Fed Proposal Brings Bank-Style KYC to Stablecoins

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The Federal Reserve (Fed) and other regulators have proposed new identity verification requirements for payment stablecoin issuers operating under the GENIUS Act. The joint proposal would require issuers to adopt customer identification programs similar to those already used by banks and other financial institutions. If finalized, the rules would formally bring regulated stablecoin issuers into the Bank Secrecy Act’s customer verification framework.

Regulators Propose Bank-Style Customer Verification

Specifically, per the press release, the proposal was jointly issued by the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, and the National Credit Union Administration.

It implements the GENIUS Act’s requirement that permitted the treatment of payment stablecoin issuers as financial institutions under the Bank Secrecy Act.

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Under the proposed rules, issuers would have to establish written customer identification programs that allow them to form a reasonable belief that they know the identity of each customer opening an account. Similar requirements already apply to banks, broker-dealers, mutual funds, and several other regulated financial institutions.

The proposal also extends to issuers supervised at the state level under the GENIUS Act, and regulators said a single framework aims to provide consistent customer identification standards regardless of which agency oversees the issuer.

Proposal Builds on the GENIUS Act Framework

According to the proposal, payment stablecoin issuers would need to tailor their customer identification programs to the size, complexity, and risk profile of their businesses. Regulators said the approach takes into account the methods of opening the accounts, the types of customers served, and the information available to verify identities.

The agencies said stablecoin issuers are already subject to certain anti-money laundering obligations as money services businesses. However, the GENIUS Act specifically requires permitted payment stablecoin issuers to maintain effective customer identification programs, which brings them closer to the compliance standards applied to traditional financial institutions.

The proposal is open for public comment for 60 days after publication in the Federal Register. After reviewing feedback, the agencies will decide whether to adopt the rule in its current form or make changes before finalizing the requirements.