Fed's Stablecoin KYC Drop Hits Issuers Only—Wallet-to-Wallet Stays Off the Hook 🎯

The U.S. Federal Reserve, alongside the FDIC, OCC, NCUA, and Treasury's FinCEN, issued a proposed rulemaking Thursday requiring permitted payment stablecoin issuers to maintain customer identification programs comparable to those used by banks and credit unions under the Bank Secrecy Act. The proposal implements provisions of the GENIUS Act, which was signed into law in July 2025 and formally legalized the issuance of stablecoins pegged to the value of the U.S. dollar. The public comment period will run for 60 days after publication in the Federal Register, which is scheduled for Monday.

Under the proposed framework, stablecoin issuers would be required to verify customers' names, birthdates, addresses, and identification numbers, and to cross-reference that data against U.S. government lists of terrorists and blacklisted groups. "The proposal would introduce requirements for these stablecoin issuers that are comparable to customer identification program requirements for banks and credit unions," the Fed said in a press release. Both federal and state-qualified issuers operating under the GENIUS Act framework would be subject to the rules.

A central feature of the proposal is what it does not require. The agencies distinguished between direct customer relationships with issuers and secondary-market activity, meaning wallet-to-wallet transfers, exchange trading, and other peer-to-peer transactions would not automatically trigger customer identification obligations for stablecoin issuers. Regulators noted 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, a carve-out that prompted Fed Governor Michael Barr to issue a critical statement despite voting in favor of the proposal. "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."

All of the Fed's governors voted in favor of the proposal with one exception: Chair Kevin Warsh, President Donald Trump's nominee, abstained and issued no statement explaining his decision. A Fed spokesperson did not immediately respond to a request for comment. The vote came a day after the central bank held its benchmark federal funds rate steady at a target range of 3.5% to 3.75%, the fourth such hold this year, as policymakers monitor inflation and geopolitical tensions in the Middle East.

The proposal is the latest implementation step under the GENIUS Act, which is expected to take effect 18 months after enactment or 120 days after federal authorities finalize implementing regulations. In April, the FDIC separately proposed that corporate deposit insurance rules for stablecoin issuers not extend to holders. The GENIUS Act was largely championed by U.S. stablecoin issuers, including firms tied to $BTC and $ETH market activity, while Congress continues to weigh the Digital Asset Market Clarity (CLARITY) Act, which would redefine agency roles in crypto oversight.