Office of the Comptroller of the Currency Proposes GENIUS Act Implementing Rules for Payment Stablecoins

Pillsbury previously published a detailed analysis of the GENIUS Act’s statutory framework, including the observation that key compliance obligations would be further specified through implementing regulations issued by federal agencies. This client alert focuses on the OCC’s proposal and the operational detail it would provide for stablecoin issuers and covered activities within the supervisory ambit of the OCC.

The OCC states that the proposed rule would apply to national banks and their subsidiaries, Federal savings associations and their subsidiaries, Federal branches and their subsidiaries, foreign payment stablecoin issuers, nonbank entities that seek to be (or are approved as) Federal qualified payment stablecoin issuers, and certain State qualified payment stablecoin issuers for which the OCC has regulatory or enforcement authority under the GENIUS Act.

The OCC also indicates that the proposal addresses the GENIUS Act regulations the OCC is required to promulgate other than those related to the Bank Secrecy Act (BSA), anti-money laundering (AML) compliance and Office of Foreign Assets Control (OFAC) sanctions, which the OCC expects to address in a separate coordinated rulemaking with the U.S. Department of the Treasury. While the GENIUS Act itself already makes permitted payment stablecoin issuers subject to BSA, AML and OFAC requirements, the proposal stops at reiterating the Act’s mandate to comply with these requirements, leaving for later a joint rulemaking that will implement prudential standards for that compliance.

Overall, the proposal would implement a prudential model that effectively requires a 100% liquid reserve, prohibits lending or yield, imposes narrow activity restrictions and aligns with bank-style governance.

Several Key Proposed Requirements and Operational Details

New OCC supervisory regime for payment stablecoin issuance and certain custody activity

-The OCC would establish a payment stablecoin framework largely in a new Title 12 of the Code of Federal Regulations (12 C.F.R.) Part 15, and it would also make related updates to other OCC regulations (including capital-related and procedural rules).

-For banks and bank affiliates, this is designed to function like other prudential regimes: The proposal contemplates governance expectations, internal controls, reporting and an enforcement/supervisory framework that can be tested in examinations.

-Licensing process. Under proposed Section 15.30, qualified entities that wish to issue payment stablecoins must file an application and receive approval from the OCC before issuing payment stablecoins. The OCC must notify an applicant within 30 days after receiving an application or requested supplemental information whether the application is substantially complete. Importantly, if the OCC does not render a decision within 120 days after the application is deemed substantially complete, the application would automatically be deemed approved. The proposal also provides the grounds for denial of an application and hearing rights in case of a dispute.

-Activity limitations. Consistent with the GENIUS Act, a permitted payment stablecoin issuer would be restricted to only conducting eight enumerated activities, primarily centered around issuance, redemption, reserve management and custody services.

Reserve assets, liquidity and concentration expectations

-Prescriptive rules for segregation, eligible reserve assets, valuation, and liquidity and concentration expectations. The OCC also seeks comments on two alternative approaches for diversification and concentration: (i) a principles-based standard paired with an optional quantitative “safe harbor,” or (ii) making those same quantitative thresholds mandatory for all issuers.

-Tailored capital framework. The OCC proposes capital requirements calibrated to the issuer’s business model and risk profile rather than a one-size-fits all regime.

-Includes automatic consequences for reserve shortfalls. In other words, if the value of reserve assets falls below the required minimum relative to outstanding payment stablecoins, the proposal contemplates limits on issuing new payment stablecoins until the deficiency is corrected, and it outlines steps and escalation mechanics if the shortfall persists.

-White-label arrangements and aggregation of outstanding issuance. Several provisions of the proposal would trigger based on certain thresholds of an issuer’s “outstanding issuance value.” The proposal clarifies that outstanding issuance value means the total consolidated par value of all payment stablecoins issued by the issuer, including payment stablecoins issued under different brands or through white-label arrangements. As a result, issuers may not treat white-label programs or co-branded payment stablecoins as separate for purposes of calculating reserve requirements, capital expectations, reporting thresholds or the $10 billion threshold applicable to state-qualified issuers.

Redemption and customer-facing requirements

-A required redemption policy and a defined “timely” redemption standard (two business days). The proposal also includes a stress-period mechanism that can automatically extend the redemption timeline when redemption demand spikes above a specified threshold, and it requires prompt notice to the OCC when that trigger is met.

-Required disclosures and advance notice for fee changes. Practically, this means firms should expect to update customer agreements, onboarding materials and website disclosures to reflect required redemption terms, fee disclosures and related customer-facing statements.

Prohibition on payment of interest or yield

-The proposal includes provisions to implement the GENIUS Act’s prohibition on payment stablecoin issuers paying the holder of any payment stablecoin any form of interest or yield.

-Permitted payment stablecoin issuers and foreign payment stablecoin issuers would be prohibited from paying the holder of any payment stablecoin any form of interest or yield solely in connection with the holding, use or retention of a payment stablecoin.

-The proposal also includes a presumption that a payment stablecoin issuer is paying prohibited interest or yield if the issuer has an arrangement with an affiliate or related third party to pay interest or yield to the affiliate or related third party, or to pay interest or yield to a holder of any payment stablecoin issued by the issuer solely in connection with the holding, use or retention of the payment stablecoin.

-A related third party is defined as a person offering to pay interest or yield to payment stablecoin holders as a service, and any person that the issuer issues payment stablecoins on the person’s behalf or under the person’s branding.

Governance, risk management and technology controls

-Board-level oversight expectations and a formal information technology and security program, including testing and incident response. The proposal is aimed at ensuring issuers can demonstrate control over operational and technology risks in a way that is consistent with bank regulatory expectations.

-Where stablecoin operations rely on smart contracts or private keys, the proposal contemplates controls to validate that those systems operate as intended and to manage key custody, backup and recovery. It also expects risk management over key third-party service providers through due diligence, contracting and ongoing monitoring.

Next Steps

• Confirm where you fall in scope (bank, subsidiary, custody provider, foreign issuer exposure).
• Run a targeted gap assessment against (i) reserve/liquidity governance, (ii) redemption operations and customer documents, and (iii) technology/security controls.
• Plan comment strategy (the proposal states comments are due 60 days after Federal Register publication) and identify the business-impact issues to raise.
• Track the separate rulemaking the OCC expects to coordinate with the U.S. Department of the Treasury on BSA, AML and OFAC sanctions requirements.

Pillsbury’s interdisciplinary team is actively monitoring federal implementation of the GENIUS Act, including the OCC’s proposed rulemaking, and will provide updates as agencies issue and finalize implementing regulations. We are available to help clients across the banking, digital assets, payments and technology sectors evaluate business and compliance impacts, develop comment and engagement strategies, and structure products and transactions in anticipation of the final regulatory framework.