Yesterday the US Treasury published proposed rules to implement the GENIUS Act’s requirements to address illicit finance, including AML and sanctions. The 300-plus pages of proposals were developed in conjunction with Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC). Rather than running through the entire document, we focus on two areas here. The first is the extent of stablecoin issuer involvement with secondary market transactions, and the second is enhanced due diligence. Plus there’s an interesting detail buried in the regulatory impact analysis: FinCEN and OFAC expect roughly 50 permitted payment stablecoin issuers (PPSIs) to be operating on average during the first three years.
Several other jurisdictions have targeted self-hosted wallets for enhanced due diligence, despite self sovereignty being a foundational feature of decentralized finance. By contrast, the Treasury proposals barely mention self-hosted wallets and impose no additional requirements. That’s not to say enhanced due diligence is off the table. It is simply reserved for a different group.
Existing rules require this in depth due diligence for foreign financial institutions and banks and for private banking accounts. While these sorts of relationships are usually referred to as correspondent accounts, similar requirements will be imposed on stablecoin issuers. The rules are relevant where the issuer provides “regular services, dealings, and other financial transactions” to the foreign institution or bank. Those activities encompass issuance, redemption, reserve management, custody and related services.
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