Fed Releases Draft Rule Requiring Stablecoin Issuers to Verify Customer Identity

The US Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA) released a draft regulation on the 18th (local time) requiring stablecoin issuers to verify customer identities during coin issuance and redemption. The proposal extends existing anti-money laundering (AML) rules to stablecoin issuers as mandated by the GENIUS Act enacted in July last year, which designated stablecoin issuers as financial institutions under the Bank Secrecy Act. The agencies opened a 60-day public comment period to finalize the regulation.

Draft Regulation Applies CIP Requirements to Primary Market Transactions

The draft regulation titled "Customer Identification Program for Licensed Payment Stablecoin Issuers" imposes Customer Identification Program (CIP) obligations on licensed payment stablecoin issuers (PPSI) similar to those applied to banks and securities firms. The CIP requirements apply only to primary market activities involving direct transactions with issuers, such as issuance and redemption, and do not apply to secondary market transactions conducted through smart contracts. PPSI must collect name, date of birth or incorporation date, address, and identification number from all customers before account opening. Issuers must verify this information through documentation and contact methods, and retain records for five years after account closure.

Fed Governor Barr Highlights Secondary Market Regulatory Gaps

Fed Governor Michael Barr stated, "I express concern that the GENIUS Act's regulatory framework does not sufficiently address the risks of illicit finance through secondary market transactions of stablecoins." Barr added, "We will carefully review proposals on whether to extend parts of the CIP regulations to the secondary market." The Fed plans to finalize the regulation after the 60-day comment period.

FAQ

What did the Federal Reserve announce on the 18th (local time)?

The Federal Reserve, along with the OCC, FDIC, and NCUA, released a draft regulation requiring stablecoin issuers to verify customer identities during coin issuance and redemption, extending existing anti-money laundering rules to the stablecoin sector.

Why do stablecoin issuers now face customer identification requirements?

The GENIUS Act enacted in July last year designated stablecoin issuers as financial institutions under the Bank Secrecy Act, triggering the obligation to implement Customer Identification Programs similar to traditional banks and securities firms.