Fed's Stablecoin Know-Your-Customer Rule Drops, But Wallet-to-Wallet Stays Off the Hook 🪝

The U.S. Federal Reserve on Thursday proposed a joint rulemaking requiring permitted payment stablecoin issuers to maintain customer identification programs comparable to those used by banks and credit unions, implementing provisions of the GENIUS Act enacted last summer that formally legalized stablecoin issuance. The proposal, issued alongside FinCEN, the FDIC, the OCC, and the NCUA, would require issuers to collect and verify customers' names, birthdates or formation dates, addresses, and identification numbers, and to cross-reference that data against government-provided lists of terrorists and blacklisted groups. The rulemaking will now enter a 60-day public comment period following publication in the Federal Register.

All members of the Fed's Board of Governors voted in favor of the proposed rulemaking with one exception: Chair Kevin Warsh, appointed by President Donald Trump, abstained and issued no public statement explaining the decision. The Fed did not immediately respond to a request for comment. Fed Governor Michael Barr, who voted in favor, issued a separate statement expressing concern that the framework does not adequately address illicit finance risks in secondary-market stablecoin transactions. "I support the issuance of this proposal," Barr said. "I remain concerned, however, that the GENIUS Act regulatory framework does not do enough so far to address the risks of illicit finance conducted through secondary market transactions in payment stablecoins." NCUA Chairman Kyle Hauptman separately characterized the proposal as the next step in finalizing the U.S. stablecoin regulatory framework.

A central feature of the rulemaking is what it does not cover. The agencies distinguished between customers who interact directly with permitted payment stablecoin issuers and individuals who acquire or transfer stablecoins on secondary markets, leaving wallet-to-wallet transfers, exchange trading activity, and other peer-to-peer transactions outside the scope of the customer identification obligations. Regulators stated that treating every stablecoin holder or blockchain transaction as a direct customer relationship would be difficult to implement and could undermine the practical operation of stablecoin networks. Decentralized protocols are similarly exempt from the requirements under both the proposal and the underlying GENIUS Act.

The rulemaking was issued the day after the Federal Reserve held its benchmark interest rate steady at a target range of 3.5% to 3.75%, the fourth time this year officials have maintained a wait-and-see posture amid inflation pressures complicated by geopolitical tensions in the Middle East. Outside the United States, Ireland's government on Thursday separately launched a National Risk Assessment on money laundering, terrorist financing, and proliferation financing, naming the misuse of crypto-assets among evolving threats, citing increasingly sophisticated fraud and emerging technologies.