Stablecoin issuers in the U.S. will soon face a broad range of new responsibilities aimed at preventing criminal activities and ensuring compliance with regulatory bodies, according to forthcoming regulations from the U.S. Department of the Treasury reviewed by CoinDesk.
The proposed rules, drafted jointly by the Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), will mandate stringent controls for stablecoin companies. These include capabilities to ‘block, freeze, and reject’ transactions, as well as internal measures to adhere to the Bank Secrecy Act which oversees most U.S. financial activities.
This initiative represents a significant step in implementing the 2022 Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act — the first major crypto-sector legislation in the U.S. The proposal is set to undergo public commentary and possible revisions before finalization, with an emphasis on industry expertise in recognizing their own risks.
The summary of the joint proposal highlights a focus on effectiveness, noting that financial institutions are well-equipped to assess and manage risks related to money laundering, terrorist financing, and other illicit activities. The Treasury’s stance is that firms implementing suitable anti-money-laundering measures will generally be protected from enforcement actions unless they exhibit ‘a significant or systemic failure’ in their programs.
On the anti-money-laundering front, FinCEN expects stablecoin issuers to halt transactions specifically flagged and allocate more resources towards higher-risk customers and activities. When U.S. authorities target specific entities, regulated issuers must search their records for any related activities involving individuals or entities identified by FinCEN.
Issuers will also be expected to collaborate with the agency in targeting entities listed as ‘primary money laundering concerns.’ In 2023, crypto mixers like Tornado Cash were tagged under this label; however, earlier this year, the Treasury suggested that such mixers could serve legitimate privacy purposes.
Regarding sanctions, OFAC demands stablecoin firms implement risk-based controls for activities on primary or secondary markets, ensuring transactions violating U.S. sanctions are identified and blocked. This comes amidst significant concerns over sanction breaches in the crypto sector, exemplified by recent scrutiny of major exchanges like Binance.
Treasury Secretary Scott Bessent stated that these measures aim to shield the U.S. financial system from security threats while allowing American companies to innovate within the payment stablecoin ecosystem.
The crypto industry and its stablecoin leaders, including Tether, Circle, Ripple, and World Liberty Financial (associated with President Donald Trump’s family), have been anticipating regulations to further legitimize their assets as safe and reliable. Despite some tensions due to a historically uneasy relationship between governments and the crypto community, these new controls mark progress in defining regulatory boundaries.
The decentralized finance (DeFi) sector continues to pursue models that eliminate intermediaries for direct interactions; however, illicit-finance controls within this domain remain under negotiation as part of discussions on the Digital Asset Market Clarity Act in the U.S. Senate. While Treasury’s stablecoin proposal outlines some guidelines, much of crypto activity still awaits comprehensive regulation.
Earlier this year, another Treasury division — the independent Office of the Comptroller of the Currency, which oversees national banks and trusts — proposed its own standards for issuers it will monitor as a primary federal regulator. This week, its sister agency, the Federal Deposit Insurance Corp., released a similar proposal.
The GENIUS Act is scheduled to be fully implemented by 2027. In anticipation, companies like World Liberty Financial have sought charters and partnerships in stablecoins; for instance, it applied for a trust bank charter in January and manages USD1, a stablecoin. Currently under scrutiny after its AB DAO partner was linked to projects involving Cambodia’s Prince Group — the subject of major U.S. investigations and sanctions — such business relationships would face rigorous controls under the Treasury’s pending proposal.