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- Key insight: States get flexibility in setting capital and liquidity, but must match federal protections on “uniform standards,” like AML.
- Expert Quote: “A State-level regulatory regime that nominally provides examination authority but limits its exercise — for example, by permitting examinations only upon the request or consent of a State qualified payment-stablecoin issuer — would likely not satisfy [the requirements].”
- Forward look: The proposal is open for 60 days and set for publication in the Federal Register Friday.
The Treasury on Wednesday proposed criteria aimed at assessing when state-level stablecoin regulatory frameworks are “substantially similar” to the federal framework.
The proposal, set for publication in the Federal Register on Friday for a 60-day public-comment period, gives states substantial leeway to deviate from the federal framework but contains some guardrails to ensure states do not create opportunities for companies to circumvent the rules and guidance pursuant to the law.
“The proposed rule recognizes that the Act provides States with broad discretion to design many aspects of their own unique regulatory regimes and accordingly provides wide latitude for States to deviate from certain Federal regulations while remaining ‘substantially similar’ to the Federal regulatory framework,” the proposal states. “A State-level regulatory regime that nominally provides examination authority but limits its exercise — for example, by permitting examinations only upon the request or consent of a State qualified payment-stablecoin issuer — would likely not satisfy [the requirements].”
The rule would implement the GENIUS Act’s language that allows smaller issuers — defined as those with under $10 billion in total payment-stablecoins in circulation — to opt for state oversight if their regimes are substantially similar to federal standards, as determined by an interagency review committee composed of principles from the Treasury, Federal Deposit Insurance Corp. and Federal Reserve.
The proposal outlines a relatively flexible approach. State regimes would generally comply if they meaningfully mirror the federal framework, but states could choose the particular regulatory processes to accomplish this. State regulators would need effective authority to oversee the kinds of nonnegotiable standards they have less discretion over. These less flexible, “uniform” standards include those on reserve requirements, anti-money laundering and sanctions.
States are obligated to protect stablecoin users at least as well as the federal government does in issues of custody and bankruptcy procedure. States could generally write their own rules on things like capital and liquidity, but a state regime would be supplanted by federal standards if it effectively limits oversight, waters down disclosures or lets companies take more risk with reserves than enshrined in federal standards.
Treasury also proposed that federal oversight would trump state regimes where states make rules that let companies shop for easier rules.
“The State-level regulatory regime must not materially narrow, condition, or limit the scope of the uniform requirements compared to the Federal regulatory framework,” the proposal states. “For example, if a State-level regulatory regime requires State qualified payment-stablecoin issuers to publicly disclose the issuer’s redemption policy … but does not require that the issuer publicly, clearly, and conspicuously disclose in plain language all fees associated with purchasing or redeeming payment-stablecoins, the State-level regulatory regime would materially diverge from the Federal regulatory framework.”
The Treasury’s proposal comes nearly a month after the OCC’s
The FDIC board in December