regulated by a federal banking agency; (2) nonbank institutions supervised by the Office of the Comptroller of the Currency (“OCC”); or (3) state-chartered entities subject to either federally imposed standards or substantially similar state regimes. Sec. 2(11),(23). The May 2025 version of the bill broadened this definition from the February 2025 text to include uninsured national banks and federal branches of non-U.S. banks. Sec. 2(11). Notably, the Act also includes language clarifying that the law does not alter the existing eligibility of any entity to obtain a Federal Reserve master account. Sec. 4(a)(13).
2. Non-financial firms are generally prohibited from issuing stablecoins.
A new provision of the Act prohibits non-financial services public companies—and foreign entities that are their functional equivalents—from serving as payment stablecoin issuers, unless they receive unanimous approval from a new federal interagency body: the Stablecoin Certification Review Committee (“SCRC”). The SCRC consists of the Secretary of the Treasury (as chair), the Chair of the Federal Reserve Board (or the Vice Chair for Supervision), and the Chair of the Federal Deposit Insurance Corporation. Sec. 4(a)(12); Sec. 2(27).
In addition to the issuer restriction, the final Act limits how such stablecoin issuers may use customer data. These restrictions include narrow exceptions for lawful compliance activities. Sec. 4(a)(12).
3. Tying arrangements are prohibited.
The Act bans certain “tying” arrangements that condition access to stablecoin services from an issuer on the purchase of unrelated products or services from that issuer or an agreement not to obtain products or services from a competitor. Sec. 4(a)(8).
4. Foreign stablecoin issuers are subject to their own licensing and enforcement regimes.
Foreign stablecoin issuers are permitted to issue payment stablecoins in the United States if they satisfy the Act’s licensing and compliance requirements, including registration with the OCC and maintenance of reserves in U.S. financial institutions, provided that the Secretary of the Treasury has concluded that the company’s home regulator has a regulatory and supervisory regime that is comparable to the GENIUS Act’s framework. Sec. 18.
The Treasury Department is required to publish any findings that a foreign stablecoin issuer is out of compliance with a “lawful order” that requires the seizure, freezing, burning, or the prevention of the transfer of payment stablecoins issued by the issuer. Sec. 8(b); 2(16). Upon such a finding, the Department must prohibit U.S. trading platforms from listing the non-compliant stablecoin and may impose civil penalties of up to $100,000 per violation per day against digital service providers for facilitating secondary trading in restricted payment stablecoins and up to $1 million per violation per day against the issuers for continuing to publicly offer their payment stablecoins in the U.S. and may revoke the issuer’s access to U.S. markets. These secondary trading restrictions may be lifted once the issuer cures the violation. The Treasury Department also has the authority to issue specific or general licenses for engaging in secondary trading—or waive compliance altogether—where a blanket ban would jeopardize national security or other U.S. interests. Sec. 8(c).
5. Payment stablecoins must be fully backed and redeemable at par.
The Act defines a “payment stablecoin” as a digital asset intended for use in payments or settlements and requires that each such stablecoin be backed on a one-to-one basis with reserves such as U.S. dollars, Treasury securities, money received under repurchase agreements, or similarly liquid assets approved by regulators. Sec. 2(22), Sec. 4(a). Importantly, a stablecoin does not include a digital asset that is a national currency, thereby excluding CBDCs from the Act’s ambit. Issuers must maintain publicly available redemption policies and represent that they will maintain, or create the reasonable expectation that they will maintain, a stable value relative to the value of a fixed amount of monetary value. Sec. 4(a); Sec. 2(22).
6. Stablecoin issuers must comply with prudential and reserve requirements.
To promote financial stability, the law imposes strict prudential obligations on stablecoin issuers. Sec. 4(a). In addition to maintaining full reserve backing for all circulating stablecoins, issuers must segregate these reserves from the institution’s operational funds and avoid rehypothecation of reserve assets. Sec. 10. Additionally, issuers must file monthly certifications confirming the adequacy of reserves and must comply with capital and liquidity requirements to be established by federal and state regulators. Sec. 4(a)(1)(c), (a)(3), (a)(4).
7. Certain issuers may operate under state oversight if the state framework is federally certified.
Stablecoin issuers with a consolidated total outstanding issuance of $10 billion or less may choose to be regulated under a state-level regulatory regime, provided the state’s framework is deemed “substantially similar” to the federal regime. The SCRC must approve certification of a state’s framework before such supervision can take effect. Sec. 4(c)(4). Through notice-and-comment rulemaking and in consultation with the SCRC, Treasury will set the standards for certification. Sec. 4(c)(2).
To encourage rapid implementation, the SCRC is directed to expedite certification for states that already have applicable digital asset regulations in force, with a 180-day deadline from enactment of the GENIUS Act. Sec. 4(c)(7).
The Act also allows a state-chartered bank that owns a permitted payment-stablecoin issuer to conduct stablecoin-related activities—such as money transmission and custody—across state lines without obtaining separate licenses, so long as certain capital and liquidity conditions are met. Sec. 16(d). Additionally, a new savings clause clarifies that nothing in the Act limits states’ authority to supervise or examine their own chartered institutions and subsidiaries. Sec. 5(h).
8. Federal agencies are authorized to bring enforcement actions for non-compliance with the GENIUS Act’s licensing and compliance requirements.
The primary federal payment stablecoin regulators are authorized to take enforcement actions against federally regulated payment stablecoin issuers, with the Federal Reserve and OCC permitted to take enforcement actions against certain issuers operating under state regimes under unusual and exigent circumstances. Sec. 6(b); Sec. 7(e).
The enforcement powers for federally regulated issuers are modeled after Section 8 of the Federal Deposit Insurance Act and allow for the imposition of civil penalties, license revocations, and cease-and-desist orders in response to violations of applicable law. Sec. 6(b).
9. Stablecoin custodians are subject to consumer protection and other requirements.
Entities that provide custody services for payment stablecoins must meet baseline federal standards designed to protect customers, including asset segregation requirements and regulatory reporting. Sec. 10.
10. Stablecoins are treated as payment instruments, not securities or commodities.
To provide regulatory clarity, the GENIUS Act excludes payment stablecoins issued by permitted payment stablecoin issuers from the definition of a security under various federal securities laws. Sec. 17. Payment stablecoins are also excluded from the definition of a commodity under federal commodities law.
Additionally, the GENIUS Act prohibits the federal banking agencies, the National Credit Union Administration (in the case of a credit union), and the Securities and Exchange Commission (“SEC”) from requiring institutions to record custodied stablecoins as liabilities on their balance sheets. Sec. 16(c)(1). This provision directly addresses the concerns of market participants, members of Congress and others with the SEC’s previous position on accounting for custodied digital assets, as described in the since-revoked SEC Staff Accounting Bulletin 121. The provision is intended to provide clearer accounting treatment for institutions safeguarding digital assets.
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Conclusion: The GENIUS Act marks a significant development in the regulation of payment stablecoins. By establishing clear boundaries for issuer eligibility, strict prudential and consumer protection standards, and a dual state-federal supervisory pathway, the Act provides a robust and durable regulatory and supervisory structure that can foster innovation in stablecoin technology.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Financial Services practice.
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