Key Takeaways:
The Federal Reserve and five other US agencies proposed requiring stablecoin issuers to verify customer identities under the same Bank Secrecy Act standards that apply to traditional banks.
The Federal Reserve, Treasury Department, OCC, FDIC and two other regulators on Thursday issued a 130-page notice of proposed rulemaking that would require permitted payment stablecoin issuers — known as PPSIs — to collect each customer's legal name, date of birth, physical address and a government-issued identification number before opening an account. The proposal opens a 60-day public comment period.
"I support the issuance of this proposal," Fed Governor Michael Barr said in a statement, though he added that he remains concerned the GENIUS Act "does not do enough so far to address the risks of illicit finance conducted through secondary market transactions in payment stablecoins." Barr, who served as the central bank's supervisory chief before the Trump administration, said he will pay close attention to whether the ID provisions "should be extended to secondary market activity."
The rulemaking is the latest implementation step of the Guiding and Establishing National Innovation for US Stablecoins Act, which President Trump signed into law in July 2025. The GENIUS Act created the first federal regulatory framework for stablecoins, mandating 100% reserve backing with liquid assets and subjecting issuers to the Bank Secrecy Act for the first time. The statute takes effect on the earlier of Jan. 18, 2027, or 120 days after primary federal regulators issue their final implementing rules.
Warsh abstains as Barr flags secondary-market gap
All of the Fed's governors voted in favor of the proposed rulemaking except Chair Kevin Warsh, who abstained without issuing a statement or explanation. Former Chair Jerome Powell supported the proposal. The abstention from Trump's hand-picked Fed chair introduces an element of uncertainty around the rule's ultimate trajectory.
The proposal defines an "account" to include direct redemption events, meaning a person who acquires a stablecoin on a secondary exchange and later redeems it directly with the issuer would trigger customer identification obligations at that moment. Purely secondary-market transactions conducted via smart contract where the PPSI is not a direct counterparty would not constitute an account relationship under the framework — a distinction Barr flagged as a potential gap.
Decentralized protocols are exempt from the requirements, a feature of both the GENIUS Act and the proposed rule that Barr criticized in his statement. The 130-page document explicitly asks for comment on whether customer identification requirements "should be extended to secondary market activity" and what the benefits and drawbacks would be.
Parallel rulemaking across multiple agencies
The Treasury's Financial Crimes Enforcement Network issued its own related proposed rule in April 2026, applying GENIUS Act anti-money laundering provisions to stablecoin issuers. That rule would carve PPSIs out of the existing money services business category and treat them as a distinct class of BSA-covered financial institutions — a structural change given FinCEN's finding that roughly half of known stablecoin issuers have not registered as MSBs.
The FDIC and OCC each issued parallel notices covering licensing, reserves, capital requirements and redemption standards. The customer identification proposal announced Thursday is a separate, complementary rulemaking to those AML and sanctions rules.
Crypto-native firms including Tether, with its USDT, and Circle, with its USDC, have dominated the stablecoin market, though traditional financial firms have increasingly entered the space. The Treasury received 450 comments on its preliminary September document seeking input on GENIUS Act implementation. Final customer identification rules are not expected before 2027, meaning the statute could take effect before its full identity verification architecture is in place.
This article is for informational purposes only and does not constitute investment advice.
