The Senate is poised to take a significant step with the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which aims to create a regulatory framework for payment stablecoins. This legislation has been crafted after extensive bipartisan negotiations and consultations with various stakeholders, including industry experts and government entities.
Stablecoins currently operate without clear legal guidelines, lacking consumer protections, national security measures, limitations on Big Tech's involvement in issuing stablecoins, and ethical clarity. The GENIUS Act seeks to address these issues.
Critics have raised concerns about the potential misuse of stablecoins by illicit actors. In response, the bill mandates that all stablecoin issuers possess the capability to freeze and seize assets while complying with lawful orders. It also requires adherence to U.S. anti-money laundering (AML) and sanctions laws, imposing stricter reporting obligations than those currently required of banks.
Consumer protection is a central focus of the GENIUS Act. It establishes a federal framework for regulating payment stablecoins, ensuring 100% reserve backing with U.S. dollars or similarly liquid assets as determined by regulators. The bill also mandates monthly public disclosures of reserve compositions and annual audits for issuers exceeding $50 billion in market capitalization.
To prevent conflicts of interest among lawmakers and officials, the act clarifies that existing ethics laws apply to Congress members and senior executives involved in stablecoin issuance.
Concerns about transactions between stablecoin issuers and affiliates are addressed through regulations similar to anti-tying restrictions applicable to banks. Existing laws protecting sensitive consumer financial data will also apply.
The act distinguishes payment stablecoins from traditional banking products by prohibiting non-banks from offering lending or credit products tied to these digital currencies. It bans yield or interest offerings on payment stablecoins but allows competition within a regulated framework.
In addressing systemic risks, the GENIUS Act enforces strict reserve rules, transparency requirements through mandatory disclosures audited by registered firms, and oversight via annual audits for larger issuers. It prioritizes holders' claims in insolvency proceedings over other creditors'.
The act also targets foreign-issued stablecoins entering the U.S., closing loopholes for evasion of domestic regulations.
Finally, contrary to allegations of rushed legislative processes excluding Democratic input, the GENIUS Act reflects years of bipartisan discussions incorporating feedback from diverse stakeholders across federal agencies and industries.
