On June 18, FinCEN, together with the OCC, Fed, FDIC, and NCUA, issued a joint proposed rule to implement provisions of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The proposed rule treats permitted payment stablecoin issuers (PPSIs) as financial institutions under the BSA and requires them to establish and maintain written customer identification programs (CIPs) as part of their anti-money laundering and countering the financing of terrorism (AML/CFT) programs. The proposed rule would also apply to issuers that opt for state supervision under the GENIUS Act. According to the fact sheet released with the proposal, the CIP must include risk-based procedures for verifying the identity of each customer, requiring issuers to obtain, at a minimum, a customer’s name, date of birth or formation, address and identification number prior to opening an account. The proposed rule also requires procedures for identity verification through documentary and non-documentary methods, recordkeeping, comparison with government lists of known or suspected terrorists, and customer notice.

The proposed rule also includes a new definition for “customer,” to include those who open new accounts directly with an issuer, limiting the CIP obligation to primary market activity and excluding secondary market transactions where a user’s only interaction with a PPSI is through a smart contract. The definition also excludes federally regulated financial institutions, existing known customers and persons who acquire or redeem payment stablecoins through means other than directly from the issuer. Issuers may rely on another federally regulated financial institution’s CIP under certain circumstances, subject to contractual and annual certification requirements. Federal functional regulators, with the concurrence of the Treasury, may exempt issuers or account types from the CIP requirements. FinCEN noted it also issued a separate proposed rule (previously covered by InfoBytes here) to apply additional AML obligations to PPSIs.

In a separate statement, Fed Governor Michael Barr expressed concern that the GENIUS Act regulatory framework “does not do enough” to address illicit finance risks in secondary market stablecoin transactions and said he would carefully review comments on whether the CIP rule should be extended to such activity. Comments on the proposed rule are due by August 21.