The Senate is preparing to advance 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 developed through bipartisan negotiations and consultations with industry experts, academics, and government officials.
Currently, stablecoins operate without comprehensive legal guidelines, leaving gaps in consumer protection, national security measures, and ethical clarity. The GENIUS Act seeks to address these issues by imposing strict requirements on stablecoin issuers.
“The GENIUS Act requires all stablecoin issuers, including foreign issuers, to have the technological capability to freeze and seize stablecoins and also comply with lawful orders,” states the document. It mandates compliance with U.S. anti-money laundering (AML) laws and sanctions requirements.
Consumer protection is a central focus of the bill. “At its core, the GENIUS Act is a consumer protection bill,” it claims. The act proposes 100% reserve backing for stablecoins with U.S. dollars or similarly liquid assets and demands monthly public disclosures of reserve compositions along with annual audited financial statements for larger issuers.
The legislation also clarifies that ethics laws apply to members of Congress regarding stablecoin issuance activities. It introduces guardrails on transactions between stablecoin issuers and their affiliates to prevent market abuse.
Furthermore, the act distinguishes between payment products like stablecoins and traditional banking services by prohibiting yield or interest offerings on payment stablecoins.
To safeguard against financial instability, the GENIUS Act implements reserve rules banning risky assets or fractional reserves for backing stablecoins. It enforces transparency through mandatory disclosures reviewed by registered accounting firms and incorporates federal audits for significant issuers.
Additionally, the act closes loopholes allowing foreign-issued stablecoins into the U.S. market unchecked by providing a regulatory framework for them.
The document emphasizes that this legislation results from extensive bipartisan discussions involving input from state regulators, federal agencies such as the Federal Reserve and Treasury Department, as well as over 60 commenters from various sectors.
Finally, it asserts that “the bill makes it clear that nothing in the Act expands or contracts current eligibility for master account access.”
