Congress Passes GENIUS Act: Landmark Framework for Payment Stablecoins Will Reshape U.S. Digital Asset Regulation

Key Provisions of the GENIUS Act
The GENIUS Act creates a comprehensive U.S. regulatory framework for “payment stablecoins”— digital assets that are designed to be used as a means of payment or settlement, are redeemable for a fixed amount of monetary value and that issuers represent will maintain a stable value relative to the value of a fixed amount of monetary value.

Permitted Stablecoin Issuers
The GENIUS Act establishes a dual federal-state regulatory framework for stablecoin issuance. Under this structure, federally approved entities may issue stablecoins under direct federal supervision, while state-regulated entities may do so subject to compliance with baseline federal standards. This dual framework was designed to promote flexibility while maintaining uniform standards and safeguards. Under the GENIUS Act, the following types of entities will be permitted to issue payment stablecoins (after receiving approval from the relevant federal or state regulator):

-  Subsidiaries of federally insured depository institutions (IDIs), which the GENIUS Act defines to include federally insured banks and credit unions;

-  Uninsured national banks;

-  Nonbank entities, subject to approval and oversight by the Office of the Comptroller of the Currency (OCC);

-  Federal branches of foreign banks; and

-  State-regulated entities (such entities must transfer to federal regulation if they have more than $10 billion in issued and outstanding payment stablecoins.)

Extraterritorial Application
The GENIUS Act also has significant implications for foreign entities that issue stablecoins to persons located in the United States. The legislation authorizes U.S. regulators to exercise jurisdiction over such entities to ensure adherence to anti-money laundering (AML), sanctions, and consumer protection standards. Foreign stablecoin issuers may also be subject to federal registration, disclosure and compliance obligations if they engage in activities that impact U.S. markets or consumers. This framework will extend U.S. regulators’ reach beyond domestic borders, and foreign stablecoin issuers will need to reassess their operational models, compliance infrastructure and legal exposure when offering stablecoin products to U.S. residents.

Reserve Requirements
The GENIUS Act imposes strict reserve requirements designed to ensure the safety and stability of payment stablecoins. Payment stablecoin issuers must maintain full, 1:1 backing of all outstanding stablecoins with permitted, liquid assets, which include U.S. dollars, demand deposits at IDIs, short-term U.S. Treasury obligations and balances held at the Federal Reserve. Issuers must hold these assets in segregated accounts, undergo regular third-party audits and provide monthly disclosures to verify reserve sufficiency. Consistent with the SEC’s earlier guidance on stablecoins, the GENIUS Act prohibits algorithmic stablecoins from being classified as “payments stablecoins,” even if backed by 1:1 reserves.

Compliance Obligations
Under the GENIUS Act, all payment stablecoin issuers, whether federally or state-regulated, must comply with applicable Bank Secrecy Act requirements, including implementing AML and countering the financing of terrorism programs, and comply with Office of Foreign Assets Control sanctions requirements. The GENIUS Act also prohibits issuers from paying any interest or yield on stablecoins. Federal and state regulators will have the authority to conduct periodic examinations of payment stablecoin issuers and, in appropriate circumstances, bring enforcement actions to restrict unsafe or unlawful activity.

Next Steps
While the statute itself takes immediate effect, key GENIUS Act compliance obligations will be outlined in regulations issued by federal agencies, including the Federal Reserve, OCC, and U.S. Treasury Department. The legislation directs those agencies to issue regulations governing licensing, reserve requirements, disclosures, compliance programs and enforcement processes within 180 days of the bill becoming law. Those regulations will likely be finalized and become operational by early to mid‑2026, as specified in the promulgated regulations.

Entities currently engaged in issuing or managing payment stablecoins, and those who plan to enter the U.S. market, should consider taking the following immediate steps to prepare for the GENIUS Act’s requirements:

• Licensing Analysis. Determine whether the entity qualifies for licensure and begin preparing to submit necessary application(s).
• Compliance Planning. Assess existing compliance programs, including gap analyses to identify needed changes.
• Reserves. Implement compliant reserve structures.
• Disclosures. Align operations with monthly reporting and audit mandates.

The GENIUS Act was passed as part of a large focus on cryptocurrency in both the House and Senate over recent weeks, including this week’s unofficial “Crypto Week” in the House. The House is poised to pass legislation, known as the CLARITY Act, setting forth standards for cryptocurrency market structure regulation, and the Senate is also considering its own version of market structure legislation. At the same time, House conservatives are pushing for advancement of legislation to ban a Central Bank Digital Currency. Pillsbury is analyzing and gathering intelligence from congressional sources on these proposals and will report on them in future client alerts.

Pillsbury’s interdisciplinary team is actively monitoring the implementation of the GENIUS Act and will provide timely updates as the federal agencies issue regulations. We are available to help clients across the banking, digital assets, payments and technology sectors assess the impact of the Act and prepare for a range of outcomes, whether through internal strategy reviews, engagement with regulators or transactional structuring aligned with anticipated regulatory requirements.