U.S. Treasury Proposes GENIUS Act Rules for Stablecoin Issuance, Offer, and Sale

Scope and Key Definitions

The proposed rulemaking explicitly provides for its extraterritorial effect over the offer or sale of a payment stablecoin to any person located in the United States. The proposed rulemaking also offers the following three additional definitions:

• "Issue" means the first time a payment stablecoin is transferred by the issuer such that another person has the right to use, transfer, convert, redeem, or repurchase the payment stablecoin. If an issuer reacquires its payment stablecoin, the first subsequent transfer that satisfies this definition shall also be considered a new issuance.
  
  
• "Issuer" means a person who: (i) is obligated to convert, redeem, or repurchase the payment stablecoin for a fixed amount of monetary value; and (ii) represents that the person will maintain, or creates the reasonable expectation that the person will maintain, a stable value relative to the value of a fixed amount of monetary value.
  
  
• "Located in the United States" includes all individuals physically present in the United States, other than non-residents temporarily visiting. Entities are considered to be located in the United States if they are incorporated or organized in the United States or have their principal place of business in the United States.

Prohibitions Regarding Issuers

Under the proposed rulemaking, if an issuer is located in the United States or issues a payment stablecoin to a person located in the United States, then it must qualify as a "permitted payment stablecoin issuer" or a compliant foreign payment stablecoin issuer. Permitted payment stablecoin issuers gain qualification under the GENIUS Act either through federal registration and compliance or through substantially similar state-level regulation.

The proposed rulemaking provides a limited safe harbor for inadvertent issuances by unqualified issuers to persons actually located in the United States. Under the safe harbor, the issuer must: (i) not be located in the United States; (ii) reasonably believe the recipient of the issuance is not located in the United States; (iii) actually implement policies designed to avoid issuing to persons located in the United States; and (iv) not engage in advertising or solicitation activities targeting persons located in the United States.

Prohibitions Regarding Digital Asset Service Providers

Beginning on July 18, 2028, digital asset service providers must also ensure that only payment stablecoins issued by issuers qualified under the GENIUS Act are offered or sold. When engaging with persons located in the United States, "digital asset service provider" is broadly defined in the GENIUS Act to include businesses in the United States that exchange, transfer, or act as a custodian of digital assets, or that participate in financial services related to digital asset issuance.

In addition, digital asset service providers must ensure that foreign payment stablecoin issuers will comply with lawful orders and arrangements specified under the GENIUS Act before offering or selling payment stablecoins from such issuers to persons located in the United States. However, a digital asset service provider may rely on an issuer's representations regarding compliance, provided that the digital asset service provider conducts reasonable due diligence on such representations.

The proposed rulemaking provides a safe harbor if digital asset service providers: (i) reasonably believe the persons to whom such payment stablecoins are being offered or sold are not located in the United States; (ii) implement policies designed to avoid offering or selling to such persons; and (iii) do not engage in advertising or solicitation activities targeting persons located in the United States.

Exemptions and Safe Harbors

The proposed rulemaking includes two limited exemptions from the above prohibitions: (i) for a subsidiary of an insured depository institution or a federally qualified payment stablecoin issuer applicant with a pending application on the GENIUS Act's effective date, provided a waiver is granted by the primary federal payment stablecoin regulator; and (ii) in the event that the Treasury determines that unusual and exigent circumstances exist. Additionally, three ongoing safe harbors specify that the prohibitions do not apply to: (i) the direct transfer of digital assets between individuals without an intermediary; (ii) transactions between accounts owned by the same individual that are offered by the same parent company; and (iii) self-custody transactions.

GENIUS Act Implementation

The NPRM follows proposed independent and interagency rulemaking from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Board of Governors of the Federal Reserve System.