As the U.S. Treasury prepares to implement a law many view as laying the groundwork for the future of stablecoin regulation, several organizations representing the financial services industry offered recommendations for doing so in a safe and sound manner that would not harm consumers or disrupt the banking ecosystem.
In September, the Treasury requested stakeholder feedback on various aspects of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in an advance notice of proposed rulemaking. The agency later extended the comment deadline to stretch into November to give more stakeholders time to weigh in.
Commenters were asked questions about how federal regulators should implement requirements to be placed on stablecoin issuers and service providers and whether terms like “payment stablecoin” and “digital asset service provider” needed more clarity for the purpose of compliance.
In response, the American Bankers Association, America’s Credit Unions, the Bank Policy Institute, the Community Development Bankers Association, the Consumer Bankers Association, the Independent Community Bankers of America, the Financial Services Forum, the National Bankers Association and The Clearing House issued a host of recommendations in a 42-page joint comment letter.
“The associations believe that it will be critical that the Treasury Department and applicable regulators craft regulations under the GENIUS Act that preserve the benefits of payment stablecoins for their intended use in payments and settlements, without causing undue and unnecessary risks for consumers, other stablecoin holders or users, competition, credit availability, illicit finance or financial stability,” the letter stated.
The trades stressed the importance of federal regulators coordinating efforts to ensure consistent national oversight of large payment stablecoin issuers to avoid regulatory arbitrage among federal, state and foreign regimes.
The associations urged the Treasury to prohibit permitted payment stablecoin issuers (PPSIs) or related digital asset service providers from paying interest or yield on payment stablecoins in a manner that is consistent with the congressional intent of the law. They also cautioned that the absence of such a prohibition could result in what they referred to as an “interest rate war.”
“[T]he GENIUS Act’s prohibition on the payment of interest or yield prevents significant risks to payment stablecoin issuers and financial stability,” the trades wrote. “If payment stablecoin issuers may directly or indirectly provide economic benefits to holders or users of their payment stablecoins, there is a risk of an ‘interest rate war.’ That is, issuers that have the greatest resources (on their own or together with affiliates or third-party partners) could seek to outcompete other issuers by offering more aggressive benefits to holders or users.”
The trades emphasized the importance of preventing a broad scope of covered issuers and related persons who act on their behalf from evading the prohibition on interest and yield payments. Doing so would ensure that economic benefits provided to stablecoin holders or users would be treated as payments of interest or yield by the issuer, whether provided directly or indirectly.
They also pressed for the agency to ensure consistent regulation across jurisdictions to prevent arbitrage and to establish appropriate requirements and oversight to combat illicit finance and national security risks posed by PPSIs, payment stablecoins and digital asset service providers. Among the security threats addressed at length in the letter were cybersecurity attacks.
“All financial entities are subject to cyberattacks by criminals seeking to steal or appropriate customer funds or customer assets,” the trades wrote. “Payment stablecoin reserves and payment stablecoins may be subjects of cyberattacks, from direct thefts to more sophisticated scams and laundering operations. In light of growing cybersecurity risks in financial markets, custodians must implement comprehensive cybersecurity programs that include threat detection and monitoring systems; multi-layered security controls for private key management; incident response protocols; regular penetration testing and vulnerability assessments; and employee training on security best practices.”
Additionally, the banking trades urged the agency to establish a clear separation of banking and commerce, requiring stablecoin issuers to maintain transparency, robust custody practices and conflict-of-interest safeguards. The letter also asserted the need for uniform consumer protections and a clarification of statutory definitions to create common standards and reduce regulatory evasion.
Federal regulators will have until Jan. 18, 2027, to implement all aspects of the law.