FDIC proposes GENIUS regime, AML rollback and final debanking rule

• Key insight: FDIC-insured bank-affiliated issuers must fully back stablecoins, report monthly on reserves.
• Supporting data: No more than 40% of reserves may sit at a single custodian.
• Forward look: The two proposed rules will be open for comment for 60 days. 

The Federal Deposit Insurance Corp. board on Tuesday proposed a regulatory framework implementing the GENIUS Act that prohibits bank-affiliated stablecoin issuers from paying customers yield, “in cash, tokens, or other consideration.” However, the rule, like the Office of the Comptroller of the Currency’s GENIUS rule released in March, allows firms to rebut the ban “by submitting written materials,” that convince the agency that the contract does not violate the rule or “attempt to evade the prohibition.”

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The agency also proposed a rule stripping anti-money laundering compliance down to brass tacks and finalized a rule eliminating reputational risk in supervision, which they say helps prevent what they have said was past politically motivated regulatory scrutiny. All three were issued by unanimous vote. 

FDIC Chair Travis Hill said the stablecoin framework aligns, “in many respects,” with the OCC’s proposal.

“The proposed rule would reaffirm by regulation that deposits in tokenized form remain deposits under the Federal Deposit Insurance Act,” Hill said at the board meeting. 

While the FDIC currently is taking comment on the proposal, it is the agency’s first comprehensive rulemaking implementing the GENIUS Act. The proposal outlines how stablecoin issuers that are subsidiaries of FDIC-supervised banks, or FDIC issuers, may issue, redeem, manage reserves and conduct limited custodial services with payment-stablecoins.

The rule makes clear that FDIC issuers are prohibited from claiming stablecoins as FDIC-insured, nor may they pay interest or yield for holding stablecoins or extend credit to facilitate purchases. The proposal also says it would prohibit workarounds. 

“[Issuers] would be prohibited from paying interest or yield simply for holding, using, or retaining a payment stablecoin,” an agency memo noted. “Including through arrangements with affiliates or related third parties that effectively provide such yield.”

Issuers would be compelled to hold sufficient FDIC-approved assets to fully back stablecoins they issue, and report and audit these reserves monthly. Bank-issuers could hold the reserves internally or through other approved parties, but no more than 40% of reserves could be with a single custodian. If reserves fell below the full backing required, issuers would need to notify the FDIC and take corrective action. Issuers would be required to publicize their redemption policies and generally complete redemptions within two business days, with some exceptions.

The proposal would require issuers to manage interest rate risk “in a manner appropriate to the size and complexity,” of the firm and its assets and ensure operational capability keeps up with a firm’s size.

Custodians would need to keep customer assets separate from their own and “take appropriate steps,” to protect them from creditor claims. 

The rule also clarifies that the FDIC insures stablecoin reserves only as the issuer’s corporate deposits and deposits held as stablecoin reserves would “not be insured to payment stablecoin holders on a pass-through basis.” Tokenized deposits would be treated the same as regular deposits under the proposal.

“The FDIC believes that treating FDIC issuers as owners of the reserves backing payment stablecoins is consistent with the GENIUS Act’s provisions that expressly provide that payment stablecoins are not backed by the full faith and credit of the United States, not guaranteed by the United States government, nor subject to federal deposit [or share] insurance,” an FDIC spokesperson said during the board meeting.  

Financial regulatory agencies have been rolling out GENIUS Act implementation rules in recent months. The Treasury earlier this month proposed criteria aimed at assessing when state-level stablecoin regulatory frameworks are “substantially similar” to the federal framework. 

A month earlier, the OCC proposed a rule implementing the GENIUS Act. Like the FDIC’s proposal, the OCC’s proposal officially bars platforms from paying yield on stablecoins held in custody, but allows challenges under a flexible “rebuttable” standard.

The FDIC board in December proposed a rule setting the process for FDIC-supervised banks to apply to issue payment-stablecoins through subsidiaries. In February, the FDIC announced it would extend the comment period to May 18.

In a separate measure, the agency also proposed stripping-back anti-money laundering requirements to align with the administration’s deregulatory push. The rule is in line with the Financial Crimes Enforcement Network’s proposal issued the same day.

Under the proposal, banks would be “empowered” to narrow the focus of their resources to blatant higher-risk customers and activities, while retaining risk-based internal controls, independent testing, a U.S.-based AML officer in contact with regulators and ongoing training in the organization. The rule introduces a two-part standard: banks must have a program and implement it. 

“For too long, Washington has asked financial institutions to measure success by the volume of paperwork rather than their ability to stop illicit finance threats,” said Secretary of the Treasury Scott Bessent of the rule. “Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.”

The proposal also directs the banking agencies to coordinate directly with the executive branch before issuing actions The FDIC would be required to notify Fincen 30 days or more before pursuing significant anti-money laundering actions, during which banks share their side of the story with Fincen. 

Hill said the proposal aims to avoid penalizing banks for relatively minor mistakes and “instead focus on effectiveness through better aligning regulation with risk and avoiding having to wait until a massive failure to take action.”

“At the same time, the proposal would still maintain the tools necessary for regulators to take action if, for example, a bank is accepting duffel bags full of cash from drug cartels or funding terrorists overseas,” Hill continued. 

The FDIC, along with the OCC, also moved to finalize a rule codifying the removal of “reputation risk” from bank supervision. While the proposed rule in October 2025 would have prohibited examiners from raising issues about anything other than “financial condition,” the final rule narrows that prohibition and expands what examiners may criticize. Examiners remain prohibited from evaluating banks based on public perception. That is, unless it presents financial or operational risks.

“The agencies have decided to add ‘operational’ into the final rule,” the agencies note. “Such that the definition of ‘reputation risk’ will be ‘any risk, regardless of how the risk is labeled by the institution or regulators, that an action or activity, or combination of actions or activities, or lack of actions or activities, of an institution could negatively impact public perception of the institution for reasons not clearly and directly related to the financial or operational condition of the institution.”

The agencies say they agree that examiners should be able to raise operational risk concerns with banks, as these could materially harm the bank’s business. 

“Public perception that an institution could be susceptible to a breakdown in the provision of services due to operational issues such as a cyberattack or a natural disaster could have a direct impact on customer’s willingness to do business with an institution and thus on the institution’s financial solvency,” the agencies continued. 

Comptroller of the Currency Jonathan Gould called the rule a step in the right direction from ensuring supervisory action is more focused on objective measures of safety and soundness. He also said that “agencies and certain banks,” should be on the lookout for enforcement pursuant to President Trump’s “Guaranteeing Fair Banking For All Americans,” executive order, saying “our work is not done under that EO.”

“Although we have made significant progress in our review of the alleged debanking actions of the largest national banks, we continue to delve into the details of specific complaints and policy choices,” Gould said. “Our collective efforts under the EO should shine a spotlight on the actions of agencies and certain banks, bringing accountability and ensuring that neither we nor banks restrict access to financial services on the basis of political or religious beliefs or lawful business activities.”