FDIC staff proposes rule to regulate payment stablecoins under 'Genius Act'; board authorizes NPR

Staff presented a notice of proposed rulemaking to implement provisions of the National Innovation for U.S. Stablecoins Act (the "Genius Act") and to establish prudential standards for FDIC-supervised permitted payment stablecoin issuers. Shantelle Hernandez, counsel in the FDIC Legal Division, told the board staff "recommends that the board authorize publication of the notice of proposed rulemaking in the Federal Register with a 60 day comment period."

The proposal defines four core issuer activities — issuing and redeeming payment stablecoins, managing reserve assets, and providing limited custodial or safekeeping services — and sets explicit prohibitions. Eugene Frankel, fintech counsel, told the board FDIC issuers "would not be able to represent that payment stablecoins are FDIC insured, pay interest or yield simply for holding the stablecoin, or extend credit to customers to facilitate purchases of payment stablecoins."

On reserves, staff would require identifiable reserves fully backing outstanding payment stablecoins on at least a 1:1 basis as described in the Genius Act. Reserves would be subject to monthly disclosure and audit requirements, and staff would limit exposure to any single custodian to 40% of total reserves. The proposal would require issuers to notify the FDIC if reserves fall below parity and describe measures they are taking to restore value; the FDIC may take appropriate supervisory action on redemptions if necessary.

The NPR would also require issuers to publish clear redemption policies and defines timely redemption as no later than two business days from a holder's request unless extended by the FDIC under specified circumstances. Staff described expectations for proportionate risk-management programs, internal controls, an internal audit function and an operational backstop of highly liquid assets calibrated to operating expenses over the prior 12 months. The FDIC would set an initial minimum capital requirement of $5 million, subject to adjustment during the turnover period.

Staff clarified custodial protections: custodians must treat customer assets as the customer's property, take steps to protect assets from the custodian's creditors, and generally segregate custodial assets from a custodian's own assets, subject to limited exceptions. The proposal also states reserves backing payment stablecoins would be insured as corporate deposits of the FDIC issuer rather than as insurance to stablecoin holders, consistent with the Genius Act and the Federal Deposit Insurance Act.

The board heard statements supporting the proposal's balance of innovation and safety. After discussion, the board voted to authorize publication of the NPR. The resolution to publish the NPR passed; staff will publish the notice with a 60-day comment period and invited public submission of comments on the proposal's 144 questions.