[Federal Register Volume 91, Number 187 (Tuesday, September 29, 2026)]
[Proposed Rules]
[Pages 61580-61683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-19860]
[[Page 61579]]
Vol. 91
Tuesday,
No. 187
September 29, 2026
Part III
Federal Reserve System
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12 CFR Parts 208, 211, 217, 225, et al.
Implementing the Federal Reserve Board's Responsibilities Under the
GENIUS Act; Proposed Rule
Federal Register / Vol. 91 , No. 187 / Tuesday, September 29, 2026 /
Proposed Rules
[[Page 61580]]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211, 217, 225, 247 and 263
[Docket No. R-1899]
RIN 7100-AH29
Implementing the Federal Reserve Board's Responsibilities Under
the GENIUS Act
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
proposes to issue regulations to implement the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act) with respect
to Board-supervised permitted payment stablecoin issuers (PPSIs) and
certain other entities that are subject to the Board's jurisdiction. In
addition, the Board proposes to issue regulations to implement the
prohibition on tying in section 4(a)(8) of the GENIUS Act, which is
applicable generally to all PPSIs.
DATES: Comments must be received by November 30, 2026.
ADDRESSES: You may submit comments, identified by Docket No. R-1899 and
RIN 7100-AH29, by any of the following methods:
Agency Website: https://www.federalreserve.gov/apps/proposals/. Follow the instructions for submitting comments, including
attachments. Preferred Method.
Mail: Benjamin W. McDonough, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
Hand Delivery/Courier: Same as mailing address.
Other Means: [email protected]. You must include the
docket number in the subject line of the message.
Comments received are subject to public disclosure. In general,
comments received will be made available on the Board's website at
https://www.federalreserve.gov/apps/proposals/ without change and will
not be modified to remove personal or business information including
confidential, contact, or other identifying information. Comments
should not include any information such as confidential information
that would not be appropriate for public disclosure. Public comments
may also be viewed electronically or in person in Room M-4365A, 2001 C
St. NW, Washington, DC 20551, between 9 a.m. and 5 p.m. during Federal
business weekdays.
FOR FURTHER INFORMATION CONTACT: Juan Climent, Deputy Associate
Director, (202) 460-2180, Jeff Ernst, Manager, (202) 369-9439,
Christopher Anderson, Principal Economist, (202) 821-7114, Nadya
Zeltzer, Lead Financial Institution Policy Analyst, (202) 452-3164,
Christopher Powell, Lead Financial Institution Policy Analyst, (202)
507-2831, and Francis Kuo, Lead Financial Institution Policy Analyst
(202) 339-7041, Division of Supervision and Regulation; Asad Kudiya,
Associate General Counsel, (202) 475-6358, Kelley O'Mara, Assistant
General Counsel, (202) 430-0911, Isabel Echarte, Senior Attorney, (202)
945-2412, Vivien Lee, Attorney, (240) 814-3594, and Jeremy Lin,
Attorney, (240) 374-7669, Legal Division. For users of TTY-TRS, please
call 711 from any telephone, anywhere in the United States or (202)
263-4869.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Request for Comments
B. Self-Executing Provisions
II. Description of the Proposed Rule
A. Subpart A--Purpose, Scope, Definitions, and Severability
1. Authority, Purpose, and Scope (Proposed Sec. 247.1)
2. Definitions (Proposed Sec. 247.2)
3. Severability (Proposed Sec. 247.3)
B. Subpart B--Rules Applicable to Board-Supervised Permitted
Payment Stablecoin Issuers
1. Permissible and Prohibited Activities (Proposed Sec. 247.10)
2. Reserve Assets (Proposed Sec. 247.11)
3. Redemption and Fees (Proposed Sec. 247.12)
4. Risk Management Standards (Proposed Sec. 247.13)
5. Audits, Reports, and Supervision (Proposed Sec. 247.14)
6. Capital (Proposed Sec. Sec. 247.15-18)
7. Indexing of Thresholds by Nominal GDP Growth
C. Subpart C--Rules Applicable to Board-Supervised Custodians
1. Definitions (Proposed Sec. 247.20)
2. Covered Asset Custodial Property Requirements (Proposed Sec.
247.21)
3. Segregation Requirement and Use of Omnibus Accounts (Proposed
Sec. 247.22)
4. Reporting
5. Self-Custody Hardware and Software Exclusion (Proposed Sec.
247.23)
D. Subpart E--Rules Applicable to All Permitted Payment
Stablecoin Issuers
1. Tying Prohibition (Proposed Sec. 247.40)
2. Tying Exceptions (Proposed Sec. 247.41)
E. Subpart F--Rules Applicable to State-Qualified Permitted
Payment Stablecoin Issuers
1. Unusual and Exigent Circumstances Enforcement Authority
(Proposed Sec. 247.50)
2. Transition and Waiver Process for Uninsured State-Chartered
Depository Institutions (Proposed Sec. 247.51)
F. Proposed Amendments to Part 217
G. Proposed Amendments to Parts 208, 211, 225
1. Proposed Amendment to Part 208
2. Proposed Amendment to Part 211
3. Proposed Amendment to Part 225
H. Proposed Amendments to Part 263
I. Additional Request for Comment
III. Economic Analysis
A. Introduction
B. Broad Economic Considerations
C. Baseline
D. Proposal
E. Reasonable Alternatives
F. Benefits of the Proposal
G. Costs of the Proposal
H. Conclusion
IV. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Riegle Community Development and Regulatory Improvement Act
of 1994
D. Providing Accountability Through Transparency Act of 2023
E. Solicitation of Comments and Use of Plain Language
I. Background
The Guiding and Establishing National Innovation for U.S.
Stablecoins Act (12 U.S.C. 5901 et seq.) (GENIUS Act or the Act) was
enacted on July 18, 2025. The Act establishes a regulatory framework
for issuers of ``payment stablecoins.'' Under section 2(22) of the Act
(12 U.S.C. 5901(22)), ``payment stablecoin'' means ``a digital asset--
(i) that is, or is designed to be, used as a means of payment or
settlement; and (ii) the issuer of which--(I) is obligated to convert,
redeem, or repurchase for a fixed amount of monetary value, not
including a digital asset denominated in a fixed amount of monetary
value; and (II) represents that such issuer will maintain, or create
the reasonable expectation that it will maintain, a stable value
relative to the value of a fixed amount of monetary value[.]'' The term
does not include a digital asset that is (i) a national currency; \1\
(ii) a deposit (as defined in 12 U.S.C. 1813), including a deposit
recorded using distributed ledger technology; or (iii) a security, as
defined in 15 U.S.C. 77b, 78c, or 80a-2.\2\
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\1\ National currency has the same meaning as in section 2(19)
of the GENIUS Act (12 U.S.C. 5901(19)).
\2\ The Act provides that, for the avoidance of doubt, no bond,
note, evidence of indebtedness, or investment contract that was
issued by a PPSI shall qualify as a security solely by virtue of its
satisfying the conditions described in section 2(22)(A) of the Act,
consistent with section 17 of the Act. 12 U.S.C. 5901(22)(B)(iii).
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The GENIUS Act generally prohibits any person other than a
permitted payment stablecoin issuer (PPSI) from
[[Page 61581]]
issuing a payment stablecoin in the United States.\3\ It further
prohibits digital asset service providers \4\ from offering or selling
a payment stablecoin to a person in the United States unless the issuer
is a PPSI or a foreign payment stablecoin issuer that meets certain
requirements.\5\ The Act sets forth various regulatory and licensing
requirements for PPSIs and foreign payment stablecoin issuers. In many
instances, the Act states that the specific requirements applicable to
these entities (e.g., those related to capital, reserve asset
diversification, risk management), shall be set forth by regulations
issued by the relevant primary Federal payment stablecoin regulator, in
coordination with other relevant agencies, as appropriate.\6\ This
notice of proposed rulemaking (proposed rule) represents one piece of
the GENIUS Act's implementing regulations.\7\ The Board of Governors of
the Federal Reserve System (Board) is concurrently issuing a notice of
proposed rulemaking seeking comment on its applications procedures
applicable to insured State member banks seeking approval for a
subsidiary to issue payment stablecoins.
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\3\ See 12 U.S.C. 5902(a). See also 12 U.S.C. 5916 (excepting
foreign payment stablecoin issuers that meet certain requirements
from the prohibitions in section 3 of the Act).
\4\ ``Digital asset service provider'' means a person that, for
compensation or profit, engages in the business in the United States
(including on behalf of customers or users in the United States) of:
(i) exchanging digital assets for monetary value; (ii) exchanging
digital assets for other digital assets; (iii) transferring digital
assets to a third party; (iv) acting as a digital asset custodian;
or (v) participating in financial services relating to digital asset
issuance. See 12 U.S.C. 5901(7). The term ``digital asset service
provider'' does not include (a) a distributed ledger protocol; (b)
an immutable and self-custodial software interface; or (c) a person
solely by virtue of their (1) developing, operating, or engaging in
the business of developing distributed ledger protocols or self-
custodial software interfaces; (2) developing, operating, or
engaging in the business of validating transactions or operating a
distributed ledger; or (3) participating in a liquidity pool or
other similar mechanism for the provisioning of liquidity for peer-
to-peer transactions. Id.
\5\ The prohibition against digital asset service providers
offering or selling payment stablecoins that are not issued by PPSIs
begins on July 18, 2028. See 12 U.S.C. 5902(b)(1). The prohibition
against digital asset service providers offering or selling payment
stablecoins that are issued by foreign payment stablecoin issuers
unless they meet certain requirements goes into effect as of the
effective date of the GENIUS Act. See 12 U.S.C. 5902(b)(2). The
prohibitions that apply to a digital asset service provider would
apply to a PPSI to the extent that the PPSI is a digital asset
service provider.
\6\ See, e.g., 12 U.S.C. 5903(a)(4), (h); 5913.
\7\ See, e.g., 90 FR 59409 (December 19, 2025) (Federal Deposit
Insurance Corporation (FDIC)); 91 FR 6531 (February 12, 2026)
(National Credit Union Administration (NCUA)); 91 FR 10202 (March 2,
2026) (Office of the Comptroller of the Currency (OCC)); 91 FR 16844
(April 3, 2026) (U.S. Department of the Treasury (Treasury)); 91 FR
18582 (April 10, 2026) (Office of Foreign Asset Control (OFAC) and
Financial Crimes Enforcement Network (FinCEN)); 91 FR 18534 (April
10, 2026) (FDIC); 91 FR 28956 (May 18, 2026) (NCUA); 91 FR 37234
(June 22, 2026) (FinCEN, OCC, Board, FDIC, and NCUA); 91 FR 37840
(June 24, 2026) (OCC); 91 FR 53368 (August 18, 2026) (Treasury).
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The Board has regulatory, supervisory, or enforcement authority
over certain PPSIs, including subsidiaries of State member banks, and
State-qualified payment stablecoin issuers subject to the Board's
regulatory, supervisory, or enforcement authority under section 4 or 7
of the GENIUS Act (12 U.S.C. 5903 and 5906). The Board also has
authority to issue regulations to implement the prohibition on tying in
section 4(a)(8) of the GENIUS Act (12 U.S.C. 5903(a)(8)), which would
apply to all PPSIs regardless of their primary Federal or State
regulator. The proposed rule generally sets forth, and seeks comment
on, proposed regulations to implement the GENIUS Act that would apply
to Board-supervised PPSIs, other PPSIs, and other Board-supervised
entities.
The GENIUS Act's effective date is the earlier of 18 months after
the enactment date (July 18, 2025) or 120 days after the primary
Federal payment stablecoin regulators issue any final regulations
implementing the Act. The Board anticipates that these implementing
regulations will be updated, as necessary, in the years following the
effective date of the GENIUS Act as the business practices of PPSIs
continue to evolve and develop. In addition, other regulations beyond
those addressed in this rulemaking may need to be updated in light of
the passage of the GENIUS Act. For example, the Board is considering
whether certain regulations that impose different requirements at
different asset thresholds should be amended to exclude stablecoin
reserves from the asset calculation.
A. Request for Comments
The Board requests feedback on all aspects of the proposed rule and
has set out specific questions for commenters to consider in each
section of this SUPPLEMENTARY INFORMATION. Commenters should clearly
identify the question number assigned by the Board when providing
responses in comment letters.
The Board notes that many aspects of the proposed rule are similar
to the notices of proposed rulemaking that the OCC,\8\ FDIC,\9\ and
NCUA \10\ released to implement their responsibilities under the GENIUS
Act. For the convenience of commenters, the Board has generally tagged
questions throughout the SUPPLEMENTARY INFORMATION that are similar to
those posed by the OCC, including by identifying the numbering for the
relevant similar questions in the OCC's notice of proposed rulemaking.
Commenters are also generally invited to provide feedback on
differences between the proposed rule and the OCC's, FDIC's, or NCUA's
approaches, where the regulatory frameworks would differ if implemented
as proposed.
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\8\ 91 FR 10202 (March 2, 2026) (OCC).
\9\ 91 FR 18534 (April 10, 2026) (FDIC).
\10\ 91 FR 28956 (May 18, 2026) (NCUA).
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B. Self-Executing Provisions
The GENIUS Act includes a number of self-executing provisions that
are not addressed in this rulemaking.
Section 4(a)(6)(B) of the GENIUS Act (12 U.S.C.
5903(a)(6)(B)) provides that a PPSI can only issue payment stablecoins
if the issuer has the technological capability to comply, and will
comply, with the terms of any lawful order.
Section 4(g) of the GENIUS Act (12 U.S.C. 5903(g))
provides that a Federal savings association established under the Home
Owners' Loan Act (HOLA) (12 U.S.C. 1461 et seq.) that holds a reserve
that satisfies the requirements of section 4(a)(1) of the GENIUS Act
shall not be required to satisfy the qualified thrift lender test under
section 10(m) of HOLA (12 U.S.C. 1467a(m)) \11\ with respect to such
reserve assets.
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\11\ A Federal savings association's status as a qualified
thrift lender may be relevant to its parent savings and loan holding
company's status under section 10 of HOLA, which is administered by
the Board. See 12 U.S.C. 1467a.
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Section 5(h) of the GENIUS Act (12 U.S.C. 5904(h))
expressly preempts ``any State requirement for a charter, license, or
other authorization to do business with respect to a'' subsidiary of a
State member bank that is a Board-supervised PPSI. As a result, these
entities are only required to obtain authorization to do business from
the Board, which reduces the unnecessary complexity that would result
from requiring these entities to also obtain a charter, license, or
other authorization from one or more States.
Section 7(f)(4) of the GENIUS Act (12 U.S.C. 5906(f)(4))
provides that nothing in the GENIUS Act preempts State consumer
protection laws, including with respect to Board-supervised PPSIs.
Section 16(d) of the GENIUS Act (12 U.S.C. 5915(d))
provides that a State-chartered depository institution with a PPSI
subsidiary ``may engage in the business of money transmission or
provide custodial services through the [PPSI] in any State if such
State-chartered depository institution is . . . required by the laws or
regulations of the home state to establish and maintain'' adequate
capital and
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liquidity, and such capital and liquidity are ``regularly reassessed by
the home State banking supervisor to take into account any changes in
the financial condition and risk profile of the institution, including
any uninsured deposits maintained by such institution.'' Under the
GENIUS Act, an insured State member bank may apply to the Board to seek
permission to form a PPSI subsidiary. Because insured State member
banks are State-chartered depository institutions, this provision would
apply to the extent the laws or regulations of the State member bank's
home state meet the criteria with respect to capital and liquidity.
Because these GENIUS Act provisions are self-executing, the Board
is not proposing regulatory text to implement them. However, the Board
invites public comment on all aspects of this framework, including
whether the self-executing provisions of the Act should be codified in
the Board's regulations for convenience.
II. Description of the Proposed Rule
A. Subpart A--Purpose, Scope, Definitions, and Severability
Subpart A of the proposed rules provides the purpose and scope and
defines terms used throughout the proposed rule.
1. Authority, Purpose, and Scope (Proposed Sec. 247.1)
Proposed Sec. 247.1 sets forth the authority, purpose, and scope
of the Board's proposed stablecoin-related regulations. Paragraph (a)
cites the GENIUS Act (12 U.S.C. 5901 et seq.) as the authority for the
proposed rule and describes the purpose of the proposed rule as
implementing the Board's regulatory responsibilities under the Act.
Paragraph (b) would state the scope and affected entities of each
subpart of the proposed rule as follows: (1) subpart B implements
certain provisions in section 4 of the GENIUS Act (12 U.S.C. 5903),
which requires the Board to issue regulations applicable to Board-
supervised PPSIs; (2) subpart C implements section 10 of the GENIUS Act
(12 U.S.C. 5909), which imposes requirements on Board-supervised
persons seeking to provide custodial or safekeeping services for
payment stablecoin reserves, payment stablecoins used as collateral, or
the private keys used to issue payment stablecoins; (3) subpart D
implements section 5 of the GENIUS Act (12 U.S.C. 5904), which requires
the Board to establish applications procedures applicable to insured
State member banks seeking approval for a subsidiary to issue payment
stablecoins; \12\ (4) subpart E implements section 4(a)(8) of the
GENIUS Act (12 U.S.C. 5903(a)(8)), which imposes a tying prohibition on
all PPSIs, and applies that tying prohibition in a manner consistent
with section 4(a)(12)(B)(i)(III) of the Act (12 U.S.C.
5903(a)(12)(B)(i)(III)) to certain companies unanimously approved by
the Stablecoin Certification Review Committee under section 4(a)(12) of
the Act (12 U.S.C. 5903(a)(12)); and (5) subpart F implements rules
pertaining to State-qualified payment stablecoin issuers--specifically,
the Board's backup-enforcement authority during unusual and exigent
circumstances under section 7(e) of the GENIUS Act (12 U.S.C. 5906(e))
and the transition and waiver process for uninsured State-chartered
depository institutions under section 4(d) of the GENIUS Act (12 U.S.C.
5903(d)). These subparts are described in greater detail below.
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\12\ The Board is concurrently proposing regulations to
implement applications procedures for insured State member banks
seeking approval for a subsidiary to issue payment stablecoins.
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2. Definitions (proposed Sec. 247.2)
Proposed Sec. 247.2 contains the following definitions of terms
used throughout proposed part 247, many of which are included in or
based on the definitions in the GENIUS Act (12 U.S.C. 5901 et
seq.).\13\ Certain of these definitions are also proposed in
substantially the same form in the Board's concurrent notice of
proposed rulemaking regarding applications procedures for Board-
supervised insured depository institutions seeking approval for a
subsidiary to issue payment stablecoins.
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\13\ The definitions in proposed Sec. 247.2 describe only terms
used in proposed part 247. These definitions do not interpret terms
for purposes of any other statute or regulation and are not issued
pursuant to section 3(d) of the GENIUS Act (12 U.S.C. 5902(d)).
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Affiliate. The Board is proposing to define the term ``affiliate''
consistent with the definition in the Bank Holding Company Act (BHC
Act), 12 U.S.C. 1841(k), and the Board's Regulation Y, 12 CFR 225.2(a),
but modified to use the defined term ``person'' in place of the term
``company.'' Under the proposed rule, the term ``affiliate'' would mean
a person that controls, is controlled by, or is under common control
with another person. The Board believes the proposed definition of
affiliate would include the appropriate individuals and entities that
could be involved in payment stablecoin issuance.
Bank Secrecy Act. The Board is proposing to define the term ``Bank
Secrecy Act'' consistent with the definition provided in the GENIUS Act
(12 U.S.C. 5901(2)), with certain technical edits. Under the proposed
rule, the term ``Bank Secrecy Act'' would mean: (1) section 21 of the
Federal Deposit Insurance Act (12 U.S.C. 1829b); (2) chapter 2 of title
I of Public Law 91-508 (12 U.S.C. 1951 et seq.); and (3) subchapter II
of chapter 53 of title 31, United States Code and notes thereto (31
U.S.C. 5311 et seq.). The proposed rule would add the phrase ``and
notes thereto'' as a clarification.
Board. Under the proposed rule, ``Board'' would mean the Board of
Governors of the Federal Reserve System. This accords with the
definition of Board provided in the GENIUS Act (12 U.S.C. 5901(3)).
Board of directors. Under the proposed rule, ``board of directors''
would mean an entity's board of directors or the group of individuals
that serve the nearest equivalent function of acting as the governing
body of the entity. The proposed definition captures the persons
responsible for certain requirements under proposed part 247, including
for entities that do not have a board of directors as that term is
commonly understood. This definition is similar to the definition of
this term in 12 CFR 225.31(e)(1).
Board-supervised PPSI. Under the proposed rule, ``Board-supervised
PPSI'' would mean a PPSI supervised and regulated by the Board pursuant
to the GENIUS Act (12 U.S.C. 5901 et seq.). This term includes (i)
subsidiaries of insured State member banks that have been approved by
the Board to issue payment stablecoins and (ii) State-qualified PPSIs
that are uninsured State-chartered depository institutions that have
transitioned to the Board's regulatory framework under section 4(d) of
the GENIUS Act (12 U.S.C. 5903(d)) and proposed Sec. 247.51. This term
does not include PPSIs for which the Board has only enforcement
authority in unusual and exigent circumstances under section 7(e)(1) of
the Act (12 U.S.C. 5906(e)(1)) and proposed Sec. 247.50, or PPSIs
subject only to the Board's regulations implementing the tying
prohibition in section 4(a)(8) of the Act (12 U.S.C. 5903(a)(8)) and
subpart E of the proposed rule.
Control. The Board is defining ``control'' such that a person would
control another person if: (1) the person directly or indirectly or
acting through one or more other persons owns, controls, or has power
to vote 25 percent or more of any class of voting securities of the
other person; (2) the person controls in any manner the election of a
majority of the directors or trustees of the other person; or (3) the
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Board determines, after notice and opportunity for hearing, that the
person directly or indirectly exercises a controlling influence over
the management or policies of the other person. Like the definition of
``affiliate,'' the proposed definition of ``control'' is similar to the
definition in the BHC Act.
This approach is consistent with the statutory definitions in the
GENIUS Act. The GENIUS Act and Sec. 247.2 of the proposed rule define
the term ``subsidiary'' by reference to the definition of
``subsidiary'' in the Federal Deposit Insurance Act, which states that
a subsidiary includes any company which is owned or controlled directly
or indirectly by another company.\14\ In the Federal Deposit Insurance
Act, the term ``control'' is defined by reference to the BHC Act.\15\
The Board's Regulation Y sets out the Board's presumptions of control
and noncontrol under the controlling influence prong of the BHC Act
definition of ``control.'' \16\ The Board would interpret the term
``control'' in a manner that is consistent with the definition in the
Board's Regulation Y, 12 CFR 225.2(e).
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\14\ See 12 U.S.C. 5901(32) (``The term `subsidiary' has the
meaning given that term in [12 U.S.C. 1813].''); see also 12 U.S.C.
1813(w)(4).
\15\ 12 U.S.C. 1813(w)(5).
\16\ See 12 CFR part 225, subpart D.
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Covered shareholder. The Board is proposing to define the term
``covered shareholder'' to mean a person (i) who directly or indirectly
or acting in concert with one or more persons, or together with members
of their immediate family, will own, control, or hold the power to vote
25 percent or more of any class of voting securities of an entity; (ii)
who controls in any manner the election of a majority of the entity's
board of directors; or (iii) that the Board determines has the power,
directly or indirectly, to exercise a controlling influence over the
management or policies of an entity. A person is presumed to exercise a
controlling influence over the management or policies of an entity if
such person, directly or indirectly or acting in concert with one or
more persons, together with members of their immediate family, will
own, control, or hold the power to vote 10 percent or more of any class
of voting securities of an entity. This definition is relevant to the
insider and affiliate transaction risk management standards. This
definition is derived from the definition of ``controlling
shareholder'' in the Board's Regulation Y, 12 CFR 225.2(n)(1), but
includes certain additional changes and a rebuttable presumption to
align with the definition of ``principal shareholder'' in Regulation O
(12 CFR part 215).
Customer. The Board is proposing to define the term ``customer'' to
mean a person that purchases (through any consideration) the products
or services of another person. This term appears in a variety of
different contexts in the proposed rule, so the Board has proposed a
broad definition for the term. The definition for purposes of the
proposed rule is not intended to affect any customer identification
program or customer due diligence rules, any definition of ``United
States customer'' under the Act, or any requirement on foreign payment
stablecoin issuers under section 18(a)(3) of the Act.
Deposit. The Board is proposing to define the term ``deposit'' to
have the same meaning as deposit in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(l)).
Deposit liability. The Board is proposing to define the term
``deposit liability'' to mean the liability issued by an insured
depository institution (including an insured credit union) to a
depositor (or member) in respect of any amount standing to the credit
of a deposit account (or share account), which is a liability to a
depositor (or member) from the perspective of the insured depository
institution.
Depository institution. The Board is proposing to define the term
``depository institution'' to mean (1) any depository institution, as
that term is defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813(c)(1)) or (2) any credit union. The Board is proposing
this definition to improve clarity because, although the GENIUS Act
uses the term ``depository institution,'' it is not defined in section
2 of the Act (12 U.S.C. 5901). Section 11(g) of the Act (12 U.S.C.
5911(g)) does, however, refer to the Federal Deposit Insurance Act's
definition.\17\ The Board believes that incorporating this definition
will promote clarity and consistency. Under the Federal Deposit
Insurance Act, the term ``depository institution'' means any bank or
savings association, which are both defined terms under that statute,
and would be incorporated herein to determine whether an institution is
a depository institution for purposes of proposed part 247. The Board
is proposing to include a reference to credit unions consistent with
the approach that the GENIUS Act took with respect to the definition of
``insured depository institution,'' defined below, and which explicitly
includes insured credit unions.
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\17\ The proposed definition of ``depository institution'' for
purposes of part 247 would not affect the meaning of the term under
section 11(g) of the GENIUS Act (12 U.S.C. 5911(g)).
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Digital asset. The Board is proposing to define the term ``digital
asset'' as provided in section 2(6) of the GENIUS Act (12 U.S.C.
5901(6)). Under the proposed rule, the term ``digital asset'' would
mean any digital representation of value that is recorded on a
cryptographically secured distributed ledger.
Director. The Board is proposing to define the term ``director''
for purposes of this proposed part to mean an individual who serves on
the board of directors of an entity, except an advisory director who
(1) is not elected by the shareholders of the entity, (2) does not have
the authority to vote on matters before the board of directors or any
committee of the board of directors, and (3) provides solely general
policy advice to the board of directors or any committee. This
definition largely aligns with that in 12 CFR 215.2(d). As described
above, to address the various organizational forms used by entities,
including those that do not have a traditional board of directors, the
Board is proposing to define the term ``board of directors'' in this
proposed part to include a group of individuals that serve the nearest
equivalent function of acting as the governing body of the entity.
Distributed ledger. The Board is proposing to define the term
``distributed ledger'' as provided in section 2(8) of the GENIUS Act
(12 U.S.C. 5901(8)), with certain technical edits. The proposed rule
would define the term ``distributed ledger'' to mean technology in
which (1) data is shared across a network that creates a public digital
ledger of verified transactions or information among network
participants, and (2) cryptography is used to link the data to maintain
the integrity of the public ledger and execute other functions. The
proposed definition reformats the definition in the GENIUS Act by using
numbering to distinguish between the two components of the definition.
The formatting changes are technical and do not have a substantive
effect on the definition.
Eligible deposit claim. The Board is proposing to define the term
``eligible deposit claim'' to mean:
(1) the insured or uninsured claim of a PPSI against an insured
depository institution (including any foreign branches or agents,
including correspondent banks, of an insured depository institution)
other than an insured credit union in respect of any amount standing to
the credit of a deposit account and payable on demand, which is an
asset from the
[[Page 61584]]
perspective of the depositor, including a Board-supervised PPSI; and
(2) the insured claim of a PPSI against an insured credit union in
respect of any amount standing to the credit of a share account, which
is an asset from the perspective of the accountholder, including a
Board-supervised PPSI.
Fair value. The Board is proposing to include a definition of the
term ``fair value'' in the rule. As proposed, the term ``fair value''
would mean the fair value as determined under GAAP.\18\ Fair value is
used in proposed Sec. 247.11 in describing proposed reserve
requirements.
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\18\ See discussion of the definition of ``GAAP,'' infra.
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FDIC. The Board is proposing to define FDIC to mean the Federal
Deposit Insurance Corporation. This accords with the definition of
``Corporation'' in section 2(5) of the GENIUS Act (12 U.S.C. 5901(5)).
The Board has opted not to use the term ``Corporation'' to describe the
FDIC because that term is used more broadly in the definition of
person, discussed below.
GAAP. The Board is proposing to include a definition of the term
GAAP in the rule. The proposed rule would define the term ``GAAP'' to
mean the generally accepted accounting principles as used in the United
States. GAAP is used in the definition of fair value and proposed
subpart B. The proposed definition of ``GAAP'' is the same as that in
12 CFR part 217.
GDP growth adjustment. The Board is proposing to define the term
``GDP growth adjustment'' to mean the most recent annual scalar
published by the Board equal to the greater of (1) the ratio of (i) the
average of nominal U.S. gross domestic product (GDP) in the three
calendar years prior to the publication of the scalar, as reflected by
the most current estimates published by the Bureau of Economic Analysis
on or before September 30th of the year of the publication of the
scalar, or a comparable value; to (ii) the average of nominal U.S. GDP
in the three calendar years prior to the effective date of a final
rule, as reflected by the most current estimates published by the
Bureau of Economic Analysis; or (2) the GDP growth adjustment published
by the Board the prior calendar year.
Immediate family. The Board is proposing to define the term
``immediate family'' to mean the spouse of an individual, the
individual's minor children, and any of the individual's children
(including adults) residing in the individual's home. This term is
relevant to the risk management standards concerning insider and
affiliate transactions and is consistent with the definition in
Regulation O (12 CFR part 215).
Insider. The Board is proposing to define the term ``insider'' to
mean a covered shareholder, an executive officer, a director, or a
related interest of or the immediate family member of any of these
persons. This term is relevant to the risk management standards
concerning insider and affiliate transactions and is adapted from the
definition in Regulation O (12 CFR part 215). It has been adapted to
make direct reference to the immediate family of a covered shareholder,
executive officer, or director to mitigate the risk of an insider
engaging in inappropriate transactions to benefit immediate family
members.
Institution-affiliated party. The Board is proposing to define
``institution-affiliated party'' as provided in section 2(13) of the
GENIUS Act (12 U.S.C. 5901(13)). Thus, with respect to a PPSI, the term
``institution-affiliated party'' means any director, officer, employee,
or controlling stockholder of the PPSI. This definition is relevant to
the Board's enforcement actions pursuant to the GENIUS Act, including
but not limited to the Board's back-up enforcement authority over
State-qualified PPSIs in unusual and exigent circumstances, as proposed
in Sec. 247.50.
Insured depository institution. The Board is proposing to define
the term ``insured depository institution'' consistent with the
definition of the term in section 2(15) of the GENIUS Act (12 U.S.C.
5901(15)), with certain technical edits that combine the definition of
``insured depository institution'' with the definition of ``insured
credit union'' in section 2(14) of the GENIUS Act (12 U.S.C. 5901(14)).
As proposed, the term ``insured depository institution'' would mean an
insured depository institution, as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) and an insured credit union, as
defined in section 101 of the Federal Credit Union Act (12 U.S.C.
1752).
Insured State member bank. The Board is proposing to define the
term ``insured State member bank'' to mean a State member bank, the
deposits of which are insured by the FDIC.
Monetary value. The Board is proposing to define the term
``monetary value'' as provided in section 2(17) of the GENIUS Act (12
U.S.C. 5901(17)). The proposal would define ``monetary value'' to mean
a national currency or deposit (which, as discussed above, would have
the same meaning as in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813(l))) denominated in a national currency.
Money. Section 2(18) of the GENIUS Act (12 U.S.C. 5901(18)),
defines ``money'' to mean a medium of exchange currently authorized or
adopted by a domestic or foreign government, including a monetary unit
of account established by an intergovernmental organization or by
agreement between two or more countries. This definition is relevant to
the definition of national currency (discussed below) and certain
reserve assets described in section 4(a)(1)(A)(i) and (iv) of the Act
(12 U.S.C. 5903(a)(1)(A)(i) and (iv)). Section 4(a)(1)(A)(i) of the Act
(12 U.S.C. 5903(a)(1)(A)(i)) refers to money standing to the credit of
an account with a Federal Reserve Bank. Section 4(a)(1)(A)(iv) of the
Act (12 U.S.C. 5903(a)(1)(A)(iv)) refers to money received under a
repurchase agreement that meets certain requirements. Although the
statutory definition of money clearly includes monetary value, it may
be unclear at any point in time whether other mediums of exchange have
been authorized or adopted by a domestic or foreign government.
Moreover, whether a medium of exchange meets this definition may change
based on actions of foreign governments or intergovernmental
organizations. While it may be relatively clear whether an asset is
money standing to the credit of an account with a Federal Reserve Bank,
there could be ambiguity as to whether a particular asset is money
received under a repurchase agreement. Therefore, to promote clarity
and uniformity for purposes of determining whether certain assets would
qualify as money under proposed part 247, the Board proposes that it
would provide prior confirmation publicly that a medium of exchange
(other than those defined as monetary value) meets the definition of
``money'' under the GENIUS Act with respect to Board-supervised PPSIs.
Specifically, the Board proposes to define money for purposes of part
247 to mean monetary value and any other medium of exchange that the
Board has determined is currently authorized or adopted by a domestic
or foreign government, including a monetary unit of account established
by an intergovernmental organization or by agreement between two or
more countries. The Board expects that it would issue such public
determinations, to the extent appropriate, on its own volition or at
the request of an interested party.
Nonpublic personal information. The Board is proposing to define
the term
[[Page 61585]]
``nonpublic personal information'' to mean information (i) provided by
a customer to a Board-supervised PPSI to obtain a financial product or
service, (ii) about a customer resulting from any transaction involving
a financial product or service between the Board-supervised PPSI and a
customer, or (iii) otherwise obtained by the Board-supervised PPSI in
connection with providing a financial product or service to a customer.
The proposed definition does not include publicly available
information, unless such publicly available information, when combined
with other information, would reveal the identity of a customer or
would enable access to the customer's account.
OCC. The Board is proposing to substitute the term ``OCC'' for the
term ``Comptroller'' as defined in section 2(4) of the GENIUS Act (12
U.S.C. 5901(4)). Under the proposed rule, the term ``OCC'' would be
defined to mean the Office of the Comptroller of the Currency.
Officer. The Board is proposing to define ``officer'' to mean the
president, chairman, chief executive officer, chief operating officer,
chief financial officer, chief investment officer, chief risk officer,
chief technology officer, and Bank Secrecy Act officer. The term would
include any individual serving in the functional capacity of the listed
titles or their equivalent, without regard to title, salary, or
compensation. The term ``officer'' also includes any other person
identified by the Board or appropriate Federal Reserve Bank, whether or
not hired as an employee, with significant influence over, or who
participates in, major policymaking decisions of the entity. This
definition is generally consistent with the definition of senior
executive officer in 12 CFR 225.71(c).
Outstanding issuance value. The Board is proposing to define the
term ``outstanding issuance value'' to mean the total consolidated par
value of all of a PPSI's outstanding payment stablecoins. This would
include the combined total par value of different brands of payment
stablecoins issued by the PPSI (e.g., under a white label arrangement)
to the extent that such an arrangement complies with proposed 12 CFR
part 247. The proposed definition includes the defined term ``payment
stablecoin'' and should be read consistent with that definition,
discussed below. For purposes of calculating the outstanding issuance
value, the Board believes that a digital asset that is, or is designed
to be, used as a means of payment or settlement but for which there is
not yet an obligation to convert, redeem, or repurchase for a fixed
amount of monetary value should not be included in the calculation. A
digital asset minted (i.e., created on a blockchain) by a PPSI to be a
payment stablecoin would not be included in the calculation of
outstanding issuance value until the obligation to convert, redeem, or
repurchase the digital asset for a fixed amount of monetary value is
incurred. Similarly, once a PPSI permanently removes a payment
stablecoin from circulation (e.g., burns the payment stablecoin) the
digital asset would cease to be included in the calculation of
outstanding issuance value. Payment stablecoins for which holder access
has been restricted pursuant to applicable law, regulation, or court
order remain payment stablecoins because the PPSI's obligation to
convert, redeem, or repurchase for a fixed amount of monetary value
continues and the associated reserves are maintained in segregated
accounts pending resolution of the restriction. Likewise, if a PPSI
repurchased a payment stablecoin but did not burn the payment
stablecoin, the stablecoin in the PPSI's inventory would not be part of
the PPSI's outstanding issuance value (but would become part of the
outstanding issuance value if the PPSI subsequently put the payment
stablecoin back into circulation). Therefore, the proposed definition
of ``outstanding issuance value'' only includes payment stablecoins for
which the PPSI is obligated to convert, redeem, or repurchase for a
fixed amount of monetary value (generally the issued payment
stablecoins in circulation).
The Board also considered whether the proposed ``outstanding
issuance value'' definition should include only those payment
stablecoins issued by a PPSI, or also the payment stablecoins issued by
the PPSI's non-consolidated affiliates.\19\ The Board determined that
it was appropriate to limit the proposed definition to include only the
payment stablecoins issued by a PPSI (and consolidated subsidiaries).
The Board believes that the proposed definition would scope in the
appropriate PPSIs to the relevant provisions regarding reserve
assets,\20\ the frequency of examinations,\21\ required audits,\22\
transition to the Federal regulatory framework,\23\ and minimum capital
requirements \24\ without being overly expansive and that it best
aligns with the language in the statute. Notwithstanding the proposed
definition of ``outstanding issuance value,'' non-consolidated
affiliates of a PPSI that issue payment stablecoins would separately
need to comply with the requirements of the Act.
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\19\ As noted above, the definition of ``outstanding issuance
value'' includes the consolidated value of issued payment
stablecoins.
\20\ See proposed Sec. 247.11.
\21\ See proposed Sec. 247.14.
\22\ See id.
\23\ See proposed Sec. 247.51(b)
\24\ See proposed Sec. Sec. 247.15-18.
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Payment stablecoin. The Board is proposing to define the term
``payment stablecoin'' consistent with the definition of the term in
section 2(22) of the GENIUS Act (12 U.S.C. 5901(22)). Under the
proposal, the term ``payment stablecoin'' would mean a digital asset
(i) that is, or is designed to be, used as a means of payment or
settlement; and (ii) the issuer of which (A) is obligated to convert,
redeem, or repurchase for a fixed amount of monetary value, not
including a digital asset denominated in a fixed amount of monetary
value; and (B) represents that such issuer will maintain, or creates
the reasonable expectation that it will maintain, a stable value
relative to the value of a fixed amount of monetary value.\25\ For a
digital asset to be a payment stablecoin under proposed part 247, the
PPSI must be obligated to convert, redeem, or repurchase the digital
asset for a fixed amount of monetary value.
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\25\ The Board interprets the statutory language in 12 U.S.C.
5901(22) to mean that the PPSI would be obligated to meet redemption
requests at par.
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The proposed definition also provides that a ``payment stablecoin''
does not include a digital asset that is a (i) national currency; (ii)
deposit (as defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813)), including a deposit recorded using distributed
ledger technology; or (iii) security, as defined in section 2 of the
Securities Act of 1933 (15 U.S.C. 77b), section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c), or section 2 of the Investment
Company Act of 1940 (15 U.S.C. 80a-2), except that, for the avoidance
of doubt, ``no bond, note, evidence of indebtedness, or investment
contract that was issued by a [PPSI] shall qualify as a security solely
[because the issuer satisfies] the conditions in [paragraph (1) of the
proposed ``payment stablecoin'' definition], consistent with section 17
of the Act.''
Permitted payment stablecoin issuer or PPSI. The Board is proposing
to define the term ``permitted payment stablecoin issuer'' or ``PPSI''
as having the meaning set forth in section 2 of the GENIUS Act (12
U.S.C. 5901(23)). This term is used to refer to all PPSIs, not only
those supervised by the Board. This broader set of PPSIs is
particularly relevant to subpart E, which applies to
[[Page 61586]]
all PPSIs, but is also relevant to subpart C of part 247 and amendments
to the Board's Regulation Q (12 CFR part 217) and Regulation Y (12 CFR
part 225), discussed in sections II.F and II.G.3 of this SUPPLEMENTARY
INFORMATION, respectively. Defining this term by cross reference to the
GENIUS Act would ensure ongoing alignment between the regulatory and
statutory definitions.
Person. The Board is proposing to define the term ``person'' as the
term is defined in section 2(24) of the GENIUS Act (12 U.S.C.
5901(24)). As proposed, the term ``person'' would mean an individual,
partnership, company, corporation, association, trust, estate,
cooperative organization, or other business entity, incorporated or
unincorporated.
Primary Federal payment stablecoin regulator. The Board is
proposing to define the term ``primary Federal payment stablecoin
regulator'' as that term is defined in section 2(25) of the GENIUS Act
(12 U.S.C. 5901(25)).
Principal shareholder. The Board is proposing to define the term
``principal shareholder'' to mean a person (i) who directly or
indirectly or acting in concert with one or more persons, or together
with members of their immediate family, will own, control, or hold the
power to vote 10 percent or more of any class of voting securities of
an entity; or (ii) any person that the Board determines has the power,
directly or indirectly, to exercise a controlling influence over the
management or policies of an entity. This definition is used in the
applications provisions in subpart D of the proposed rule, which the
Board is concurrently proposing. This definition is substantially
similar to the definition in the Interagency Biographical and Financial
Report--FR 2081c instructions and the Board's Regulation Y (12 CFR
225.2(n)(2)).
Private key. The Board is proposing to define the term ``private
key'' to mean the unique alphanumeric sequence that allows an
individual to transfer a particular unit of a digital asset using a
distributed ledger. This definition is intended to include shards of a
private key.\26\
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\26\ Sharding refers to dividing a private key into distinct
pieces for enhanced security.
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Publicly available information. The Board is proposing to define
the term ``publicly available information'' to mean any information
that a person has a reasonable basis to believe is lawfully made
available to the general public from: (1) Federal, State, or local
government records; (2) widely distributed media; (3) disclosures to
the general public that are required to be made by Federal, State, or
local law; or (4) a distributed ledger.\27\
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\27\ As noted above, the term ``distributed ledger'' is limited
to publicly available and accessible ledgers.
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Registered public accounting firm. The Board is proposing to mirror
the definition of ``registered public accounting firm'' as provided in
section 2(26) of the GENIUS Act (12 U.S.C. 5901(26)). Under the
proposal, the term ``registered public accounting firm'' would mean a
registered public accounting firm set forth in section 2 of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(12)).
Related interest. The term ``related interest'' is defined in
cross-reference to 12 CFR 215.2(n). At present, that term means (1) a
company that is controlled by that person; or (2) a political or
campaign committee that is controlled by that person or the funds or
services of which will benefit that person. This term is relevant to
the risk management standards for insider and affiliate transactions.
Reserve asset. The Board is proposing to define the term ``reserve
asset'' to mean an asset maintained by a PPSI of a type enumerated in
proposed Sec. 247.11(b). A PPSI may maintain reserve assets as a
custodian.
Stablecoin Certification Review Committee. The Board is proposing
to define the term ``Stablecoin Certification Review Committee'' as
that term is defined in section 2(27) of the GENIUS Act (12 U.S.C.
5901(27)).
State. The Board is proposing to define the term ``State'' as
provided in section 2(28) of the GENIUS Act (12 U.S.C. 5901(28)).\28\
---------------------------------------------------------------------------
\28\ United States territories are also referenced in the
proposed definition of ``foreign payment stablecoin issuers.'' The
GENIUS Act and this proposed part address the potential overlap
created by inclusion of territories in both definitions by defining
``foreign payment stablecoin issuers'' to exclude ``permitted
payment stablecoin issuers.'' Therefore, if a payment stablecoin
issuer is a ``permitted payment stablecoin issuer'' because it is a
``State-qualified payment stablecoin issuer'' that is legally
established under the laws of a territory of the United States then
by definition it cannot be a ``foreign payment stablecoin issuer.''
---------------------------------------------------------------------------
State-chartered depository institution. The Board is proposing to
define the term ``State-chartered depository institution'' as provided
in section 2(29) of the GENIUS Act (12 U.S.C. 5901(29)). Specifically,
the proposed rule would define the term ``State-chartered depository
institution'' as having the meaning as set forth for ``State depository
institution'' in section 3(c) of the Federal Deposit Insurance Act (12
U.S.C. 1813(c)(5)). This term is particularly relevant with respect to
the Board's jurisdiction over State-chartered depository institutions
that are PPSIs under sections 2(25)(C) and 4(d) of the Act (12 U.S.C
5901(25)(C) and 5903(d)).
State member bank. The Board is proposing to define the term
``State member bank'' to mean a State-chartered bank, as the term
``bank'' is defined in 12 U.S.C. 221, that has been approved for
membership in the Federal Reserve System. This term is similar to the
definition of ``State member bank'' as set forth in section 3(d) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(d)(2)).
State payment stablecoin regulator. The Board is proposing to
define the term ``State payment stablecoin regulator'' as provided in
section 2(30) of the GENIUS Act (12 U.S.C. 5901(30)). As such, the
Board is proposing to define ``State payment stablecoin regulator'' to
mean a State agency that has primary regulatory and supervisory
authority in such State over entities that issue payment stablecoins.
State-qualified payment stablecoin issuer or State-qualified PPSI.
The Board is proposing to define the term ``State-qualified payment
stablecoin issuer'' or ``State-qualified PPSI'' consistent with the
definition of that term in section 2(31) of the GENIUS Act (12 U.S.C.
5901(31)).
Subsidiary. The Board is proposing to define the term
``subsidiary'' as provided in section 2(32) of the GENIUS Act (12
U.S.C. 5901(32)). Specifically, the proposed rule would define the term
``subsidiary'' as having the meaning set forth in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)). Because the term
in section 3 of that Federal Deposit Insurance Act relies on the
definitions of ``control'' in section 2 of the BHC Act, the Board also
proposes to incorporate that definition in proposed part 247, as
discussed above.
Trading volume. The Board is proposing to define the term ``trading
volume'' to mean the aggregate number of payment stablecoins issued by
a PPSI that were purchased or sold on exchanges during a specified
period of time.
Voting securities. The Board is proposing to define the term
``voting securities'' by adopting by reference the definition provided
in 12 CFR 225.2.
Question 1: Are the definitions in the proposed rule appropriately
scoped? How should they be improved? [similar to OCC Question 1]
Question 2: Should the Board define ``acting in concert'' to
clarify the term ``principal shareholder'' and ``covered shareholder''?
For example, the Board could define the term ``acting in concert'' to
mean (i) knowing participation in a joint activity or
[[Page 61587]]
parallel action towards a common goal of acquiring control of an entity
whether or not pursuant to an express agreement; or (ii) when persons
are parties to any agreement, contract, understanding, relationship,
agreement, or other arrangement, whether written or otherwise,
regarding the acquisition, voting, or transfer of control of voting
securities of an entity, other than through a revocable proxy as
described in 12 CFR 225.42(a)(5). If the Board should define the term,
should the Board incorporate any of the presumptions for acting in
concert detailed in 12 CFR 225.41(d) and 238.31(d)? [similar to OCC
Question 2]
Question 3: The Board's Regulation Y provides a regulatory
framework for implementing the statutory definition of ``control.''
What, if any, clarifications to Board's control framework would be
appropriate to address issues specific to PPSIs and, in particular,
insured State member banks that seek approval for a subsidiary to issue
payment stablecoins? [similar to OCC Question 3]
Question 4: The term ``customer'' is broadly defined to mean a
person that purchases (through any consideration) the products or
services of another person. Is the scope of this definition too broad?
With respect to customers of Board-supervised PPSIs, should the
definition expressly include only persons with direct interactions with
a Board-supervised PPSI? Alternatively, should the definition include
all downstream payment stablecoin holders (i.e., not just customers
with direct interactions with the Board-supervised PPSI)? Please
address any significant impact or burden the proposed definition or
contemplated alternative definitions may have or add given other
requirements in the proposed rule, such as the nonpublic personal
information risk management standards in proposed Sec. 247.13(b)(5).
Because the term is used in several different contexts throughout the
proposed rule, should the definition of ``customer'' be refined with
respect to certain requirements? [similar to OCC Question 4]
Question 5: Section 2 of the GENIUS Act (12 U.S.C. 5901) does not
define ``depository institution.'' However section 2(15) of the Act
defines ``insured depository institution'' to include insured credit
unions (12 U.S.C. 5901(15)), and section 2(29) of the Act defines
``State-chartered depository institutions'' to exclude credit unions
(12 U.S.C. 5901(29)). Is the definition of ``depository institution''
in the proposed rule, which would include credit unions, sufficiently
clear? Are there particular types of institutions for which it would be
unclear whether the type of institution is a depository institution and
which agency is the primary Federal payment stablecoin regulator for
the type of institution? What additional clarifications would be
helpful? For purposes of the Board's authority under section 4(d) of
the GENIUS Act (12 U.S.C. 5903(d)) (proposed to be implemented in
proposed Sec. 247.51), should the Board consider such provisions to
apply to only State-chartered depository institutions that meet the
definition of ``State-chartered depository institution'' under the
GENIUS Act and proposed part 247? Alternatively, should the Board
consider such provisions to apply to any State-chartered institution
that is a ``depository institution'' under the proposed definition in
part 247, which would capture State-chartered credit unions that are
not federally insured? [similar to OCC Question 5]
Question 6: Is the scope of the term ``digital asset'' sufficiently
clear? If not, how should it be clarified? [similar to OCC Question 6]
Question 7: The proposed rule does not define the term ``digital
asset service provider.'' Is the scope of the term ``digital asset
service provider'' under the statute sufficiently clear? If not, how
should it be clarified? Are there specific activities that should be
expressly excluded from digital asset service provider activities,
consistent with the statutory definition? Should additional guidance on
the exclusions from the definition of ``digital asset service
provider'' or the meaning of ``engaging in the business'' of providing
digital asset service provider activities be clarified? If so, how
should the Board further clarify these terms? Should the Board clarify
that only the provision of financial services that directly relate to
digital asset issuance would result in an entity becoming a digital
asset service provider? [similar to OCC Question 7]
Question 8: Is the term ``director'' sufficiently clear? Is it
clear which types of persons may be excepted from the definition as
``advisory directors?'' How should the Board further clarify the term?
[similar to OCC Question 8]
Question 9: Is the term ``distributed ledger'' sufficiently clear?
Should the term ``public digital ledger'' be further clarified? What
additional clarifications would be helpful? Should certain permissioned
or semi-permissioned digital ledgers be considered ``public?'' If so,
how should the definition of ``public'' delineate between different
types of permissioned or semi-permissioned blockchains? [similar to OCC
Question 9]
Question 10: Is scope of the term ``immediate family'' sufficiently
clear? If not, how should it be clarified? What are the advantages or
disadvantages of referring to children (including adults) ``having
their domicile in'' the individual's home in addition to or instead of
referring to, as currently proposed, such persons ``residing in'' the
individual's home? What are the advantages or disadvantages of removing
this phrase entirely, and including in the term an individual's adult
children, regardless of their residence or domicile?
Question 11: Is the proposed definition of ``institution-affiliated
party,'' which restates the definition in section 2(13) of the GENIUS
Act (12 U.S.C. 5901(13)), sufficiently clear? Should the Board provide
additional clarification regarding the definition for purposes of its
enforcement authorities?
Question 12: Is the definition of ``money'' appropriately scoped?
Should the Board use the exact language of the statute, instead of
using the proposed definition? What indicators should the Board
consider when assessing whether instruments that are not ``monetary
value,'' as defined in proposed part 247, are ``money?'' [similar to
OCC Question 11]
Question 13: Is the term ``nonpublic personal information''
appropriately scoped? How could the term be further refined or
clarified? Should the term be defined to be more consistent with the
definition of ``nonpublic personal information'' in the Gramm-Leach-
Bliley Act (15 U.S.C. 6809(4)(A))? Should the term ``nonpublic personal
information'' be broadened to include any information provided by a
customer to a Board-supervised PPSI? [similar to OCC Question 12]
Question 14: The term ``outstanding issuance value'' refers to the
total consolidated par value of all of a PPSI's outstanding payment
stablecoins. Should the definition also include the par value of non-
consolidated affiliates? If so, what changes should be made to the
reserve asset requirements to ensure the one-to-one requirement is met
across all affiliated entities? [similar to OCC Question 13]
Question 15: Is the term ``payment stablecoin'' sufficiently clear?
If not, how should the definition be amended to provide additional
clarity as to whether a particular stablecoin is a ``payment
stablecoin'' under the Act? Please describe the types of stablecoins
that the Board should clarify do not meet the definition of a ``payment
stablecoin'' under the Act and therefore would be outside the scope of
the Act's coverage. Should there be additional clarity around what it
means that a payment stablecoin is a digital asset
[[Page 61588]]
``that is, or is designed to be, used as a means of payment or
settlement?'' For example, are there certain settlement scenarios that
the Board should clarify are not ``designed to be, used as a means of
payment or settlement?'' [similar to OCC Question 14]
Question 16: Is the exclusion of a digital asset that ``is a
deposit (as defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813)), including a deposit recorded using distributed
ledger technology'' from the definition of ``payment stablecoin''
sufficiently clear? Should the Board clarify which tokenized products
this exclusion may apply to? [similar to OCC Question 15]
Question 17: Section 2 of the GENIUS Act (12 U.S.C. 5901) does not
exclude insured shares from the definition of ``payment stablecoin.''
Should insured shares be excluded in the implementing regulations?
[similar to OCC Question 16]
Question 18: Are the terms ``Board-supervised PPSI'' and ``PPSI''
sufficiently clear, including the distinction between the terms? How
should either definition be amended to provide additional clarity
regarding the application of proposed part 247? [similar to OCC
Question 17]
Question 19: Is the term ``person'' sufficiently clear? Should the
Board further clarify the definition, including with respect to the
meaning of ``association'' or other components of the definition?
[similar to OCC Question 18]
Question 20: Is the term ``private key'' sufficiently clear? How
could the term be further clarified? Should the Board define the term
to mean the unique alphanumeric sequence that allows an individual to
prove ownership of an account on a distributed ledger, including for
the purpose of transferring a particular unit of a digital asset?
[similar to OCC Question 19]
Question 21: Should the definition of ``principal shareholder,''
``covered shareholder,'' or any other definitions explicitly
incorporate governance instruments other than securities providing
voting rights with respect to the activities of the issuer? In
particular, are there governance instruments that may not qualify as
securities that the Board should incorporate or instruments common to
partnerships that the Board should consider incorporating? [similar to
OCC Question 20]
Question 22: Is the term ``senior management'' as used in proposed
part 247 sufficiently clear? Should the Board define the term, for
example, to include all or a select subset of officers? [similar to OCC
Question 21]
Question 23: The GENIUS Act does not define ``payment stablecoin
holder.'' Should the Board define the term? If so, should the Board
define the term to mean the person that beneficially owns the payment
stablecoin? Should the Board instead define the term based on
possession via digital wallets or control of cryptographic keys? What
considerations relating to custody should the Board bear in mind if it
chooses to define the term? What interactions with other requirements
in the proposed rule should the Board consider if it chooses to define
the term? [similar to OCC Question 22]
Question 24: Should the Board refine the definition of trading
volume? Should the term be limited to trades that occur on exchanges?
Should it include transactions that occur outside of an exchange?
Should the Board define ``exchange'' for purposes of this definition?
If so, should the Board define it to mean a person engaged in the
business of making a market in digital assets (including payment
stablecoins)? Should any definition include decentralized exchanges?
What impediments are there to PPSIs collecting data concerning trading
volume? [similar to OCC Question 23]
Question 25: Should the Board define ``United States customer'' to
mean a customer that resides in the United States, as proposed, or use
a different definition? For example, should the definition be limited
to United States citizens, regardless of where they reside? Should it
be revised to include both citizens and residents of the United States?
Should the definition be limited to permanent residents of the United
States? Should the Board consider other regulatory definitions, like
the definitions of ``U.S. person'' under the SEC's Regulation S (17 CFR
230.902(k)) or CFTC's cross-border rules (17 CFR 23.23(a)(23))?
[similar to OCC Question 24]
3. Severability (Proposed Sec. 247.3)
Proposed Sec. 247.3 would provide that the provisions of this
proposed part 247 are separate and severable from one another. If any
provision is stayed or determined to be invalid, it is the Board's
intention that the remaining provisions shall continue in effect. If a
provision of the rule were found to be invalid, the Board anticipates
that it would evaluate whether any re-proposal of the rule is
appropriate. The Board is proposing to include the severability clause
to ensure that, in the event any particular provision of the proposed
rule is held to be invalid, the remainder of the rule would continue in
effect, providing clarity for market participants on how to comply with
the Board's regulations implementing the GENIUS Act pending any re-
proposal.
The Board generally intends all of its rulemakings to be severable
to the extent portions of the rule are determined to be invalid
regardless of the presence of a severability clause. The Board is
proposing to include an explicit severability clause to this rulemaking
given the novelty and scope of the GENIUS Act and the importance of
ensuring as much certainty as possible for the regulatory framework for
payment stablecoins.
B. Subpart B--Rules Applicable to Board-Supervised Permitted Payment
Stablecoin Issuers
1. Permissible and Prohibited Activities (proposed Sec. 247.10)
a. Permissible Activities
Permitted Activities. Section 4(a)(7) of the GENIUS Act (12 U.S.C.
5903(a)(7)) sets forth the list of activities in which a PPSI may
engage. Additionally, section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)) outlines certain additional activities and investments in
which entities regulated by the Board, including Board-supervised
PPSIs, may engage.
Consistent with the statute, the Board is proposing to mirror the
permitted activities from section 4(a)(7)(A) of the GENIUS Act (12
U.S.C. 5903(a)(7)(A)) in proposed Sec. 247.10(a)(1) through (4), which
include: (1) issuing payment stablecoins; (2) redeeming payment
stablecoins; (3) managing reserves related to the issuance or
redemption of payment stablecoins, including purchasing, selling, and
holding reserve assets or providing custodial services for reserve
assets, consistent with applicable State and Federal law; \29\ and (4)
providing custodial or safekeeping services for payment stablecoins,
required reserves, or private keys of stablecoins consistent with the
GENIUS Act, as implemented in proposed subpart C. The permitted
activities would not include lending or issuing
[[Page 61589]]
payment stablecoins as the proceeds of a loan.
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\29\ For the avoidance of doubt, it is permissible for Board-
supervised PPSIs (i) to retain an asset manager in connection with
the activities specified in proposed Sec. 247.10(a)(3), and (ii) to
place funds in exchange for eligible deposit claims against an
insured depository institution, as that term is defined in proposed
Sec. 247.2. These activities are inherent in the activities
described in section 4(a)(7)(A) of the GENIUS Act (12 U.S.C.
5903(a)(7)(A)) and proposed Sec. 247.10(a)(3). See also 12 U.S.C.
5903(a)(7)(A)(v) and proposed Sec. 247.10(a)(7). Such activity is
also explicitly recognized in section 4(a)(1)(A)(ii) of the GENIUS
Act (12 U.S.C. 5903(a)(1)(A)(ii)).
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In addition to the activities outlined in section 4(a)(7) of the
GENIUS Act (12 U.S.C. 5903(a)(7)), for the sake of clarity, proposed
Sec. 247.10(a)(5) provides that Board-supervised PPSIs may assess fees
that are associated with purchasing or redeeming payment stablecoins.
This power is inherent in the activities described above and is
explicitly recognized in section 4(a)(1)(B)(ii) of the Act (12 U.S.C.
5903(a)(1)(B)(ii)).
The Board also proposes to include the permitted activities
identified in section 16(b) of the GENIUS Act (12 U.S.C. 5915(b)),
namely ``acting as principal or agent with respect to any payment
stablecoin and pay[ing] fees to facilitate customer transactions'' in
payment stablecoins.\30\ The Board notes that the scope of section
16(b) of the Act (12 U.S.C. 5915(b)) is limited by the clause that
provides that entities regulated by the primary Federal payment
stablecoin regulators are ``authorized to engage in the payment
stablecoin activities and investments contemplated by this Act . . .
.'' Accordingly, for Board-supervised PPSIs, ``acting as principal or
agent with respect to any payment stablecoin'' is permissible within
the limited set of authorities otherwise prescribed by the GENIUS Act
rather than, for example, any activity that may be conducted as
principal or agent (i.e., any activity involving a payment stablecoin),
such as lending or issuing payment stablecoins as the proceeds of a
loan. Therefore, proposed Sec. 247.10(a)(6)(i) would implement this
statutory provision by stating that Board-supervised PPSIs may, in
connection with payment stablecoin activities and investments
contemplated by the GENIUS Act, act as principal or agent with respect
to any payment stablecoin. Under this provision, Board-supervised PPSIs
may hold and transact in payment stablecoins as principal or agent in
connection with permissible activities. Payment stablecoins are not,
however, a permitted reserve asset in proposed Sec. 247.11.\31\ To the
extent an entity, including a Board-supervised PPSI, is a ``digital
asset service provider,'' as defined in section 2(7) of the GENIUS Act
(12 U.S.C. 5901(7)), such entity must also comply with the prohibitions
outlined in section 3(b) of the GENIUS Act (12 U.S.C. 5902(b)), and any
regulations issued thereunder by the Department of the Treasury. For
avoidance of doubt, acting as a custodian is permissible as an agency
activity.
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\30\ Section 16(b) of the Act provides, ``Entities regulated by
the primary Federal payment stablecoin regulators are authorized to
engage in the payment stablecoin activities and investments
contemplated by this Act, including acting as a principal or agent
with respect to any payment stablecoin and payment of fees to
facilitate customer transactions.'' 12 U.S.C. 5915(b). The
activities authorized under section 16(b) include, for example,
acting as an agent for a customer with respect to the redemption of
a payment stablecoin issued by a third party. The activities
authorized under section 16(b), as described in this section II.1.a
of the SUPPLEMENTARY INFORMATION, are also permissible for other
entities regulated by the Board, including State member banks,
uninsured State branches and State agencies of foreign banks, Edge
and agreement corporations, and depository institution holding
companies, as discussed in greater detail in section II.G of this
SUPPLEMENTARY INFORMATION.
\31\ See 12 U.S.C. 5903(a)(1) (setting forth permissible reserve
assets).
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Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), proposed Sec. 247.10(a)(6)(ii) would allow Board-supervised
PPSIs to pay fees to facilitate customer transactions (e.g., network or
``gas'' fees). The Board recognizes that if a Board-supervised PPSI is
paying fees on certain distributed ledgers, the Board-supervised PPSI
may have to hold non-payment stablecoin digital assets to facilitate
the payment of these fees.\32\ If a Board-supervised PPSI's payment
stablecoin operates on a blockchain that assesses such fees, then the
Board-supervised PPSI may (i) pay fees to facilitate customer
transactions, and (ii) hold as principal non-payment stablecoin digital
assets necessary to pay such fees, provided that such principal
holdings shall not exceed quantities that are reasonably expected to
meet near-term demand for the payment of fees.
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\32\ Cf. OCC Interpretive Letter 1186 (November 18, 2025).
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Further, and consistent with section 16(b) of the GENIUS Act (12
U.S.C. 5915(b)), proposed Sec. 247.10(a)(6)(iii) would clarify the
authority of Board-supervised PPSIs to hold non-payment stablecoin
digital assets as principal necessary for testing a distributed
ledger.\33\ Proposed Sec. 247.10(a)(6)(iii) would provide that Board-
supervised PPSIs may, in connection with payment stablecoin activities
and investments contemplated by the GENIUS Act, (i) pay fees and
undertake other activities as necessary to conduct testing on
distributed ledger-based platforms and (ii) hold as principal non-
payment stablecoin digital assets necessary to pay such fees, provided
that such principal holdings shall not exceed quantities reasonably
expected to be necessary for near-term testing of a distributed ledger-
based platform. Consistent with the Act, such digital assets are not
permitted reserve assets in proposed Sec. 247.11.
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\33\ The holding of digital assets as principal to the extent
necessary to conduct testing of digital asset-related platforms is a
permissible activity for national banks, see OCC Interpretive Letter
1186 (November 18, 2025), and therefore also for State member banks,
provided it is permitted under applicable State law. 12 U.S.C. 330,
1831a. For the avoidance of doubt, the Board believes that Board-
supervised PPSIs also may hold non-payment stablecoin digital assets
as principal as an activity under the proposed Sec. 247.10(a)(7),
as an activity which directly supports any of the activities in
proposed Sec. 247.10(a)(1) through (4). Such an activity may be
necessary to ensure that the Board-supervised PPSI may operate
safely and effectively on a distributed ledger.
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Additionally, proposed Sec. 247.10(a)(7) provides that a Board-
supervised PPSI may undertake any other activities that directly
support any of the activities in proposed Sec. 247.10(a)(1) through
(4), which is explicitly provided for in section 4(a)(7)(A)(v) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(A)(v)). To the extent that Board-
supervised PPSIs are unclear about whether an activity qualifies as
activity that directly supports the activities in proposed Sec.
247.10(a)(1) through (a)(4), the Board encourages issuers to ask the
Board directly whether an activity is permissible.
Rule of Construction. Section 4(a)(7)(B) of the GENIUS Act (12
U.S.C. 5903(a)(7)(B)) contains a ``rule of construction'' stating that
``nothing in'' section 4(a) of the GENIUS Act (12 U.S.C. 5903(a)(7)(A))
``shall limit a [PPSI] from engaging in payment stablecoin activities
or digital asset service provider activities specified by [the GENIUS
Act], and activities incidental thereto, that are authorized by the
primary Federal payment stablecoin regulator or the State payment
stablecoin regulator, as applicable, consistent with all other Federal
and State laws, provided that the claims of payment stablecoin holders
rank senior to any potential claims of non-stablecoin creditors with
respect to the reserve assets, consistent with section 11 [of the
GENIUS Act].''
Section 4(a)(7)(B) of the Act (12 U.S.C. 5903(a)(7)(B)) states that
regulators may only approve additional activities to the extent
``consistent with all other Federal and State laws,'' without amending
such laws. For the avoidance of doubt, the Board interprets the phrase
``consistent with all other Federal or State laws'' in section
4(a)(7)(B) of the GENIUS Act to limit PPSIs to engaging under this
authority only in those payment stablecoin, digital asset service
provider, or incidental activities that are otherwise permitted under
the Federal and State laws applicable to the PPSI, including on the
basis of its charter or
[[Page 61590]]
affiliations.\34\ In contrast to section 4(a)(7)(A) of the Act (12
U.S.C. 5903(a)(7)(A)), which affirmatively lists permissible
activities, section 4(a)(7)(B) (12 U.S.C. 5903(a)(7)(B)) begins with
``nothing in subparagraph (A) shall limit . . . ,'' which indicates
that section 4(a)(7)(B) is being utilized to clarify or prevent
misinterpretation, rather than to grant new authority to conduct
activities.
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\34\ As a result of this interpretation, PPSIs that are part of
a bank holding company or a savings and loan holding company will,
regardless of their primary Federal or State payment stablecoin
regulator, generally be limited to conducting only those activities
permitted under the BHC Act or HOLA, as applicable.
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The Board interprets the reference to ``payment stablecoin
activities . . . specified by this Act'' in section 4(a)(7)(B) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(B)) to refer only to the activities
listed in the preceding paragraph, section 4(a)(7)(A) of the Act (12
U.S.C. 5903(a)(7)(A)). The Board interprets ``digital asset service
provider activities specified by this Act'' to refer only to the
activities listed in the definition of digital asset service provider
in section 2(7)(A) of the Act (12 U.S.C. 5901(7)(A)). Under section
4(a)(7)(B) of the Act (12 U.S.C. 5903(a)(7)(B)), permissibly authorized
activities may also include activities that are ``incidental'' to
payment stablecoin and digital asset service provider activities. Under
the GENIUS Act, PPSIs may not engage in activities that are
``incidental'' to any activities not listed in sections 2(7)(A) and
4(a)(7)(A) of the GENIUS Act (12 U.S.C. 5901(7)(A), 5903(a)(7)(A)). For
the avoidance of doubt, a Board-supervised PPSI may not engage in
activities incidental to those described in section 16(b) of the GENIUS
Act (12 U.S.C. 5915(b)) or proposed Sec. 247.10(a)(5) through (6).
Accordingly, pursuant to proposed Sec. 247.10(b), a Board-
supervised PPSI may conduct an activity that is outside the activities
listed in proposed Sec. 247.10(a) only if (i) the proposed activity is
(A) incidental to the activities specified in proposed Sec.
247.10(a)(1) through (4) and Sec. 247.10(a)(7), or (B) is a digital
asset service provider activity specified in section 2(7)(A) of the Act
(12 U.S.C. 5901(7)(A)) or activities incidental thereto; (ii) the
activity is permissible under applicable State and Federal laws; (iii)
the activity is expressly authorized by the Board; and (iv) the claims
of payment stablecoin holders rank senior to any potential claims of
non-stablecoin creditors with respect to the reserve assets, consistent
with section 11 of the GENIUS Act.\35\ As a result of prong (ii), a
Board-supervised PPSI that is a subsidiary of a insured State member
bank would only be authorized by the Board to conduct activities under
section 4(a)(7)(B) of the GENIUS Act (12 U.S.C. 5903(a)(7)(B)) if the
activity is permissible for a subsidiary of an insured State member
bank under (i) applicable State law and (ii) applicable Federal law,
including under section 24 of the Federal Deposit Insurance Act (12
U.S.C. 1831a).
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\35\ In evaluating whether to authorize activities under
proposed Sec. 247.10(b), the Board may consider, for example, the
extent to which claims of creditors that are not stablecoin holders
are subordinated to stablecoin holders' claims on stablecoin reserve
assets and other assets of the Board-supervised PPSI.
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In general, the Board expects that Board-supervised PPSIs will not
incur material liabilities other than payment stablecoin liabilities or
maintain significant assets other than those listed in proposed Sec.
247.11(b) without the Board's express, written permission. While Board-
supervised PPSIs are permitted to own other assets pursuant to proposed
Sec. 247.10(a)(6)(iv), and potentially also under proposed Sec.
247.10(a)(7) and (b), the Board generally expects these assets to be
limited in quantity relative to assets permitted under proposed Sec.
247.11(b). Under proposed subpart D of part 247, the Board will review
the business plan of a proposed Board-supervised PPSI, including its
projected assets and liabilities, prior to deciding on an application
from an insured State member bank for its subsidiary to issue payment
stablecoins. The Board expects to include a condition in any such
approval that the Board-supervised PPSI may not, without the prior
written approval of the Board, cause or permit any change in the
general character of its business following its approval under proposed
subpart D of part 247. A change in the general character of a Board-
supervised PPSI could include, for example, incurring any material
liabilities other than payment stablecoin liabilities, or significant
assets other than those listed in proposed Sec. 247.11(b) that were
not approved as part of the initial business plan.
Question 26: Are there activities not contemplated in the proposed
Sec. 247.10 that Board-supervised PPSIs must be able to engage in for
purposes of the GENIUS Act? If so, please describe them and any
appropriate limits for these additional activities. [similar to OCC
Question 25]
Question 27: The SUPPLEMENTARY INFORMATION clarifies that it is
permissible for Board-supervised PPSIs to retain an asset manager in
connection with the activities specified in Sec. 247.10(a)(3). What
additional clarification, if any, would be necessary or beneficial
regarding the permissibility of such an arrangement? [similar to OCC
Question 26]
Question 28: Are there other limits or conditions the Board should
consider with respect to Board-supervised PPSIs acting as principal or
agent with respect to any payment stablecoin? Should the Board specify
the activities contemplated under the GENIUS Act for which a Board-
supervised PPSI may act as principal or agent in payment stablecoins
under section 16(b) of the Act (12 U.S.C. 5915(b))? [similar to OCC
Question 27]
Question 29: Do Board-supervised PPSIs need to hold digital assets
other than payment stablecoins for other purposes beyond paying fees or
testing a distributed ledger? If so, under what circumstances would a
Board-supervised PPSI need to hold such assets? [similar to OCC
Question 28]
Question 30: The proposed rule provides that a Board-supervised
PPSI may not hold non-payment stablecoin digital assets in a quantity
that exceeds what is reasonably expected to be necessary to meet near
term demand for the payment of fees or near-term testing of a
distributed ledger-based platform. What are the benefits and drawbacks
of codifying this limitation? Should the Board calibrate the limitation
differently, including by capping it to a percentage of assets or a
certain value threshold? [similar to OCC Questions 29 and 33]
Question 31: Should there be any limit on what methods of payment a
Board-supervised PPSI can accept when assessing fees, including fees
associated with the purchasing or redeeming of stablecoins? Should the
final rule include provisions addressing a Board-supervised PPSI's
potential assessment of fees in digital assets other than payment
stablecoins and how long Board-supervised PPSIs can hold onto such
digital assets? Are there specific forms of payment outside of fiat and
payment stablecoin that a Board-supervised PPSI will need to accept and
that the Board should provide additional clarity on? [similar to OCC
Question 30]
Question 32: Proposed Sec. 247.10(b) provides the Board's
interpretation of the rule of construction in section 4(a)(7)(B) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(B)). Should the Board include an
approval process for such activities? Should the Board interpret the
phrase ``digital asset service provider activities specified by this
Act'' to include the
[[Page 61591]]
activities in section 2(7)(B) of the Act? What are the benefits and
drawbacks of such an interpretation? [similar to OCC Question 31]
Question 33: Should the Board clarify proposed Sec. 247.10(a)(7)
by providing further examples of activities that directly support the
activities in proposed Sec. 247.10(a)(1) through (4)? Are there
specific examples of activities that directly support the activities
listed in proposed Sec. 247.10(a)(1) through (4) that should be
clarified? Should the Board distinguish between what it means for an
activity to directly support the activities in proposed Sec.
247.10(a)(1) through (4), and therefore, satisfy the test in proposed
Sec. 247.10(a)(7), as opposed to what it means for an activity to be
incidental to payment stablecoin activities provided in Section
4(a)(7)(B) of the GENIUS Act (12 U.S.C. 5903(a)(7)(B))? [similar to OCC
Question 32]
Question 34: Should the Board explicitly provide that managing
foreign exchange risk is a permissible activity for any Board-
supervised PPSI that issues payment stablecoins that are denominated in
a national currency other than the U.S. dollar? If so, should the Board
include limitations on the activity (e.g., that the Board-supervised
PPSI may not over-hedge its position and may not use foreign exchange
risk management as a pretext to engage in speculation)? If the Board
permits this activity, what requirements should the Board impose to
mitigate risks? For example, should there be a capital add-on for
foreign exchange risk? [similar to OCC Question 34]
Question 35: Should the Board explicitly prohibit Board-supervised
PPSIs from incurring material liabilities other than stablecoin
liabilities, or maintaining significant assets other than assets
permitted under proposed Sec. 247.11(b)? Under what circumstances
might a Board-supervised PPSI incur material liabilities other than
stablecoin liabilities? Under what circumstances might a Board-
supervised PPSI maintain significant assets other than assets permitted
under proposed Sec. 247.11(b)? Should the Board require any Board-
supervised PPSI with material liabilities other than stablecoin
liabilities, or significant assets other than assets permitted under
proposed Sec. 247.11(b) to keep all of its reserve assets in a wholly
owned subsidiary with no liabilities of its own, the assets of which
secure stablecoin liabilities of the Board-supervised PPSI, as
discussed in section II.B.2.a of this SUPPLEMENTARY INFORMATION?
b. Prohibited Activities
The GENIUS Act also prohibits PPSIs from engaging in certain
activities under the prohibition on rehypothecation in section 4(a)(2)
(12 U.S.C. 5903(a)(2)), the prohibition on the use of deceptive names
in section 4(a)(9) (12 U.S.C. 5903(a)(9)), the prohibition against
misrepresenting insured status in section 4(e) (12 U.S.C. 5903(e)), and
the prohibition on paying remuneration in section 4(a)(11) (12 U.S.C.
5903(a)(11)).
Prohibition on the Use of Deceptive Names. In proposed Sec.
247.10(c)(1), the Board mirrors the prohibition on the use of a
deceptive name in section 4(a)(9) of the GENIUS Act (12 U.S.C.
5903(a)(9)). This provision prohibits a Board-supervised PPSI from
using any combination of terms relating to the U.S. Government,
including ``United States,'' ``United States Government,'' and ``USG,''
in the name of the payment stablecoin. This prohibition does not apply
to abbreviations relating directly to the currency to which the payment
stablecoin is pegged, such as ``USD.''
Prohibition on Deceptive Marketing of Payment Stablecoins.
Consistent with section 4(a)(9) of the GENIUS Act (12 U.S.C.
5903(a)(9)), proposed Sec. 247.10(c)(2) would prohibit Board-
supervised PPSIs from marketing a payment stablecoin in such a way that
a reasonable person would perceive the payment stablecoin to be legal
tender as described in 31 U.S.C. 5103, issued by the United States, or
guaranteed or approved by the Government of the United States,
including the FDIC or NCUA. The Board recognizes that Board-supervised
PPSIs may want to market themselves as PPSIs regulated under the GENIUS
Act. Neither section 4(a)(9) of the Act nor proposed Sec. 247.10(c)(2)
would prohibit Board-supervised PPSIs marketing themselves in this
manner in connection with marketing their payment stablecoins or
stressing that their stablecoin liabilities are 100 percent or more
backed by reserve assets permitted by the GENIUS Act including very
short-term U.S. Government securities, if true. However, Board-
supervised PPSIs must ensure that they do not run afoul of the
prohibitions outlined in proposed Sec. 247.10(c)(1) and (2), including
the prohibition against marketing a payment stablecoin in such a way
that a reasonable person would perceive the payment stablecoin to be
guaranteed, issued, or approved by the United States, including the
FDIC or NCUA.\36\
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\36\ While proposed Sec. 247.10(c) only expressly addresses the
prohibitions set out in sections 4(a)(9) and 4(e)(2) of the GENIUS
Act, to the extent a Board-supervised PPSI markets any products
other than payment stablecoins, it shall also be subject to the
prohibition in section 4(e)(3) of the GENIUS Act, which provides
that it shall be unlawful to market a product in the United States
as a payment stablecoin unless it is issued pursuant to the GENIUS
Act.
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Prohibition on Deceptive Representations. Consistent with section
4(e) of the GENIUS Act (12 U.S.C. 5903(e)), proposed Sec. 247.10(c)(3)
would provide that a Board-supervised PPSI must not directly or through
implication represent that payment stablecoins are backed by the full
faith and credit of the United States, guaranteed by the U.S.
Government, or subject to Federal deposit insurance or Federal share
insurance. As stated above, Board-supervised PPSIs are, however,
permitted to represent that their payment stablecoins are 100 percent
or more backed by permissible reserve assets including very short-term
U.S. Government securities, if true.
With respect to all of the prohibitions discussed in proposed Sec.
247.10(c)(1)-(3), the Board notes that misrepresentations by a Board-
supervised PPSI cannot be cured by a general disclaimer and that
representations and disclosures should be clear to payment stablecoin
holders and customers.
Prohibition on Remuneration. Consistent with section 4(a)(11) of
the GENIUS Act (12 U.S.C. 5903(a)(11)), proposed Sec. 247.10(c)(4)
provides that Board-supervised PPSIs must not pay the holder of any
payment stablecoin any form of interest or yield (whether in cash,
tokens, or other consideration) solely in connection with the holding,
use, or retention of such payment stablecoin. The Board understands
that Board-supervised PPSIs could attempt to make prohibited payments
of interest or yield to payment stablecoins holders through
arrangements with third parties. Moreover, there likely will be a large
and changing variety of arrangements with third parties in which PPSIs
could achieve the payment of yield to payment stablecoin holders. It
would not be possible to identify in detail all, or even most, of the
potential arrangements between Board-supervised PPSIs and third parties
that the Board may prohibit under section 4(a)(11) of the GENIUS Act
and the Board's rulemaking authority under section 4(h) of the GENIUS
Act (12 U.S.C. 5903(h)),\37\ particularly as such arrangements may
evolve over time. On the other hand, a rule with only a
[[Page 61592]]
general prohibition on the payment of yield could create uncertainty
within the payment stablecoin market.
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\37\ Section 4(h) of the GENIUS Act (12 U.S.C. 5903(h)) provides
that the Board and other stablecoin regulators may issue regulations
to ``carry out the requirements of this section, including to
establish conditions, and to prevent evasion thereof'' (emphasis
added).
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To balance these interests, the Board is proposing to follow the
approach proposed by the OCC in its notice of proposed rulemaking on
implementing its responsibilities under the GENIUS Act \38\ and include
a presumption in proposed Sec. 247.10(c)(4)(i) that certain types of
arrangements with certain types of persons would be presumed to be
prohibited payments of yield or interest by the issuer. Specifically,
the Board would presume that a Board-supervised PPSI is paying interest
or yield (whether in cash, tokens, or other consideration) to the
holder of a payment stablecoin solely in connection with the holding,
use, or retention of such payment stablecoin if: (A) the Board-
supervised PPSI has a contract, agreement, or other arrangement with an
affiliate of the Board-supervised PPSI or a related third party to pay
interest or yield to the affiliate or related third party; and (B) the
affiliate \39\ or related third party (or affiliate of such related
third party) has a contract, agreement, or other arrangement to pay
interest or yield (whether in cash, tokens, or other consideration) to
a holder of any payment stablecoin issued by the Board-supervised PPSI
solely in connection with the holding, use, or retention of such
payment stablecoin. To the extent that the person, or an affiliate of
the person with whom the Board-supervised PPSI has a contract,
agreement, or other arrangement to pay interest or yield is a related
third party of the Board-supervised PPSI because the Board-supervised
PPSI issues payment stablecoins on the related third party's behalf or
under the related third party's branding, the arrangement between the
related third party and the holder of the payment stablecoin would
consider the holder of the payment stablecoin to be the holder of the
payment stablecoin issued by the Board-supervised PPSI on the related
third party's behalf or under the related third party's branding. That
is to say, with respect to a white-label relationship, the presumption
would be triggered only to the extent the payment stablecoin holder is
a holder of the related third party's white-labeled stablecoin (as
opposed to other payment stablecoins issued by the Board-supervised
PPSI).
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\38\ 91 FR 10202, 10212 (March 2, 2026).
\39\ A person would not be included within this second prong
solely because the person is an affiliate of an affiliate of the
Board-supervised PPSI.
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Related third parties would be defined to include a person offering
to pay interest or yield to payment stablecoin holders as a service
(i.e., on behalf of the Board-supervised PPSI) and any person that the
Board-supervised PPSI issues payment stablecoins on behalf or under the
branding of (i.e., persons that have entered white-label relationship
with the issuer). The Board believes that the close nexus to the Board-
supervised PPSI's payments and payments to the payment stablecoin
holder as well as the close contractual or control relationship between
the Board-supervised PPSI and the other party would make it highly
likely that the Board-supervised PPSI's payments of yield or interest
would be made to the holder through an intermediary or an attempt the
evade the GENIUS Act's prohibition on interest and yield payments.
Nonetheless, the Board would allow the Board-supervised PPSI to
rebut the presumption given the Board-supervised PPSI provides
sufficient evidence to the contrary. Specifically, a Board-supervised
PPSI may rebut the presumption by submitting written materials that, in
the Board's judgment, demonstrate that the contract, agreement, or
other arrangement is not prohibited under proposed Sec. 247.10(c)(4)
and is not an attempt to evade the prohibition.
Other arrangements that are not captured by the presumption may
also violate the statutory prohibition or constitute an evasion
thereof. The Board would assess those arrangements on a case-by-case
basis but does not believe that it is necessary to include other
arrangements within the rebuttable presumption at this time. The
prohibition is not intended to prevent a merchant from independently
offering a discount to a payment stablecoin holder for using payment
stablecoins. The prohibition is also not intended to prevent a Board-
supervised PPSI from sharing in the profits derived from the payment
stablecoin with a non-affiliate partner in a white-label arrangement.
Prohibition on rehypothecation. In proposed Sec. 247.10(c)(5), the
Board proposes to include the language from section 4(a)(2) of the
GENIUS Act (12 U.S.C. 5903(a)(2)) that prohibits Board-supervised PPSIs
from pledging, rehypothecating, or reusing any reserve assets required
under section 4(a)(1) of the Act (12 U.S.C. 5903(a)(1)), except for the
purposes listed in section 4(a)(2) of the Act (12 U.S.C. 5903(a)(2)).
Thus, consistent with the statute, a Board-supervised PPSI may not
pledge, rehypothecate or reuse any assets held as reserves under
proposed Sec. 247.11(a)(1), either directly or indirectly (e.g.,
through a third-party custodian of the reserve assets), except for the
purpose of: (i) satisfying margin obligations in connection with
investments in permitted reserves under proposed Sec. 247.11(b)(4) or
(5); (ii) satisfying obligations associated with the use, receipt, or
provision of standard custodial services; \40\ or (iii) creating
liquidity to meet reasonable expectations of requests to redeem payment
stablecoins, such that reserves in the form of Treasury bills may be
sold as purchased securities in repurchase agreements with a maturity
of 93 days or less, provided that either: (A) the repurchase agreements
are cleared by a clearing agency registered with the SEC; or (B) the
Board-supervised PPSI receives prior approval from the Board.
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\40\ The Board interprets this exception, codified in 12 U.S.C.
5903(a)(2)(B), as being related solely to the purposes specified in
12 U.S.C. 5909(c)(2)(B).
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By including the phrase ``directly or indirectly'' in the
prohibition, it is clear that Congress intended that a PPSI would be
prohibited from consenting to a custodian holding the reserves on
behalf of a PPSI to pledge, rehypothecate or reuse any of the reserve
assets, other than with respect to the limited exceptions discussed in
proposed Sec. 247.10(c)(5). To the extent that a PPSI consented to a
custodian holding the payment stablecoin reserves on behalf of the PPSI
to bypass this prohibition, it would undermine the relatively safe
nature of the reserve assets and the confidence that payment stablecoin
holders have that the payment stablecoin will hold its peg.
For the avoidance of doubt, the Board believes that the general
prohibition on rehypothecation in section 4(a)(2) of the Act (12 U.S.C.
5903(a)(2)) does not apply to reserve assets that are specifically
permitted under section 4(a)(1)(A)(iv)-(v) of the GENIUS Act (12 U.S.C.
5903(a)(1)(A)(iv)-(v)). Therefore, proposed Sec. 247.10(c)(5) does not
in any way constrain Board-supervised PPSIs from including as reserve
assets (i) money received from repurchase transactions described in
proposed Sec. 247.11(b)(4), or (ii) reverse repurchase agreements
described in proposed Sec. 247.11(b)(5).
Prohibition on evasive activity. Section 4(h)(1) of the GENIUS Act
(12 U.S.C. 5903(h)(1)) provides that the Board may issue regulations
``to carry out the requirements of this section . . . and to prevent
evasion thereof.'' In proposed Sec. 247.10(c)(6), consistent with this
statutory authority, the Board proposes language that provides that a
Board-supervised PPSI must not engage in any activity that the Board
determines is an evasion of the requirements of section 4 of the GENIUS
[[Page 61593]]
Act (12 U.S.C. 5903) or its implementing regulations.
Other prohibitions under consideration. The Board has considered
and is requesting comment on whether to prohibit a Board-supervised
PPSI from issuing more than one brand or series of payment stablecoin.
The Board recognizes that there are advantages and disadvantages
associated with permitting a Board-supervised PPSI to issue multiple
brands of payment stablecoins that may be co-branded with a named
partner in a white label arrangement. These arrangements can allow
parties to leverage the experience and expertise of a PPSI and
facilitate a broader range of stablecoins in the market. However, they
may also foster uncertainty about reserve assets and encourage
contagion and run risk among brands of payment stablecoins, including
but not limited to brands issued by one issuer. One possibility that
the Board has considered and is requesting comment on is to restrict
each Board-supervised PPSI to issuing only one brand of payment
stablecoin but to streamline the process for approving applications
from insured State member banks seeking approval for an additional
subsidiary to issue payment stablecoins, if it has previously received
approval from the Board for a different subsidiary to issue payment
stablecoins. Under this approach, multiple Board-supervised PPSIs could
share certain services and back-office functions with each other and
might operate under a common risk management framework, but each issuer
would be legally separate. This approach would allow an entity to
leverage its experience and expertise but may provide more certainty
with respect to the rights of payment stablecoin holders in the event
that a Board-supervised PPSI becomes insolvent.
Another alternative, as discussed in further in section II.B.2.a of
this SUPPLEMENTARY INFORMATION, would be to require each Board-
supervised PPSI that issues more than one brand of payment stablecoin
to hold the reserve assets backing each payment stablecoin in separate,
wholly owned subsidiaries, with the assets of each subsidiary securing
the issuance of the corresponding payment stablecoin. Under this
approach, each subsidiary would be prohibited from incurring any
liability of its own, thereby helping to ensure that the reserve assets
held in the subsidiary are effective security for the corresponding
payment stablecoin liabilities. The Board seeks comment on this
approach.
Question 36: Could the prohibition against paying remuneration
solely in connection with the holding or use of a payment stablecoin be
clarified? If so, how? Would it be helpful to include a de minimis
exception to the prohibition to provide certainty with respect to
arrangements that are not designed to violate the prohibition and that
do not have a meaningful economic impact? If so, is there any specific
guidance the Board should provide on what de minimis means? [similar to
OCC Question 35]
Question 37: Does the presumption with respect to the prohibition
against paying remuneration solely in connection with the holding, use,
or retention of a payment stablecoin appropriately address concerns
relating to evasion? Is the presumption with respect to the prohibition
against paying remuneration solely in connection with the holding, use,
or retention of a payment stablecoin appropriately scoped? Is the
presumption sufficiently clear? How could the presumption be clarified?
Should the Board clarify the standard of review under which it would
consider written materials to rebut the presumption related to
remuneration and specify whether the Board's determination is
appealable? Should the Board propose any safe harbor for arrangements
that the Board believes do not violate the statutory prohibition?
[similar to OCC Question 36]
Question 38: Should the prohibition on remuneration in proposed
Sec. 247.10(c)(4) be broader to prevent Board-supervised PPSIs from
directly or indirectly paying remuneration to payment stablecoin
holders (rather than presuming that certain arrangements with
affiliates or related third parties violate the prohibition)? Are there
examples of potentially evasive behavior that the Board should
expressly include in a prohibition? If the Board were to expand the
prohibition, are there activities that should be expressly carved out
of such an expansion? [similar to OCC Question 37]
Question 39: Should the prohibition on interest and yield in
proposed Sec. 247.10(c)(4) clarify the terms ``pay,'' ``interest,''
``yield,'' ``solely,'' or any other terms? If so, what clarifications
would be helpful? Would specific examples of arrangements where the
consideration offered would not be considered ``interest'' or ``yield''
be helpful? [similar to OCC Question 38]
Question 40: What would the economic impact of a narrow prohibition
on paying remuneration solely in connection with the holding, use or
retention of a payment stablecoin be relative to a broader prohibition
(i.e., one that includes relationships with affiliates or third
parties)? What impact would either prohibition have on bank deposits?
[similar to OCC Question 39]
Question 41: Is the scope of the prohibition against pledging,
rehypothecating, or reusing reserve assets sufficiently clear? The
proposed rule states that the Board does not believe this general
prohibition on rehypothecation applies to reserve assets that are
specifically permitted under sections 4(a)(1)(A)(iv) and (v) of the
GENIUS Act (12 U.S.C. 5903(a)(1)(A)(iv) and (v)). Should the Board take
further steps to provide additional clarity on this point? Should the
Board instead follow the approach proposed by the OCC in section
15.10(c)(5) of its GENIUS Act notice of proposed rulemaking? \41\ Are
there specific types of transactions, relationships, or structures for
which it would be helpful to clarify whether the prohibition applies?
For example, should the Board clarify whether the prohibition would
prevent establishing a collateral trustee that would hold a security
interest in reserve assets for the benefit of payment stablecoin
holders? What arguments weigh for and against finding that the
prohibition would prohibit these arrangements? If a Board-supervised
PPSI sets up a collateral trustee arrangement where the issuer grants a
security interest in the reserve assets, does this arrangement
sufficiently protect the reserve assets in the event of insolvency or
bankruptcy? Should a Board-supervised PPSI be required to make
particular disclosures if it uses such an arrangement? What should
those disclosures include? [similar to OCC Question 40]
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\41\ See 91 FR 10202 (March 2, 2026).
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Question 42: Should the Board specify what ``creating liquidity to
meet reasonable expectations of requests to redeem payment
stablecoins'' means under proposed Sec. 247.10(c)(5)(iii)? Should the
Board pre-approve Board-supervised PPSIs to engage in term repurchase
agreements during periods of market stress pursuant to proposed Sec.
247.10(c)(5)(iii) such that Board-supervised PPSIs can signal to
counterparties that they have access to an additional source of
liquidity? Alternatively, should the Board allow for broad and open-
ended approvals of the sale of reserves as purchased securities in
repurchase agreements or should approvals be limited to specific types
of transactions? What factors should the Board consider prior to
granting approval of the sale of reserves as purchased securities in
repurchase agreements under proposed Sec. 247.10(c)(5)(iii)(B)?
[similar to OCC Question 41]
[[Page 61594]]
Question 43: Should Board-supervised PPSIs be required to provide
disclosures stating that payment stablecoins are not legal tender,
issued by the United States, or guaranteed or approved by the United
States? If so, should the Board impose any requirements on the manner
in which disclosures are made? For example, should the Board require
that disclosures be made on the Board-supervised PPSI's website, at
point of direct sale by the issuer, alongside other types of
disclosures, or in some other manner? [similar to OCC Question 42]
Question 44: Is any further clarity needed regarding the
prohibition on the use of deceptive names, marketing, and
representations in proposed Sec. 247.10(c)(1) through (3)? For
example, should the Board specify what kind of images or branding are
likely to violate the prohibition? Should the Board require Board-
supervised PPSIs to affirmatively state that payment stablecoins are
not legal tender, issued by the United States, or guaranteed or
approved by the Government of the United States? Should the Board
explicitly require Board-supervised PPSIs to disclose that payment
stablecoins are not covered by deposit insurance or share insurance
even if they are partially backed by insured eligible deposit claims?
The proposal indicates that a Board-supervised PPSI may make
representations that its stablecoins are 100 percent or more backed by
reserve assets permitted by the GENIUS Act including very short-term
U.S. Government securities, if true. Should the Board provide
clarifications regarding other permissible statements? [similar to OCC
Question 43]
Question 45: Should the Board explicitly prohibit Board-supervised
PPSIs from issuing more than one type of stablecoin, for example
different brands or series of stablecoins? If the Board permits Board-
supervised PPSIs to issue more than one type of stablecoin, should it
require the Board-supervised PPSI to keep all of its reserve assets in
a wholly owned subsidiary with no liabilities of its own, the assets of
which secure a particular type of stablecoin liabilities of the Board-
supervised PPSI, as discussed in section II.B.2.a of this SUPPLEMENTARY
INFORMATION?
2. Reserve Assets (Proposed Sec. 247.11)
a. Reserve Requirement (Proposed Sec. 247.11(a))
Under section 4(a)(4)(A)(ii) of the Act (12 U.S.C.
5903(a)(4)(A)(ii)), the Board is responsible for ``issu[ing]
regulations implementing . . . the liquidity standard under section
4(a)(1) of the Act'' with respect to Board-supervised PPSIs. Section
4(a)(1)(A) of the Act (12 U.S.C. 5903(a)(1)(A)) provides that a PPSI
must ``maintain identifiable reserves backing the outstanding payment
stablecoins of the [PPSI] on an at least'' one-to-one basis and
specifies the eight permissible reserve asset types. A Board-supervised
PPSI would not be in compliance with this requirement if it did not
maintain reserve assets sufficient to back outstanding payment
stablecoins of the Board-supervised PPSI on a one-to-one basis. A
Board-supervised PPSI may maintain reserve assets through a custodian,
including an affiliate acting as a custodian, provided that the
custodian is eligible to provide such services under, and is in
compliance with, section 10 of the GENIUS Act (12 U.S.C. 5909) and its
implementing regulations.
Proposed Sec. 247.11(a)(1) would require that Board-supervised
PPSIs maintain reserve assets that: (i) are identifiable; (ii) are
segregated from, are not commingled with other assets owned or held by
the Board-supervised PPSI, and are not available to satisfy the claims
of any creditor (other than through the redemption of payment
stablecoins) unless and until all payment stablecoins have been
redeemed at par; (iii) at all times have a total fair value that equals
or exceeds the outstanding issuance value of the Board-supervised PPSI;
and (iv) are held (A) in custody by a person that is eligible to
provide such services under, and is in compliance with, section 10 of
the Act (12 U.S.C. 5909), including any applicable implementing
regulations; (B) as an eligible deposit claim; (C) as money standing to
the credit of an account at a Federal Reserve Bank; or (D) by the
Board-supervised PPSI. With respect to prong (D), as discussed in more
detail below, the Board is proposing to allow Board-supervised PPSIs to
hold reserve assets directly or indirectly through a wholly owned
subsidiary of the Board-supervised PPSI that has no liabilities of its
own, the assets of which are pledged to secure the Board-supervised
PPSI's obligations on its payment stablecoins.
In order to maintain reserve assets that are ``identifiable'' and
comply with proposed Sec. 247.11(a)(1)(i), Board-supervised PPSIs must
maintain appropriate records to ensure documented ownership and legal
entitlement to individual reserve assets. Similarly, any ownership
arrangements, including ownership via custodians, must comply with
applicable laws and regulations. The Board generally anticipates that
reserve assets will be recorded on the Board-supervised PPSI's balance
sheet under GAAP and be included in the quarterly reports required
under proposed Sec. 247.14(i) and on Consolidated Reports of Condition
and Income (Call Report) Schedule RC, Balance Sheet, for a parent State
member bank, as applicable. A Board-supervised PPSI must maintain the
appropriate operational capabilities, internal controls, policies, and
safeguards to ensure that its payment stablecoins are at all times
backed by reserves on an at least one-to-one basis.
Proposed paragraph Sec. 247.11(a)(ii) sets out a requirement that
a Board-supervised PPSI must maintain reserve assets that are
segregated from, are not commingled with other assets owned or held by
the Board-supervised PPSI, and are not available to satisfy the claims
of any creditor (other than through the redemption of payment
stablecoins) unless and until all payment stablecoins have been
redeemed at par. This requirement helps ensure that reserve assets are
only used to back outstanding payment stablecoins of a Board-supervised
PPSI and to satisfy redemption requests.
Proposed Sec. 247.11(a)(1)(iii) sets out a requirement that a
Board-supervised PPSI must, at all times, maintain reserve assets that
have a total fair value that equals or exceeds the outstanding issuance
value of the Board-supervised PPSI (one-to-one requirement). To comply
with this requirement, a Board-supervised PPSI must ensure that the
fair value of all reserve assets equals or exceeds the outstanding
issuance value at all times.\42\ Valuing reserve assets at fair value,
rather than another measure, such as amortized cost, will help ensure
that the reserve assets maintained by the Board-supervised PPSI reflect
current prices and will be monetizable at a value sufficient to meet
any redemption requests at par value. Notably, the outstanding issuance
value is based on the total consolidated par value of all of a Board-
supervised PPSI's payment stablecoins rather than on the fair value of
the outstanding issued payment stablecoin. Thus, if the fair value of
the payment stablecoin decreased (i.e., if the payment stablecoin de-
pegged in the secondary market), the Board-supervised PPSI would
nevertheless be obligated to retain a stock of reserve assets, the fair
value of which equals or exceeds the par value of outstanding payment
stablecoins. This approach is intended to ensure that the Board-
supervised PPSI is able to credibly meet
[[Page 61595]]
redemption requests, including in adverse circumstances. To take a
contrary approach (e.g., basing the outstanding issuance value on the
fair value of payment stablecoins) could increase the risk that Board-
supervised PPSIs would be unable to redeem all of their payment
stablecoins at all times at par on demand, which may in turn exacerbate
run risk for a Board-supervised PPSI.
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\42\ The proposed rule defines ``fair value'' as ``fair value
determined under GAAP.'' GAAP determines ``fair value'' of United
States coins and currency to be their par value. Accordingly, United
States coins and currency will be valued at par.
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Proposed Sec. 247.11(a)(1)(iv) provides that reserve assets must
be held (A) in custody by a person that is eligible to provide such
services under, and is in compliance with, section 10 of the Act (12
U.S.C. 5909), including any applicable implementing regulations; (B) as
an eligible deposit claim; (C) as money standing to the credit of an
account at a Federal Reserve Bank; \43\ or (D) by the Board-supervised
PPSI. The Board generally expects that Board-supervised PPSIs will hold
reserve assets with an eligible custodian only after they have entered
into a custody agreement establishing the custodian's duties and
responsibilities in providing safekeeping and ancillary services to the
Board-supervised PPSI.
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\43\ Certain industry participants have raised questions
regarding the extent to which funds held in a parent insured
depository institution's Federal Reserve Bank account can qualify as
its PPSI subsidiary's reserve assets in the form of money standing
to the credit of a Federal Reserve Bank. For the avoidance of doubt,
balances held by a parent insured depository institution at a
Federal Reserve Bank are liabilities of the Federal Reserve Bank
solely to the parent insured depository institution acting in a
principal capacity and not to any subsidiary thereof. As explained
in the Board's recent request for comment on the proposal to
establish a special-purpose payment account, the Federal Reserve
Banks do not recognize third-party interests, including those of a
subsidiary for which an insured depository institution may be acting
in a trustee, fiduciary, or similar capacity, in Federal Reserve
Bank accounts. See 91 FR 30627, 30641, 30646 (May 26, 2026).
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With respect to prong (D) of proposed Sec. 247.11(a)(1)(iv), the
Board is proposing and seeking comment on an approach that would permit
a Board-supervised PPSI to hold reserve assets directly or indirectly
through a wholly owned subsidiary of the Board-supervised PPSI that has
no liabilities and is fully capitalized by the Board-supervised PPSI
(i.e., a special purpose vehicle). Under such a structure, the Board-
supervised PPSI would remain the issuer of payment stablecoins, and
such payment stablecoins would be reflected as liabilities on the
balance sheet of such Board-supervised PPSI. However, the payment
stablecoin liabilities of the Board-supervised PPSI would, pursuant to
appropriate legal agreements, be secured by the assets of the Board-
supervised PPSI's wholly owned subsidiary. This type of structure may
be attractive for a Board-supervised PPSI that issues more than one
kind of payment stablecoin, as the reserve assets backing each kind of
payment stablecoin could be clearly segregated in different
subsidiaries and therefore be easily identifiable with a particular
type of payment stablecoin. While the Board expects Board-supervised
PPSIs will generally not incur material liabilities other than payment
stablecoin liabilities, or maintain significant assets other than those
listed in proposed Sec. 247.11(b), this structure may be attractive
for a Board-supervised PPSI that receives the Board's permission to do
so. The use of a subsidiary to hold reserve assets in no way alters the
obligation of a Board-supervised PPSI to comply with all provisions of
the GENIUS Act and its implementing regulations, including those
relating to reserve assets and capital. The Board invites comment on
the legal and operational benefits and drawbacks of this approach.
To demonstrate compliance with the proposed one-to-one requirement,
proposed Sec. 247.11(a)(2) would require a Board-supervised PPSI to
record the fair value of reserve assets required under proposed Sec.
247.11(a)(1) at a minimum of once each calendar day at 5:00 p.m. in the
time zone of the Board-supervised PPSI's supervising Federal Reserve
Bank. This requirement represents the minimum frequency for
demonstrating compliance with the one-to-one requirement, but does not
modify the requirement to meet the one-to-one requirement at all times.
Depending on the circumstances, more frequent assessments of the
reserve assets' fair value may be necessary to demonstrate that the
one-to-one requirement is being met at all times. For example, if the
fair value of the reserve assets is only marginally above the
outstanding issuance value, a Board-supervised PPSI may need to re-
assess the fair value of reserve assets multiple times per day. A
Board-supervised PPSI should generally have systems that enable it to
conduct such monitoring. This approach provides some flexibility for
Board-supervised PPSIs to develop their own approach for demonstrating
compliance with the one-to-one requirement. A minimum demonstration of
compliance at 5:00 p.m. each day would prevent Board-supervised PPSIs
from choosing the time of day that might be most beneficial to their
demonstration.
Proposed Sec. 247.11(a)(3) would require that a Board-supervised
PPSI demonstrate the operational capability to access and monetize the
identifiable reserve assets, commensurate with the Board-supervised
PPSI's risk profile and business model. The Board-supervised PPSI must
be able to monetize the reserve assets, potentially quickly and at
short notice, in order to meet redemption requests. The inability to
quickly monetize reserve assets would undermine the ability of a Board-
supervised PPSI to maintain the stable value of its payment
stablecoins.
To comply with proposed Sec. 247.11(a)(3), a Board-supervised PPSI
must be able to demonstrate the ability to monetize all types of
reserve assets that it maintains. In the case of reverse repurchase
agreements, monetization may happen automatically when the agreement
matures and the counterparty repurchases the collateral. Other types of
reserve assets may require additional demonstration of monetization
capacity. Depending on the Board-supervised PPSI's size, risk profile,
business model, activities, and operations, the Board-supervised PPSI
may be able to demonstrate monetization in different ways. For example,
smaller Board-supervised PPSIs may meet this requirement by
demonstrating established relationships with brokers to sell reserve
assets. In some cases, additional measures, such as preparations to
execute repurchase agreements on short notice, may be appropriate. Such
arrangements may be necessary if a Board-supervised PPSI maintains a
large position in U.S. Treasury securities that could be difficult to
monetize in its entirety without causing adverse market movements,
which should be rare since the maximum term of such securities would be
93 days (as required by the GENIUS Act), or if a Board-supervised PPSI
maintains concentrated positions in other types of reserve assets. The
availability of multiple monetization channels helps ensure that a
Board-supervised PPSI is not required to monetize assets at reduced or
``fire sale'' prices.
Proposed Sec. 247.11(a)(4) would include requirements for when
Board-supervised PPSIs could withdraw excess reserve assets when the
total fair value of all reserve assets exceeds outstanding issuance
value. Board-supervised PPSIs would be permitted to withdraw excess
reserve assets only once per month upon the publication of the
composition report required by section 4(a)(3) of the GENIUS Act (12
U.S.C. 5903(a)(3)) and provided for in proposed Sec. 247.11(d).
Specifically, Board-supervised PPSIs would be able to withdraw any
reserve assets in excess of the amount needed for the total fair value
of reserve assets to equal the outstanding issuance value, calculated
and reported as of the last day of the
[[Page 61596]]
previous month, after the information in the month-end report is
examined and certified pursuant to proposed Sec. 247.11(e). Permitting
a Board-supervised PPSI to withdraw surplus reserve assets only after
examination and certification will promote public confidence about the
integrity of the handling of reserve assets. Permitting withdrawal of
excess reserve assets at other intervals could undermine public
confidence in the sufficiency of a Board-supervised PPSI's reserve
assets. If Board-supervised PPSIs were able to withdraw excess reserve
assets at any time, based only upon their own internal calculations,
that could undermine public confidence in the value of reserve assets
between public reports and even create concerns about misconduct; for
example, it could give rise to a concern that a Board-supervised PPSI
might make a bad faith or unvalidated determination that an excess
existed in order to justify a withdrawal. Proposed Sec. 247.11(a)(4)
would also require that, while withdrawals would be based on
calculations at the end of the previous month, a Board-supervised PPSI
could only make withdrawals if the remaining reserve assets had a
current total fair value at least equal to the current outstanding
issuance value, calculated as of the day of withdrawal.
Question 46: The Board seeks comment on all aspects of the proposed
monetization requirement in proposed Sec. 247.11(a)(3). What would be
the advantages and disadvantages of requiring Board-supervised PPSIs to
conduct actual sales or repurchase agreements in reserve assets to
demonstrate their monetization capabilities? Given the highly liquid
markets for reserve assets allowed by the GENIUS Act, how useful is the
monetization requirement? Under what circumstances, if any, would
Board-supervised PPSIs be unable to monetize reserve assets (e.g.,
Treasury bills) to meet redemptions within a time frame of two days?
How frequently could those circumstances occur?
Question 47: The Board seeks comment on the use of ``fair value''
for valuing reserve assets. Given the types of assets that qualify as
reserve assets, would another valuation measure such as ``fair market
value'' be more appropriate and help ensure that the reserve assets
reflect current market prices? What would be the advantages or
disadvantages of using another valuation measure such as fair market
value?
Question 48: The Board seeks comment on the requirement in proposed
Sec. 247.11(a)(2) that Board-supervised PPSIs record the fair value of
reserve assets at a minimum once each calendar day at 5:00 p.m. in the
time zone of the Board-supervised PPSI's supervising Federal Reserve
Bank. Is this requirement sufficient to ensure compliance with the one-
to-one requirement at all times? As an alternative, the Board
considered requiring real-time monitoring of the fair value of reserve
assets. Would real-time monitoring be feasible? What would be the
advantages or the disadvantages associated with such a requirement?
What alternative approaches to ensuring that Board-supervised PPSIs are
meeting the one-to-one requirement at all times can the Board adopt?
What would be the advantages or disadvantages of such approaches?
Question 49: Should the Board allow Board-supervised PPSIs to use
wholly owned subsidiaries to hold reserve assets and secure stablecoin
liabilities, provided that each such subsidiary would have no
liabilities of its own (a special purpose vehicle or ``SPV'')? What are
the legal and operational implications of this approach? What are the
benefits and drawbacks the SPV structure? What legal mechanisms might
be employed to ensure the assets of the SPV serve as security for the
payment stablecoin liabilities of the Board-supervised PPSI and
effectively subordinate other creditors of the Board-supervised PPSI
with respect to reserve assets backing the payment stablecoins?
Question 50: The proposed rule would require a Board-supervised
PPSI to maintain reserve assets, the fair value of which must equal or
exceed the outstanding issuance value at all times. Should the Board
impose a different standard, such as requiring the fair value of
reserve assets to equal or exceed the outstanding issuance value at the
end of each day or at the end of each business day? [similar to OCC
question 56]
Question 51: Should the final rule include additional risk
management or other requirements beyond those proposed to protect
reserve assets against fraud or misuse? Proposed Sec. 247.11(a)(4)
provides that a Board-supervised PPSI may withdraw any reserve assets
in excess of the amount needed for the total fair value of reserve
assets to equal the outstanding issuance value, calculated and reported
as of the last day of the previous month, after the publication and
certification of the monthly composition report. Should the final rule
include additional guardrails to ensure that customer funds provided to
a Board-supervised PPSI for purposes of acquiring payment stablecoins
are secure against fraud or other threats? For example, the proposed
rule could clarify that customer funds become reserve assets as soon as
they are provided to the Board-supervised PPSI for purposes of
acquiring payment stablecoins--and are therefore subject to the
protections afforded to reserve assets. Additionally, proposed Sec.
247.11(a)(1)(i) requires that reserve assets be ``identifiable.''
Should the final rule also clarify that the requirement that reserve
assets be ``identifiable'' includes the requirement that any income,
interest, or other proceeds generated by reserve assets remain
``identified'' as reserve assets until a Board-supervised PPSI claims
any excess pursuant to the process required by proposed Sec.
247.11(a)(4)? For example, if a Board-supervised PPSI invests $100 of
reserve assets in a 90-day Treasury bill that yields $101 upon
maturity, should the entirety of the $101 proceeds remain
``identified'' as a reserve asset? Or should the requirements in
proposed Sec. 247.11(a)(4) for claiming excess reserve assets only
apply to principal, not income? In this example, the Board-supervised
PPSI would be required to identify $100 of the proceeds as a reserve
asset while it would not be required to identify the $1 in interest as
a reserve asset. Should proposed Sec. 247.13 (risk management) include
additional requirements around making sure reserve assets are
``identifiable''? For example, proposed Sec. 247.13 could include a
requirement that Board-supervised PPSIs must maintain appropriate
controls and systems necessary to ensure that reserve assets can be
traced and identified at all times.
Question 52: Should the final rule include other requirements
related to securing reserve assets? Proposed Sec. 247.11(a)(1)(iv)
would require that a Board-supervised PPSI maintain reserve assets that
are held in custody by certain persons or by the Board-supervised PPSI.
Should the final rule include additional requirements for such persons
or Board-supervised PPSIs holding or managing reserve assets, for
example, requiring that Board-supervised PPSIs verify that persons
holding reserve assets have appropriate capabilities, safeguards,
systems to secure reserve assets, including against fraud? Should
proposed Sec. 247.11 include other protections to secure reserve
assets, for example, a limitation on Board-supervised PPSIs charging
fees for the management or trading of its own reserve assets--or an
outright prohibition against such fees? Should
[[Page 61597]]
proposed Sec. 247.11 include requirements around disclosure of fees,
for example, that fees must be disclosed prominently to new and
existing payment stablecoin holders, or prohibitions against fees that
are excessive or out of line with prevailing market terms?
b. Permissible Reserve Assets (Proposed Sec. 247.11(b))
Under proposed Sec. 247.11(b), reserve assets must only comprise:
(1) United States coins and currency (including Federal Reserve notes)
or money standing to the credit of an account with a Federal Reserve
Bank; (2) eligible deposit claims subject to any limitation established
by the FDIC and NCUA, as applicable, pursuant to section 4(a)(1)(A)(ii)
of the GENIUS Act (12 U.S.C. 5903(a)(1)(A)(ii)) to address safety and
soundness risks of such insured depository institution; \44\ (3)
Treasury bills, Treasury notes, or Treasury bonds with a remaining
maturity of 93 days or less; \45\ (4) money received under repurchase
agreements, with the Board-supervised PPSI acting as a seller of
securities and with a no longer than overnight maturity, that are
backed by Treasury bills with a maturity of 93 days or less; \46\ (5)
reverse repurchase agreements, with the Board-supervised PPSI acting as
a purchaser of securities and with a no longer than overnight maturity,
that are collateralized by Treasury bills, Treasury notes, or Treasury
bonds on a no longer than overnight basis,\47\ subject to
overcollateralization in line with standard market terms, that are: (i)
tri-party; (ii) centrally cleared through a clearing agency registered
with the SEC; or (iii) bilateral with a counterparty that the issuer
has determined to be adequately creditworthy even in the event of
severe market stress; (6) securities issued by an investment company
registered under section 8(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-8(a)), or other registered Government money market fund, and
that are invested solely in underlying assets described in proposed
Sec. 247.11(b)(1) through (5); \48\ (7) any other similarly liquid
Federal Government-issued asset approved by the Board, in consultation
with the State payment stablecoin regulator, if applicable, of the
PPSI; or (8) any reserve described in proposed Sec. 247.11(b)(1)
through (3), (6), or (7), in tokenized form, provided that such
tokenized asset (i) confers legal rights that are identical to those of
the non-tokenized form of the same asset, and (ii) is in compliance
with all applicable laws and regulations.
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\44\ For the avoidance of doubt, an uninsured U.S. branch or
agency of a foreign bank is not an ``insured depository
institution'' for purposes of the GENIUS Act, but insured U.S.
branches and agencies of foreign banks would be.
\45\ The GENIUS Act permits the inclusion of Treasury bills,
notes, or bonds ``(I) with a remaining maturity of 93 days or less;
or (II) issued with a maturity of 93 days or less.'' The proposed
rule would combine these categories since the former category
includes the latter, at least for purposes of complying with the
requirements of proposed Sec. 247.11. Board-supervised PPSIs may
choose to categorize these assets separately for other reasons, for
example accounting or risk management purposes. For clarification,
the 93-day maturity limit is measured from the settlement date to
the stated final maturity.
\46\ The proposed rule would clarify that a repurchase agreement
or reverse repurchase agreement with an intraday maturity could
qualify as a permitted reserve asset. Section 4(a)(1)(A)(iv) and (v)
of the Act (12 U.S.C. 5903(a)(1)(A)(iv) and (v)) specifically refers
to repurchase agreements and reverse repurchase agreements with an
overnight maturity. The Board believes that this provision is
intended to permit repurchase agreements and reverse repurchase
agreements with a maturity no longer than overnight. Thus, the
proposed rule would explicitly permit the use of intraday repurchase
agreements and reverse repurchase agreements.
\47\ For clarity, deposits and cash may serve as additional
permitted collateral in the repurchase and reverse repurchase
agreements described in this provision.
\48\ A money market fund that invests in any other assets,
including in Treasury securities with a remaining maturity longer
than 93 days, would not be eligible to be held as a reserve asset.
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In determining whether a potential reserve asset qualifies as ``any
other similarly liquid Federal Government-issued asset,'' under
proposed Sec. 247.11(b)(7) the Board will consider, among other
relevant factors, whether: (i) the asset has liquidity characteristics,
including during times of stress, comparable to the other reserve
assets allowed under proposed Sec. 247.11(b); (ii) Board-supervised
PPSIs will be operationally capable of monetizing the asset to meet
redemption requests, including sudden and high-volume requests; (iii)
the asset poses levels of risk comparable to the assets allowed under
proposed Sec. 247.11(b), including interest rate risk and counterparty
credit risk; and (iv) whether the asset introduces additional risks
that may be difficult for Board-supervised PPSIs to manage. Only assets
that are actually issued by the Federal government (i.e., the U.S.
Department of the Treasury and other agencies of the federal
government), and are not merely guaranteed by the Federal government,
may qualify as a potential ``similarly liquid Federal Government-issued
asset.''
An asset exists in ``tokenized form'' under proposed Sec.
247.11(b)(8) when the asset's ownership rights are represented on a
blockchain or some other form of distributed ledger technology. Thus, a
tokenized asset only qualifies as a permissible reserve asset under
proposed Sec. 247.11(b)(8) if the tokenized asset confers legal rights
that are identical to those of the non-tokenized form of the
permissible asset.\49\ A tokenized asset that does not meet this
standard could have a lower value than the non-tokenized permissible
asset, which could, depending on the difference in value, undermine the
Board-supervised PPSI's compliance with the one-to-one requirement.
---------------------------------------------------------------------------
\49\ This approach is consistent with the Interagency FAQ on
tokenized securities. See Board of Governors of the Federal Reserve
System, ``Capital Treatment of Tokenized Securities Frequently Asked
Questions'' (updated March 5, 2026), available at https://www.federalreserve.gov/supervisionreg/capital-treatment-of-tokenized-securities-faqs.htm.
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Because market practices around tokenization are not firmly
established, it may be difficult to determine whether a tokenized asset
confers legal rights that are materially the same as those conferred by
a non-tokenized permissible reserve asset. The Board encourages any
Board-supervised PPSI that seeks clarity on whether a specific
tokenized asset qualifies as a permissible reserve asset under proposed
Sec. 247.11(b)(8) to seek an opinion from competent counsel or the
Board as to whether the asset qualifies. To the extent feasible, the
Board is considering publishing a list of, or otherwise making public,
a nonexclusive list of tokenized reserve assets that satisfy this
standard.
Question 53: Section 4(a)(1)(A)(vi) of the Act (12 U.S.C.
5903(a)(1)(A)(vi)) includes ``securities issued by an investment
company registered under section 8(a) of the Investment Company Act of
1940 (15 U.S.C. 80a-8(a)), or other registered Government money market
fund, and that are invested solely in underlying assets described in
clauses (i) through (v)'' as eligible reserve assets for payment
stablecoins issued by PPSIs. However, many or all Government money
market funds are investment companies registered under section 8(a) of
the Investment Company Act of 1940. Should the provision relating to
securities issued by investment companies registered under section 8(a)
of the Investment Company Act, or other registered Government money
market funds, be clarified? Does section 4(a)(1)(A)(vi) of the Act (12
U.S.C. 5903(a)(1)(A)(vi)) permit securities issued by investment
companies registered under section 8(a) of the Investment Company Act
of 1940 that are not Government money market funds to be reserve assets
for payment stablecoins issued by PPSIs? Are there
[[Page 61598]]
any registered Government money market funds that are not investment
companies registered under section 8(a) of the Investment Company Act?
Does section 4(a)(1)(A)(vi) of the Act permit securities issued by
registered Government money market funds that are not registered under
section 8(a) of the Investment Company Act to be reserve assets for
payment stablecoins issued by Board-supervised PPSIs? [similar to OCC
question 44]
Question 54: Should there be further clarifications on the
provisions relating to repurchase agreements and reverse repurchase
agreements? For example, should the Board include limitations with
respect to the use of eligible deposit claims as collateral? If so,
what limitations? [similar to OCC question 45]
Question 55: Is the term ``eligible deposit claims'' sufficiently
clear? If not, how should the Board clarify the term (i.e., what types
of accounts should expressly be included within the term)? Should the
Board expand the definition of ``eligible deposit claims'' to include
uninsured claims of a PPSI against an insured credit union in respect
of any amount standing to the credit of a share account, which is an
asset from the perspective of the accountholder, including a Board-
supervised PPSI (consistent with the NCUA's GENIUS Act notice of
proposed rulemaking)? [similar to OCC question 48]
Question 56: Is the proposed rule sufficiently clear regarding what
constitutes a ``reserve in tokenized form?'' What modifications to this
definition or the rule's related terminology would enhance clarity?
[similar to OCC question 49]
Question 57: Should the Board provide additional detail on what
securities could be in scope for ``any other similarly liquid Federal
Government-issued asset'' under Sec. 247.11(b)(7)? For example, should
Treasury securities with a remaining maturity of two years or less be
permitted under Sec. 247.11(b)(7)? What would be the implications for
liquidity or interest rate risk of allowing these types of securities
to be held as reserve assets? If the Board were to permit two-year
Treasury securities to be used as reserve assets, should the Board
impose any additional requirements, such as requiring the weighted
average maturity of Treasury securities held as reserves to be no more
than 93 days (or some shorter timeframe) or requiring additional
reserve asset diversification requirements (e.g., minimum amount of
reserve assets held as eligible deposit claims or minimum number of
depository institutions holding the Board-supervised PPSI's reserve
assets) for Board-supervised PPSIs that hold Treasury securities with a
remaining maturity between 94 days and two years? [similar to OCC
question 51]
Question 58: Should the final rule clarify that Treasury Floating
Rate Notes (FRNs) and Treasury Inflation-Protected Securities may be
included as permissible reserve assets, assuming they otherwise meet
the requirements of the proposed rule, including maturity requirements?
Is there any reason these securities should be excluded? Should
Treasury Separate Trading of Registered Interest and Principal of
Securities be included? Are there other instruments that should be
considered as included within the GENIUS Act's phrase ``Treasury bills,
notes, or bonds'' (12 U.S.C. 5903(a)(1)(A)(iii))? If these securities
are included, should there be additional requirements--for example,
both weighted average life and weighted average maturity limits to
accommodate interest rate resets in FRNs? [similar to OCC question 52]
Question 59: The proposed rule would, consistent with the GENIUS
Act, allow as reserve assets funds held as eligible deposit claims,
which are defined in part as claims of a Board-supervised PPSI against
an insured depository institution (including any foreign branches or
agents, including correspondent banks). Should the proposed rule add
definitions for these terms to make them clearer or impose restrictions
on the use of foreign branches or agents and correspondent banks? For
example, should the proposed rule require that payment stablecoins
denominated in United States dollars only be backed by eligible deposit
claims against a U.S.-based insured depository institution (i.e.,
reserve assets could not include eligible deposit claims against
insured depository institutions outside the United States)? Should the
Board include any additional requirements with respect to reserve
assets held abroad, such as applying a haircut to the reserve assets,
imposing a capital charge, or including additional policies and
procedures to manage the risks associated with holding reserve assets
abroad? [similar to OCC question 54]
Question 60: Should the Board develop a formal process to consider
and approve Federal Government-issued assets under proposed Sec.
247.11(b)(7)? Should the Board allow Board-supervised PPSIs or other
parties to request that the Board consider a specific type of Federal
Government-issued asset? Should any determinations on additional
Federal Government-issued assets approved under this authority be made
public? [similar to OCC question 55]
Question 61: Should the final rule include special measures to
ensure that reverse repurchase agreements are ``overcollateralized in
line with standard market terms?'' Proposed Sec. 247.11(b)(5) would
permit the inclusion, as reserve assets, of reverse repurchase
agreements ``subject to overcollateralization in line with standard
market terms.'' As one possibility, the final rule could include no
special measures, and the examination and supervision process could be
used to evaluate if a particular Board-supervised PPSI fails to
overcollateralize their reverse repurchase agreements in line with
standard market terms. As another possibility, the final rule could
include more express requirements--for example, that
overcollateralization haircuts cannot be less than 0.5 percent.
[similar to OCC question 80]
c. Reserve Asset Diversification and Concentration (Proposed Sec.
247.11(c)-(d))
Section 4(a)(4)(A)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iii)) requires the Board to ``issue regulations
implementing . . . reserve asset diversification, including deposit
concentration at banking institutions, and interest rate risk
management standards applicable to [Board-supervised PPSIs] that--(I)
are tailored to the business model and risk profile of [Board-
supervised PPSIs] and (II) do not exceed standards that are sufficient
to ensure the ongoing operations of [Board-supervised PPSIs].'' The
Board is proposing to take a principles-based approach to reserve asset
diversification regulations. The Board generally believes that Board-
supervised PPSIs should maintain reserve assets consisting
predominantly of U.S. Treasury securities. The proposal would require a
Board-supervised PPSI to maintain reserve assets that are sufficiently
diverse to ensure that it can comply with the one-to-one requirement at
all times, including under stress. Among other actions, a Board-
supervised PPSI must mitigate concentration risks that could arise
from: (i) uninsured eligible deposit claims against one or a small
number of insured depository institutions, including any foreign
branches or agents (including correspondent banks) of an insured
depository institution; and (ii) reverse repurchase transaction
exposures to one or a small number of counterparties and their
affiliates, excluding designated financial market utilities.
[[Page 61599]]
A Board-supervised PPSI that maintains a portion of its reserve
assets as uninsured eligible deposit claims faces risk of default from
the insured depository institution(s) that issued the deposit
liabilities. A Board-supervised PPSI similarly faces risk from reverse
repurchase agreement counterparties defaulting on their repurchase
obligations. Diversifying these counterparties, consistent with
proposed Sec. 247.11(c), can help reduce the impact of any individual
counterparty's stress or failure on the value of the Board-supervised
PPSI's reserve assets and support the Board-supervised PPSI's ability
to meet the one-to-one requirement. Under the proposal, the
diversification requirements would not apply to designated financial
market utilities, given the central role they play in the clearing of
reverse repurchase agreements involving Treasury securities and recent
efforts to promote the clearing of such transactions.
The Board also recognizes that a Board-supervised PPSI may
temporarily increase the concentration in uninsured eligible deposit
claims against a particular insured depository institution in
connection with the (i) liquidation of other reserve assets to satisfy
actual redemption requests; or (ii) receipt of funds in connection with
issuance requests. The Board acknowledges that the risk from such
concentrations would be minimal because of the temporary nature of the
holdings, and a Board-supervised PPSI may temporarily increase its
credit exposure to a particular insured depository institution or its
concentration in uninsured eligible deposit claims for these purposes.
While various prescriptive reserve asset diversification
requirements were considered, the Board is not proposing such
prescriptive requirements at this time given the potential for diverse
risk and activities profiles across Board-supervised PPSIs. However,
the Board requests comment on whether prescriptive requirements would
be more appropriate and, if so, how such a requirement should be
calibrated.
For example, while there are similarities between stablecoin
issuers and money market funds, the proposal would not establish a
requirement based on daily or weekly asset maturities similar to those
established for money market funds under 17 CFR 270.2a-7. Permissible
reserve assets under the Act are transacted in highly liquid markets,
which can support intraday or next-day settlement. For example, Board-
supervised PPSIs may monetize Treasury securities with overnight
repurchase agreements, allow overnight reverse repurchase agreements to
mature, or obtain cash the same day by selling Treasury securities.
Treasury bills have maintained their highly liquid status during
previous episodes of stress.\50\ Thus, the reserve asset limitations
imposed by the GENIUS Act are already sufficient to provide assurance
that Board-supervised PPSIs will be able to meet their redemption
obligations within the two day time frame as required under the
proposal, as discussed more in section II.B.3 of this SUPPLEMENTARY
INFORMATION. For similar reasons, the Board is not proposing to require
that a minimum amount of reserve assets be held as eligible deposit
claims.
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\50\ See Scott Davis, ``Treasuries' allure as safe haven noted
in short maturities, not in long bonds,'' Dallas Fed Economics (June
27, 2023), available at https://www.dallasfed.org/research/economics/2023/0627.
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Question 62: The SUPPLEMENTARY INFORMATION indicates that the Board
generally believes that Board-supervised PPSIs should maintain reserve
assets consisting predominantly of U.S. Treasury securities. What are
the advantages and disadvantages of the Board retaining this language
when finalizing Regulation UU?
Question 63: What would be the advantages and disadvantages if the
final rule were to require a buffer or impose haircuts on certain
reserve assets to ensure that reserve asset values do not fall below
outstanding issuance values? What would be the appropriate buffers or
haircuts, and how could such buffers or haircuts be determined (e.g.,
price volatility in stress or price changes given movements in interest
rates). Section 4(a)(1)(A) of the GENIUS Act (12 U.S.C. 5903(a)(1)(A))
requires PPSIs to maintain identifiable reserves ``on an at least [one-
to-one] basis.'' What measures should the final rule include to ensure
that Board-supervised PPSIs are able to maintain this minimum? Without
a buffer or other measures, the fair value of a Board-supervised PPSI's
reserve assets could fall below the required minimum if there are, for
example, sudden increases in interest rates. What other requirements,
such as an explicit requirement to diversify reserves to manage
interest rate risk, should the Board consider to help ensure a Board-
supervised PPSI's reserve assets do not fall below the one-to-one
requirement? For example, the proposed rule could require Board-
supervised PPSIs to maintain a buffer of one percent of assets or hold
an amount of reserve assets sufficient to stay above the outstanding
issuance value in light of risks facing the Board-supervised PPSI,
including interest rate risk and risks associated with the capability
to access and monetize reserve assets. Are there other considerations
the Board should take into account if it chooses to calibrate such a
buffer? As an alternative to requiring such a buffer, what type of
guidance could the Board provide on the level of buffer that would
generally be appropriate as a matter of prudent risk management?
[similar to OCC question 46]
Question 64: What type of limits or haircuts on permissible reserve
assets denominated in a national currency other than the U.S. dollar,
if any, should the Board consider in the final rule? If the Board
imposed such limits or haircuts, what factors should the Board consider
in calibrating the limits or haircuts, such as the management of
foreign exchange risk? What would be an appropriate level of any such
limit or haircut to ensure reserve asset values do not fall below
outstanding issuance values?
Question 65: What would be the potential costs and benefits of
requiring Board-supervised PPSIs to maintain a minimum percentage of
reserve assets at unaffiliated third-parties, including with respect to
operational risk?
Question 66: How should the final rule's requirements for reserve
assets reflect potential interactions with the larger market for
Treasury securities? For example, what requirements should the Board
consider in order to prevent any disruptive or negative effects that
the management or liquidation of Treasury reserve assets might have on
markets? [similar to OCC question 53]
Question 67: What would be the advantages and disadvantages of
prescribing quantitative limits or minimums on specific types of
reserve assets instead of or in addition to the proposal's principles-
based approach to reserve asset diversification? For example, the Board
could (i) limit the amount of uninsured eligible deposit claims against
an insured depository institution to no more than five percent of the
Board-supervised PPSI's total amount of reserve assets, (ii) limit the
Board-supervised PPSI's reserve assets held in the form of uninsured
eligible deposit claims issued by a single insured depository
institution to no more than 10 percent of the insured deposit
institution's deposit liabilities, (iii) impose a weighted-average
maturity limit on a Board-supervised PPSI's reserve assets to no more
than 30 days, or (iv) impose a combination of such limits. Would
quantitative limits or minimums, either as mandatory requirements for
all Board-supervised PPSIs or as a safe harbor for a
[[Page 61600]]
principles-based approach, be more appropriate and, if so, how should
these limits or minimums be calibrated? What types of operational
challenges would these limits or minimums introduce or present? What
proportion of reserve assets, if any, should a Board-supervised PPSI
maintain as eligible deposit claims in order to facilitate reserve
asset management? Should smaller Board-supervised PPSIs be subject to
different reserve asset diversification standards and, if so, what
considerations should the Board account for?
Question 68: What would be the advantages and disadvantages of a
requirement limiting a Board-supervised PPSI's exposures to a single
financial institution? For example, the Board could require a PPSI to
maintain no more than 40 percent of its reserve assets at any one
``eligible financial institution'' (as that term is defined by the OCC
in its GENIUS Act notice of proposed rulemaking), whether as eligible
deposit claims against any one insured depository institution,
securities held in custody at any one eligible financial institution,
bilateral reverse repurchase agreements with any counterparty, or
through other exposures. Alternatively, such a limit could apply to
certain types of eligible financial institutions or other
counterparties, or with respect to a specific requirement only. What
would be the advantages and disadvantages of this specific limit?
Question 69: What would be the advantages and disadvantages of
requiring that a Board-supervised PPSI's reserve assets have a maximum
weighted average maturity (e.g., no more than 20 or 30 days) to help
the Board-supervised PPSI manage interest rate risks? If requiring a
maximum weighted average maturity would be advantageous, what should be
the maximum weighted average maturity for reserve assets, and why? How
should the Board differentiate, if at all, between the maximum weighted
average maturity applicable for larger Board-supervised PPSIs and
smaller Board-supervised PPSIs (e.g., should smaller Board-supervised
PPSIs be subject to a 45-day weighted average maturity requirement on
their reserve assets, and why)? How should larger and smaller Board-
supervised PPSIs be defined for this purpose?
Question 70: The Board is proposing a principles-based requirement
that requires Board-supervised PPSIs to diversify reserve assets in a
manner that ensures that it can comply with the one-to-one requirement
at all times, including under stress. What are the advantages and
disadvantages of such a principles-based approach? Are there types of
risks (e.g., credit, liquidity, interest rate, price, and concentration
risks) or other considerations that PPSIs should be required to measure
or manage under this approach?
Question 71: What would be the advantages and disadvantages of
requiring that a Board-supervised PPSI that holds reserve assets
described in proposed Sec. 247.11(b)(6) apply the diversification
requirements in proposed Sec. 247.11(c) to the underlying assets of
such funds on a look-through basis?
Question 72: What would be the advantages and disadvantages of
considering requirements to diversify the maturity profile of reserve
assets? For example, should Board-supervised PPSIs be required to
maintain a minimum amount of their reserve assets in cash or
equivalents or assets that can be converted more readily into short-
term liquidity within a daily or weekly timeframe, akin to the
requirements for money market funds in SEC Rule 2a-7 or short-term
investment funds in 12 CFR 9.18(b)(4)(iii), and, if so, why? [similar
to OCC question 62]
Question 73: What would be the advantages and disadvantages of
considering a minimum requirement to maintain reserve assets as
eligible deposit claims or money standing to the credit of an account
with a Federal Reserve Bank, or as those aforementioned assets or
amounts receivable and due unconditionally within five business days on
pending sales of reserve assets or other maturing transactions? At what
level should such thresholds be set (e.g., 5 percent, 10 percent, 20
percent, 25 percent, or 30 percent)?
Question 74: What would be the advantages and disadvantages of
considering measures to encourage reserve assets to be held in the form
of insured eligible deposit claims against insured depository
institutions? While it may be difficult for larger Board-supervised
PPSIs to hold a material proportion of reserve assets as insured
eligible deposit claims against insured depository institutions because
of deposit insurance limits and the finite number of insured depository
institutions in the United States, what would be the advantages and
disadvantages of requiring larger Board-supervised PPSIs to hold some
minimum amount of reserves, such as 0.5 percent of reserves, as insured
eligible deposit claims against insured depository institutions, capped
at a level such as $500 million, in order to provide extra protection
for stablecoin holders? What could be the size threshold for applying
this provision to a Board-supervised PPSI? Under such an approach, how
should the Board consider differentiating requirements for larger and
smaller Board-supervised PPSIs, and how should the Board consider an
appropriate level for the cap on the requirement? [similar to OCC
question 63]
Question 75: Board-supervised PPSIs could use deposit placement
services to hold a higher proportion of reserves as insured eligible
deposit claims against insured depository institutions, as long as
Board-supervised PPSIs are able to maintain the operational ability to
access and monetize the eligible deposit claims, consistent with
proposed Sec. 247.11(a). Please describe any risks associated with
using such services or other intermediaries, and how Board-supervised
PPSIs could best mitigate these risks. [similar to OCC question 66]
Question 76: Consistent with the GENIUS Act, the proposed rule
would allow physical currency, including coins, to serve as reserve
assets. Nevertheless, given the limitations on transferring physical
currency, particularly difficulties that may arise in deploying
physical currency quickly to meet sudden demands for redemptions, what
would be the advantages and disadvantages of imposing limits on how
much physical currency can serve as reserve assets? For example, the
final rule could require that physical currency constitute no more than
five percent or 10 percent of a Board-supervised PPSI's reserve assets.
What special requirements, if any, should the Board require to make
sure that physical currency is safeguarded (for example, against theft
or fire)? Should the special requirements include periodic verification
or inspection requirements for physical currency used as reserve
assets? [similar to OCC question 75]
Question 77: What would be the advantages and disadvantages of
including special limits on Treasury bonds and notes that may be more
thinly traded and therefore more likely to sell at a discount? The
GENIUS Act would allow PPSIs to hold as reserve assets Treasury notes
and bonds so long as they have a maturity of 93 days or less (12 U.S.C.
5903(a)(1)(A)(iii)). Older and off-the-run Treasury securities may be
more difficult to sell and may only be marketable at a discount.\51\
What limit, if any, should the final rule
[[Page 61601]]
impose on the portion of reserve assets that Treasury bonds and notes
can comprise--for example, 20 percent of total reserve assets? [similar
to OCC question 77]
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\51\ See Dimitri Vayanos & Jiang Wang, ``Market Liquidity--
Theory and Empirical Evidence,'' National Bureau of Economic
Research Working Paper 18251 (July 2012), https://www.nber.org/system/files/working_papers/w18251/w18251.pdf.
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Question 78: What would be the advantages and disadvantages of
diversification requirements that would limit over-reliance on short-
term repurchase transactions (e.g., limits on the aggregate amount of
short-term repurchase transactions as a percentage of a Board-
supervised PPSI's total reserve assets)? How should such requirements
be calibrated?
Question 79: What would be the advantages and disadvantages of
considering requirements for Board-supervised PPSIs to conduct stress
tests, including stress tests to manage liquidity and interest rate
risks? The GENIUS Act permits the inclusion of bilateral reverse
repurchase agreements as reserve assets ``with [counterparties] that
the issuer has determined to be adequately creditworthy even in the
event of severe market stress'' (12 U.S.C. 5903(a)(1)(A)(v)(III)). How
should Board-supervised PPSIs evaluate the impact of ``severe market
stress''? Should diversification requirements be based on or account
for the outcome of any stress tests? For example, Board-supervised
PPSIs could be required to maintain a minimum amount of readily
available reserve assets (for example, eligible deposit claims that are
payable on demand and reserve balances) based on the results of
liquidity stress tests. In particular, Board-supervised PPSIs could be
required to maintain--or could elect to maintain as part of a potential
safe harbor to a principles-based approach that could be adopted in the
final rule--an amount of readily available reserve assets at least
sufficient to meet outflow levels predicted by an internal liquidity
stress test. [similar to OCC question 81]
Question 80: What would be the advantages and disadvantages of
requiring Board-supervised PPSIs to adopt written plans or policies and
procedures related to liquidity planning? For example, how should
Board-supervised PPSIs be required to adopt their own concentration
restrictions, including limits on concentrations in eligible deposit
claims against insured depository institutions, that are tailored to
their own business model, operations, and risk profile? Similarly, what
would be the advantages or disadvantages of requiring Board-supervised
PPSIs to adopt liquidity management plans, which would include
provisions to assign responsibility for liquidity risk management and
address contingency funding needs? [similar to OCC question 82]
Question 81: For Board-supervised PPSIs that are subsidiaries of
insured State member banks, what would be the advantages and
disadvantages of prescribing special requirements to ensure that
reserve assets are appropriately maintained and controlled within the
larger corporate structure, and what should such requirements entail?
Alternatively, what would be the advantages and disadvantages of
requiring that a Board-supervised PPSI have dedicated liquidity
management personnel who have independent control over the liquidity
management functions of the Board-supervised PPSI (and its reserve
assets)? [similar to OCC question 84]
Question 82: What would be the advantages and disadvantages of
requiring Board-supervised PPSIs to monitor the financial condition of
insured depository institutions holding reserve assets? How should the
financial condition of an insured depository institution holding a
Board-supervised PPSI's reserve assets be considered in whether the
Board-supervised PPSIs have met their obligations related to
concentration in eligible deposit claims? [similar to OCC question 97]
d. Reports and Certifications (Proposed Sec. 247.11(d)-(e))
Proposed Sec. 247.11(d) would require a Board-supervised PPSI to
publish on its website by noon on the last day of each month the
monthly composition of the Board-supervised PPSI's reserves held
pursuant to the GENIUS Act as of noon of the last day of the previous
month, using a format substantially similar to the template provided in
table 1 to proposed Sec. 247.11(d). The report must contain the total
number of outstanding payment stablecoins issued by the Board-
supervised PPSI and the amount (fair value) and composition of the
reserves, including the average tenor and geographic location of
custody of each category of reserve instruments. The information in the
report, including the fair value of reserve assets, should be as-of the
end of the previous month. This implements the requirement in section
4(a)(1)(C) of the GENIUS Act (12 U.S.C. 5903(a)(1)(C)). To satisfy the
geographic location requirement, the Board expects that it will
generally be sufficient for Board-supervised PPSIs to disclose the
jurisdiction where reserve assets are held in custody or otherwise
located.
Proposed Sec. 247.11(e) implements the applicable requirements of
section 4(a)(3) of the GENIUS Act (12 U.S.C. 5903(a)(3)). This
provision would require Board-supervised PPSIs to, each month, have the
report required under proposed Sec. 247.11(d) examined by a registered
public accounting firm prior to publication. Proposed Sec.
247.11(e)(1) would require that the examination of the previous month-
end report occur by noon on the last day of each month and would
require the registered public accounting firm's examination report to
be published on the Board-supervised PPSI's website at the same time as
the month-end report required under proposed Sec. 247.11(d).
Consistent with the Act, proposed Sec. 247.11(e)(2) would require the
Chief Executive Officer and Chief Financial Officer (or the persons
performing the equivalent functions) of the Board-supervised PPSI to
submit a certification as to the accuracy of each monthly report to the
Board. Under section 4(a)(3)(C) of the Act (12 U.S.C. 5903(a)(3)(C)),
any person who submits this required certification knowing that such
certification is false shall be subject to the same criminal penalties
as those set forth under 18 U.S.C. 1350(c).
Question 83: For purposes of incorporating ``average tenor and
geographic location of custody of each category of reserve
instruments'' in the composition report required under proposed Sec.
247.11(d), what, if any, specific content and structure should the
Board require? For example, should the report include information about
concentration in eligible deposit claims and CUSIPS of securities?
Should the required content include the composition of the reserve
assets by type of assets and maturities and by counterparty issuer? For
purposes of stating the geographic location of custody, should it
suffice to state the country of custody? Or should more granular
information be required? Should the Board require that the composition
report conform to the specified template? Are there specific methods
for calculating tenor that the rule should require or explicitly
permit? For example, should the rule define average tenor as the
weighted average maturity or life of the asset? Should the monthly
composition report require the Board-supervised PPSI to distinguish
between insured and uninsured eligible deposit claims? [similar to OCC
question 88]
Question 84: Are there any additional steps that the Board should
take to encourage transparency while minimizing burden with respect to
the reserve asset composition report? [similar to OCC question 89]
Question 85: What modifications to the reporting requirements,
including the reserve asset composition report, would be appropriate
for arrangements
[[Page 61602]]
where one Board-supervised PPSI issues multiple stablecoins under
different brands (e.g., white label arrangements), if that arrangement
is permitted in the final rule? Are there any additional disclosures
that the Board-supervised PPSI should provide in order to ensure that
the report is not misleading? [similar to OCC question 90]
Question 86: Should the report be required to list and name any
insured depository institutions holding reserve assets? Should the
report be required to list and name any custodians holding reserve
assets? Should the final rule include additional measures to ensure
that reserve assets are appropriately traceable and linked to their
corresponding stablecoin so as to avoid any difficulties in resolving
claims to reserve assets? [similar to OCC question 91]
Question 87: For purposes of the composition report and reserves in
tokenized form, should the Board-supervised PPSI be required to
disclose the location of custody of both the reserve instrument in
tokenized form on a ledger and any real-world asset that the reserve in
tokenized form represents? What related reporting requirements would be
appropriate? [similar to OCC question 92]
Question 88: Should the values and information in the monthly
report be required to be as of a particular date or time?
Alternatively, should Board-supervised PPSIs publish on their websites
a report showing the real-time values of the items required in the
monthly composition report? Having the most recent information will
make the more report more useful, and the Board invites comment on how
much real-time reporting is feasible and whether it may only be
feasible for certain items. Should the monthly report be required to
include both month-end figures (for the previous month) and some
information that can be presented in real-time (for example, the value
of reserves or outstanding issuance value)? Are there potential
challenges in providing assurance over real-time information presented
in a monthly report? [similar to OCC question 93]
Question 89: Should the Board require Board-supervised PPSIs to
publish the monthly certification on their websites, in addition to
publishing the monthly reserve asset composition report? Should the
Board specify the content and form of the certification? [similar to
OCC question 94]
Question 90: Should the monthly composition report be published at
some point before the examination by a registered public accounting
firm? For example, a Board-supervised PPSI could publish the report
five days after the end of the previous month and have the report
examined 30 days after the end of the previous month and disclose any
discrepancies uncovered by the examination. Would the benefits of more
timely availability of these reports outweigh the potential costs
associated with the risk of subsequent changes as a result of the
examination that would be completed at a later date? [similar to OCC
question 95]
Question 91: Is the requirement in proposed Sec. 247.11(e) to have
information disclosed in the previous month-end report examined by a
registered public accounting firm sufficiently clear? If not, what
additional clarity should the Board provide with respect to the
examination by a registered public accounting firm? Should the
examination be performed at the ``reasonable assurance'' level or at
some other standard? What additional standards, if any, should the
Board apply to ensure that the examination is accurate and appropriate?
Should the engagement letter between the Board-supervised PPSI and the
registered public accounting firm require the registered public
accounting firm to attest to whether the Board-supervised PPSI is in
compliance with the reserve asset requirements in proposed Sec. 247.11
(or a subset thereof), based on the information available to the
registered public accounting firm? What criteria should be used for the
examination? Would assurances from the management of the Board-
supervised PPSI regarding the information in the issuer's weekly or
monthly report be sufficient? If not, what other criteria should be
included? [similar to OCC question 96]
e. Consequences and Remedial Measures for Noncompliance (Proposed Sec.
247.11(f)-(g))
Proposed Sec. Sec. 247.11(f)-(g) provide the consequences and
remedial measures that apply if a Board-supervised PPSI does not comply
with the requirements of proposed Sec. 247.11. Proposed Sec.
247.11(f) applies to violations of the one-to-one requirement in
proposed Sec. 247.11(a)(1)(iii), whereas proposed Sec. 247.11(g)
applies to violations of Sec. 247.11(a)-(c) generally.
Proposed Sec. 247.11(f)(1) would require a Board-supervised PPSI
that fails to satisfy the one-to-one requirement in proposed Sec.
247.11(a)(1)(iii) to, within 24 hours of such failure, submit: (i)
notification to the Board through its supervising Federal Reserve Bank
of such failure; and (ii) a plan describing how the Board-supervised
PPSI will return to compliance with the one-to-one requirement.
Proposed Sec. 247.11(f)(1)(ii)(A) clarifies that the Board reserves
discretion to require the Board-supervised PPSI to modify the plan
submitted under proposed Sec. 247.11(f)(1)(ii) as appropriate in light
of circumstances surrounding the shortfall.
Proposed Sec. 247.11(f)(2)(i) would require the Board-supervised
PPSI to begin liquidating reserve assets and redeeming outstanding
stablecoins consistent with proposed Sec. 247.12 by no later than 5:00
p.m. in the time zone of the Board-supervised PPSI's supervising
Federal Reserve Bank on the business day following the deadline for
submission of a plan under Sec. 247.11(f)(1), unless either (A) it has
returned to compliance with the one-to-one requirement in the interim;
or (B) the Board directs the Board-supervised PPSI to proceed with the
plan submitted under proposed Sec. 247.11(f)(1)(ii) or, if in the case
of the Board's modification of such a plan, the modified plan. Under
proposed Sec. 247.11(f)(2)(ii), the Board-supervised PPSI must not
charge customers a fee to redeem their payment stablecoins at any time
during liquidation. Similarly, under proposed Sec. 247.11(f)(2)(iii),
the Board-supervised PPSI must not issue new payment stablecoins at any
time during liquidation.\52\
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\52\ For the avoidance of doubt, the prohibition in proposed
Sec. 247.11(f)(2)(iii) does not prevent a Board-supervised PPSI
from transferring payment stablecoins across blockchains, to the
extent such transfer is necessary to facilitate the liquidation
process.
---------------------------------------------------------------------------
The proposed approach aims to protect payment stablecoin holders
and promote market confidence in payment stablecoins. The GENIUS Act
requires PPSIs to process all redemptions at par. While redemption at
par is important for payment stablecoins' use as a means of payment, it
can lead to run dynamics when outstanding payment stablecoins are not
fully backed by reserve assets. In such situations, for every
redemption the PPSI processes, the payment stablecoin would fall
further away from full backing. As a result, the risk that the
remaining payment stablecoin holders will suffer a loss and the
magnitude of the loss they stand to incur grows.\53\ This dynamic may
incentivize payment stablecoin holders to rush to redeem at any
indication that the one-to-one
[[Page 61603]]
requirement has been breached, which, in turn, could lead to the Board-
supervised PPSI's failure.
---------------------------------------------------------------------------
\53\ For example, a PPSI that issues a payment stablecoin with
outstanding issuance of $100 million and a $5 million shortfall in
reserve assets can theoretically redeem all stablecoin holders at
$0.95 for each payment stablecoin. However, if that PPSI processes
$35 million in redemptions at par, and the shortfall remains $5
million, the PPSI could only redeem all stablecoin holders at $0.92
for each payment stablecoin.
---------------------------------------------------------------------------
The transparency of the public blockchains on which payment
stablecoins will likely circulate has the potential to make them more
or less vulnerable to runs. Public blockchains allow the market to
observe redemptions as they occur. If some subset of payment stablecoin
holders request redemptions after learning that the payment stablecoin
is no longer fully backed, the remaining payment stablecoin holders
could observe those redemptions in real time, which could then trigger
a new round of redemptions. A surge in trading volume on the secondary
market could also provide an observable signal that a payment
stablecoin is coming under stress, with similar consequences.\54\
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\54\ See Gordon Y. Liao, et al. Risk-based Capital for Stable
Value Tokens (June 30, 2024), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4926568.
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At the same time, the secondary market for payment stablecoins
could also ameliorate these dynamics to some degree: If payment
stablecoin holders who become concerned about the payment stablecoin's
backing choose to sell on the secondary market rather than redeem
directly with the PPSI, there will be no need for the PPSI to liquidate
reserve assets to redeem at par, and no direct adverse impact on the
remaining holders.
Nevertheless, the Board believes the potential for stablecoin
holders' losses because of insufficient reserve assets, particularly
once the one-to-one requirement has been breached, is a legitimate
concern. Proposed Sec. 247.11(f) would address these concerns by
requiring a Board-supervised PPSI that has fallen out of compliance
with the one-to-one requirement to notify the Federal Reserve and
liquidate its reserves promptly unless it has a credible plan to
promptly return to full backing. This requirement to redeem outstanding
payment stablecoins, based on the value of the reserve assets, will
also help ensure that payment stablecoin holders will bear any losses
from a reserve deficit on a pro-rata basis, and avoid disproportionate
losses to those holders who did not rush to redeem. Additionally, the
Board's proposed approach may also help prevent run dynamics from
developing in the first place. The Board's commitment to intervene if
the fair value of the reserves fall irretrievably below the aggregate
par value of outstanding payment stablecoins may give the market
confidence that any payment stablecoin that continues to operate
remains fully backed.
Additionally, proposed Sec. 247.11(f)(2)(iii), which prohibits a
Board-supervised PPSI from issuing new payment stablecoins once the
liquidation process has commenced, is necessary to protect prospective
payment stablecoin holders. At this stage, any newly-issued payment
stablecoin would immediately be subject to the redemption requirement,
so the payment stablecoin would have no utility to its holder.
The Board considered requiring Board-supervised PPSIs in breach of
the one-to-one requirement to suspend issuing new payment stablecoins
immediately after the breach occurs, rather than when the liquidation
process has commenced. However, the Board ultimately determined that
such a requirement would be imprudent. The Board's proposal creates a
brief window during which Board-supervised PPSIs would be able to
restore full backing of their payment stablecoins, so they can return
to normal operation. Requiring PPSIs to suspend new issuance during
this period could effectively deprive them of that opportunity, since
the market would observe the lack of minting on the public blockchain.
Moreover, the relatively compressed time-period between a Board-
supervised PPSI's breach of the one-to-one requirement and required
liquidation effectively limits new redemptions in such circumstances to
less than 48 hours, and in many cases, much less than that. Further,
suspending new issuances would, at best, provide incomplete protection,
since it would not prevent customers from purchasing the payment
stablecoin on the secondary market. For all these reasons, the Board
declined to require Board-supervised PPSIs with a shortfall in reserve
assets to suspend issuing new payment stablecoins.
Finally, proposed Sec. 247.11(g) provides that if at any point the
Board determines that a Board-supervised PPSI has not demonstrated that
it meets any of the reserve asset requirements in proposed Sec.
247.11(a)-(c), the Board may require the issuer to submit a plan
describing how the Board-supervised PPSI will attain compliance and the
timeline for the plan. If the Board determines, either before or after
the submission of a plan, that a Board-supervised PPSI faces a
significant risk of being unable to attain compliance with the reserve
requirements in proposed Sec. 247.11(a)-(c) within a reasonable
period, the Board may order the Board-supervised PPSI to initiate
redemption of all outstanding payment stablecoins. Proposed Sec.
247.11(g) also states that the Board's authority to require a
compliance plan or order redemption does not limit the Board's
authority to pursue other measures, including enforcement actions, if
appropriate. This approach would provide the Board with more
supervisory discretion than the process in proposed Sec. 247.11(f) for
breaches of the one-to-one requirement. The more flexible approach to
enforcement of the reserve asset requirements in proposed Sec.
247.11(a)-(c) is appropriate, given that a breach of such requirements
poses less immediate risk of loss to payment stablecoin holders.
Question 92: What would be the advantages or disadvantages of
allowing a Board-supervised PPSI that experiences a shortfall in
required reserve assets to issue new payment stablecoins? What limits
(e.g., such as no increase in total outstanding issuance), if any,
should be placed on the amount such a Board-supervised PPSI can issue
and what would be the advantages or disadvantages of placing such a
limit? Should the Board prohibit a Board-supervised PPSI from issuing
new stablecoins upon breaching the one-to-one requirement, instead of
once it commences the liquidation process?
Question 93: Are there additional considerations that the Board
should take into account with respect to proposed Sec. 247.11(f)? What
operational difficulties would a Board-supervised PPSI encounter in
notifying the Board of a shortfall in required reserve assets and
submitting a remediation plan within 24 hours of such failure or in
liquidating reserve assets and redeeming outstanding stablecoins at
5:00 p.m. in the time zone of the supervising Federal Reserve Bank the
following business day after the deadline for submitting the
remediation plan? What would be the advantages or disadvantages of
allowing a longer period (e.g., allowing the issuer two additional days
to hear from the Board), or using a different threshold (e.g., Board-
supervised PPSI fails to meet the minimum reserve asset requirement for
15 consecutive business days), before requiring a Board-supervised PPSI
to begin liquidating reserve assets and redeeming outstanding
stablecoins? Should the Board prohibit Board-supervised PPSIs that fail
to satisfy the one-to-one requirement from issuing new payment
stablecoins until they have remediated the shortfall? Would such a
requirement, which may result in a sudden pause in the issuance of new
payment stablecoins, exacerbate run risks, given the public nature of
the
[[Page 61604]]
blockchains on which such payment stablecoin are issued?
Question 94: Should the final rule include restrictions on expenses
that may be charged against reserve assets? Is it worth making clear
that Board-supervised PPSIs may not charge general corporate expenses
against reserve assets? While there may be a narrow set of expenses
that can be paid from reserve assets (for example, interest on a
repurchase agreement or fees paid to an investment company holding
reserve assets), the Board expects that paying most other expenses from
reserve assets would be inconsistent with the requirement for permitted
payment stablecoin issuers to maintain identifiable reserve assets
backing outstanding issuance value on a one-to-one basis. [similar to
OCC question 99]
Question 95: Should the final rule include additional measures to
address de-pegging in the secondary market? For example, should the
final rule bar a Board-supervised PPSI from issuing new payment
stablecoins if a Board-supervised PPSI's payment stablecoins trade in
secondary markets at some price that is a set amount less than par
(e.g., trading at or below $0.99, $0.80 or some other amount) for some
sustained period of time (e.g., 24 hours)? [similar to OCC question 86]
Question 96: Should other liquidity rules be amended to accommodate
the changes made by the final rule and the GENIUS Act? For example,
should the liquidity coverage ratio (LCR) and net stable funding ratio
(NSFR) rules be amended so that depository institutions are unable to
include high quality liquid assets (HQLA) held by PPSI subsidiaries as
eligible HQLA in their own LCR and NSFR calculations? Similarly, should
any outflows associated with a PPSI subsidiary be excluded from a
parent entity's LCR calculations? Should the stablecoin activities of
PPSI subsidiaries be fully excluded from the LCR calculations of parent
entities? Or should there be a limited outflow commensurate with the
possibility that a parent entity may provide support to a PPSI
subsidiary (for example, one percent, five percent, or 10 percent of
outstanding issuance value)? Should the LCR rule be amended so that, if
PPSIs hold a large volume of eligible deposit claims against a
particular depository institution, that depository institution must
assign a higher outflow to such deposit liabilities? Should the LCR
rule be amended in light of any other implications of the GENIUS Act,
such as how it may apply to custodians under section 10 of the GENIUS
Act? [similar to OCC question 87]
3. Redemption and Fees (Proposed Sec. 247.12)
Proposed Sec. 247.12 addresses redemption requirements imposed by
section 4(a)(1)(B) of the GENIUS Act (12 U.S.C. 5903(a)(1)(B)).
Consistent with the statute, under proposed Sec. 247.12(a), a Board-
supervised PPSI must publicly disclose its redemption policy.\55\ The
Board proposes that in disclosing its redemption policy, the Board-
supervised PPSI must include, at a minimum, certain information.
Specifically, proposed Sec. 247.12(a)(1) provides that the Board-
supervised PPSI must include a timeframe in which the Board-supervised
PPSI will redeem payment stablecoins and the timeframe under which the
Board-supervised PPSI is required to redeem payment stablecoins (which,
under proposed Sec. 247.12(b)(2) may not exceed two business days
following the date of the requested redemption). For the avoidance of
doubt, a Board-supervised PPSI may choose a redemption timeframe that
is less than 2 days in its redemption policy. In proposed Sec.
247.12(a)(2), the Board proposes to require the Board-supervised PPSI
to include a statement consistent with proposed Sec. 247.12(b)(3) that
any discretionary limitations on timely redemptions may only be imposed
by the Board, or in the case of a State-qualified PPSI that is a Board-
supervised PPSI, by the Board or the State payment stablecoin
regulator, as applicable. Proposed Sec. 247.12(a)(3) requires that
Board-supervised PPSIs include in their redemption disclosures a
statement explaining the scenarios when the redemption period may be
extended as provided for in proposed Sec. 247.12(c)-(d). Proposed
Sec. 247.12(a)(4) provides that the Board-supervised PPSI must provide
a statement with clear instructions on how a customer can redeem a
payment stablecoin, including a link to the website(s) where a customer
can redeem the payment stablecoin.
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\55\ Under section 2(22) of the GENIUS Act (12 U.S.C. 5901(22)),
the issuer of a payment stablecoin must be obligated to convert,
redeem, or repurchase a payment stablecoin for a fixed amount of
monetary value, not including a digital asset denominated in a fixed
amount of monetary value.
---------------------------------------------------------------------------
Proposed Sec. 247.12(a)(5) would require the Board-supervised PPSI
to specify the minimum number of payment stablecoins, if any, that the
Board-supervised PPSI will redeem, provided that the Board-supervised
PPSI must redeem any number greater than or equal to one payment
stablecoin, subject to appropriate customer screening and onboarding.
In setting the requirement that a Board-supervised PPSI must redeem any
number greater than or equal to one payment stablecoin, the Board is
relying on a natural reading of the definition of ``payment
stablecoin.'' Specifically, section 2(22) of the GENIUS Act (12 U.S.C.
5901(22)), defines ``payment stablecoin'' as a digital asset that an
issuer ``is obligated to convert, redeem, or repurchase for a fixed
amount of monetary value.'' Since ``payment stablecoin'' is singular,
the statutory language suggests that while a PPSI could set a minimum
redemption threshold at a fraction of a payment stablecoin, a PPSI must
redeem any number greater than or equal to one payment stablecoin to
comply with the GENIUS Act.
Proposed Sec. 247.12(b)(1) provides that a Board-supervised PPSI's
redemption policy must provide clear and conspicuous procedures for
timely redemption of outstanding payment stablecoins. In proposed Sec.
247.12(b)(2), the Board is proposing to define ``timely'' to mean that
the Board-supervised PPSI would have to redeem a payment stablecoin no
later than two business days following the date of the requested
redemption. The Board is proposing this two-business day timeframe as
an outer limit on when a Board-supervised PPSI must redeem a payment
stablecoin and understands that Board-supervised PPSIs may choose a
timeframe that is less than two business days. The Board believes this
timeframe provides sufficient responsiveness to stablecoin holders who
seek to redeem their stablecoins, while also ensuring that Board-
supervised PPSIs can appropriately manage liquidity demands.
Proposed Sec. 247.12(b)(3), consistent with the statute, provides
that discretionary limitations on timely redemption by a Board-
supervised PPSI may only be imposed by the Board or, in the case of a
State-qualified PPSI that is a Board-supervised PPSI, by the Board or
the State payment stablecoin regulator, as applicable. Proposed Sec.
247.12(c) provides that the Board, may in its discretion, extend timely
redemption described in proposed Sec. 247.12(b)(2) if the Board
determines that the Board-supervised PPSI faces a threat to its safety
and soundness or poses a threat to financial stability, or that such an
extension is otherwise in the public interest. In general, the Board
anticipates that it would consider whether to impose discretionary
redemption limitations on Board-supervised PPSIs if they experience
unusual and exigent circumstances, as described by the Board under
proposed Sec. 247.50(c). If such unusual and exigent
[[Page 61605]]
circumstances make timely redemption impracticable, Board-supervised
PPSIs may also request that the Board consider using its authority to
issue a discretionary redemption limitation.
The Board also proposes including safe harbors for Board-supervised
PPSIs that fail to redeem a payment stablecoin within two business
days, which the Board recognizes may not be reasonable in all
circumstances. As such, under proposed Sec. 247.12(d), the Board will
not take action against a Board-supervised PPSI for a failure to timely
redeem if the Board-supervised PPSI can demonstrate to the Board's
satisfaction that: (i) additional time is necessary to conduct customer
identification and due diligence reviews in connection with legal
requirements under the Bank Secrecy Act, sanctions, or federal anti-
money laundering/countering the financing of terrorism laws or
regulations; or (ii) the delay is outside of the Board-supervised
PPSI's control. The Board recognizes that customer identification and
due diligence reviews for customers without pre-existing relationships
with Board-supervised PPSIs may take longer than two days. The Board
further recognizes that there may be certain circumstances that are
clearly outside of Board-supervised PPSIs' control that cause delays in
meeting redemption requests beyond two days (e.g., unforeseen third-
party bank or custodian processing delays). Such circumstances would
not, however, extend to instances where delays are owed solely to a
higher-than-expected number of redemption requests within a given time
period. Reliance on either safe harbor is contingent on the Board-
supervised PPSI making all reasonable efforts to resolve the delay in a
timely manner.
The requirements of this section would apply only to the redemption
of a payment stablecoin by the Board-supervised PPSI (and any entity
acting on behalf of the Board-supervised PPSI) and would not apply to
secondary market trading.
Proposed Sec. 247.12(e)(1) provides that a Board-supervised PPSI
must also publicly, clearly, and conspicuously disclose in plain
language and in a format that is readily noticeable to customers,
readily understandable by customers, and segregated from other
information: (i) the name of the Board-supervised PPSI that issues the
payment stablecoin; (ii) that the Board-supervised PPSI is the entity
that is obligated to convert, redeem, or repurchase the payment
stablecoin for a fixed amount of monetary value; (iii) the link to the
monthly composition report of the relevant Board-supervised PPSI's
reserves as required under proposed Sec. 247.11(d); and (iv) all fees
associated with purchasing or redeeming payment stablecoins. The Board
is including a requirement that the disclosures under proposed Sec.
247.12(e)(1) are readily noticeable by customers, readily
understandable by customers, and segregated from other information to
provide more certainty on what it means to ``publicly, clearly, and
conspicuously disclose [the information] in plain language.'' \56\
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\56\ 12 U.S.C. 5903(a)(1)(B)(ii).
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The Board is proposing to include the requirement that the
disclosures be conspicuous and not mixed in with other information to
ensure that the information in the disclosures is not buried with other
non-relevant information that could obscure these required disclosures.
Although the Board-supervised PPSI may include additional information
beyond what is required in proposed Sec. 247.12(e)(1) in the same
disclosure, the information required under proposed Sec. 247.12(e)(1)
should be sufficiently conspicuous and separate and must meet the other
requirements outlined, including that the information is readily
noticeable and readily understandable by customers.
The Board will generally consider the disclosures as required by
the proposed Sec. 247.12 to be clear and conspicuous if a ``reasonable
person'' would view the disclosures as such. Disclosures must comply
with applicable consumer compliance laws, including the prohibition on
unfair or deceptive acts or practices under the Federal Trade
Commission Act (15 U.S.C. 45 et seq.). The Board believes that the
disclosures required under proposed Sec. 247.11(d)(1) are consistent
with section 4(a)(1)(B) of the GENIUS Act (12 U.S.C. 5903(a)(1)(B)) and
are particularly important in the situation where a Board-supervised
PPSI issues more than one brand of payment stablecoin either directly
or through an affiliate (if the Board limits Board-supervised PPSIs to
issuing a single brand of payment stablecoin). The Board believes that
these disclosures are necessary to prevent confusion and ensure that
payment stablecoin holders understand who has the ultimate obligation
to redeem their payment stablecoins.
Proposed Sec. 247.12(e)(2) provides that an issuer must update the
disclosures in proposed Sec. 247.12(e)(1)(iv) if there are any changes
in the fees associated with purchasing or redeeming payment stablecoins
and provide customers at least seven calendar days' prior notice of the
change, including by securely delivering the notice to current
customers for which the Board-supervised PPSI has contact information.
Proposed Sec. 247.12(e)(3) provides that a Board-supervised PPSI must
publish the disclosures in proposed Sec. 247.12(e)(1) and any updates
made in accordance with proposed Sec. 247.12(e)(2) on the Board-
supervised PPSI's website. Proposed Sec. 247.12(e)(4) provides that a
Board-supervised PPSI must include the disclosures in proposed Sec.
247.12(e)(1) and any updates made in accordance with proposed Sec.
247.12(e)(2) in any customer agreements that it provides.
Question 97: Proposed Sec. 247.12(b)(2) provides that timely
redemption may not exceed two business days following the date of the
requested redemption. Is this the appropriate timeframe to allow for
redemptions? If not, what may be a more appropriate timeframe? For
example, should the Board consider other timeframes ranging from one
calendar days to seven calendar days timely? Should the Board consider
some timeframe longer than seven calendar days timely? Should the Board
define ``timely'' in a manner that scales with the liquidity of the
underlying reserve assets or other factors? How should any definition
of ``timely'' appropriately balance considerations of price stability
and run risk? Should the Board allow for more freedom of contract
between Board-supervised PPSIs and their payment stablecoin holders to
establish what constitutes ``timely redemption,'' so long as the
negotiated terms are consistent with the requirements of the GENIUS
Act? [similar to OCC question 100]
Question 98: Should the timely redemption timeframe begin following
the date of the requested redemption, as proposed, or following some
other event? For example, should the timely redemption timeframe not
begin unless the Board-supervised PPSI has completed customer
identification and due diligence reviews in connection with legal
requirements under the Bank Secrecy Act, sanctions, or federal anti-
money laundering/countering the financing of terrorism laws and
regulations?
Question 99: Are the Board's safe harbors for failing to timely
redeem a payment stablecoin in proposed Sec. 247.12(d) appropriately
scoped? Should the safe harbor extend to other circumstances that are
not covered by the Board's proposed rule? [similar to OCC question 101]
Question 100: Should the Board consider a longer redemption period
``timely'' in times of stress? If so, how long should the Board extend
the
[[Page 61606]]
redemption period, and what metrics and data should the Board look to
in order to determine whether an extension is warranted? For example,
if a Board-supervised PPSI faced redemption demands in excess of 10
percent of its outstanding issuance value over one day, should the
Board extend the time period for timely redemption to seven calendar
days. Would other metrics or thresholds be more appropriate? Should the
Board automatically extend the time period for timely redemption in the
event of a spike in redemption requests? [similar to OCC question 102]
Question 101: Should the Board define ``redemption'' for purposes
of the proposed rule? If so, should it be defined broadly to mean that,
for example, the Board-supervised PPSI has initiated payment to the
payment stablecoin holder in return for a tendered payment stablecoin?
Are there reasons to define ``redemption'' more narrowly? For example,
should the Board define redemption to mean that the Board-supervised
PPSI's payment to a payment stablecoin holder in exchange for the
payment stablecoin has settled? [similar to OCC question 103]
Question 102: Are there limitations that the Board should impose on
redemption fees, e.g., to discourage run risk or to encourage price
stability? [similar to OCC question 104]
Question 103: What are the advantages and disadvantages of the
Board explicitly limiting the fee disclosure provisions to fees
required by the Board-supervised PPSI? Should third-party fees also be
subject to the fee disclosures, and under what circumstances? For
example, if a Board-supervised PPSI uses a third party to facilitate
issuance and redemption, how should the Board evaluate compliance with
the requirements of this section?
Question 104: Should the Board require Board-supervised PPSIs to
deliver notice to current customers whenever they change fees, as
proposed? Are there any specific methods or modes of communication that
the Board should require? If so, which modes of communication would be
most effective and appropriate? Is it feasible for Board-supervised
PPSIs to secured deliver notice to all ``customers''? [similar to OCC
question 105]
Question 105: Should the Board include specific additional
provisions regarding fee disclosures in the regulation text? If so,
what additional requirements should be included? Should the Board
specify how section 5 of the FTC Act (15 U.S.C. 45) relating to unfair
or deceptive acts or practices could apply to how the Board evaluates
the disclosures? Should the Board further explain the proposed
``reasonable person'' standard for clear and conspicuous disclosures?
To whom should Board-supervised PPSIs have a responsibility to deliver
disclosures regarding changes in fees? Should it be all payment
stablecoin holders (e.g., including retail holders who purchased from
an exchange or secondary market), or should it be a narrower subset of
holders (e.g., only holders who purchased directly from the Board-
supervised PPSI)? Are there obstacles that would make it impractical to
deliver change in fee notices to all payment stablecoin holders? Should
Board-supervised PPSIs be expected to provide direct notice where it
has a customer's contact information because of a completed customer
onboarding process? [similar to OCC question 106]
Question 106: The Board has proposed several categories of
disclosure in the proposed rule and requested comment as to whether it
should propose additional categories. Taken collectively, would these
disclosures provide potential customers of Board-supervised PPSIs with
the appropriate information to inform their use of payment stablecoins?
Are there any steps the Board should take to ensure that potential
customers are not confused or overwhelmed by these disclosures,
especially in light of the relative unfamiliarity many potential
customers may have with payment stablecoins? For example, should the
Board take any steps to unify required disclosures so that they are all
provided to customers at a specific point during the relationship? If
so, how should the Board ensure that the most pertinent information is
sufficiently emphasized? Is there anything else the Board should do to
ensure that potential customers are appropriately informed in regard to
payment stablecoins issued by Board-supervised PPSIs? Are there any
technical aspects of distributed ledgers or blockchain the Board should
take advantage of in relation to disclosures? For example, should
certain disclosures be automated through smart contracts, such as with
wrappers or other techniques? [similar to OCC question 107]
Question 107: Currently, many stablecoin issuers have issuance
policies that may limit direct interaction with retail stablecoin
holders. What are the potential impacts of these policies on retail
stablecoin holders during a liquidity event? Should the Board
explicitly require Board-supervised PPSIs to redeem payment stablecoins
presented by any payment stablecoin holder that has undergone
appropriate on-boarding including customer screening, as proposed?
Should the Board require Board-supervised PPSIs to redeem payment
stablecoins presented by a stablecoin holder that has an account
relationship at a regulated financial institution? Is additional
clarity needed as to for whom a Board-supervised PPSI is obligated to
redeem a payment stablecoin? Alternatively, should the Board include
other protections to ensure that payment stablecoin holders are able to
redeem, or otherwise receive cash, for their payment stablecoins,
including any protections in the event that payment stablecoin holders
are unable to monetize their payment stablecoins through sales in the
secondary market or through sales to direct customers of a Board-
supervised PPSI? For example, should the final rule include an option
for the Board to require direct redemptions under certain conditions,
such as if the Board determines that the customers of a Board-
supervised PPSI are not adequately facilitating the monetization of the
Board-supervised PPSI's payment stablecoins? Should the Board impose
any additional rules addressing minimum amounts for redemption? For
example, should the Board prohibit redemption minimums or set the
minimum at some point other than one payment stablecoin? [similar to
OCC question 108]
Question 108: What would be the advantages or disadvantages of
allowing a Board-supervised PPSI a period of days (e.g., 15 days) after
the Board-supervised PPSI experiences a shortfall in required reserve
assets before it needs to begin liquidating reserve assets and
redeeming issued and outstanding payment stablecoins?
Question 109: The Board has indicated that it generally anticipates
that it would consider whether to impose discretionary redemption
limitations on Board-supervised PPSIs if they experience unusual and
exigent circumstances, as described by the Board under proposed Sec.
247.50(c). What are the benefits and drawbacks of this approach? Should
the Board consider use of these authorities in a broader range of
circumstances? The Board has also indicated that Board-supervised PPSIs
may request the Board consider using this authority. What should a
Board-supervised PPSI making such a request need to demonstrate in
order for a Board to consider issuance of such a discretionary
redemption limitation?
[[Page 61607]]
4. Risk Management Standards (Proposed Sec. 247.13)
Section 4(a)(4)(A)(iv) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iv)) provides that the Board ``must issue regulations
implementing . . . appropriate operational, compliance, and information
technology risk management principles-based requirements and standards,
including Bank Secrecy Act and sanctions compliance standards, that[ ]
are tailored to the business model and risk profile'' of Board-
supervised PPSIs and ``are consistent with applicable law.'' Section
4(a)(4)(A)(iii) of the GENIUS Act (12 U.S.C. 5903(a)(4)(A)(iii))
provides that the Board must issue regulations implementing . . .
interest rate risk management standards'' that ``are tailored to the
business model and risk profile of [PPSIs] and[ ] do not exceed
standards that are sufficient to ensure the ongoing operations of
[PPSIs.]'' Proposed Sec. 247.13 implements these requirements with
respect to Board-supervised PPSIs. As discussed in more detail below, a
Board-supervised PPSI that is a subsidiary of a State member bank would
be deemed to be in compliance with the requirements of this section if
the Board-supervised PPSI participates in the enterprise-wide risk
management framework of its parent State member bank or consolidated
banking organization, provided that such framework is in compliance
with enterprise-wide risk management requirements applicable to the
parent State member bank.
a. Operational and Managerial Standards (Proposed Sec. 247.13(a))
The GENIUS Act provides that the operational, compliance, and
information technology risk management requirements and standards must
be principles-based. Accordingly, the Board is proposing flexible risk
management standards in proposed Sec. 247.13 that are tailored based
on the nature, scope, and risk of a PPSI's activities. These standards
reflect an understanding that Board-supervised PPSIs will have lower
interest rate, liquidity, and credit risk exposures in comparison to a
typical insured depository institution engaged in maturity and
liquidity transformation. Most of the standards are adapted from the
safety and soundness standards applicable to insured depository
institutions.\57\ In addition, on July 14, 2025, the Board issued a
joint statement, together with the OCC and FDIC, on Risk Management
Considerations for Crypto-Asset Safekeeping,\58\ and the standards in
proposed Sec. 247.13 are consistent with the considerations described
in the joint statement.
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\57\ 12 CFR part 208, appendix D-1.
\58\ See Board, ``Agencies Issue Joint Statement on Risk-
Management Considerations for Crypto-Asset Safekeeping'' (July 14,
2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250714a.htm.
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Internal Controls and Information Systems. Under proposed Sec.
247.13(a)(1), a Board-supervised PPSI would be required to have
internal controls and information systems to support effective risk
management that are tailored to its size and complexity and the nature,
scope, and risk of its activities, including taking into account the
lower interest rate, liquidity, and credit risk exposures of Board-
supervised PPSIs compared to a typical insured depository institution
engaged in maturity and liquidity transformation. The internal controls
and information systems would be required to provide for: (i) an
organizational structure with appropriate segregation of duties and an
internal control structure that establishes clear lines of authority
and responsibility for monitoring adherence to established policies;
(ii) effective risk assessment; (iii) timely and accurate financial,
operational, and regulatory reporting, including with respect to
reports required under proposed part 247; (iv) adequate procedures to
monitor, safeguard, manage, control, and monetize assets, including
reserve assets; and (v) compliance with applicable laws and
regulations. Internal controls refer to the systems, policies,
procedures, and processes effected by the board of directors and other
personnel to safeguard Board-supervised PPSI assets, limit or control
risks, and ensure compliance with applicable laws and regulations.
Effective internal controls help the board of directors and management
safeguard the Board-supervised PPSI's resources and comply with laws
and regulations, as well as reduce the possibility of significant
errors and irregularities, and assist in their timely detection when
errors and irregularities do occur. Internal controls must also include
an effective risk assessment since a Board-supervised PPSI cannot
effectively manage its risks without an understanding of its risk
profile, even taking into account the lower interest rate, liquidity,
and credit risk exposures of Board-supervised PPSIs compared to a
typical insured depository institution engaged in maturity and
liquidity transformation.
The Board would expect the internal controls and information
systems of a Board-supervised PPSI to reflect the complexity or
simplicity of its organizational structure. For example, a smaller and
less complex Board-supervised PPSI may be able to manage its risks with
policies and procedures that are abbreviated in comparison to those of
a larger Board-supervised PPSI. Similarly, smaller and less complex
Board-supervised PPSIs may not need to report risk management metrics
to senior management and the board of directors of a Board-supervised
PPSI at the same frequency or to the same degree as a larger and more
complex Board-supervised PPSI.
Internal Audit System. Under proposed Sec. 247.13(a)(2), a Board-
supervised PPSI would be required to have an internal audit system that
is tailored to its size and complexity and the nature, scope, and risk
of its activities and that provides for (i) adequate monitoring of the
system of internal controls through an internal audit function, or for
a Board-supervised PPSI whose size, complexity, or scope of operations
does not warrant a full-scale internal audit function, a system of
independent reviews of key internal controls; (ii) independence and
objectivity; (iii) qualified persons responsible for the audit
function; (iv) adequate independent testing and review of internal
controls and information systems, and verification of published
information available to customers, calculations for required reserves,
and regulatory filings; (v) adequate documentation of tests and
findings and any corrective actions; (vi) verification and review of
management actions to address deficiencies; and (vii) review by the
Board-supervised PPSI's audit committee or board of directors of the
effectiveness of the internal audit system. Internal audit systems
provide objective, independent reviews of Board-supervised PPSI
activities, internal controls, and information systems to help the
board of directors and management monitor and evaluate internal control
adequacy and effectiveness. An internal audit system, among other
items, would be expected to independently test and review systems, as
appropriate, related to (1) a Board-supervised PPSI's compliance with
the GENIUS Act and rules implementing the GENIUS Act; (2) payment
systems; and (3) third-party risk management. Well-planned, properly
structured audit programs are essential to effective risk management
and internal control systems. Effective internal audit programs are a
critical defense against fraud and provide vital
[[Page 61608]]
information to the board of directors about the effectiveness of
internal controls systems. An internal audit program's responsibilities
include evaluating compliance systems, safeguards around use of payment
systems, and risks posed by relationships with and dependence on third
parties.
While it is important that internal audit functions be conducted by
qualified persons with an appropriate level of independence from other
business lines, the proposed rule would not mandate a particular
organizational structure (for example, a structure based on the three
lines of defense model). Proposed Sec. 247.13(a)(2) would not
prescribe a one-size-fits-all approach to risk management. Smaller and
less complex Board-supervised PPSIs with a limited risk profile may be
able to comply using a simpler, less delineated organizational
structure, or may be able to outsource certain functions such as the
internal audit function, while larger and more complex Board-supervised
PPSIs with more prominent risk-profiles may require organizational
structures with more clearly delineated risk management functions,
including internal audit personnel.
Asset Growth. Under proposed Sec. 247.13(a)(3), a Board-supervised
PPSI's asset growth must be prudent and commensurate with a Board-
supervised PPSI's risk management capabilities, operational capacity,
and staffing. Rapid expansion of a Board-supervised PPSI's payment
stablecoin liabilities and reserve assets without a corresponding
increase in its risk management capabilities, operational capacity, and
staffing could strain its oversight and monitoring capabilities, which
could impair its ability to manage salient risks. While there are no
hard limits for how quickly Board-supervised PPSIs may grow, a Board-
supervised PPSI must ensure that growth does not undercut its
capabilities to comply with the requirements of this proposed rule and
other applicable law. For example, rapid issuance of new payment
stablecoins would require a commensurately rapid increase in reserve
assets, and Board-supervised PPSIs must ensure that they maintain the
capabilities to maintain these reserve assets in compliance with
proposed Sec. 247.11 and maintain the ability to access and monetize
the reserve assets in order to meet redemption requests.
Earnings. Under proposed Sec. 247.13(a)(4), a Board-supervised
PPSI would be required to evaluate and monitor its earnings and ensure
that its earnings are sufficient to support operations and maintain the
capital levels that would be required under the proposal. To satisfy
this requirement, a Board-supervised PPSI would, among other things, be
expected to monitor economic conditions, such as fluctuations in short-
term interest rates, that might impact its earnings. Where a Board-
supervised PPSI identifies a development that could negatively impact
its earnings, the Board-supervised PPSI would be expected to make
adjustments to its business as appropriate to ensure it remains
compliant with all applicable capital requirements. To reflect the
distinct characteristics of Board-supervised PPSIs, the proposed
standards on earnings in proposed Sec. 247.13(a)(4) do not include all
the listed elements in paragraph II.H in Appendix D-1 to 12 CFR part
208, from which the earnings standard in proposed Sec. 247.13(a)(4)
was adapted. Nevertheless, under the proposed rule, Board-supervised
PPSIs would be expected to comply with the overarching requirement to
evaluate and monitor their earnings.
Oversight of Third-Party Relationships. Under proposed Sec.
247.13(a)(5), a Board-supervised PPSI would be required to address the
risks from its third-party relationships. Board-supervised PPSIs may
depend on third-party service providers for various aspects of their
operations. Third-party service providers could, for example, support
the development of smart contract code that facilitates the burning,
minting, transferring or other functions of payment stablecoins; the
custody of private keys for smart contracts and other digital assets;
and blockchain monitoring to support compliance with Bank Secrecy Act/
anti-money laundering and sanctions requirements. Firms involved in
tokenizing reserve assets may also be critical third parties: the
Board-supervised PPSI may, for example, depend on such firms to ensure
the token circulating on a blockchain confers to its holder specific
legal rights to the associated asset. Failure to manage the risks
associated with such third-party relationships could cause material
disruptions in a Board-supervised PPSI's business or lead to financial
losses that place the safety and soundness of a Board-supervised PPSI
in jeopardy.
To mitigate those risks, proposed Sec. 247.13(a)(5) would require
a Board-supervised PPSI to (i) exercise appropriate due diligence in
selecting its third party relationships; (ii) require its service
providers by contract to implement appropriate measures designed to
satisfy the applicable requirements under proposed part 247; and (iii)
as appropriate, monitor its third party relationships, including by
reviewing audits, summaries of test results, or other equivalent
evaluations.
Interest Rate Risk. The GENIUS Act explicitly authorizes interest
rate risk management standards under section 4(a)(4)(A)(iii) (12 U.S.C.
5903(a)(4)(A)(iii)). Proposed Sec. 247.13(a)(6) addresses interest
rate risk and would require a Board-supervised PPSI to (i) manage
interest rate risk in a manner that is appropriate to the size and
complexity of the Board-supervised PPSI and the complexity of its
assets and liabilities, and (ii) provide periodic reporting to
management and the board of directors regarding interest rate risk with
adequate information for management and the board of directors to
assess the level of risk. It is important for Board-supervised PPSIs to
be mindful of interest rate risk--particularly in light of the role of
interest rate risk in the failures of previous money market funds,
whose investments were supposed to be limited to assets with relatively
low weighted maturities or duration.\59\
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\59\ Mismanagement of interest rate risk has contributed to
material losses in money market funds in the United States. See In
the Matter of John E. Backlund, et al., Investment Company Act
Release No. 23639 (January 11, 1999) (SEC administrative order
involving the Community Bankers U.S. Government Money Market Fund
liquidated in 1994); In the Matter of First Multifund Advisory Corp.
and Milton Mound, Initial Decision, File No. 3-5881 (December 29,
1982) (SEC initial decision involving the First Multifund for Daily
Income liquidated in 1978). That being said, these funds had
exposure to interest rate risk that far exceeded the exposure PPSIs
could face, given the Act's limitations on permissible reserve
assets.
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Insider and Affiliate Transactions. Proposed Sec. 247.13(a)(7)
addresses insider and affiliate transactions and is intended to protect
the assets and resources of a Board-supervised PPSI from misuse for the
benefit of insiders, affiliates, or related entities. The proposed
provision would require a Board-supervised PPSI to ensure that
transactions between the Board-supervised PPSI and insiders or
affiliates do not pose a significant risk of material financial loss to
the PPSI. Further, a Board-supervised PPSI must ensure that any such
transactions are conducted on terms that are the same or at least as
favorable to the Board-supervised PPSI as those prevailing at the time
for comparable transactions with or involving non-insiders or non-
affiliates. In the absence of comparable transactions, such
transactions must be offered on terms and under circumstances that, in
good faith would be offered to, or would apply to, non-affiliates or
non-insiders. With respect
[[Page 61609]]
to a Board-supervised PPSI that is a subsidiary of an insured State
member bank, these restrictions do apply to transactions with such
insured State member bank.
Question 110: How should the Board ensure that the standards in
proposed Sec. 247.13 are ``principles-based'' while providing
sufficient clarity to Board-supervised PPSIs? Should the requirements
in proposed Sec. 247.13 be broader or more detailed? [similar to OCC
question 109]
Question 111: Should certain of the risk management requirements
only apply to large Board-supervised PPSIs? If so, which requirements
should only apply to large Board-supervised PPSIs, and what would be
the appropriate threshold for determining that a Board-supervised PPSI
is a large issuer (e.g., $10 billion in outstanding issuance value)?
[similar to OCC question 110]
Question 112: Which standards from 12 U.S.C. 1831p-1 and 12 CFR
part 208 appendices D-1 and D-2 should or should not apply to Board-
supervised PPSIs? Are there other standards not in 12 U.S.C. 1831p-1
and 12 CFR part 208 appendices D-1 and D-2 that should apply to Board-
supervised PPSIs? [similar to OCC question 111]
Question 113: Do the proposed risk management requirements
appropriately provide for clear management roles, responsibilities, and
accountability? If not, how should the proposed risk management
requirements be revised? [similar to OCC question 112]
Question 114: Should Board-supervised PPSIs be required to adopt
and adhere to a risk appetite statement? [similar to OCC question 113]
Question 115: Should Board-supervised PPSIs be required to
regularly (e.g., on at least an annual basis) review their risk
management frameworks and make any changes to appropriately align risk
management activities with their business objectives and strategies?
[similar to OCC question 114]
Question 116: Should the proposed rule's requirements with respect
to interest rate risk management be modified? If so, how? For example,
should Board-supervised PPSIs have in place the appropriate policies,
procedures, and internal controls for their interest rate risk
management programs? What are the advantages and disadvantages of
imposing a weighted average maturity requirement to Board-supervised
PPSIs, as part of their interest rate risk management programs? What
are the advantages and disadvantages of requiring Board-supervised
PPSIs to establish risk appetites and limit structures as part of their
interest rate risk management programs? What are the advantages and
disadvantages of requiring Board-supervised PPSIs to incorporate stress
testing as part of their interest risk management programs? Should
Board-supervised PPSIs be allowed to use assets that do not qualify as
reserve assets as part of an interest rate risk hedging program and if
so, why? Should there be restrictions on the types of instruments used
for hedging purposes and why? Additionally, should the maturities of
the hedging instruments match the maturities of the qualified reserve
assets, and why? [similar to OCC question 115]
Question 117: Should the Board include consumer protection-related
compliance risk management principles-based requirements and standards
in proposed Sec. 247.13? If so, are there specific standards the Board
should institute? [similar to OCC question 120]
Question 118: Should the Board include additional requirements
concerning Board-supervised PPSIs' management of their ability to
satisfy redemption requests and to monetize reserve assets, including
by analyzing reasonably anticipated redemption scenarios? [similar to
OCC question 123]
Question 119: Should the Board include additional requirements
relating to the maintenance of safeguards to prevent the payment of
compensation, fees, and benefits that are excessive or that could lead
to material financial loss to the Board-supervised PPSI? [similar to
OCC question 124]
Question 120: Are the restrictions on insider and affiliate
transactions in proposed Sec. 247.13(a)(7) appropriate? What
modifications, if any, are warranted? What are the advantages or
disadvantages of implementing an approach similar to that the OCC
proposed in Sec. 15.13(a)(6) of the its GENIUS Act NPR? 60
Are the proposed requirements with respect to insider and affiliate
transactions appropriately tailored? If not, how should they be
modified? The Board has proposed to exempt transactions between a
Board-supervised PPSI and its parent insured State member bank, if
applicable. Is this exemption appropriate, or should such transactions
be covered by some or all of the insider and affiliate transaction
restrictions proposed? Should the requirements include any prescriptive
qualitative or quantitative limits? Should transactions be documented
and reviewed by the board of directors? Should certain transactions
require approval by the board of directors? Should Board-supervised
PPSIs be required to monitor and validate compliance with the
restrictions on insider and affiliate transactions?
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\60\ See 91 FR 10202 (March 2, 2026).
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Question 121: Should the Board include any requirements relating to
the concentration of management at unaffiliated PPSIs? For example,
should the Board include limits on the number of unaffiliated PPSIs for
which an individual may serve as an executive officer or senior
management official? Should any such limits be tied to the outstanding
issuance value of the Board-supervised PPSI? [similar to OCC question
126]
Question 122: Should the Board require Board-supervised PPSIs to
acquire insurance against certain risks? For example, should Board-
supervised PPSIs be required to hold cyber insurance policies? If so,
what should be the minimum coverage requirements? Should the Board
require some minimum level of property and casualty insurance? If so,
what should the minimum level of coverage be? What disclosures, if any,
would it be appropriate for a Board-supervised PPSI to make with
respect to its insurance coverage and to whom should those disclosures
be directed (e.g., investors or payment stablecoin holders)? What
implications with respect to other applicable disclosure regimes should
the Board consider when deciding whether to impose any disclosure
requirements with respect to insurance coverage? To what extent are the
terms and conditions for property and casualty (or other types of)
insurance coverage for Board-supervised PPSIs becoming more
standardized? What steps, if any, should the Board take to encourage
standardization to increase certainty and consistency with respect to
insurance coverage across jurisdictions? [similar to OCC question 127]
Question 123: The Board considered requiring a Board-supervised
PPSI to (i) appropriately monitor and validate compliance with the
requirements of proposed Sec. 247.11 and (ii) manage liquidity and
concentration risk in a manner that is appropriate to the business
model and risk profile of the Board-supervised PPSI. However, the Board
ultimately concluded that compliance with the substantive requirements
in proposed Sec. 247.11 was sufficient, and there was little utility
in including additional process-focused risk management requirements.
What additional value might separate risk management requirements
provide?
Question 124: Are the risk management requirements in proposed
[[Page 61610]]
Sec. 247.13 sufficiently broad to cover the full range of Board-
supervised PPSI activities? If not, what activities are not covered?
What additional risk management requirements should the Board consider?
To the extent Board-supervised PPSIs engage in digital asset service
provider activities, what additional risk management requirements, if
any, are appropriate?
Question 125: Proposed Sec. 247.13(a)(5) requires Board-supervised
PPSIs to manage risks associated with service providers. Does this
requirement adequately address the risks from third parties involved in
the process of tokenizing reserve assets. If not, what risks are not
addressed? What additional requirements, if any, are appropriate to
address risks from third parties involved in the process of tokenizing
reserve assets?
b. Information Technology and Security Standards (Proposed Sec.
247.13(b))
Information Technology and Security Program. Under proposed Sec.
247.13(b)(1), a Board-supervised PPSI would be required to implement a
comprehensive written information security risk and control framework,
including a program that assesses and manages information technology
and information security risks. Board-supervised PPSIs could be
vulnerable to certain information technology and cybersecurity failures
or attacks by artificial intelligence tools that are rapidly developing
capabilities that allow them to detect and exploit weaknesses in
websites and online portals.\61\ For example, many stablecoins rely on
smart contracts to control minting and burning. A security breach
involving such a smart contract or caused by an artificial intelligence
tool could lead to the unauthorized minting of new coins without the
receipt of additional reserve assets. Payment stablecoin arrangements
are also vulnerable to failures in the blockchains on which they
circulate, which serve as the ledger of record. A material operational
event impacting the blockchain could, for example, undermine a Board-
supervised PPSI's ability to identify for redemption purposes the
rightful holders of its payment stablecoins or its ability to mint and
burn new payment stablecoins. Furthermore, failure of the underlying
blockchain could call into question a Board-supervised PPSI's ownership
of a tokenized asset. Such a failure could also compromise a Board-
supervised PPSI's ability to liquidate the tokenized asset to meet
redemptions.
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\61\ See, e.g., Robert McMillan and Chip Cutter,``AI Is Finding
Bugs That Hackers Can Exploit. Get Ready for Bugmageddon,'' Wall
Street Journal (April 13, 2026), https://www.wsj.com/tech/ai/ai-is-finding-bugs-that-hackers-can-exploit-get-ready-for-bugmageddon-baaff236.
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A robust information technology framework, as outlined below, is
essential to mitigating these risks. Such a program can help prevent
unexpected losses and enhance market confidence in the Board-supervised
PPSI's continuing operations and ability to meet its obligations. A
Board-supervised PPSI's information technology program should be
tailored to its size and complexity and the nature, scope, and risk of
its activities.
Board of Directors Approval. Under proposed Sec. 247.13(b)(2), the
board of directors of a Board-supervised PPSI, or an appropriate board
committee, must approve the Board-supervised PPSI's information
technology and security program. The board or board committee must
oversee the development, implementation, and maintenance of the
program, including the appointment of a qualified Information
Technology and Security Officer. The board or committee must also
assign specific responsibility for program implementation and review
program-related reporting.
Required Elements of Program. Under the proposed Sec.
247.13(b)(3), a Board-supervised PPSI's information technology and
security program would be required to include (i) an inventory and
classification of assets, processes, and sensitivity of data; (ii)
controls supporting and safeguarding sensitive information and
processes; (iii) evaluation, validation, and reporting processes to
ensure that key information technology systems and controls, including
smart contracts, are operating as intended; (iv) periodic independent
testing; and (v) a comprehensive and effective incident identification
and assessment process and incident response program. The program must
ensure that Board-supervised PPSIs are well positioned to protect
against the unique cybersecurity risks presented by digital assets.
When identifying the key information technology systems to be addressed
in the program, a Board-supervised PPSI would be expected to consider
all technologies on which it relies. This includes systems operated by
the Board-supervised PPSI and its vendors, such as smart contracts. It
also includes key information technology systems such as the
blockchains on which its payment stablecoins circulate.
The Board would expect a Board-supervised PPSI's information
technology and security program to address each relevant information
technology system based on the materiality of the risks the system
poses. An information technology system involving minimal risks would
require fewer controls. A system that poses material risks, in
contrast, would require sophisticated evaluation, reporting, and
validation processes, and rigorous independent testing at regular
intervals.
Business Continuity. Under proposed Sec. 247.13(b)(4), a Board-
supervised PPSI's information technology and security program must
include measures to ensure continuity of operations and recover
critical functions in the face of disruptions, including by conducting
business impact analyses, testing vulnerabilities, and testing with
critical service providers. Board-supervised PPSIs should ensure they
have appropriate controls to reliably address operational issues that
may arise with burning and minting new payment stablecoins and should
conduct appropriate due diligence before supporting any new distributed
ledger. Operational resilience will be particularly important for
Board-supervised PPSIs, which will depend on customer confidence in the
stable value and availability of their payment stablecoins.
Nonpublic Personal Information. Under proposed Sec. 247.13(b)(5),
a Board-supervised PPSI's information technology and security program
must include administrative, technical, and physical safeguards
designed to (i) ensure the security and confidentiality of records
containing nonpublic personal information about a customer; (ii)
protect against any anticipated threats or hazards to the security or
integrity of such records; (iii) protect against unauthorized access to
or use of such records that could result in substantial harm or
inconvenience to any customer; and (iv) ensure the proper disposal of
such records.
Safe Handling of Digital Assets. Proposed Sec. 247.13(b)(6)
provides that a Board-supervised PPSI must develop, implement, and
maintain appropriate measures to ensure secure handling of digital
assets, including private key management, backup, and recovery,
incorporating: (i) relevant technical, operational, strategic, market,
legal, and compliance considerations relating to each digital asset and
its underlying ledger; and (ii) information on material developments
specifically related to supported digital assets and their underlying
ledgers.\62\ Failure to develop
[[Page 61611]]
appropriate controls to safeguard digital assets could lead to the loss
of private keys or other sensitive information that could result in the
loss of digital assets or the unauthorized transfer of the digital
assets out of the Board-supervised PPSI's control.
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\62\ If a Board-supervised PPSI holds digital assets on a
customer's behalf, the Board-supervised PPSI's risk management
practices must reflect this activity. Consistent with the July 14,
2025, Joint Statement on Risk-Management Considerations for Crypto-
Asset Safekeeping, a Board-supervised PPSI holding digital assets on
a customer's behalf would be required to maintain risk management
practices, and information security practices in particular, that
reflect the Board-supervised PPSI's capacity to understand a complex
and evolving asset class, ability to ensure a strong control
environment, and appropriate contingency plans to address
unanticipated challenges in effectively providing services to
customers.
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Question 126: Are there areas that fall under the categories of
technological, operational, compliance, or other risk management
principles-based requirements and standards that should be included in
proposed Sec. 247.13 but were omitted from the proposed rule? What are
the advantages or disadvantages of including additional risk management
requirements relating to notifications of unauthorized access to
sensitive customer information, such as the requirement OCC proposed in
Sec. 15.13(b)(7) of its GENIUS Act NPR, or relating to adjustments of
information technology and security programs and information technology
resilience, such as the requirements the OCC proposed in Sec.
15.13(b)(6) and (b)(8) of its GENIUS Act NPR ? \63\ Should proposed
Sec. 247.13(b) expressly address risks relating to smart contracts,
encryption, or any other technology or procedure? Are there standards
which were included but are not applicable to Board-supervised PPSIs?
The proposed rule would require the appointment of a qualified
Information Technology and Security Officer. Should the rule also
require the appointment of a qualified Chief Risk Officer and Chief
Audit Executive? The Board is considering all possible combinations of
the standards in proposed Sec. 247.13 and invites comments on which
combination of standards is appropriate as well as whether to remove
any of the individual standards in proposed Sec. 247.13. [similar to
OCC question 118]
---------------------------------------------------------------------------
\63\ See 91 FR 10202 (March 2, 2026).
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Question 127: Should the Board consider operational risk management
principles-based requirements and standards to address the situation
where a Board-supervised PPSI needs to transfer payment stablecoins
across different blockchains to satisfy a redemption demand? If so,
what kind of requirements and standards should the Board consider to
address this situation? For example, should there be specific
requirements relating to locking, minting, or burning payment
stablecoins to facilitate a transfer? [similar to OCC question 119]
Question 128: Are there additional requirements concerning data
privacy that it would be appropriate for the Board to include in
proposed part 247? Please describe in detail any such standards.
[similar to OCC question 121]
Question 129: What risks, if any, will Board-supervised PPSIs face
from the blockchains on which their payment stablecoins circulate? Are
the requirements under proposed Sec. 247.13(b) sufficient to address
those risks? If not, what additional requirements are appropriate?
Question 130: What information technology risks would Board-
supervised PPSIs face from the use of tokenized reserve assets? How, if
at all, could the proposed risk management requirements be adjusted to
better address such risks? For example, what would be the advantages or
disadvantages of including risk management requirements specifically
addressing the information technology risks from tokenized reserve
assets, such as a requirement that a Board-supervised PPSI's
information technology and security program address information
technology risks from a Board-supervised PPSI's use of tokenized
reserve assets? How detailed should such requirements be?
c. Board-Supervised PPSIs and Enterprise-Wide Risk Management (Proposed
Sec. 247.13(c))
Board-supervised PPSIs include subsidiaries of State member banks.
Under proposed Sec. 247.13(c), a Board-supervised PPSI that is a
subsidiary of a State member bank would be deemed to be in compliance
with the requirements of proposed Sec. 247.13 if (i) the Board-
supervised PPSI participates in the enterprise-wide risk management
framework of its parent State member bank or consolidated banking
organization and (ii) that parent State member bank or consolidated
banking organization has an enterprise-wide risk management framework
that complies with the guidelines in appendix D-1 of 12 CFR part 208.
State member banks are already required to develop and adhere to
operational and managerial standards for operational and information
technology risks on a consolidated basis.\64\ As a result, State member
banks already have risk management frameworks to address the matters
covered in this section, and such frameworks often cover a State member
bank's subsidiaries. The Board recognizes the value of enterprise-wide
compliance efforts. They can allow a consolidated entity to use risk
and compliance resources more effectively and efficiently, and can
enable the board of directors or senior management of a consolidated
banking organization to exercise oversight of risk and compliance
functions holistically. Accordingly, the proposal would allow the
enterprise to extend an existing compliance program to include the
Board-supervised PPSI.
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\64\ 12 CFR part 208, Appendix D-1.
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To take advantage of this consolidated approach, the enterprise
risk management framework could be adapted to account for the unique
information technology and operational risks faced by Board-supervised
PPSIs. This will generally involve incorporating many of the
requirements described in this section, such as a comprehensive
information technology program, into the existing enterprise-wide
framework. While such changes may be resource-intensive, the Board
believes they could ultimately prove more resource-efficient and
effective than maintaining separate and independent programs for both
the State member bank and the Board-supervised PPSI.
Question 131: Under the Board's proposal, Board-supervised PPSIs
that are subsidiaries of State member banks would be deemed to be in
compliance with the requirements of this section if (i) the Board-
supervised PPSI participates in the enterprise-wide risk management
framework of its parent State member bank or consolidated banking
organization and (ii) that parent State member bank or consolidated
banking organization has an enterprise-wide risk management framework
that complies with the Board's safety and soundness guidelines
applicable to a State member bank. What are the advantages and
disadvantages of this approach? To what extent will State member banks
with PPSI subsidiaries need to adapt their enterprise-wide risk
management frameworks to address the risks from issuing payment
stablecoins? How should the Board determine that the parent State
member bank's risk management framework adequately addresses the risks
unique to Board-supervised PPSIs?
d. Bank Secrecy Act/Anti-Money Laundering and Sanctions Requirements
(Proposed Sec. 247.13(d))
FinCEN and OFAC have issued a separate proposed rule that would
implement the GENIUS Act's directive to treat PPSIs as financial
institutions
[[Page 61612]]
under the Bank Secrecy Act, as well as imposing several unique
obligations required by the GENIUS Act.\65\ The FinCEN and OFAC
proposed rule would also implement the GENIUS Act's directive to
require PPSIs to maintain effective sanctions compliance programs.
Likewise, FinCEN, the Board, OCC, FDIC, and NCUA have issued a joint
proposed rule imposing customer identification program requirements on
certain PPSIs.\66\ Proposed Sec. 247.13(d) would provide that in order
to ensure compliance with Bank Secrecy Act and sanctions requirements,
each Board-supervised PPSI must comply with applicable regulations at
31 CFR Chapter V and 31 CFR Chapter X, including any anti-money
laundering/countering the financing of terrorism (AML/CFT) program,
sanctions program, and reporting requirements. In the interests of
reducing burden and promoting consistent requirements, proposed Sec.
247.13(d) would not contain additional requirements beyond those
contained in FinCEN and OFAC's proposed rule at this time. Instead,
compliance with regulations at 31 CFR Chapter V and 31 CFR Chapter X,
as promulgated by FinCEN and OFAC, would constitute compliance with
proposed Sec. 247.13(d).
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\65\ 91 FR 18582 (Apr. 10, 2026).
\66\ 91 FR 37234 (June 22, 2026).
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The proposed rule would create supervision and enforcement
frameworks for Board-supervised PPSIs' AML/CFT programs. The proposed
rule defines key terms and describes the Board's enforcement and
supervision policy with respect to AML/CFT program implementation
failures. The enforcement requirements only apply to actions by the
Board.
Definitions. The proposed rule would define several terms used
throughout this section. The term ``AML/CFT requirement'' would mean
certain requirements of the Bank Secrecy Act, the GENIUS Act, or of the
regulations in title 31, Chapter X applicable to Board-supervised
PPSIs.
The term ``AML/CFT enforcement action'' would mean any formal or
informal action taken by the Board under authority of section 6 of the
GENIUS Act (12 U.S.C. 5905) or other applicable law that seeks to
penalize, remedy, prevent, or respond to noncompliance with past or
ongoing violations of, or past or ongoing deficiencies relating to, an
AML/CFT requirement. The term includes a cease-and-desist order,
written agreement, consent order, or memorandum of understanding, or
the assessment of a civil money penalty. It does not include criminal
enforcement.
The term ``significant AML/CFT supervisory action'' would mean any
written communication or other formal supervisory determination issued
by the Board that identifies one or more alleged deficiencies,
weaknesses, violations of law, or unsafe or unsound practices or
conditions relating to an AML/CFT requirement; communicates supervisory
expectations to a Board-supervised PPSI regarding actions or remedial
measures required to correct the deficiency, weakness, violation, or
practice or condition; and contemplates significant or programmatic
actions or remedial measures to be taken by the Board-supervised PPSI.
The term does not include examiner observations, suggestions, or other
informal comments.
Enforcement and Supervision Policy. The proposed rule would
articulate the Board's enforcement and supervision policy as it relates
to AML/CFT programs.\67\ Except with respect to a significant or
systemic failure to implement an established AML/CFT program in
accordance with applicable regulations at 31 CFR Chapter X, a Board-
supervised PPSI that has properly established an AML/CFT program would
not be subject to an AML/CFT enforcement action or to a significant
AML/CFT supervisory action based on the program requirements issued by
FinCEN. At the same time, the proposed rule would clarify that nothing
in this policy would restrict an AML/CFT enforcement action or a
significant AML/CFT supervisory action with respect to a failure to
properly establish an AML/CFT program. This proposal is only intended
to affect actions by the Board.
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\67\ The proposal is not intended to and does not affect or
restrict criminal enforcement under the Bank Secrecy Act or the
related authority of the Department of Justice.
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In addition to these policies, the FDIC, NCUA, and OCC have
proposed to include two provisions regarding consultation and
information sharing with FinCEN.\68\ The first provision would
establish a FinCEN notice and consultation framework applicable when
the FDIC, NCUA, and OCC intend to initiate an AML/CFT enforcement
action or a significant AML/CFT supervisory action. The second
provision would allow PPSIs to share any information with the FinCEN
Director that relates to an existing or potential AML/CFT enforcement
action or significant AML/CFT supervisory action. The Board invites
comment on whether it should consider including the same or similar
provisions in its final rule, including with respect to the two options
for sharing information outlined in the other proposals.
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\68\ See 91 FR 28956 (May 18, 2026) (NCUA); 91 FR 34171 (June 5,
2026) (FDIC); 91 FR 37840 (June 24, 2026) (OCC).
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Question 132: Are the requirements in proposed Sec. 247.14(d)
sufficiently clear? Are there additional requirements and standards
concerning Bank Secrecy Act and sanctions compliance that it would be
appropriate for the Board to include in proposed Sec. 247.14(d)?
Question 133: What clarification, if any, is needed for Board-
supervised PPSIs to determine what constitutes a ``significant or
systemic failure'' to implement an established AML/CFT program? Is
clarification needed for Board-supervised PPSIs to determine what
constitutes a ``failure to establish an AML/CFT program''?
Question 134: The OCC, FDIC, and NCUA included two provisions in
their proposed rules that are not included in the Board's proposed rule
regarding consultation and information sharing with FinCEN. Should the
Board include the same or similar provisions in its rule?
Question 135: The definition of significant AML/CFT supervisory
action includes the term ``any written communication.'' Is the term
``any written communication'' too broad? Are there downsides and
negative consequences to including the term ``any written
communication'' in the proposed regulatory text? If so, please
describe. Should the term ``any written communication'' be more clearly
defined or removed altogether?
Question: 136: Is the definition of the term ``significant AML/CFT
supervisory action'' sufficiently clear? Does the inclusion of ``unsafe
or unsound practices or conditions'' introduce confusion about what
types of supervisory actions are covered, since those terms are not
found in the Bank Secrecy Act?
Question 137: Should proposed Sec. 247.13(d) address the extent to
which, or whether, Board-supervised PPSIs are subject to other Board
regulations imposing obligations related to the Bank Secrecy Act,
sanctions, and suspicious activity reporting, and if so, how? Would the
requirements in the proposed rule conflict with these existing
obligations in any way that would make complying with both difficult or
impossible?
Question 138: Should proposed Sec. 247.13(d) address the extent to
which, or whether, Board-supervised PPSIs are subject to other Board
regulations imposing obligations related to the Bank Secrecy Act,
sanctions, and suspicious activity reporting, and if so, how? Would
[[Page 61613]]
the requirements in the proposed rule conflict with these existing
obligations in any way that would make complying with both difficult or
impossible?
5. Audits, Reports, and Supervision (Proposed Sec. 247.14)
a. Examinations (Proposed Sec. 247.14(a)-(g))
Section 6(a)(1) of the GENIUS Act (12 U.S.C. 5905(a)(1)) authorizes
primary Federal payment stablecoin regulators, including the Board, to
examine and otherwise supervise PPSIs, as defined in the statute, that
are not State-qualified PPSIs with an outstanding issuance of less than
$10 billion in payment stablecoins. Section 6(a)(3) of the GENIUS Act
(12 U.S.C. 5905(a)(3)) authorizes the Board to examine a Board-
supervised PPSI ``to assess the nature of its operations and its
financial condition; the financial, operational, technological, and
other risks associated with [the Board-supervised PPSI] that may pose a
threat'' to its safety and soundness ``or the stability of the
financial system of the United States; and the systems of the [Board-
supervised PPSI] for monitoring and controlling the risks . . .''
Pursuant to section 6(a)(4)(C) of the GENIUS Act (12 U.S.C.
5905(a)(4)(C)), the Board may only request examinations at a cadence
and in a format that is similar to that required for similarly situated
entities regulated by the Board.
Proposed Sec. 247.14(a) provides that the Board will conduct a
full-scope examination of every Board-supervised PPSI subject to its
supervision at least once during each 12-month period, unless otherwise
specified in proposed Sec. 247.14(d). Such examinations may be
undertaken in conjunction with, or separately from, an examination of
the parent State member bank. A full scope examination refers to the
comprehensive review of a Board-supervised PPSI's financial condition,
risk management practices, compliance with laws and regulations, and
overall safety and soundness. The Board's proposed exercise of its
examination authority over Board-supervised PPSIs is similar to the
Board's current examination practices with respect to State member
banks.\69\ This mirroring ensures the Board is requesting examinations
and reports at a cadence and in a format that is similar to that
required for similarly situated entities the Board regulates, as
required by section 6(a)(4)(C) of the GENIUS Act (12 U.S.C.
5905(a)(4)(C)).
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\69\ See 12 CFR 208.64.
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Extended Exam Cycle for Certain Board-Supervised PPSIs. Consistent
with the Board's statutory authority to supervise Board-supervised
PPSIs, the Board proposes that Sec. 247.14(d) would provide the Board
with the option to examine some Board-supervised PPSIs on an 18- to 36-
month cycle, as determined by the Board in its sole discretion, if the
issuers satisfy the following conditions: (i) the Board-supervised PPSI
currently is not subject to a formal enforcement proceeding or order;
(ii) no person acquired control, as specified in proposed Sec. 247.2,
of the Board-supervised PPSI during the preceding 12-month period in
which a full-scope examination would have been required but for
proposed Sec. 247.14(d); (iii) the Board-supervised PPSI has an
outstanding issuance value of less than $1 billion, indexed to nominal
U.S. GDP, or less than $25 billion, indexed to nominal U.S. GDP, in
total monthly trading volume; and (iv) the Board-supervised PPSI is in
compliance with all of the reserve requirements set forth in proposed
Sec. 247.11 and the reporting requirements in proposed Sec. 247.14.
The proposed criteria for certain Board-supervised PPSIs to qualify for
an 18- to 36-month examination cycle are similar to the factors the
Board considers for State member banks under 12 CFR 208.64(b).
Authority to Conduct More Frequent Examinations. Consistent with
the Board's statutory authority under the GENIUS Act and the Board's
supervisory authority over State member banks, proposed Sec. 247.14(e)
allows the Board to conduct examinations of Board-supervised PPSIs as
frequently as the agency deems necessary, including examinations of a
limited scope.\70\ The Board has proposed this provision to ensure the
agency has clear authority to conduct ad hoc examinations when
emergencies or risks to the safety and soundness of a Board-supervised
PPSI or the financial stability of the United States require the agency
to deviate from its routine 12- or 18- to 36-month examination cycle.
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\70\ See id.; 12 U.S.C. 5905(a)(3), (4)(C).
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Access to Books and Records. Proposed Sec. 247.14(b) requires
that, upon request, Board-supervised PPSIs must grant Board examiners
prompt and complete access to all officers, directors, employees,
agents, and relevant books, records, or documents of any type. The
Board, through its examination authority over State member banks, has
authority to access the officers, agents, and books and records of
these institutions.\71\ The books and records of a Board-supervised
PPSI include, but are not limited to, information retained on
distributed ledgers. Sections 6(a)(1), (3), and (4) of the GENIUS Act
(12 U.S.C. 5905(a)(1), (3), and (4)) give the Board similar authority
to supervise and examine Board-supervised PPSIs. Proposed Sec.
247.14(b) applies the Board's examination authority to Board-supervised
PPSIs in the same manner that it is applied to State member banks.
Additionally, proposed Sec. 247.14(c) clarifies that the Board may
conduct examinations either on site or remotely. Proposed Sec.
247.14(f) provides that all Board-supervised PPSIs must maintain a
complete set of books and records in English. Proposed Sec. 247.14(g)
requires all Board-supervised PPSIs to develop and implement a records
retention policy that ensures that the Board-supervised PPSI can
demonstrate compliance with the GENIUS Act, this part, and all
applicable laws and regulations.
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\71\ 12 U.S.C. 248(a), 325, 326, 483, 602, 1820(d).
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Question 139: Proposed Sec. 247.14(d) sets forth criteria under
which a Board-supervised PPSI could qualify for an extended examination
cycle. Are those criteria properly calibrated? Is the timeframe for an
extended examination cycle appropriate? Should the Board consider
decreasing or increasing the range for an extended examination cycle?
Should the Board consider both monthly trading volume and outstanding
issuance value when determining whether to employ an extended
examination cycle? Are the proposed outstanding issuance value of less
than $1 billion and the proposed total monthly trading volume of less
than $25 billion, each indexed to nominal U.S. GDP, appropriate? Should
those thresholds be higher or lower, and why? Are there other factors
that should be included, such as redemption rates, asset composition,
or creditworthiness? If so, how should the Board consider those
factors? [similar to OCC question 130]
Question 140: What are the advantages and disadvantages of the
Board conducting examinations of a Board-supervised PPSI that is a
subsidiary of an insured State member bank in conjunction with its
examination of the insured State member bank? Should the Board instead
conduct examinations separately? Should the Board's approach vary based
on any particular factors, like the size of the subsidiary Board-
supervised PPSI relative to the insured State member bank or the
interconnections between the two entities?
[[Page 61614]]
b. Reporting (Proposed Sec. 247.14(h)-(k), (n)-(o))
Section 6(a)(2) of the GENIUS Act (12 U.S.C. 5905(a)(2)) requires
that each PPSI ``shall, upon request, submit to the appropriate Federal
payment stablecoin regulator a report on . . . the financial condition
of the [PPSI]; the systems of the [PPSI] for monitoring and controlling
financial and operating risks; compliance by the [PPSI] (and any
subsidiary thereof) with [the GENIUS Act]; and the compliance of the
Federal qualified nonbank [PPSI] with the requirements of the Bank
Secrecy Act and with laws authorizing the imposition of sanctions and
implemented by the Secretary of the Treasury.'' Section 6(a)(4) of the
GENIUS Act (12 U.S.C. 5905(a)(4)) requires the Board to take certain
actions to promote efficiency in the supervision and examination of
Board-supervised PPSIs. The Board, in supervising and examining Board-
supervised PPSIs, to the fullest extent possible, must use existing
supervisory reports and other supervisory information and avoid
duplication of examination activities, reporting requirements, and
requests for information.
Submission of Reports. Proposed Sec. 247.14(j) implements section
6(a)(2) of the GENIUS Act (12 U.S.C. 5905(a)(2)) by requiring each
Board-supervised PPSI subject to the requirements of section 6(a)(1) of
the Act (12 U.S.C. 5905(a)(1)) to, upon request, submit to the Board a
report on: (i) the financial condition of the Board-supervised PPSI;
(ii) the systems of the Board-supervised PPSI for monitoring and
controlling financial and operating risks; (iii) compliance by the
Board-supervised PPSI (and any subsidiary thereof) with the GENIUS Act,
including section 4(a)(5) of the Act (12 U.S.C. 5903(a)(5)), and
proposed part 247.
Confidential Weekly Reports. In addition to the regulations
codifying the reporting requirements in section 6(a)(2) of the GENIUS
Act (12 U.S.C. 5905(a)(2)),\72\ pursuant to its supervisory authority
in section 6(a)(1) of the Act (12 U.S.C. 5905(a)(1)), the Board is
proposing in Sec. 247.14(h) to require Board-supervised PPSIs to
submit on a weekly basis, in the manner and form specified by the
Board, a confidential report containing the information requested in
the form that would be available on the Board's public website. At a
high level, the Board would likely request that a Board-supervised PPSI
provide information regarding the issuance and redemption, trading
volume, and reserve assets for each payment stablecoin it issues. The
report would likely require Board-supervised PPSIs to include
information relating to the blockchains the payment stablecoin is
listed on, outstanding issuance value, secondary market activity and
price movement, redemption volume and times, detailed information
regarding reserve assets, and other relevant information. The Board
believes that requiring a Board-supervised PPSI to provide a
confidential set of data on a weekly basis for each payment stablecoin
it issues would allow the Board to understand the Board-supervised
PPSI's operations and the risks unique to its business model. This
regular data reporting would allow the Board to tailor its examinations
to be risk-based, which would reduce the burden of examinations by
focusing the scope of examinations. Further, the Board believes that
this regular reporting framework would allow the Board to identify and
respond more quickly to emerging risks. The Board also believes the
information requested is currently tracked on a regular basis by
stablecoin issuers.
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\72\ With regards to reporting by a Board-supervised PPSI as to
its assets under custody, section 10(d) of the GENIUS Act (12 U.S.C.
5909(d)) provides an additional statutory grant of authority.
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Quarterly Reports of Financial Condition and Income. The Board is
proposing in Sec. 247.14(i) a separate provision that would require
Board-supervised PPSIs to submit quarterly reports of financial
condition and income to the Board, including, but not limited to, an
income statement, which includes gross income, expenses, and net income
and a balance sheet which includes assets including reserve assets and
their total fair value, liabilities including stablecoin liabilities
and their total outstanding issuance value, capital, changes in equity,
and assets under custody, if any, in a standardized format as
prescribed by the Board, within 30 days of the end of the prior
quarter. The Board proposes this provision to ensure that Board-
supervised PPSIs produce regular, standardized statements of financial
condition and income to the Board and include additional information
beyond the composition report required under proposed Sec. 247.11(d)
and the confidential weekly reporting required under proposed Sec.
247.14(h), including information regarding the Board-supervised PPSI's
gross income, expenses, net income, assets including reserve assets,
liabilities including stablecoin liabilities, changes in equity, and
assets under custody, if any. The reports required under this provision
would mirror, with appropriate adjustments, the quarterly reports that
State member banks provide to the Federal Financial Institutions
Examination Council's Central Data Repository through their quarterly
Consolidated Reports of Condition and Income filings, commonly referred
to as Call Reports.\73\ The information required to be reported under
this section generally will be streamlined substantially relative to
Call Reports, in light of the comparatively simple business model of a
Board-supervised PPSI and because any State member bank parents of such
Board-supervised PPSI already submit Call Reports to the Board.
Standardizing these reporting requirements will enhance the Board's
ability to supervise Board-supervised PPSIs and provide clarity as to
the information a Board-supervised PPSI must report. The Board intends
to publish the information provided in the quarterly report to ensure
transparency and that the public has an understanding of a Board-
supervised PPSI's financial condition and income on an ongoing basis.
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\73\ Instructions for Preparation of Consolidated Reports of
Condition and Income--FFIEC 031 and FFIEC 041, available at https://www.ffiec.gov/resources/reporting-forms/ffiec031.
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The Board also proposes to require that each quarterly report of
financial condition and income includes a declaration from the PPSI's
Chief Financial Officer, or the individual performing an equivalent
function, that the report is true and correct to the best of their
knowledge and belief. The correctness of the quarterly report of
condition and income shall also be attested to by the signatures of the
directors and senior management of the Board-supervised PPSI other than
the officer making such declaration, with the attestation stating that
the report has been examined by them and to the best of their knowledge
and belief is true and correct. The Board proposes requiring these
declarations and attestations to ensure that Board-supervised PPSI's
officers and directors are accountable for the accuracy of the Board-
supervised PPSI's reports of financial condition and income.
Ongoing Compliance Reporting. Proposed Sec. 247.14(k) implements
section 5(i) of the GENIUS Act (12 U.S.C. 5904(i)). Consistent with the
statute, under the proposed rule, not later than 180 days after the
approval of an application under proposed subpart D of part 247, and on
an annual basis thereafter, a Board-supervised PPSI must submit to the
Board a certification
[[Page 61615]]
by its board of directors that the Board-supervised PPSI has
implemented anti-money laundering and economic sanctions compliance
programs that are reasonably designed to prevent the Board-supervised
PPSI from facilitating money laundering, in particular, facilitating
money laundering for cartels and organizations designated as foreign
terrorist organizations under section 219 of the Immigration and
Nationality Act (8 U.S.C. 1189) and the financing of terrorist
activities, consistent with the requirements of the GENIUS Act.
Use of Existing Reports and Avoidance of Duplication. Proposed
Sec. 247.14(m) and (n) implement the requirements of section
6(a)(4)(A) and (B) of the GENIUS Act (12 U.S.C. 5905(a)(4)(A) and (B))
by mirroring the statutory requirements that, as a part of its
supervision and examination of Board-supervised PPSIs, the Board, to
the fullest extent possible, will use existing supervisory reports and
other supervisory information and avoid duplication of examination
activities, reporting requirements, and requests for information. The
Board will follow this approach, including in developing and issuing
related examination handbooks and policies. The Board believes this is
the optimal approach because it will allow the Board to quickly adapt
and fine-tune its supervisory and examination policies to maximize both
efficiency and burden reduction. This approach is also consistent with
the approach that the Board takes for other entities under its
jurisdiction.
Question 141: Should the Board alter the proposed reporting or
examination requirements? If so, how? Is there additional information
that should be included in the required reports or information that is
not included in the proposed rule? Is there information included in the
required reports or information that should not be included in the
proposed rule? [similar to OCC question 129]
Question 142: In proposed Sec. 247.14(h), the Board proposes to
collect confidential weekly data from Board-supervised PPSIs to
minimize the examination burden on such entities. Has the Board
identified in the proposed form the appropriate data fields and
categories of information to collect from a Board-supervised PPSI on a
weekly basis to understand the operations and risks unique to its
business model? If not, are there data fields that the Board should not
request on a weekly basis and are there any additional data fields
beyond those proposed that the Board should collect on a weekly basis
from a Board-supervised PPSI to better assist in understanding the
operations and risks unique to its business model? Should the Board
collect secondary market transaction data (e.g., trading price and
volume)? Or should the Board only collect primary market transaction
data? Would it be too burdensome for Board-supervised PPSI to provide
the proposed weekly data to the Board electronically on a daily or
real-time basis? Should the Board collect additional data regarding the
custody of reserve assets (or other covered assets)? Should the data
collected be made public? If, so, on what timeframe should the data be
made public? To what extent, if any, would a Board-supervised PPSI be
anticipated to track the information required under the form referred
to in proposed Sec. 247.14(h) on a regular or real-time basis for its
own use in the absence of a requirement to report it? To what extent
would the proposed weekly and quarterly reporting requirements tend to
reduce the frequency at which the Board would need to examine Board-
supervised PPSI? Are there other reporting requirements that the Board
could request that might reduce the frequency at which the Board would
need to examine Board-supervised PPSIs? [similar to OCC question 131]
Question 143: In proposed Sec. 247.14(i), the Board would require
all Board-supervised PPSI to submit a quarterly report of financial
condition and income. Should the Board tailor this requirement for
Board-supervised PPSI under a certain threshold? If so, what should the
threshold be? For a Board-supervised PPSI under the threshold, should
the Board require less frequent reporting (e.g., every six months) and/
or change the data Board-supervised PPSI under the threshold are
required to submit (e.g., require less data)? If a Board-supervised
PPSI, or its insured State member bank parent, currently files a Call
Report, should it also be required to submit the quarterly report
required under proposed Sec. 247.14(i)? If so, why? If not, why not?
If a Board-supervised PPSI, or its insured State member bank parent,
currently files a Call Report, should the quarterly report under
proposed Sec. 247.14(i) be attached to the Call Report as an appendix
as opposed to a separate filing? If so, why? If not, why not? Are there
changes that should be made to the Call Report to ensure appropriate
reporting while limiting duplicative reporting requirements? Should
reports required under proposed Sec. 247.14(i) and proposed part 247
more generally be coordinated and developed on an interagency basis
across the Federal payment stablecoin regulators? [similar to OCC
question 132]
Question 144: In addition to requiring a monthly report of a Board-
supervised PPSI's reserve asset composition, should the Board also
require a Board-supervised PPSI to publish a report of the reserve
asset composition as of a day randomly selected each month by the
Board-supervised PPSI issuer's registered public accounting firm?
[similar to OCC question 133]
c. Audits (Proposed Sec. 247.14(l))
Section 4(a)(10) of the GENIUS Act (12 U.S.C. 5903(a)(10)) requires
that a PPSI with more than $50 billion in consolidated total
outstanding issuance value that is not subject to certain reporting
requirements under Federal securities laws prepare, in accordance with
GAAP, ``an annual financial statement, which shall include the
disclosure of any related party transactions, as defined by [GAAP].''
Section 4(a)(10) further provides that a registered public accounting
firm must perform an audit of the annual financial statement. The
audited annual financial statement must be made publicly available on
the PPSI's website and be submitted annually to the PPSI's primary
Federal payment stablecoin regulator.
Proposed Sec. 247.14(l) implements the requirements of section
4(a)(10) of the GENIUS Act (12 U.S.C. 5903(a)(10)) with respect to
Board-supervised PPSIs. Under the proposed rule, each Board-supervised
PPSI with more than $50 billion in outstanding issuance value, that is
not subject to the reporting requirements under section 13(a) or 15(d)
of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)),\74\ must prepare, in accordance with GAAP, an annual financial
statement that must include the disclosure of any related party
transactions, as defined by GAAP. Proposed Sec. 247.14(l)(1) provides
that a registered public accounting firm must perform an audit of the
financial statements in accordance with all applicable auditing
standards established by the Public Company Accounting Oversight Board,
including those relating to auditor independence, internal controls,
and related party transactions. The Board interprets ``applicable
auditing standards'' under section 4(a)(10)(A)(iii) of the GENIUS Act
(12 U.S.C. 5903(a)(10)(A)(iii)) to mean those that would apply if the
Board-supervised PPSI were subject to
[[Page 61616]]
the reporting requirements under sections 13(a) or 15(d) of the
Securities and Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)). The
standards would be enforced by the Board for Board-supervised PPSIs
that are subject to the audit requirement under section
4(a)(10)(A)(iii) of the GENIUS Act (12 U.S.C. 5903(a)(10)(A)(iii)).
Consistent with this framework, the Board may at any time request that
a registered public accounting firm provide to the Board certain
additional information or documents relating to information provided by
the Board-supervised PPSI. The registered public accounting firm must
agree to provide copies of any working papers, policies, and procedures
relating to services in connection with the audit required under
section 4(a)(10)(A)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(10)(A)(iii)).\75\ Proposed Sec. 247.14(l)(2) requires the
Board-supervised PPSI to: (i) make the audited financial statement
publicly available on its website, and (ii) submit the audited
financial statement annually, within 120 days after the end of its
fiscal year, to the Board. If a Board-supervised PPSI is unable to
timely file all or any portion of its financial statements, proposed
Sec. 247.14(l)(3) would require the Board-supervised PPSI to submit a
written notice of late filing to the Board that must: (i) disclose the
Board-supervised PPSI's inability to file all, or specified portions,
of its annual financial statement and the reasons therefore in
reasonable detail; (ii) include the date by which the financial
statement will be filed; and (iii) be filed on or before the deadline
for filing the financial statement.
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\74\ This requirement would not apply to an entity whose parent
company is a reporting entity to the extent that the information of
the entity would be reflected in applicable reports.
\75\ See 12 U.S.C. 1831m(g); see also 12 CFR part 363.
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Question 145: How can the Board best minimize duplication of
reports, including for Board-supervised PPSIs subject to the audit
requirement contained in proposed Sec. 247.14(l)? Should the Board
include in the rule text its interpretation of ``applicable auditing
standards'' under section 4(a)(10)(A)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(10)(A)(iii)) to mean those that would apply if the Board-
supervised PPSI were subject to the reporting requirements under
sections 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15
U.S.C. 78m and 78o(d))? Should the Board also include in the rule text
that the standards would be enforced by the Board for Board-supervised
PPSIs subject to the audit requirement under section 4(a)(10)(A)(iii)
of the GENIUS Act (12 U.S.C. 5903(a)(10)(A)(iii))? Should the Board
also include in the rule text that it may at any time request that a
registered public accounting firm provide to the Board certain
additional information or documents relating to information provided by
the Board-supervised PPSI and that the registered public accounting
firm must agree to provide copies of any working papers, policies, and
procedures relating to services in connection with the audit required
under section 4(a)(10)(A)(iii)? [similar to OCC question 134]
d. Change in Control
The Board is not, at this time, proposing to include any
requirements regarding persons seeking to acquire control of a Board-
supervised PPSI in its proposed rule. Instead, the Board expects to
include a condition on this matter in any approval of an application by
a State member bank seeking approval for a subsidiary to issue payment
stablecoins under proposed subpart D of part 247. The condition would
impose a requirement that the Board-supervised PPSI, and all officers,
directors, and principal shareholders of the Board-supervised PPSI,
cause any person seeking to acquire control of the Board-supervised
PPSI to follow the procedures of the Change in Bank Control Act (12
U.S.C. 1817(j)) and the Board's Regulation Y (12 CFR part 225) as if
the Board-supervised PPSI was an insured depository institution.
However, such condition would only apply if, following consummation of
the proposed transaction, the Board-supervised PPSI would remain a
subsidiary of the State member bank. If a person proposes to acquire
control of a Board-supervised PPSI and following consummation of that
transaction, the PPSI would no longer be controlled by any State member
bank, that person would not be required to follow the procedures in the
Change in Bank Control Act or the Board's Regulation Y. The Board has
authority to impose commitments and conditions in connection with the
approval of an application in order to address specific concerns and
ensure that the proposed transaction is consistent with the relevant
statutory factors and provisions of the GENIUS Act.\76\
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\76\ See 12 U.S.C. 5904(c)(3)(B), 5905(b)(2).
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The Board expects to impose this condition to facilitate the
Board's ongoing examination and supervision of Board-supervised PPSIs.
Requiring notice of changes in control will assist the Board in
carrying out its mandate to examine Board-supervised PPSIs and the
operations of State member banks and is consistent with the Board's
authority to supervise, request reports, and conduct examinations
pursuant to section 6(a) of the GENIUS Act (12 U.S.C. 5905(a)) and the
Board's authorities under the Federal Reserve Act.\77\ In addition,
requiring notice regarding changes in control will help the Board
monitor for and address evasion of the requirements of the GENIUS Act.
For example, there may be instances where changes in control implicate
the risk management requirements of the GENIUS Act and Bank Secrecy
Act/anti-money laundering or sanctions requirements. Similarly, section
4(f) of the GENIUS Act (12 U.S.C. 5903(f)) includes a prohibition on
any individual who has been convicted of ``a felony offense involving
insider trading, embezzlement, cybercrime, money laundering, financing
of terrorism, or financial fraud'' from serving as an officer or
director of a PPSI. Without the opportunity to review a proposed change
of control, the Board could not appropriately monitor compliance with
this provision.
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\77\ See, e.g., 12 U.S.C. 248(a), 325, 326, 483, 602.
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Further, under section 5(c)(2) and 5(c)(3) of the Act (12 U.S.C.
5904(c)(2) and (3)), the Board must consider certain factors related to
the proposed officers, directors, and principal shareholders of a
proposed Board-supervised PPSI. Absent a requirement to submit a notice
regarding a change in control, a State member bank could receive
approval for a subsidiary to issue payment stablecoins with a set of
officers, directors, and principal shareholders of the proposed Board-
supervised PPSI that do not raise concerns under sections 5(c)(2) and
(3) of the GENIUS Act and then transfer control to persons that do
implicate concerns under those provisions or that otherwise raise
concerns regarding the ability of the PPSI to comply with the Act and
its implementing regulations.
Question 146: The Board has indicated it expects to impose a
condition regarding change of control procedures in any approval of an
application by a State member bank seeking approval for a subsidiary to
issue payment stablecoins under subpart D of part 247. The Board has
indicated that such condition would apply only if the Board-supervised
PPSI would remain a subsidiary of the State member bank following
consummation of the proposed transaction. What are the advantages and
disadvantages of this approach? Should the Board consider expanding
this requirement to apply to other changes of control? What
clarifications would be beneficial
[[Page 61617]]
regarding the operation of this potential condition? Should the Board
consider including this requirement in part 247, rather than solely as
a condition of an approved application? What are the burdens and
benefits of requiring future potential acquirors of a PPSI to follow
the procedures in the Change in Bank Control Act (12 U.S.C. 1817(j))
and the Board's Regulation Y, 12 CFR part 225?
6. Capital (Proposed Sec. Sec. 247.15-18)
Section 4(a)(4)(A)(i) of the Act (12 U.S.C. 5903(a)(4)(A)(i))
requires the Board to issue regulations implementing capital
requirements for Board-supervised PPSIs that ``are tailored to the
business model and risk profile of,'' and ``do not exceed requirements
that are sufficient to ensure the ongoing operations'' of, Board-
supervised PPSIs.\78\ Adequate regulatory capital levels are essential
to the operational integrity of payment stablecoin arrangements. Board-
supervised PPSIs are exposed to a range of risks, including financial
risks (for example, credit risks stemming from uninsured deposits) and
non-financial risks (for example, security breaches involving a smart
contract that lead to unauthorized payment stablecoin minting). Robust
capital levels would enable a Board-supervised PPSI to absorb losses
related to such risks and help to ensure that it can continue
operating, including issuing and redeeming payment stablecoins, even
under stressful conditions.
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\78\ Section 4(a)(4)(A)(i)(III) of the Act (12 U.S.C.
5903(a)(4)(A)(i)(III)) also provides that the Board may impose a
capital buffer tailored to the business model and risk profile of
Board-supervised PPSIs, provided that is determined to be necessary
to ensure the ongoing operations of Board-supervised PPSIs. See also
12 U.S.C. 3901 et seq., which applies to subsidiaries of insured
banks.
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Moreover, in order for payment stablecoins to perform their core
function of serving as a means of payment or settlement, it is
essential for a Board-supervised PPSI to have capital in an amount that
is sufficient to ensure it can continue operations in the face of
unexpected losses.\79\ Uncertainty about a Board-supervised PPSI's
ability to sustain ongoing operations could raise questions about the
stability of the value of the Board-supervised PPSI's payment
stablecoin. Such questions could, in turn, make potential payees
reluctant to accept the Board-supervised PPSI's payment stablecoin,
which may impede its adoption.\80\
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\79\ Section 2(22) of the Act (12 U.S.C. 5901(22)) defines a
payment stablecoin as a ``digital asset that is designed to be or
used as a means of payment or settlement.''
\80\ See Gary B. Gorton and Jeffery Zhang, Taming Wildcat
Stablecoins (2023), available at https://chicagounbound.uchicago.edu/context/uclrev/article/6342/viewcontent/03_Zhang__Gorton_ART_Final..._Taming_Wildcat_Stablecoins.pdf
(arguing that stablecoins must meet a no-questions-asked principle,
which ``requires that the money be accepted in a transaction without
due diligence on its value'').
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To meet these policy goals and satisfy the statutory standard, the
Board is proposing to use a simple, standardized risk-based capital
framework. A well-calibrated, standardized capital framework would help
promote consistency, transparency, and comparability across Board-
supervised PPSIs. The Board considered adopting a non-standardized
framework under which a Board-supervised PPSI could assess and propose
its own capital needs for the Board's consideration and approval.
However, such a framework could result in disparate outcomes for highly
similar entities engaged in a narrow range of activities. It also would
be less transparent to stablecoin holders and other interested parties.
Further, a non-standardized approach increases the likelihood that
risks could be underassessed by a PPSI. For example, a Board-supervised
PPSI could incorporate unrealistic assumptions into its risk models,
leading it to conclude that a lower level of capital is justified. A
standardized approach, which uses fixed formulas, would mitigate these
risks and make monitoring, supervision, and enforcement more efficient.
The Board expects that Board-supervised PPSIs will generally focus
their business models on issuing and redeeming payment stablecoins and
managing reserve assets.\81\ Board-supervised PPSIs face a range of
financial risks from managing reserve assets, including credit risks
related to uninsured eligible deposit claims, as well as counterparty
credit and interest rate risks. Of these, the credit risk from holding
reserve assets in the form of uninsured eligible deposit claims and the
counterparty credit risk stemming from undercollateralized reverse
repurchase agreements are the most material in part given the statutory
limitations on reserve assets. Accordingly, the Board's approach to
capturing financial risks from managing reserve assets would focus on
credit risk from uninsured eligible deposit claims and from
undercollateralized reverse repurchase agreements.
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\81\ As stated in section II.B.1.a of this SUPPLEMENTARY
INFORMATION, the Board expects that Board-supervised PPSIs will not
incur material liabilities other than payment stablecoin liabilities
or maintain significant assets other than those listed in proposed
Sec. 247.11(b) without the Board's permission.
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While the capital requirement for uninsured eligible deposit claims
would capture the primary financial risk associated with issuing and
redeeming payment stablecoins and managing reserve assets, Board-
supervised PPSIs could face other financial risks. For example, a
Board-supervised PPSI may hold payment stablecoins as principal under
proposed Sec. 247.10(a)(6)(i) and may hold non-payment stablecoin
digital assets as principal to facilitate customer transactions or test
distributed ledger-based platforms under proposed Sec.
247.10(a)(6)(iv). Risks from these activities include, for example,
credit risk and market risks associated with holding digital assets
used to pay gas fees. To address such risks, the proposal would impose
additional capital requirements based on the Board's capital rule for
regulated banking organizations. Specifically, to calculate capital
requirements for financial risks that could arise from non-reserve
assets, a Board-supervised PPSI would use the capital requirements and
definition of capital as specified in 12 CFR part 217.
Finally, the proposal would include capital requirements to address
a Board-supervised PPSI's operational risks. Capital requirements for
operational risk would include two components: (i) a capital
requirement based on outstanding payment stablecoin issuance and (ii) a
capital requirement based on non-reserve asset revenue to capture other
operational risks. Together, these two components would capture primary
operational risks from issuing and redeeming payment stablecoins and
managing reserve assets, which correlate with outstanding issuance
value, as well as operational risks from other activities, such as
providing stablecoin custody services or trading non-reserve assets,
for which revenue is a better proxy.
a. Definition of Capital (Proposed Sec. 247.16)
Proposed Sec. 247.16 provides the definition of capital for
purposes of the requirements set forth in proposed Sec. Sec. 247.15-
18, which, as explained in more detail below, are intended to capture
the financial and operational risks faced by Board-supervised PPSIs.
Proposed Sec. 247.16(a) would define a Board-supervised PPSI's
regulatory capital as tangible equity, which excludes goodwill and
other intangible assets, such as intellectual property, as described
below. Tangible equity would comprise the following capital elements:
common stock, cumulative and non-cumulative perpetual stock, often in
the form of preferred stock, retained earnings, and accumulated other
comprehensive income (AOCI), all as reported under GAAP. Tangible
equity
[[Page 61618]]
is an important measure of a Board-supervised PPSI's financial health
and stability because it reflects the amount of capital available to
absorb unexpected losses during a stress event without relying on
external financial support. Proposed Sec. 247.15(d) would require each
Board-supervised PPSI to maintain an amount of tangible equity
sufficient to ensure ongoing operations. As discussed below, to help
ensure that a Board-supervised PPSI's capital can effectively absorb
losses during periods of market and economic stress, the proposal would
exclude from eligible tangible equity any instrument with features that
could cause the condition of a Board-supervised PPSI to weaken during
periods of market and economic stress.\82\
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\82\ The proposed required features of tangible equity
instruments generally align with the features required for capital
instruments for Board-regulated banking organizations under 12 CFR
217.20, with certain modifications intended to simplify the proposed
definition of regulatory capital for Board-supervised PPSIs given
their business model and risk profile.
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Common stock instruments generally exhibit the most loss
absorbency, because any dividends are discretionary; there is no
expectation by payment stablecoin holders that the issuer of common
stock will buy back, cancel, or redeem the instrument; and the
instrument does not include any term or feature that might give rise to
such an expectation. Together, these conditions ensure that any
operating funds generated through common stock can be used for any
business needs of the Board-supervised PPSI. Thus, under proposed Sec.
247.16(b)(1), any common stock instrument (plus any related surplus)
issued by the Board-supervised PPSI, net of treasury stock, would
qualify as a component of tangible equity if the instrument meets the
following criteria: (i) the instrument is paid-in, is issued directly
by the Board-supervised PPSI, and represents the most subordinated
claim in a receivership, insolvency, liquidation, or similar proceeding
of the Board-supervised PPSI; (ii) the instrument has no maturity date
and can only be redeemed via discretionary repurchases; (iii) any cash
dividend payments are fully discretionary and may be paid only after
all legal and contractual obligations of the Board-supervised PPSI have
been satisfied, including payments due on more senior claims; (iv) the
holders of the instrument bear losses as they occur equally,
proportionately, and simultaneously with the holders of all other
common stock instruments before any losses are borne by holders of
claims on the Board-supervised PPSI (including payment stablecoin
holders) with greater priority in a receivership, insolvency,
liquidation, or similar proceeding; and (v) if the Board-supervised
PPSI purchases or buys back the instrument, the Board-supervised PPSI
must either (A) replace the amount of the purchased instrument with an
equivalent amount of an instrument or instruments that meet the
criteria under proposed Sec. 247.16(b)(1); or (B) demonstrate to the
satisfaction of the Board that, following the purchase or buy-back, the
Board-regulated institution will continue to hold capital commensurate
with its risk.
Under proposed Sec. 247.16(b)(2), tangible equity would also
include cumulative and non-cumulative perpetual stock (plus any related
surplus) issued by the Board-supervised PPSI, net of treasury stock,
that meets the following criteria: (i) the paid-in amount is classified
as equity under GAAP; (ii) the instrument is paid-in and issued
directly by the Board-supervised PPSI; (iii) the instrument has no
maturity date and does not contain a dividend step-up or any other term
or feature that could create an incentive to redeem; (iv) the
instrument is not secured, not covered by a guarantee of the Board-
supervised PPSI or any of its affiliates, and not subject to any other
arrangement that legally or economically enhances the seniority of the
instrument; (v) the instrument is subordinate to all claims except
those of common shareholders, including the claims of general creditors
and subordinated debt holders of the Board-supervised PPSI, in
receivership, insolvency, liquidation, or similar proceeding; (vi) the
instrument, by its terms, provides for the payment of dividends only
after approval by the board of directors of the Board-supervised PPSI;
(vii) if callable by its terms, the instrument would only be permitted
to be callable after a minimum of five years following issuance, except
that the terms of the instrument may allow it to be called earlier than
five years upon the occurrence of a regulatory event that precludes the
instrument from being included in tangible equity or a tax event. In
addition, if the instrument is callable by its terms, the Board-
supervised PPSI may not, at the time the instrument was issued, create,
through any action or communication, an expectation that the call
option would be exercised; and prior to exercising the call option, or
immediately thereafter, the Board-supervised PPSI would be required to
either replace the amount of the instrument to be called with an
equivalent amount of an instrument or instruments satisfying the
criteria in either proposed Sec. 247.16(b)(1) or (b)(2) or demonstrate
to its supervisor that, following the redemption, it will continue to
hold capital commensurate with its risk.
Additionally, under proposed Sec. 247.16(b)(3), tangible equity
would include retained earnings that represent accumulated profits that
have been generated by the Board-supervised PPSI and not distributed to
shareholders. As internally generated capital, retained earnings are
available to absorb losses on a going-concern basis and therefore
contribute to the Board-supervised PPSI's loss-absorbing capacity.
Finally, under the proposed Sec. 247.16(b)(4), tangible equity
would include all AOCI components as reported under GAAP. AOCI includes
accumulated unrealized gains and losses on certain assets and
liabilities, where such unrealized gains and losses have not been
included in net income but are included in equity under GAAP. For
example, the proposal would require all net unrealized gains and losses
on holdings of available-for-sale debt securities from changes in fair
value to flow through to tangible equity capital, including gains and
losses on debt securities that result primarily from fluctuations in
benchmark interest rates. The changes in value of available-for-sale
securities because of interest rate movements are generally more
pronounced when the remaining maturity of the securities is longer.
Because Board-supervised PPSIs are only permitted to hold as reserve
assets those Treasury securities that are issued with, or have a
remaining maturity of 93 days or less, the change in value of these
securities because of interest rate movements is not likely to generate
material amounts of AOCI.\83\
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\83\ Board-supervised PPSIs may also be permitted to hold other
instruments that are ``similarly liquid Federal Govenment-issued
asset[s]'' under section 4(a)(1)(A)(vii) of the Act (U.S.C.
5903(a)(1)(A)(vii)). However, the Board is not proposing at this
time to approve any such assets.
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Proposed Sec. 247.16(c) would exclude goodwill and other
intangible assets, such as intellectual property rights, from tangible
equity. These required deductions acknowledge the difficulties of
valuing, and potential heightened volatility in the valuation of, such
assets. The deductions also reflect the general unavailability of such
assets for satisfying the redemption claims of payment stablecoin
holders or supporting a Board-supervised PPSI during a business
disruption.
Under proposed Sec. 247.15(e)(3), as part of the proposal's
reservation of authority
[[Page 61619]]
provisions, the Board may require a Board-supervised PPSI to exclude
from regulatory capital all or a portion of its tangible equity if the
Board determines that a particular common stock or any cumulative or
non-cumulative perpetual preferred stock instrument has characteristics
or terms that diminish the Board-supervised PPSI's ability to absorb
losses, or otherwise presents concerns regarding its ongoing
operations. This proposed provision would help the Board ensure that a
Board-supervised PPSI's capital instruments are sufficient to absorb
losses during a time of stress and allow the Board-supervised PPSI to
continue its operations.
Question 147: The Board seeks comment on the proposed definition of
capital for Board-regulated PPSIs. What, if any, alternative definition
of capital should the Board consider (for example, common equity tier 1
capital or additional tier 1 capital, or both, that apply to banking
organizations), and why? What, if any, clarifications should the Board
consider regarding the inclusion of AOCI, or the deduction of
intangible assets from the amount of capital required?
Question 148: The Board seeks comment on whether the Board should
require a Board-supervised PPSI to have more than 50 percent of its
tangible equity in the form of voting common stock, any related
surplus, and retained earnings. What are the advantages and
disadvantages of this limit and why? What other requirements should the
Board consider to help ensure that a Board-supervised PPSI does not
fund reserve asset capital requirements with solely perpetual preferred
stock?
Question 149: The Board seeks comment on whether the Board should
impose a limit on the amount of cumulative perpetual preferred stock in
regulatory capital for PPSIs. If so, what should this limit be and why?
b. Minimum Capital Requirements (Proposed Sec. 247.15)
Proposed Sec. 247.15 would establish minimum capital requirements
applicable to all Board-supervised PPSIs at all times. Under proposed
Sec. 247.15(b), such minimum capital requirements would consist of the
following components: (i) a capital requirement for the credit risk of
uninsured eligible deposit claims; (ii) a capital requirement for the
counterparty credit risk of undercollateralized reverse repurchase
agreements; (iii) an indirect exposure requirement capturing credit
risk from uninsured eligible deposit claims and undercollateralized
reverse repurchase agreements with respect to reserve assets that are
securities issued by an investment company registered under 15 U.S.C.
80a-8(a), or other registered government money market fund, that is
invested solely in a subset of the assets that are permissible for
PPSIs to hold as reserve assets directly (for purposes of this section
``eligible funds''); (iv) capital requirements that capture financial
risks from non-reserve assets; and (v) an operational risk capital
requirement for activities such as issuing and redeeming payment
stablecoins and managing reserve assets, as well as for other
activities. Each component is discussed in more detail below.
i. Capital Requirement for Credit Risk From Reserve Assets
Credit risk arises from the possibility that an obligor, including
a borrower or counterparty, will default on its obligations. Board-
supervised PPSIs holding reserve assets in the form of uninsured
eligible deposit claims would face credit risk from insured depository
institutions. Board-supervised PPSIs would also be exposed to credit
risk from counterparties in reverse repurchase agreements that are
undercollateralized after taking into account certain haircuts.
Proposed Sec. 247.17(a)(1) and (2) account for these credit risks.
Direct Exposure Requirement for Uninsured Eligible Deposit Claims
(proposed Sec. 247.17(a)(1)). Proposed Sec. 247.17(a)(1) would impose
a two-percent capital requirement for uninsured eligible deposit claims
held as reserve assets. Insured eligible deposit claims against insured
depository institutions do not carry material credit risk, since they
are guaranteed by the FDIC or NCUA. However, uninsured eligible deposit
claims carry credit risk. While insured depository institution failures
are rare, they do occur. If a Board-supervised PPSI includes in its
reserve assets any uninsured eligible deposit claims against an insured
depository institution, and that institution fails, the Board-
supervised PPSI might not be able to recover the full amount of the
monetary value standing to the credit of its deposit account with that
institution on a timely basis. Moreover, such an insured depository
institution's failure could, depending on the Board-supervised PPSI's
exposure, lead a Board-supervised PPSI to violate the one-to-one-
requirement under proposed Sec. 247.11(a)(1)(iii), which could
threaten the Board-supervised PPSI's ongoing operations. Board-
supervised PPSIs can spread any uninsured eligible deposit claims held
as reserve assets against multiple insured depository institutions,
thereby reducing the impact of any one insured depository institution's
failure.
The requirement under proposed Sec. 247.17(a)(1) would help to
ensure that a Board-supervised PPSI is well-positioned to absorb losses
stemming from the potential failure of any insured depository
institution against which the Board-supervised PPSI has uninsured
eligible deposit claims as reserve assets. In addition, if a Board-
supervised PPSI holds some of its reserve assets in the form of
uninsured eligible deposit claims against an insured depository
institution experiencing stress, the proposed capital requirement could
help bolster market confidence that the Board-supervised PPSI's payment
stablecoins will remain fully backed, thereby helping to reduce the
probability of a run on the Board-supervised PPSI that could threaten
its ongoing operations.\84\ In calibrating the two-percent capital
requirement for exposures to uninsured eligible deposit claims against
insured depository institutions, the Board considered as a reasonable
proxy the credit risk framework applicable to banking organizations,
which applies a comparable capital requirement.\85\ The proposed
calibration reflects the fact that insured depository institutions are
highly regulated and supervised and thus pose relatively low credit
risk.
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\84\ For example, in March 2023, USDC came under stress after
the FDIC was appointed as receiver of Silicon Valley Bank since
Circle, the issuer of USDC, held approximately $3.3 billion of USDC
reserve assets in the form of uninsured deposit claims against
Silicon Valley Bank. Vicky Ge Huang, Hannah Miao, and Caitlin
Ostroff, ``Circle's USDC Stablecoin Breaks Peg with $3.3 Billion
Stuck at Silicon Valley Bank,'' Wall Street Journal (March 11,
2023), https://www.wsj.com/articles/crypto-investors-cash-out-2-billion-in-usd-coin-after-bank-collapse-1338a80f. That episode is a
good illustration of how credit risk can impact stablecoin
arrangements, and the important role capital can play. See Gordon Y.
Liao, et al. Risk-based Capital for Stable Value Tokens (June 30,
2024), at 24, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4926568.
\85\ 12 CFR 217.32 assigns a 20 percent risk weight to assets in
the form of eligible deposit claims against depository institutions.
Based on the ``total capital'' requirement of eight percent for
banking organizations, 12 CFR 217.10(a)(1)(iii), the 20 percent risk
weight effectively results in a 1.6 percent capital requirement. See
also 12 CFR 208.43(b)(2)(i).
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Question 150: The Board seeks comment on the proposed treatment for
exposures to the credit risk of uninsured eligible deposit claims
against insured depository institutions. What are the advantages and
disadvantages of the proposed two-percent credit risk requirement for
uninsured eligible deposit claims? What, if any, alternative
calibrations (for example, between a
[[Page 61620]]
range of one percent and four percent) of the credit risk requirement
for uninsured eligible deposit claims should the Board consider and
why? What are the advantages and disadvantages of establishing credit
risk requirements based on indicators of creditworthiness of insured
depository institutions? For example, what are the advantages and
disadvantages of requiring a Board-supervised PPSI to apply (i) a two-
percent credit risk requirement for uninsured eligible deposit claims
against Grade A (investment grade) banks, (ii) a three-percent
requirement for Grade B (speculative grade) banks, and (iii) a four-
percent requirement for Grade C (sub-speculative grade) insured
depository institutions?
Direct Exposure Requirement for Undercollateralized Reverse
Repurchase Agreements (proposed Sec. 247.17(a)(2)). Board-supervised
PPSIs could also face counterparty credit risk arising from permissible
reverse repurchase agreement transactions. Under proposed Sec.
247.11(b)(5), a reverse repurchase agreement may be entered into under
certain conditions on a cleared basis, tri-party basis, or uncleared
bilateral basis. Under proposed Sec. 247.11(b)(5), acceptable
collateral for reverse repurchase agreements could consist of U.S.
Treasury bills, notes, or bonds, with no restrictions on original or
remaining maturity. Therefore, in the event of a counterparty default,
a Board-supervised PPSI could receive long-dated Treasury securities
with an extended time to maturity, which are impermissible reserve
assets under proposed Sec. 247.11(b).
To address these risks, proposed Sec. 247.17(a)(2) would impose a
capital requirement equal to two percent of the amount by which a
reverse repurchase agreement is undercollateralized after considering
the haircuts discussed below. For purposes of this requirement, a
reverse repurchase agreement would be undercollateralized if the amount
of collateral held by the Board-supervised PPSI under the reverse
repurchase agreement or a single-product netting set \86\ of qualifying
repo transactions \87\ were less than the amount lent to the reverse
repurchase agreement counterparty after the following haircuts are
applied:
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\86\ Under the proposal, a ``netting set'' means is a group of
qualifying repo transactions with a single counterparty that are
subject to a qualifying master netting agreement. In the context of
a Board-supervised PPSI, the existence of a netting set might be
relevant if a Board-supervised PPSI were to simultaneously have
reverse repurchase and repurchase agreements with the same
counterparty. If a netting set exists, the counterparty exposure
measure is calculated for the netting set as a whole rather than for
individual products within the netting set.
\87\ The proposal would define ``qualifying repo transactions''
in a manner similar to the definition of ``repo-style transactions''
in 12 CFR 217.2 with certain adjustments for consistency with this
proposal. The proposal would define ``qualifying master netting
agreement'' in a manner similar to the definition of the same term
in 12 CFR 217.2 but would include additional requirements that the
agreement not contain a walkaway clause, consistent with the
definition under the 2013 capital rule, 78 FR 62018 (Oct. 11, 2013),
and consistent with the recent proposal amending the Board's capital
rule, see 91 FR 14952, 15148 (March, 27, 2026).
------------------------------------------------------------------------
Haircut to
the fair
value of
Residual maturity of treasury collateral the
collateral
(%)
------------------------------------------------------------------------
93 days or less........................................... 0.0
Greater than 93 days and less than or equal to 1 year..... 0.35
Greater than 1 year and less than or equal to 5 years..... 1.41
Greater than 5 years...................................... 2.83
------------------------------------------------------------------------
For example, if a Board-supervised PPSI were to enter into a
reverse repurchase agreement as purchaser of Treasury securities with a
two-year maturity, a 1.41-percent haircut would apply. In that case,
the fair value of Treasury securities used as collateral would need to
exceed the dollar amount paid to the reverse repurchase agreement
counterparty by 1.41 percent for the capital requirement to equal zero
for this transaction. To the extent that the value of the collateral,
after considering the appropriate haircut, falls below the dollar
amount paid to the counterparty, each dollar of this shortfall would be
subject to a two-percent capital requirement.
The proposed haircuts are based on the standard supervisory market
price volatility haircuts set forth by the Board in 12 CFR 217.37(c),
but have been modified (i) to exempt from any haircut U.S. Treasuries
with a maturity of 93 days or less, which are eligible reserve assets,
and (ii) to reduce the margin period of risk from ten days to five
days.\88\ The margin period of risk is the time between the last
exchange of collateral and when a counterparty's positions are closed
out or replaced following a default. The standard supervisory market
price volatility haircuts are calibrated based on a ten-day margin
period of risk. In this context, however, a five-day margin period is
warranted, given that counterparty credit risk to Board-supervised
PPSIs would apply only in reverse repurchase agreements, which allow
relatively speedy access to collateral.\89\ The collateral haircut
approach would apply to reverse repurchase agreement transactions to
help address counterparty risk while recognizing the risk-mitigating
effects of collateral.
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\88\ 12 CFR 217.37(c)(3)(iii) permits repo-style transactions to
use reduced haircuts based on a shorter five-day margin period of
risk, as opposed to the ten-day margin period of risk that is
reflected in the standard haircuts. Since the only counterparty
credit risk from reserve assets for Board-supervised PPSIs would
arise from reverse repurchase agreements, the haircuts that apply to
Board-supervised PPSIs are calculated by multiplying the standard
haircuts for a ten-day margin period of risk by the square root of
\1/2\ (which is approximately 0.707) to reduce the margin period of
risk to five days.
\89\ The capital requirements for banking organizations permit
use of haircuts that reflect a shorter five-day margin period of
risk for repurchase and reverse repurchase agreement transactions.
See 12 CFR 217.37(c)(3)(iii).
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Under the proposal, sufficiently collateralized reverse repurchase
agreements would not be subject to any capital requirement. Because
section 4(a)(1)(A)(v) of the GENIUS Act (12 U.S.C. 5903(a)(1)(A)(v))
and proposed Sec. 247.11(b)(5) require reverse repurchase agreements
to be ``subject to overcollateralization in line with standard market
terms,'' the counterparty credit capital charge for these transactions
is expected to be small or zero.
Question 151: The Board seeks comment on the proposed treatment for
reverse repurchase agreements. What are the advantages and
disadvantages of the proposed two-percent capital requirement for
undercollateralized reverse repurchase agreements? What alternatives,
if any, should the Board consider? For example, what would be the
advantages and disadvantages of not imposing any capital requirement
with respect to centrally cleared and tri-party repurchase or reverse
repurchase transactions? Commenters are encouraged to provide
supporting evidence and data that the Board could consider.
Question 152: The Board seeks comment on the appropriateness of
requiring Board-supervised PPSIs to calculate credit risk requirements
for reverse repurchase agreements. What are the advantages and
disadvantages of calibrating the minimum capital requirement for
reverse repurchase agreements based on the market price volatility
haircuts that apply to banking organizations (12 CFR 217.37) adjusted
by the remaining maturity of the collateral and the credit risk of the
Board-supervised PPSI's counterparty? What, if any, alternative
calibration of capital requirements for reverse repurchase agreements
should the Board consider and why? What would be advantages and
disadvantages of applying different or heightened
[[Page 61621]]
requirements for reverse repurchase agreements that do not meet the
definition of ``qualifying repo transaction'' in the proposal?
Commenters are encouraged to provide supporting evidence and
rationales.
Question 153: The Board seeks comment on the capital requirements
for reverse repurchase agreements. The proposal would measure the risks
of counterparty credit exposures by adapting the collateral haircut
approach in the current capital rule, 12 CFR 217.37, to the context of
Board-supervised PPSIs. What are the advantages and disadvantages of
instead adapting the proposed collateral haircut approach outlined in
the notice of proposed rulemaking titled ``Regulatory Capital Rules:
Regulatory Capital and Standardized Approach for Risk-Weighted
Assets''? \90\ In particular, what are the advantages and disadvantages
of calculating exposure based on the formula in the proposed approach,
described in section II.D.2.b of the SUPPLEMENTARY INFORMATION of that
proposal? \91\
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\90\ 91 FR 15332 (March 27, 2026).
\91\ Id. at 15347.
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Indirect Exposure Requirement (proposed Sec. 247.17(a)(3)).
Proposed Sec. 247.11(b)(6) permits Board-supervised PPSIs to hold
reserve assets as shares of eligible funds that invest solely in
certain other eligible reserve assets, including eligible deposit
claims and reverse repurchase agreements. Whether held directly by the
Board-supervised PPSI, or indirectly through ownership of shares in an
eligible fund, these exposures give rise to credit risk. Therefore, for
Board-supervised PPSIs that hold shares of eligible funds as reserve
assets, proposed Sec. 247.17(a)(3) would impose a capital requirement
based on the underlying assets held by the eligible fund.\92\
Specifically, a Board-supervised PPSI would be required to look through
to the underlying exposures of eligible funds to calculate a credit
risk requirement as if the exposures were held directly by the Board-
supervised PPSI.
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\92\ The proposed approach would essentially be similar to the
capital requirement for a State member bank's exposures to an
investment fund as describe in 12 CFR 217.53.
---------------------------------------------------------------------------
The Board is not prescribing a specific methodology to calculate
the look-through requirement for eligible funds. While a Board-
supervised PPSI could gather information on each individual holding of
an eligible fund to calculate capital requirements, other approaches
could be appropriate as well. For example, a Board-supervised PPSI
could estimate the share of its uninsured eligible deposit claims
against an insured depository institution held by an eligible fund
based on cash reported on Form N-MFP, a monthly reporting form for
money market funds, as a monthly average over the quarter.\93\
Alternatively, if an eligible fund has a policy of collateralizing
reverse repurchase agreements such that they would yield no capital
requirement under this proposed treatment, for example, based on the
policies described in its prospectus or mandate, the Board-supervised
PPSI could report a zero capital requirement based on the policies
without collecting data on individual positions.
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\93\ Specifically, a money market fund's share of uninsured
eligible deposit claims could potentially be estimated as the amount
reported on Item A.14.a. (cash) minus $250,000 divided by the sum of
the amounts reported on Items A.14.a., A.14.b., and A.14.c.
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Question 154: The Board seeks comment on whether the proposed
capital requirement to look through to the underlying assets of an
eligible fund is appropriate. What are the advantages and disadvantages
of this approach? To what extent are eligible funds expected to hold
uninsured eligible deposit claims and undercollateralized reverse
repurchase agreements? What operational complexities could this
requirement to look through the eligible fund pose for Board-supervised
PPSIs? What, if any, alternative approaches to determining a capital
requirement for eligible funds should the Board consider, and why? What
would be the advantages or disadvantages of providing a more
prescriptive approach for calculating this indirect exposure
requirement? What would be the advantages or disadvantages of imposing
a heightened requirement for Board-supervised PPSIs that do not have
the data necessary to comply with the look-through approach (for
example, the data available is not published at least quarterly or the
data published is not sufficiently granular), such as (i) assuming all
cash held by the eligible fund are uninsured eligible deposit claims
and all U.S. Treasuries serving as collateral for reverse repurchase
agreements have more than 5 year maturity or (ii) a 5% capital
requirement for holdings of such funds?
Reservation of Authority. For circumstances in which these proposed
capital requirements would not be commensurate to capture a Board-
supervised PPSI's credit risk, proposed Sec. 247.15(e)(4)(i) would
enable the Board to assign a different credit risk requirement for
uninsured eligible deposit claims or undercollateralized reverse
repurchase agreements than otherwise discussed in section II.B.6.b.i of
this SUPPLEMENTARY INFORMATION. Furthermore, proposed Sec.
247.15(e)(4)(ii) would allow the Board to require a Board-supervised
PPSI to adjust its methodology for calculating its indirect credit risk
requirement under proposed Sec. 247.17(a)(3).
ii. Capital Requirements for Non-Reserve Asset Financial Risks
(Proposed Sec. Sec. 247.17(b); 247.15(e)(4))
Proposed Sec. 247.17(b) would subject a Board-supervised PPSI's
exposures to assets other than reserve assets under proposed Sec.
247.11(a)(1) to the requirements of the Board's capital rule in 12 CFR
part 217. Specifically, proposed 247.17(b)(1) would require a Board-
supervised PPSI to calculate capital requirements for its assets that
are not reserve assets held under Sec. 247.11(a)(1) using the same
approach that its parent banking organization applies. If a Board-
supervised PPSI does not have a parent that is subject to 12 CFR part
217, its non-reserve assets would be subject to the capital
requirements under 12 CFR part 217 as if the Board-supervised PPSI were
a State member bank. Board-supervised PPSIs would not be required to
apply the operational risk capital requirements in 12 CFR part 217
because those risks would be captured by the PPSI-specific operational
risk capital requirement outlined in section II.6.b.iv of this
SUPPLEMENTARY INFORMATION. Under proposed Sec. 247.17(b)(2)(iv), a
Board-supervised PPSI would also be required to use the standardized
approach in 12 CFR part 217, subpart D to calculate risk-weighted
assets. This approach would be simpler and impose less burden on Board-
supervised PPSIs.
Under 12 CFR part 217, Board-supervised PPSIs would have leverage-
and risk-based requirements for non-reserve assets that are in the form
of ratios and for which the numerator is common equity tier 1, tier 1,
and total capital, as described in 12 CFR 217.20. These capital
requirements for non-reserve assets differ in form and structure from
the capital requirements for reserve assets and operational risks under
this proposal, which are dollar amounts in the form of tangible equity.
In some cases, instruments that qualify as tangible equity may also
satisfy the requirements for the capital components in the Board's
capital rule, 12 CFR 217.20. The proposal would ensure that capital is
not double-counted and cannot be used to satisfy both (i) the minimum
requirements in proposed Sec. Sec. 247.17(a) and 247.18 and (ii) the
capital requirements of 12 CFR part 217, as applied to Board-supervised
PPSIs in Sec. 247.17(b). To achieve this,
[[Page 61622]]
proposed Sec. 247.17(b)(ii) would require a Board-supervised PPSI to
designate tangible equity instruments held to satisfy the minimum
capital requirements (for reserve asset financial risks and operational
risks) and capital adequacy standards under this proposal as excluded
tangible equity instruments. Such instruments would, for purposes of
calculating capital requirements under 12 CFR part 217, be deducted
from the applicable capital component in 12 CFR 217.20. Board-
supervised PPSIs could designate additional tangible equity instruments
beyond what is held to satisfy the minimum requirement for reserve
asset financial risks and operational risks as excluded tangible equity
instruments, such as tangible equity held for management buffers or
other reasons.
The proposed approach to capitalizing financial risks for non-
reserve assets is substantially different from the standardized
approach the Board is proposing for reserve assets. As noted in section
II.B.2 of this SUPPLEMENTARY INFORMATION, the GENIUS Act imposes
various limitations on reserve assets, which result in a narrow set of
relevant financial risks that can be captured by a simple standardized
approach. Non-reserve assets, in contrast, are potentially exposed to
broader risks. The additional activities described in proposed Sec.
247.10(b), for example, could potentially give rise to exposures to a
wide range of assets. The capital framework under 12 CFR part 217 is
sufficiently robust and flexible to address the risks from exposures to
these assets. Moreover, applying uniform capital requirements for non-
reserve assets to an insured State member bank and its Board-supervised
PPSI subsidiary could help reduce incentives for arbitrage, to the
extent a banking organization could choose in which entity to hold the
non-reserve assets.
If the Board determines that a Board-supervised PPSI's capital
requirements under proposed Sec. 247.17(b) are not commensurate with
the risks of the Board-supervised PPSI's non-reserve assets, then the
reservation of authority in proposed Sec. 247.15(e)(5) would permit
the Board to require the Board-supervised PPSI to adjust its
requirements under Sec. 247.17(b) or its approach for complying with
the requirements under 12 CFR part 217. This provision would allow the
Board to adjust the applicable capital requirements as necessary to
account for unanticipated risks from non-reserve assets.
Question 155: For the purpose of calculating credit and market risk
capital requirements for non-reserve assets using requirements
applicable for banking organizations subject to 12 CFR part 217, what
are the costs and benefits of the proposed approach? What are other
alternative approaches should the Board consider and why? For example,
to maintain consistency in the calculation of capital requirements for
reserve assets under proposed Sec. 247.17(a), what are the advantages
and disadvantages of requiring a Board-supervised PPSI to calculate the
capital requirements for non-reserve assets by applying the
corresponding risk weights under 12 CFR part 217, subpart D multiplied
by eight percent to align with the minimum ``total capital''
requirement for such assets under the capital rule? Additionally, what
are the advantages and disadvantages of allowing Board-supervised PPSIs
to use subpart E of the Board's capital rule to calculate the risk
weights for non-reserve assets?
Question 156: The Board seeks comment on potential alternatives
that could reduce operational complexity when calculating capital
requirements for the market and credit risk of non-reserve assets. What
are the advantages and disadvantages of permitting Board-supervised
PPSIs to use alternative, and potentially simpler, methods to calculate
these capital requirements so long as these alternative methods yield
capital requirements that are at least as conservative as those
prescribed under 12 CFR part 217? What are the advantages and
disadvantages of requiring supervisory approval to use such an
alternative approach?
iii. Capital Requirements for Operational Risks (Proposed Sec. Sec.
247.18; 247.15(e)(4))
Proposed Sec. 247.18 would impose an operational risk requirement
to a Board-supervised PPSI based on both (i) the value of outstanding
payment stablecoins issued by the Board-supervised PPSI, and, if
applicable, (ii) the Board-supervised PPSI's revenues excluding those
related to reserve assets. This requirement is intended to capture the
operational risks Board-supervised PPSIs face in connection with
issuing and redeeming payment stablecoins and managing payment
stablecoin reserve assets, as well as risks that arise from non-reserve
assets holdings and off-balance sheet activities, including providing
custody services.
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people, and systems, or events that disrupt
business operations. It does not include other losses because of
business performance, such as changes in business strategy or customer
demand. Board-supervised PPSIs face a range of operational risks in
connection with issuing and redeeming payment stablecoins and managing
reserve assets. Some of those risks overlap with operational risks
faced by other financial institutions. Other risks, however, are
relatively novel given Board-supervised PPSIs' reliance on distributed
ledger technology as the foundational infrastructure for payment
stablecoins as well as technology such as smart contracts.\94\ In many
cases, distributed ledger technology offers new functionality that can
help mitigate operational risks. Programmable blockchains, for example,
can facilitate delivery-versus-payment transactions that mitigate
settlement risk.\95\
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\94\ Gordon Liao, et al., Risk-based Capital for Stable Value
Tokens (June 30, 2024), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4926568.
\95\ Cy Watsky, ``Tokenized Assets on Public Blockchains: How
Transparent is the Blockchain?'' FEDS Notes (April 03, 2024).
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Nevertheless, these technologies pose unique risk considerations.
For example, a Board-supervised PPSI's ability to safeguard minting,
burning, and freezing of payment stablecoins depends on the integrity
of its smart contracts, including the associated private keys. A hack
of the smart contract could lead to unauthorized minting of unbacked
payment stablecoins,\96\ which could undermine the Board-supervised
PPSI's compliance with the one-to-one requirement and put its ability
to continue operations at risk. While cybersecurity threats are common
to many, if not all, financial institutions, Board-supervised PPSIs'
reliance on smart contracts to orchestrate minting and burning combined
with the ability to transfer payment stablecoins instantly on a 24/7
basis raises unique risk considerations,\97\ as illustrated by recent
major hacks involving assets on distributed ledgers, including
stablecoins,\98\ and the potentially
[[Page 61623]]
increased risk of hacks in the future using artificial intelligence
tools.\99\
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\96\ While not specific to stablecoins, an analysis of high
impact smart contract exploits between 2022-2025 revealed total
losses of over $1 billion. Gerardo Iuliano and Dario Di Nucci, Smart
Contract Vulnerabilities, Tools, and Benchmarks: an Updated
Systematic Literature Review (Jan. 14, 2026), available at https://arxiv.org/abs/2412.01719.
\97\ MITRE's AADAPT (Adversarial Actions in Digital Asset
Payment Technologies) knowledge base outlines adversarial tactics
and techniques against smart contracts, among other areas. MITRE
AADAPT, available at https://aadapt.mitre.org.
\98\ For example, in 2022, a hack of the Ronin Network included
the theft of millions of USDC stablecoins which were swiftly
exchanged for other tokens on decentralized exchanges. ``North
Korea's Lazarus Group Identified as Exploiters Behind $540 million
Ronin Bridge Heist,'' Elliptic (April 14, 2022), https://elliptic.co/blog/540-million-stolen-from-the-ronin-defi-bridge. In
2025, after a hack of Bybit, hackers rapidly laundered the stolen
funds through mixers, cross-chain bridges, and decentralized
exchanges using thousands of wallets. ``Targeted Report on
Stablecoins and Unhosted Wallets--Peer-to-Peer Transactions,'' FATF
(March 2026), https://www.fatf-gafi.org/en/publications/Virtualassets/targeted-report-stablecoins-unhosted-wallets.html.
\99\ See, e.g, Robert McMillan and Chip Cutter,``AI Is Finding
Bugs That Hackers Can Exploit. Get Ready for Bugmageddon,'' Wall
Street Journal (April 13, 2026), https://www.wsj.com/tech/ai/ai-is-finding-bugs-that-hackers-can-exploit-get-ready-for-bugmageddon-baaff236.
---------------------------------------------------------------------------
In addition to unauthorized minting and burning, Board-supervised
PPSIs may face a range of other operational risks including disparities
between stablecoins issued on-chain and reserve assets, coding errors
in smart contracts, and errors in transaction processing (such as
sending redemption funds to the incorrect recipient). Also, a Board-
supervised PPSI may face operational failures impacting a blockchain on
which the Board-supervised PPSI's payment stablecoins transact.\100\
---------------------------------------------------------------------------
\100\ See Gordon Liao et al. at Table A1 for a catalog of
operational risks PPSIs face. See also ``Proposed Criteria for
Controls Supporting Token Operations: Specific to Asset-Backed Fiat-
Pegged Tokens,'' AICPA (June 2025).
---------------------------------------------------------------------------
Board-supervised PPSIs may also face substantial legal risks and
attendant litigation costs. For example, the relative nascency of the
technology and the Board-supervised PPSI business models may heighten
legal risk related to intellectual property issues. Further, like any
other firm, Board-supervised PPSIs could be subject to civil money
penalties or other fines for regulatory violations. Such fines and
penalties may be imposed by U.S. or foreign authorities.
To help ensure that Board-supervised PPSIs are well-positioned to
absorb losses related to such risks, the Board is proposing a simple
operational risk requirement that would provide for relatively
consistent treatment across Board-supervised PPSIs. Under proposed
Sec. 247.18(a), the operational risk requirement for Board-supervised
PPSIs would be equal to a loss scalar multiplied by a baseline
operational risk requirement.
Baseline Operational Risk Requirement. The baseline operational
risk requirement under proposed Sec. 247.18(b)(1) would incorporate a
Board-supervised PPSI's (i) outstanding payment stablecoin issuance
value, calculated as the average of daily values over the reporting
quarter, and (ii) its non-reserve asset revenue, including revenue from
custodial activities (non-reserve asset revenue). The component based
on outstanding payment stablecoin issuance value would reflect the size
of the payment stablecoin business of a Board-supervised PPSI and hence
would be a proxy for its operational risk with respect to issuing and
redeeming payment stablecoins and managing reserve assets. The
component based on revenue would account for operational risks of
activities that are not well captured by outstanding payment stablecoin
issuance, including providing stablecoin custody services or holding
non-reserve assets. The baseline operational risk requirement would be
calculated based on the following table, which would have the dollar
values indexed to nominal U.S. GDP:
------------------------------------------------------------------------
If the outstanding issuance value of The baseline operational risk
the Board-Supervised PPSI is: requirement is:
------------------------------------------------------------------------
Less than or equal to $20 billion...... 2.0% of the outstanding
issuance value plus 25% of the
three-year average of non-
reserve asset revenues.
Greater than $20 billion and less than $400 million plus 1.5% of the
or equal to $50 billion. excess outstanding issuance
value over $20 billion plus
25% of the three-year average
of non-reserve asset revenues.
Greater than $50 billion............... $850 million plus 1.0% of the
excess outstanding issuance
value over $50 billion plus
25% of the three-year average
of non-reserve asset revenues.
------------------------------------------------------------------------
The table reflects a graduated requirement that declines with
payment stablecoin issuance volume. Specifically, the issuance-based
portion of the baseline operational risk requirement would equal the
sum of two percent of the first $20 billion of outstanding stablecoins,
1.5 percent of the next $30 billion of outstanding stablecoins, and one
percent of outstanding stablecoins exceeding $50 billion.
The revenue-based portion of the operational risk requirement would
be 25 percent of the three-year average of annual non-reserve asset
revenues of the Board-supervised PPSI. For example, at the end of the
third calendar quarter of 2025, the revenue-based portion of the
requirement would be based on the average of the revenue values for the
fourth quarter of 2022 through the third quarter of 2023, the fourth
quarter of 2023 through the third quarter of 2024, and the fourth
quarter of 2024 through the third quarter of 2025. The use of a three-
year average would balance the objectives of stability and
responsiveness. It is long enough to not be overly sensitive to
temporary fluctuations, but not so long that it would fail to capture
significant changes in a Board-supervised PPSI's activities. Revenues
from reserve assets (such as interest payments on or gain from the sale
of reserve assets) would be excluded from this measure since their
operational risks would be captured by the operational risk requirement
based on outstanding issuance value. Narrowly limiting the exclusion to
revenue from reserve assets would set a clear boundary around which
types of revenues could be excluded from the revenue-based portion of
the requirement and minimize opportunities for Board-supervised PPSIs
to reclassify revenues and thus exclude them from the operational risk
capital requirement.
The proposed graduated approach would reflect the Board's
expectation that operational risks may not scale linearly with
outstanding issuance value.\101\ For example, in the case of
unauthorized minting, a perpetrator that exploits a vulnerability in a
payment stablecoin smart contract to issue payment stablecoins to a
wallet the perpetrator controls would generally need to exchange the
stolen payment stablecoins for other assets before the Board-supervised
PPSI is able to freeze or burn them. Crucially, the difficulty of
executing such an exchange can increase with the amount of payment
[[Page 61624]]
stablecoins stolen in the unauthorized minting. First, the larger the
unauthorized minting of payment stablecoins, the more likely it is to
be detected, either by the Board-supervised PPSI itself or by an
external observer monitoring the blockchain.\102\ As a result, in the
case of larger exploits, the perpetrator would generally have less time
to launder the stolen payment stablecoins.\103\ Second, there are
natural constraints on the quantity of payment stablecoins that can be
off-loaded in a short period of time. Malicious actors are likely to
look to non-compliant services and exchanges (for example,
decentralized exchanges or centralized exchanges that do not comply
with AML/CFT requirements) to offload their stolen payment
stablecoins.\104\ However, their ability to do so would be limited by
the liquidity available on these exchanges.\105\ These dynamics suggest
that the gross operational losses may not increase proportionally to a
PPSIs' outstanding issuance value. The Board's proposed graduated
approach to calculating operational risk requirements is intended to
reflect this issue.
---------------------------------------------------------------------------
\101\ One working paper notes that ``Upfront investments and on-
going choices over technology and infrastructure, such as the type
and number of blockchains on which tokens are deployed, the smart
contract parameters governing speed and size limits, and the
extensiveness of compliance checks, are all variables that have
significant impact on risk outcomes but do not necessarily scale
with token circulation or balance sheet size.'' See Gordon Liao, et
al., at 9.
\102\ Daniel Palmer, ``Tether Accidentally Minted $5 Billion of
its Stablecoins, Then Deleted Them,'' Coindesk (July 16, 2019),
https://www.coindesk.com/markets/2019/07/16/tether-accidentally-minted-5-billion-of-its-stablecoins-then-deleted-them; Dylan Butts,
``PayPal's Crypto Partner Mints a Whopping $300 Trillion Worth of
Stablecoins in `Technical Error,' '' CNBC (Oct. 16, 2025), https://www.cnbc.com/2025/10/16/paypals-crypto-partner-mints-300-trillion-stablecoins-in-technical-error.html.
\103\ For example, in 2023, Circle was able to respond to the
hack of a cross-chain platform called Multichain by freezing about
$63 million in stolen USDC stablecoins. ``Multichain Liquidators Win
Key Ruling as New York Court Extends Freeze on Stolen USDC,'' Yahoo
Finance (Oct. 31, 2025), https://finance.yahoo.com/news/york-court-extends-asset-freeze-030350191.html.
\104\ ``The 2025 Crypto Crime Report,'' Chainalysis (Feb. 2025),
https://go.chainalysis.com/2025-Crypto-Crime-Report.html; ``Targeted
Report on Stablecoins and Unhosted Wallets--Peer-to-Peer
Transactions,'' FATF (March 2026), https://www.fatf-gafi.org/en/publications/Virtualassets/targeted-report-stablecoins-unhosted-wallets.html.
\105\ For example, the maximum amount of funds that could be
laundered through decentralized exchanges would naturally be less
than the total assets available to be exchanged on decentralized
exchanges. As of March 31, 2026, total value locked, or all the
assets that users have deposited on decentralized exchanges,
monitored by DefiLlama was about $12.5 billion. ``DEX Protocols--
Total Value Locked,'' DeFiLlama (2026).
---------------------------------------------------------------------------
To calibrate the baseline operational risk requirements, the Board
considered banking organizations' operational losses from investment
management and agency services relative to fiduciary income, as set
forth in the table below.\106\
---------------------------------------------------------------------------
\106\ Operational loss and revenue data is from the FR Y-14Q
data collection, available at https://www.federalreserve.gov/apps/reportingforms/Report/Index/FR_Y-14Q.
_____________________________________-
Table II.B.6.b.iii. Ratio of annual operational losses from
investment management and agency services to income from fiduciary
activities for individual bank holding companies (FR Y-14 fillers).
------------------------------------------------------------------------
------------------------------------------------------------------------
Average...................................................... 1.3%
90th percentile.............................................. 2.3%
95th percentile.............................................. 4.6%
99th percentile.............................................. 13.3%
------------------------------------------------------------------------
Given there are some similarities between payment stablecoin
issuance and banking organization investment management and agency
services, these data provide a useful benchmark for assessing PPSI
operational risk. Nevertheless, the analogy has limitations. Unlike
banking organizations that engage in investment management and agency
services, PPSIs issue their own liabilities--payment stablecoins--as
principal, which are then used as a means of payment and settlement. As
a result, PPSIs face different risks, such as the risk that an
operational failure will lead to a discrepancy between the value of the
reserve assets and the value of the payment stablecoins in circulation.
Moreover, as described above, in issuing and redeeming their payment
stablecoins, PPSIs will rely on technology that presents novel
operational risks, including heightened legal risks.
For these reasons, the operational risks PPSIs face are likely to
be substantially higher than those incurred by banking organizations
engaged in agency services, investment management, and fiduciary
activities. There is currently insufficient available data to quantify
the levels of existing stablecoin issuers' operational losses. As such,
the proposal would set a capital requirement equivalent to 25 percent
of revenue, which is roughly double the 99th percentile loss indicated
in the investment management and agency services data. That calibration
relies on the evaluation of novel operational risks Board-supervised
PPSIs would generally face, the operational losses that crypto-asset
firms incurred over the last several years, and the potential for
higher legal losses.
Applying this calibration to the revenue-based portion of the
baseline operational risk requirement is straightforward. However, to
apply the calibration to the issuance-based portion of the baseline
operational risk requirement required converting the 25 percent of
revenues to some percent of outstanding issuance value, which the
proposal accomplishes by assuming that revenues represent a return on
assets of approximately four percent based on short-term interest
rates.\107\ In that case, 25 percent of revenues corresponds
approximately to a requirement of one percent of assets, which is the
marginal capital requirement that would apply to the largest Board-
supervised PPSIs under the proposed graduated approach. That is the
most relevant comparison group, since the banking organizations that
report FR Y-14 data are among the largest banking organizations.
---------------------------------------------------------------------------
\107\ Revenues for Board-supervised PPSIs are likely to
primarily consist of revenues from reserve assets, so short term
interest rates are a good proxy for the ratio of revenues to
outstanding stablecoins. The 4 percent number matches the 4.07
percent average interest rate on a 3-month Treasury bill from 2025.
Fed. Reserve Econ. Data, ``3-Month Treasury Bill Secondary Market
Rate, Discount Basis [DTB3],'' https://fred.stlouisfed.org/series/DGS3MO (retrieved February 9, 2026) (frequency set to ``Annual'' and
aggregation method set to ``Average'').
---------------------------------------------------------------------------
In addition to help ensure the ongoing operations of Board-
supervised PPSIs in the presence of operational risk, this calibration
would provide additional benefits. Board-supervised PPSIs would
generally be subsidiaries of State member banks, which means that to
the extent the other activities are also permissible for State member
banks, the consolidated entity may consider conducting those activities
at either the State member bank or the PPSI-level. The highest
operational risk requirement that would apply under the Basel III
proposal is 18 percent of the business indicator, which in practice
closely reflects revenues.\108\ Therefore, setting operational risk
requirements for Board-supervised PPSIs at 25 percent would limit the
potential for banking organizations with PPSI subsidiaries to reduce
their operational risk requirements by shifting activities into such
subsidiaries.
---------------------------------------------------------------------------
\108\ 91 FR 14952 (``Basel III proposal'').
---------------------------------------------------------------------------
As noted, there is no readily available data quantifying the extent
to which a PPSI's operational risk declines as a proportion of reserve
assets as reserve assets grow. Accordingly, the proposal would set the
requirements mostly based on the qualitative analysis above. However,
as data on PPSIs' operational losses become available, the Board could
potentially use this data to reassess whether the proposed requirements
remain appropriate.
Loss Scalar. The formula for Board-supervised PPSIs' operational
risk requirements under proposed Sec. 247.18(a) includes a loss scalar
that adjusts baseline requirements based on data from past operational
losses. The
[[Page 61625]]
scalar would ensure that operational risk capital requirements would
automatically rise if realized operational losses are above a specified
threshold, while also allowing lower operational loss rates to reduce
requirements below the baseline level. The loss scalar would increase
the risk sensitivity of the framework and incentivize prudent
management of operational risks.
Under proposed Sec. 247.18(b)(2), the loss scalar would be set as
follows:
[GRAPHIC] [TIFF OMITTED] TP29SE26.001
where:
``Scalar Floor'' is a parameter setting the maximum
possible reduction in the baseline operational risk requirement that
would apply based on losses below the threshold;
``Scaled Loss Rate'' is an average annualized loss rate
based on data over the past five years, which is calculated as the
average over the prior 20 quarters of quarterly operational losses
scaled by that quarter's baseline operational risk requirement and
multiplied by four (to convert loss rates from quarterly to annual
units);
Threshold Loss Rate is a parameter setting the threshold
for the scaled loss rate above which the scalar becomes greater than
one (which would raise capital requirements above the baseline
operational risk requirement); and
Loss Elasticity is a parameter setting the elasticity of
the scalar with respect to the Scaled Loss Rate (excluding the
effects of the Scalar Floor).\109\
---------------------------------------------------------------------------
\109\ Elasticity represents the percent change in one variable
in response to a percent change in another variable. In this
context, a one percent increase in the Scaled Loss Rate would
increase the scalar by an amount equal to the Loss Elasticity
(excluding impacts of the Scalar Floor). For example, if the Loss
Elasticity were 0.5, then a one percent increase in the Scaled Loss
Rate would increase the scalar by approximately 0.5 percent.
The proposal would set the parameters as outlined in the table
below.
------------------------------------------------------------------------
------------------------------------------------------------------------
Threshold Loss Rate....................... 1/15.
Lookback for Loss Rate.................... 5 years (20 quarters).
Loss Elasticity........................... 0.5.
Scalar Floor.............................. 0.8.
------------------------------------------------------------------------
Under proposed Sec. 247.18(b)(2)(ii), the Threshold Loss Rate
would be calibrated to 1/15th, or approximately 6.7 percent, which
would result in the loss scalar rising whenever operational losses are
on average more than 1/15th of the baseline operational risk capital
requirement. This approach is similar to the Internal Loss Multiplier
in the Basel international standard for operational risk capital
requirements, which scales up operational loss capital requirements
when average losses rise above 1/15th of the Business Indicator
Component, similar to the baseline operational risk requirement in the
proposed PPSI framework.\110\ Average losses can provide information on
the size of tail losses, so that average losses greater than 1/15th of
an associated capital requirement could indicate that those capital
requirements are too low to capture tail losses and should be
increased. While the Board expects a higher baseline level of
operational risk for Board-supervised PPSI activities as compared to
bank activities, it is not clear that the ratio of average losses to
tail losses should differ between Board-supervised PPSIs and banking
organizations, so the proposal uses the 1/15th rate for Board-
supervised PPSIs as well.
---------------------------------------------------------------------------
\110\ See OPE25, Basel Framework, Bank of International
Settlements, available at https://www.bis.org/basel_framework/chapter/OPE/25.htm.
---------------------------------------------------------------------------
Under proposed Sec. 247.18(b)(2)(iv), the Scaled Loss Rate would
be the average over the prior 20 quarters, reflecting a five-year
horizon, of the ratio of the Board-supervised PPSI's quarterly
operational losses to the baseline operational risk requirement for the
same quarter, multiplied by four. Multiplying by four converts a
quarterly loss rate to an annual one. This period is shorter than the
10-year average that applies to the Internal Loss Multiplier used by
banks under the Basel international standard for operational risk
capital requirements. Given the rapid developments in the stablecoin
sector, a shorter lookback period likely better reflects recent changes
in market conditions. The Board expects this five-year horizon to be
long enough to provide a reasonable estimate of average trends while
also focusing on a current enough period to capture recent changes in
the Board-supervised PPSI operating environment.
Under proposed Sec. 247.18(b)(2)(iii), Loss Elasticity is set to
0.5, which means that a one-percent increase in the Scaled Loss Rate
would lead to an approximately 0.5-percent increase in the scalar
(before application of the floor). This specification would prevent
excessive volatility in the scalar by dampening the impact of outlier
losses. The approach of using a concave function to dampen the impact
of these losses is similar to the approach taken in the operational
risk framework for banking organizations.\111\
---------------------------------------------------------------------------
\111\ See OPE 25.8, Basel Framework, Bank of International
Settlements, https://www.bis.org/basel_framework/chapter/OPE/25.htm
(providing a formula for the Internal Loss Multiplier, which
includes a logarithm).
---------------------------------------------------------------------------
Under proposed Sec. 247.18(b)(2)(i), the Scalar Floor is set to
0.8, allowing for the possibility of a 20-percent decrease in baseline
operational risk requirements given low loss rates, which would balance
incentivizing sound operational risk management practices with
maintaining appropriate conservativeness. The Board also considered an
alternative to set the Scalar Floor at 1.0, so that operational risk
capital requirements could never fall below the baseline, but
determined that such an approach may not provide appropriate incentives
to manage operational risk.
The proposal would require Board-supervised PPSIs to collect data
on their historical operational losses to calculate the scaled loss
rate. Under proposed Sec. 247.18(c)(1), Board-supervised PPSIs would
be required to collect comprehensive data on all operational loss
events, including events involving entities that have been acquired by
or merged with the Board-supervised PPSI, resulting in losses of at
least $20,000. The $20,000 threshold for operational loss events would
be indexed to nominal U.S. GDP. Board-supervised PPSIs would also be
required to categorize each operational loss into seven categories,
which would be consistent with those specified in the Basel
international standard for operational risk.\112\ Each dollar of an
operational loss could only be allocated to one category. However, an
operational loss from one event could be
[[Page 61626]]
split into different portions that could then each be allocated to
different categories. For example, a Board-supervised PPSI could not
allocate a $100,000 loss to two different categories simultaneously,
but it could allocate $50,000 of that loss to one category and the
other $50,000 to another. Operational loss event data would be required
to include gross operational loss amounts, recovery amounts, the date
when the event occurred or began (occurrence date), the date when the
Board-supervised PPSI became aware of the event (discovery date), and
the date (or dates) when losses or recoveries related to the event were
recognized in the Board-supervised PPSI's profit and loss accounts
(accounting date). In addition, the Board-supervised PPSI would be
required to collect descriptive information about the drivers of
operational loss events.
---------------------------------------------------------------------------
\112\ The categories are (1) internal fraud, (2) external fraud,
(3) employment practices and workplace safety, (4) clients,
products, and business practices, (5) damage to physical assets, (6)
business disruption and system failures, and (7) execution,
delivery, and process management. Losses relating to lawsuits would
be allocated to the most appropriate category. For example, a
lawsuit from a client might be allocated to ``Clients, products, and
business practices'' whereas a lawsuit from an employee might be
allocated to ``employment practice and workplace safety.'' See
OPE25, Basel Framework, Bank of International Settlements, https://www.bis.org/basel_framework/chapter/OPE/25.htm. See also 91 FR 14952
(Mar. 27, 2026).
---------------------------------------------------------------------------
Proposed Sec. 247.18(c)(1) would require Board-supervised PPSIs to
establish procedures to identify, collect, and independently review
operational loss data as well as subject these processes to regular
independent review by an audit function. In addition to enhancing the
risk sensitivity of capital requirements, this data collection would
enable both regulators and Board-supervised PPSIs to better understand
operational risks in this context and could serve as an input to future
revisions to requirements.
To address problems surrounding a lack of history of operational
risk data because of the newness of both stablecoin markets generally
and PPSIs specifically, proposed Sec. 247.18(c)(2) specifies that, for
any quarter in which a Board-supervised PPSI was not operating during
the full quarter or was not required to collect internal loss data, the
Scaled Loss Rate should be calculated as the Threshold Loss Rate
multiplied by 1.5[supcaret](1/(Loss Elasticity)). This calibration
would raise operational risk requirements by 50 percent for Board-
supervised PPSIs with no data, which would include new Board-supervised
PPSIs that did not consistently operate over the prior five years or
that were not collecting operational loss data prior to becoming a
Board-supervised PPSI. However, this approach would also allow the
operational risk capital requirement to gradually fall to the baseline
level if average realized operational losses remain below the threshold
over the following five years.
With prior written approval, a Board-supervised PPSI would be
permitted calculate the Scaled Loss Rate as the Threshold Loss Rate
multiplied by 1.5[supcaret](1/(Loss Elasticity)). In this case, the
Board-supervised PPSI would not be required to collect operational loss
data. This approach could potentially be applied to situations in which
it would be overly difficult for a Board-supervised PPSI to gather
sufficient quality operational loss data, while the required approval
would limit potential for abuse from Board-supervised PPSIs with
operational losses sufficient to raise the Loss Scalar above 1.5.
For cases in which this approach is not sufficient for capturing
operational risk, proposed Sec. 247.15(e)(4)(iii)-(v) would allow the
Board to require a Board-supervised PPSI to make certain adjustments in
the calculation of operational risk requirement if the Board determines
that the Board-supervised PPSI's capital requirements for operational
risk for payment stablecoin activities are not commensurate with the
Board-supervised PPSI's operational risk.
Question 157: The Board seeks comment on the issuance-based portion
of the baseline operational risk requirement. What are the advantages
and disadvantages of using outstanding issuance value as a measure of
the scale of a Board-supervised PPSI's issuance and reserve management
activities? What other, if any, measures, such as revenue or the value
of reserve assets, would be more appropriate and why? What other
calibration should the Board consider, such as (i) applying a uniform
capital requirement between one and two percent of outstanding issuance
value and/or (ii) additionally including a fixed capital requirement
between $1 million and $25 million to account for operational losses
that do not scale with outstanding issuance value? The Board encourages
commenters to share data on the rate of operational losses for issuance
and reserve management activities.
Question 158: The proposed graduated approach to calculating the
issuance-based portion of the baseline operational risk requirement
posits that Board-supervised PPSIs' operational losses do not scale
linearly with outstanding issuance value. What are the advantages and
disadvantages of incorporating a graduated approach in the baseline
issuance-based operational risk requirement? What other approaches
should the Board consider to accurately reflect the relationship
between a PPSI's operational losses and its outstanding issuance value?
The Board encourages commenters to share data on the relationship
between a PPSI's operational losses and its outstanding issuance value.
Question 159: The Board seeks comment on the revenue-based portion
of the baseline operational risk requirement. What are the advantages
and disadvantages of the proposed calibration of 25 percent of revenue?
What, if any, other calibrations, for example 10 percent, 15 percent,
or 30 percent, should the Board consider? What, if any, changes should
the Board consider (for example, removing revenues beyond those from
reserve assets or netting any expenses to reflect the scale of a Board-
supervised PPSI's other activities) and why? Commenters are encouraged
to provide supporting rationale and data to support their
recommendations.
Question 160: To maintain simplicity, the Board opted to apply the
25 percent operational risk capital requirement to all non-reserve
asset revenue. The Board seeks comment on whether, as an alternative,
custody activities should be subject to a separately-calibrated
requirement. What are the advantages and disadvantages of the proposed
approach of applying a 25 percent capital requirement uniformly to all
non-reserve asset revenues? What are the advantages and disadvantages
of an alternative approach that would apply a reduced capital
requirement between 12 and 18 percent to revenues that derive from
custody activities, which would be similar to recently-proposed
operational risk capital requirements for most banking organization
activities? Under this alternative approach, should the reduced capital
requirement apply only to the custody of reserve assets and why?
Question 161: The Board seeks comment on the proposed specification
for the loss scalar. What are the advantages and disadvantages of (i)
setting the Threshold Loss Rate at 1/15th of the baseline operational
risk requirement; (ii) setting the Loss Elasticity parameter to 0.5;
(iii) using a five-year lookback period to calculate the scalar; and
(iv) replacing missing data with the proposed conservative value that
would result in a loss scalar of 1.5 (all as proposed)? What
alternative calibrations should the Board consider? For example, the
Board could set a higher Threshold Loss Rate of 1/10th or a lower
threshold of 1/20th; set the Loss Elasticity parameter to a more
sensitive specification, such as 0.8; use a shorter lookback period to
calculate the scalar, such as three years, or a longer period, such as
ten years; or set a higher loss scalar in the case of missing
operational loss data, such as 2, for additional conservatism? What are
the advantages and disadvantages of such alternatives?
Question 162: The proposed loss scalar is intended to incentivize
Board-
[[Page 61627]]
supervised PPSIs to prudently manage their operational risks. What are
the advantages and disadvantages of the proposed loss scalar? What are
the costs and benefits of requiring Board-supervised PPSIs to calculate
the operational risk capital requirement without the loss scalar?
Commenters are encouraged to provide supporting rationale and data to
support their recommendations.
Question 163: The Board seeks comment on the data collection
requirements for internal loss data in proposed Sec. 247.18(c). What
are the advantages and disadvantages of requiring Board-supervised
PPSIs to collect internal loss data? What logistical difficulties could
the data collection pose to Board-supervised PPSIs? What are the
challenges in classifying operational losses in one of the seven risk
types? Would alternative classifications of operational risk events be
more appropriate? What are the advantages and disadvantages of
providing Board-supervised PPSIs the option of not collecting data on
operational losses and instead applying a loss scalar of 1.5?
Question 164: What would be the advantages and disadvantages of
setting operational risk requirements based on the Board-supervised
PPSI's internal models (instead of using a standardized approach)? What
safeguards would be appropriate around the use of such models? What
would be an appropriate standard of loss coverage that the operational
risk capital requirement should cover (for example, a percentile
between 98% and 99.5% of the total operational losses over a one year
period)?
iv. Total Capital Requirement Calculation (Proposed Sec. 247.15(a)-
(b))
Under proposed Sec. 247.15(b), a Board-supervised PPSI would be
required to satisfy capital requirements based on (i) the amount of
tangible equity equal to the sum of the requirements for uninsured
eligible deposit claims, undercollateralized reverse repurchase
agreements, and operational risks and (ii) the amounts of common equity
tier 1, tier 1, and total capital that the Board-supervised PPSI holds
to satisfy the capital requirements for non-reserve assets. Proposed
Sec. 247.15(a) provides that each Board-supervised PPSI would be
required to meet the overall capital adequacy standards in accordance
with proposed Sec. Sec. 247.15 through 247.18 at all times. As
discussed in section II.B.6.b.ii of this SUPPLEMENTARY INFORMATION,
under proposed Sec. 247.17(b)(2)(ii), a Board-supervised PPSI would
not be permitted to use any capital held to satisfy the minimum capital
requirements for reserve asset risks and operational risks to satisfy
the capital it would be required to hold for non-reserve asset
financial risks. This approach would help to ensure that the capital
held to satisfy the minimum capital requirements of proposed Sec.
247.17(b) would not subsidize the other minimum capital requirements in
proposed Sec. Sec. 247.15-18 (and vice versa) and would reflect that
capital held to absorb losses from non-reserve assets is not available
to absorb losses from reserve assets or operational risks.
Proposed Sec. 247.15(b)(1)(i) provides the formula for calculating
capital requirements for uninsured eligible deposit claims (as set
forth in proposed Sec. 247.17(a)(1) and (3)), undercollateralized
reverse repurchase agreements (as set forth in proposed Sec.
247.17(a)(2) and (3)), and operational risks (as set forth in proposed
Sec. 247.18) as the sum of (i) the requirements for direct and
indirect credit risk related to uninsured eligible deposit claims, (ii)
the requirements for direct and indirect credit risk related to reverse
repurchase agreements, and (iii) the requirements for operational risk.
The capital requirement for non-reserve asset financial risks is
set out in proposed Sec. 247.17(b) and would be based on the Board's
capital rule (12 CFR part 217), as outlined in section II.B.6.b.ii of
this SUPPLEMENTARY INFORMATION.
Proposed Sec. 247.17(a) would require a Board-supervised PPSI to
calculate its minimum capital requirements for uninsured eligible
deposit claims and undercollateralized reverse repurchase agreements on
a daily basis. A Board-supervised PPSI should already have the data
necessary to make such calculation, given the requirement under
proposed Sec. 247.11(a)(2) that a Board-supervised PPSI would be
required to record the fair value of reserve assets at a minimum of
once each calendar day.\113\ For non-reserve asset financial risks,
proposed Sec. 247.17(b) would require a Board-supervised PPSI to
calculate its minimum capital requirements in accordance with the
frequency of capital requirements calculation prescribed by the Board's
capital rule. Proposed Sec. 247.18(b)(1) would require a Board-
supervised PPSI to calculate capital requirements for operational risk
as of the end of the quarter. A quarterly calculation for operational
risk is appropriate, given that the revenue data used in the revenue-
based component of the requirement is typically reported quarterly. As
a result, the minimum capital requirements in proposed Sec.
247.15(b)(1) would be (i) the sum of the average of each minimum
capital requirement for uninsured eligible deposit claims,
undercollateralized reverse repurchase agreements, and operational risk
over one quarter and (ii) the average of the minimum capital
requirements for non-reserve assets over one quarter. Such requirements
must be met at all times.
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\113\ For the daily calculation of credit risk from eligible
funds, a Board-supervised PPSI would be allowed to use the most
recent data that is available for the eligible fund.
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In addition, under proposed Sec. 247.15(e)(1), as part of the
proposal's reservation of authority provisions, the Board may require a
Board-supervised PPSI to maintain an overall amount of capital that
differs from the amount otherwise required under the proposal, if the
Board determines that the permitted payment stablecoin issuer's minimum
capital requirements under the proposal are not commensurate with the
risk of the Board-supervised PPSI's exposures.
Question 165: The Board seeks comment on using different
definitions of capital for the requirements for reserve asset and
operational risks and non-reserve asset risks. What are the advantages
and disadvantages of the proposed approach that uses tangible equity
for reserve asset and operational risks and the multiple forms of
capital under the banking organization capital rule (12 CFR 217.20) for
non-reserve asset risks? As an alternative, the Board considered
aligning the two definitions of capital by converting the capital
requirements in the capital rule into units of tangible equity, such as
by (i) applying a single risk-based capital requirement based on
tangible equity that multiplies risk-weighted assets by either 6
percent or 8 percent and (ii) applying the same level of leverage
ratio-related capital requirements to tangible equity instead of tier 1
capital. What are the advantages and disadvantages of such an approach?
The Board also considered aligning the two definitions of capital by
converting the capital requirements for reserve assets and operational
risks into the same units used in the banking capital rule, such as by
multiplying the capital requirements for reserve assets and operational
risks by 12.5 to convert them into risk-weighted assets, adding them to
the risk-weighted assets for non-reserve assets, and calculating
capital requirements based on the total risk-weighted assets using the
definitions of capital in the banking standard. What are the advantages
and disadvantages of this approach?
[[Page 61628]]
Question 166: The Board seeks comment on an alternative proposal
that would recognize diversification across different types of risks
when calculating Board-supervised PPSI capital requirements. This
proposal would help ensure that the proposed capital requirements
reflect that there is little, if any, correlation between the credit
risk from holding uninsured eligible deposit claims and Board-
supervised PPSI operational risks. It would recognize that capital is
fungible, and that capital held to absorb losses from operational risks
could also absorb losses from the failure of an insured depository
institution holding reserve assets in the form of uninsured eligible
deposit claims. Under this alternative proposal, the formula for Board-
supervised PPSI capital requirements would be
[GRAPHIC] [TIFF OMITTED] TP29SE26.002
where [rho] is a parameter that reflects the correlation between
different types of risks. What would be the advantages and
disadvantages of using this alternative formula with a [rho] parameter
of 0, which would assume zero correlation between different types of
risks? What would be the advantages and disadvantages of using this
alternative formula with a higher [rho] parameter of 0.25, 0.5, or 0.75
to provide partial recognition of diversification?
A second alternative would be to multiply the proposed Board-
supervised PPSI capital requirements by a multiplier to approximately
reflect typical diversification benefits, so that the formula for
Board-supervised PPSI capital requirements would be
[GRAPHIC] [TIFF OMITTED] TP29SE26.003
In this case, the diversification multiplier would be calibrated to
reflect the diversification benefit that a Board-supervised PPSI would
receive under the first alternative proposal. That is, it would be
calibrated to be approximately
[GRAPHIC] [TIFF OMITTED] TP29SE26.004
where Example Reqt for Risk i would reflect the capital requirement for
risk i from an example Board-supervised PPSI portfolio meant to
represent a typical Board-supervised PPSI and r would be a correlation
parameter that would be 0, 0.25, 0.50, or 0.75. The Board expects that
the diversification multiplier from this process would fall within the
range of 0.7 to 1. What are the advantages and disadvantages of this
second alternative? How does it compare to the first alternative?
Question 167: The Board seeks comment on the frequency of
calculation of minimum capital requirements. What are the advantages
and disadvantages of requiring a Board-supervised PPSI to calculate
minimum capital requirements for reserve and non-reserve assets on a
daily basis? What would be the advantages and disadvantages of an
alternative approach requiring firms to use daily data (or quarterly,
such as for the operational risk requirement) averaged over the quarter
and only calculated once per quarter? What other frequencies of
calculation (for example, monthly), if any, should the Board consider
and why?
Question 168: The Board seeks comment on the proposed risk-based
minimum capital requirements and their calibration. What alternative
approaches, if any, to setting minimum capital requirements for Board-
supervised PPSIs should the Board consider and why? For example, what
are the advantages and disadvantages of an alternative approach
allowing Board-supervised PPSIs to determine minimum capital
requirements based on their internal processes and their own analysis
of quantitative and qualitative factors including, but not limited to,
their business model and risk profile, financial projections, fixed and
variable expenses, the nature of fiduciary products and services being
proposed, and discussions with organizers, like the OCC proposed in
Sec. 15.41(a)(2) of its GENIUS Act NPR? \114\ What are the costs and
benefits of allowing such individualized determination of minimum
capital requirements? If an alternative approach based on a Board-
supervised PPSI internal processes was used, what would be the
appropriate standard of loss coverage for such a requirement (for
example, a percentile between 98 percent and 99.5 percent of the total
projected losses over a one-year period) and why? Alternatively, what
are the advantages and disadvantages of imposing a minimum capital
requirement based on a set percentage of outstanding issuance value?
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\114\ See 91 FR 10202 (March 2, 2026).
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Question 169: Section 4(a)(4)(A)(i) of the Act (12 U.S.C.
5903(a)(4)(A)(i)) provides that a Federal regulator could impose a
capital buffer tailored to a PPSI's business model and risk profile if
a regulator determines that a capital buffer would be necessary to
ensure ongoing operations of the PPSI. The Board seeks comment on
whether capital requirements for Board-supervised PPSIs should include
a capital buffer in addition to risk-based capital requirements to
preserve market confidence in the issuer's ability to remain a going
concern following a severe stress event. Consistent with the capital
buffers applicable to the Board-
[[Page 61629]]
regulated banking organizations, this capital buffer would also be
intended to be usable in stress. What would be advantages and
disadvantages of imposing a variable capital buffer to Board-supervised
PPSIs? What would be advantages and disadvantages of calibrating a
capital buffer based on the Board-supervised PPSI's cost of operations
for at least three months in the going-concern state, and why? What
other calibration approaches and methodologies should the Board
consider when determining a capital buffer, and why? Respondents are
encouraged to provide specific examples, including calculations and
supporting data.
Question 170: The Board seeks comment on whether to set capital
requirements for Board-supervised PPSIs that would capture foreign
exchange risk of their reserve assets, to the extent applicable. What
are the advantages and disadvantages of setting a capital requirement
to capture risks from foreign exchange rate fluctuations, such as those
from eligible deposit claims or reverse repurchase agreements that are
denominated in national currencies other than the U.S. dollar? What are
the advantages and disadvantages of setting such a capital requirement
based on the potential losses from exchange rate movements, such as
reflecting the maximum potential loss from the greater of a 30-percent
appreciation or 30-percent depreciation in the relevant other currency
against the U.S. dollar?
Question 171: The Board seeks comment on the potential advantages
and disadvantages of including an operational backstop to the final
rule, like the OCC proposed in Sec. Sec. 15.41(b) and 15.42 of its
GENIUS Act NPR.\115\ An operational backstop would be a requirement to
hold liquid assets that are sufficient to cover the past year's
expenses (or a forward-looking estimate of annual expenses for new
Board-supervised PPSIs). What are the advantages and disadvantages of
imposing an operational backstop instead of, or in addition to,
standardized capital requirements?
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\115\ See 91 FR 10202 (March 2, 2026).
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c. De Novo Capital Requirement (Proposed Sec. Sec. 247.15(b)(2);
247.15(e)(2))
Proposed Sec. 247.15(b)(2) would impose an initial floor on
minimum capital requirements that would apply during a ``de novo''
period of three years following the date on which a Board-supervised
PPSI initially received approval from the Board or another relevant
payment stablecoin regulator to issue payment stablecoins under the
GENIUS Act.\116\ During the three-year de novo period, a Board-
supervised PPSI subject to this requirement would be required to
calculate the total minimum capital requirement applicable to all
Board-supervised PPSIs as discussed in section II.B.6.b of this
SUPPLEMENTARY INFORMATION and would be subject to the higher of (i) the
de novo capital requirement and (ii) the total minimum capital
requirement.
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\116\ In the case of a Board-supervised PPSI that originated as
a subsidiary of a State member bank, the relevant approval would be
from the Board. If a Board-supervised PPSI was initially licensed by
another Federal or State regulator, but has become a Board-
supervised PPSI (for example, because of a parent State member
bank's charter conversion or a recent membership approval, or the
transition provisions in proposed Sec. 247.51), the de novo period
would terminate three years after the Board-supervised PPSI
originally received approval by its first Federal or State payment
stablecoin regulator to become a PPSI under the GENIUS Act.
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The de novo capital requirement would establish a $5 million floor,
indexed to nominal U.S. GDP, that would help ensure that a newly formed
Board-supervised PPSI could continue operations in the face of
unexpected losses without materially inhibiting the Board-supervised
PPSI's growth. Furthermore, in its notice of proposed rulemaking
implementing its responsibilities under the GENIUS Act, the OCC also
proposed a minimum capital threshold of $5 million for newly formed
OCC-supervised PPSIs based on its experience chartering de novo
national trust banks, including those seeking to provide stablecoin
programs.\117\ The OCC determined that minimum capital amounts ranging
from $6.05 million to $25 million would be necessary to establish a
viable business model.\118\ As such, the $5 million requirement
reflects the lower bound of minimum capital a Board-supervised PPSI
would be required to maintain while establishing a new stablecoin.
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\117\ See 91 FR 10202, 10240 (March, 2, 2026); see also OCC
Bulletin 2007-21 (June 26, 2007). On April 7, 2026, the FDIC also
proposed to implement certain provisions of the GENIUS Act,
including the minimum capital threshold of $5 million for PPSIs
during the de novo period. See 91 FR 18534 (April 10, 2026).
\118\ See OCC News Release 2025-125, ``OCC Announces Conditional
Approvals for Five National Trust Bank Charter Applications''
(December 12, 2025).
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Under proposed Sec. 247.15(e)(2), the Board could, in its
discretion, extend the de novo period based, for example, on changes to
the business model or activities of a Board-supervised PPSI, excessive
volatility in issuance and redemptions of its payment stablecoin(s),
unexpected operating losses, weak earnings, poor risk management, or
violations of the GENIUS Act or its implementing rules with respect to
capital requirements and proposed Sec. Sec. 247.15-18. Similarly, the
Board could, in its discretion, shorten the de novo period for a Board-
supervised PPSI, such as for a firm that has a history of operating a
payment stablecoin business prior becoming a Board-supervised PPSI.
Moreover, the Board may increase or decrease the minimum capital
requirement applicable to a Board-supervised PPSI during the de novo
period, provided that the Board determines the revised amount is
sufficient to ensure the ongoing operations of Board-supervised PPSI.
Question 172: The Board seeks comment on the proposed de novo
period and the $5 million minimum capital requirement, which would be
indexed to nominal U.S. GDP. Is the $5 million requirement appropriate,
or should it be higher, lower, or calibrated differently? What are the
advantages and disadvantages of requiring Board-supervised PPSIs to be
subject to a capital requirement that would equal the higher of the de
novo capital requirement and the risk-based total minimum capital
requirement, and why? Is three years an appropriate ``de novo'' period?
d. Compliance With Capital Requirements (Proposed Sec. 247.15(c))
Under proposed Sec. 247.15(c), if a Board-supervised PPSI does not
meet the minimum capital requirement under proposed Sec. 247.15(b) as
of the end of a quarter, it would be required to make efforts to
satisfy capital requirements by the end of the following quarter.
Specifically, within five business days of the end of such quarter, a
Board-supervised PPSI would be required to submit a capital plan to the
Board that provides a detailed strategy for restoring its capital
levels to ensure that it meets or exceeds the minimum capital
requirements under proposed Sec. 247.15(b). This plan should outline
the actions the Board-supervised PPSI would take to ensure it returns
to compliance with the minimum capital requirements under proposed
Sec. 247.15(b) by the end of the following quarter. For example, to
restore its minimum capital levels, the Board-supervised PPSI could
raise additional tangible equity, reduce the size of the operations, or
reduce its risk profile. Furthermore, in its capital plan the Board-
supervised PPSI should specify the types and levels of activities it
would project to engage in during the capital plan's term, which would
generally be the period between the time the Board-supervised PPSI
falls
[[Page 61630]]
below its minimum capital requirements and the end of the following
reporting period, provide a schedule for restoring its capital to meet
minimum capital requirements, and address any other requirements
imposed on the Board-supervised PPSI. The proposal would require that
the capital plan provide a feasible approach to returning the Board-
supervised PPSI to compliance within one quarter given general market
conditions and the Board-supervised PPSI's specific circumstances.
If a Board-supervised PPSI fails to meet its capital requirements
in proposed Sec. 247.15(b) by the end of the following quarter,
proposed Sec. 247.15(c)(2) would require the Board-supervised PPSI to
take certain actions starting the next day after the last day of such
quarter. Specifically, the Board-supervised PPSI would be required to
begin liquidation of all of its reserve assets, concluding liquidation
of all reserve assets as soon as possible, and redemption of
outstanding stablecoins consistent with the redemption requirements in
proposed Sec. 247.12 and without the ability to issue any new payment
stablecoins. For example, if as of March 31, a Board-supervised PPSI's
level of capital is below the minimum requirement, the Board-supervised
PPSI would have until June 30 to come into compliance and restore its
minimum level of capital. If by June 30 the Board-supervised PPSI does
not meet the minimum capital requirement, it would be required to
initiate the next day liquidation of its reserve assets and redemption
of outstanding stablecoins. Furthermore, a Board-supervised PPSI would
be prohibited from charging customers any fee for redeeming payment
stablecoins during this liquidation and would be prohibited from
issuing new payment stablecoins.
This proposed capital compliance framework seeks to afford a Board-
supervised PPSI the opportunity to address any capital shortfall it
experiences without creating undue risk for payment stablecoin holders.
When a Board-supervised PPSI experiences a capital shortfall, its
ability to absorb losses could be compromised, leading to a higher risk
of insolvency and losses to payment stablecoin holders. To protect
against such losses, the proposal would limit to one quarter the period
during which a Board-supervised PPSI can remedy a capital deficiency.
Question 173: The Board seeks comment on the compliance
requirements and consequences for a Board-supervised PPSI falling below
its minimum capital requirement. What are the advantages and
disadvantages of the proposed one-quarter grace period to restore
minimum capital and why? What are the advantages and disadvantages of
extending the grace period to two quarters and why? What additional, if
any, compliance requirements should the Board consider to help ensure
that a Board-supervised PPSI has sufficient resources to continue its
operations? What are the advantages and disadvantages of implementing
procedures like those OCC proposed in Sec. 15.42 of its GENIUS Act NPR
\119\ or those the FDIC proposed in Sec. 350.10 of its GENIUS Act NPR?
\120\
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\119\ See 91 FR 10202 (March 2, 2026).
\120\ See 91 FR 18534 (April 10, 2026).
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e. Additional Capital Requirements--Request for Comment
The Board is seeking comment on whether to propose additional
capital requirements. The Board considered requiring, but ultimately
decided not to require, Board-supervised PPSIs to maintain certain
amount of capital to absorb projected declines in the value of reserve
assets because of potential changes in interest rates. Interest rate
risk is the risk to an entity's current or projected financial
condition and resilience arising from movements in interest rates. When
interest rates change, the present value and timing of future cash
flows also change. This in turn may affect the mark-to-market value of
a Board-supervised PPSI's reserve assets, including Treasury
securities. To address this risk, the Board considered requiring Board-
supervised PPSIs to hold capital equal to projected losses in the fair
value of reserve assets under a scenario in which interest rates
increase by two percentage points.
The Board opted not to propose such a requirement, given that a
PPSI's exposure to interest rate risk is generally minimal because of
the GENIUS Act's strict restrictions on the types of permissible
reserve assets. For example, U.S. Treasury securities with maturities
of 93 days or less present very little price sensitivity to changes in
interest rates. Nevertheless, the Board is seeking comment on whether
an interest rate risk capital requirement is appropriate, and how such
requirement should be calibrated.
Question 174: The Board seeks comment on whether to impose a
capital requirement to address interest rate risk. The Board considered
requiring Board-supervised PPSIs to hold capital equal to projected
losses in the fair value of reserve assets under a scenario in which
interest rates increase by two percentage points. What would be the
advantages and disadvantages of such an approach? What other
calibrations (for example, a calibration of the interest rate increase
in the range of half a percent to three percent) should the Board
consider and why? What would be the advantages and disadvantages of
requiring Board-supervised PPSIs to multiply the duration or weighted
average maturity of their portfolio by the presumed increase in
aggregate interest rates for the portfolio or prescribing interest
rate-related losses for reserve assets that belong to particular
maturity buckets? What other, if any, risks should the Board consider
(for example, when a counterparty provides collateral with maturity
longer than three months for reverse repurchase transactions)?
Question 175: The Board seeks comment on the capitalization of
interest rate risk for non-reserve assets. In certain cases, the bank
capital framework does not provide requirements that capture interest
rate risk. What would be the advantages and disadvantages of including
a capital surcharge to capture interest rate risk for non-reserve
assets? What calibration of the interest rate risk requirement should
the Board consider and why?
7. Indexing of Thresholds by Nominal GDP Growth
The proposal would use certain thresholds to differentiate
requirements based on a Board-supervised PPSI's size, risk profile, and
complexity as well as on the characteristics of the exposures. However,
static dollar-based thresholds can lead to unintended consequences if
threshold levels are not periodically updated or indexed. For example,
Board-supervised PPSI requirements that do not adjust may effectively
become stricter over time.
Accordingly, the proposal would require an annual adjustment of
certain dollar-calibrated thresholds based on a three-year moving
average of annual nominal U.S. GDP growth.\121\ To mitigate the
potential procyclical effect over short timeframes, the annual
mechanism would use a three-year moving average of annual nominal U.S.
GDP growth, which would reduce volatility and improve the
predictability of adjustments.\122\
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\121\ The proposed annual indexing to the nominal U.S. GDP
growth is equivalent to adjusting the proposal's dollar thresholds
for the annual real U.S. GDP growth plus annual changes in the
cumulative U.S. GDP implicit price deflator.
\122\ Because this approach would be based on cumulative change
in average nominal U.S. GDP following the effective date of a final
rule, it would also account for periods of negative growth. However,
adjustments to the thresholds would only occur when there is a
positive net cumulative change.
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[[Page 61631]]
To ensure an accurate and predictable measure, the Board would
generally use the most current estimate of nominal U.S. GDP for a given
calendar year published by the Bureau of Economic Analysis on or before
September 30 of the year of the publication of the scalar.\123\ The
Board would calculate the value for the GDP growth adjustment scalar as
a ratio of the average nominal U.S. GDP estimates for the three
calendar years directly preceding the year in which the scalar is
published, divided by the average nominal U.S. GDP for the three most
recent calendar years preceding the effective date of any final rule
for which estimates are available. For example, if the Board were to
adopt a final rule with an effective date of 2027, the Board would
calculate the GDP growth adjustment scalar in 2028 by dividing the
average nominal U.S. GDP in calendar years 2025, 2026, and 2027 by the
average nominal U.S. GDP in calendar years 2024, 2025, and 2026.\124\
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\123\ See Bureau of Economic Analysis, Gross Domestic Product,
https://www.bea.gov/data/gdp/gross-domestic-product. The Board may
elect to use a comparable value in instances such as where a nominal
U.S. GDP growth estimate from the Bureau of Economic Analysis is
unavailable.
\124\ The proposal includes a definition of the GDP growth
adjustment, which sets forth the way in which the adjustment would
be calculated each year.
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The Board would calculate and publish a GDP growth adjustment
scalar, along with updated dollar-based thresholds, each year.\125\
Each calendar year, a Board-supervised PPSI would calculate the
regulatory dollar thresholds in proposed 12 CFR part 247, which would
then be multiplied by the GDP growth adjustment scalar, using the
updated GDP growth adjustment scalar published by the Board.
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\125\ The Board expects that it would publish the adjustment
annually on the Board's public website and in the Federal Register.
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Indexing dollar-based thresholds in this manner would provide a
simple methodology to help ensure that the proposed requirements listed
below reflect changes in the Board-supervised PPSIs risk profile
relative to the size of the U.S. economy.
The proposal would index the following thresholds: (i) the
thresholds of (a) less than $1 billion in outstanding issuance value
and (b) less than $25 billion in total monthly trading volume for
extended exam cycles in proposed Sec. 247.14(d)(3); (ii) the $5
million minimum capital requirement during the ``de novo'' period of a
Board-supervised PPSI under proposed 247.15(b)(2); (iii) the $20
billion and $50 billion outstanding issuance value thresholds used to
determine the baseline operational risk requirement under proposed
Sec. 247.18(b)(1); and (iv) the $20,000 of historical operational
losses as part of the data collection requirement under proposed Sec.
247.18(c)(1)(i)(A).
Question 176: The proposal would include an annual adjustment of
certain dollar-calibrated thresholds based on a three-year moving
average of annual nominal U.S. GDP growth. What are the advantages and
disadvantages of using nominal U.S. GDP as the basis to annually adjust
the thresholds? What are the advantages of disadvantages of using a
three-year moving average as part of the measurement?
Question 177: The Board seeks comment on all aspects of the
proposed approach for adjusting thresholds. What alternative measures
for adjusting such thresholds should the Board consider? For example,
what are the advantages and disadvantages of an alternative approach
that would adjust the thresholds based on inflation? The U.S. Bureau of
Labor Statistics publishes different versions of the consumer price
index, which capture price changes in different economic segments. What
measure of consumer price index should the Board consider, and why?
C. Subpart C--Rules Applicable to Board-Supervised Custodians
Section 10 of the GENIUS Act (12 U.S.C. 5909) imposes requirements
on any person seeking to provide ``custodial or safekeeping services
for payment stablecoin reserves, the payment stablecoins used as
collateral, or the private keys used to issue payment stablecoins.''
Among other things, section 10 of the Act requires such persons to be
subject to supervision or regulation by a Federal or State supervisor,
to treat covered assets as customer property, to separately account for
and not commingle covered assets unless permitted under a listed
exception, and to provide their supervisor with certain regulatory
information as determined by that supervisor.
The proposal would (i) establish relevant defined terms for
purposes of subpart C to clarify the scope of custodial services to
which subpart C would apply; (ii) set minimum principles-based
requirements for Board-supervised institutions related to their
provision of custodial or safekeeping services to the assets described
in section 10(b) of the GENIUS Act (12 U.S.C. 5909(b)) that are
appropriate to protect such assets held under custody from the claims
of creditors of the covered custodian; and (iii) implement other
requirements and exclusions of the Act.
1. Definitions (Proposed Sec. 247.20)
The Board is proposing to define the assets for which the provision
of custodial or safekeeping services trigger the requirements of the
Act as ``covered assets.'' This term would include the assets described
in section 10(a) of the GENIUS Act (12 U.S.C. 5909(a)) that comprise
the payment stablecoin reserves (discussed above), any payment
stablecoin used as collateral, and the private keys used to issue
payment stablecoins.\126\
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\126\ Section 10(a) of the GENIUS Act (12 U.S.C. 5909(a)) refers
only to ``the private keys used to issue payment stablecoins.''
Thus, private keys associated with other activities are not within
the scope of ``covered assets'' for purposes of Subpart C of the
Board's implementing regulations.
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The Board is also proposing to include in the definition of covered
assets any cash or other property of a covered customer received by the
covered custodian (defined and discussed below) in the course of
provision of custodial or safekeeping services contemplated under the
GENIUS Act. Sections 10(b) and (c) of the GENIUS Act (12 U.S.C. 5909(b)
and (c)) each apply the Act's custodial requirements not only to the
custody of payment stablecoin reserves, payment stablecoins used as
collateral, and the private keys used to issue payment stablecoins but
also to ``cash[ ] and other property'' of a covered customer of one of
those assets.
``[C]ash'' and ``other property,'' as used in sections 10(b) and
(c) of the GENIUS Act (12 U.S.C. 5909(b) and (c)), appear to refer to
cash and other property that a covered custodian may receive as
custodial property of a covered customer, but only to the extent such
cash or other property is received in connection with the provision of
custodial services for payment stablecoin reserves, payment stablecoins
used as collateral, and the private keys used to issue payment
stablecoins. For example, any interest on payment stablecoin reserve
assets held in custody in a deposit account and credited to a covered
customer's (e.g., a PPSI) account would be the type of cash and other
property subject to the custody requirements of the Act.
Thus, under the proposed rule, ``covered assets'' would mean
payment stablecoin reserves, payment stablecoins used as collateral,
and private keys used to issue payment stablecoins, as well as cash and
other property received in the course of the provision of custodial or
safekeeping services for such assets.
[[Page 61632]]
Separately, the Board is proposing to define the entities to which
the proposed custody requirements would apply as ``covered
custodians.'' This term would mean any entity that (i) provides
custodial or safekeeping services for covered assets, (ii) is subject
to supervision or regulation by the Board, and (iii) is not (a) a PPSI
(as defined in proposed Sec. 247.2), bank, savings association,
Federal branch, or insured branch (as those terms are defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(r)) that
is subject to supervision by the FDIC or OCC; (b) an entity, other than
a federally regulated depository institution, subject to supervision by
a State bank supervisor, as defined in section 3(r) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(r)), provided that such State
bank supervisor makes available to the Board such information as the
Board determines necessary and relevant under section 10(d) of the Act
(12 U.S.C. 5909(d)); or (c) an entity for which the SEC or CFTC is the
primary financial regulatory agency as described in section 2(12) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12
U.S.C. 5301(12)).
Covered custodians under this section would generally include (i) a
State member bank; (ii) a Board-supervised PPSI; (iii) a bank holding
company (as defined in section 2(a) of the BHC Act (12 U.S.C. 1841(a));
(iv) a savings and loan holding company (as defined in section 10(a)(1)
of HOLA (12 U.S.C. 1467a(a)(1)); (v) a subsidiary of a bank holding
company or a savings and loan holding company that is not (a) a
national bank or depository institution subject to supervision by the
OCC or FDIC; (b) a PPSI subject to supervision by another primary
Federal payment stablecoin regulator, (c) an entity subject to
functional regulation by the SEC or CFTC, or (d) an entity, other than
a State member bank, subject to supervision by a State bank supervisor,
as defined in section 3(r) of the Federal Deposit Insurance Act (12
U.S.C. 1813(r)), provided that such State bank supervisor makes
available to the Board such information as the Board determines
necessary and relevant under section 10(d) of the Act (12 U.S.C.
5905(d)); (vi) the U.S. operations of foreign banking organizations
subject to the supervision or regulation of the Board pursuant to the
International Banking Act of 1978 (12 U.S.C. 3101 et seq.); and (vii)
any corporation organized under section 25A of the Federal Reserve Act
(12 U.S.C. 611 et seq.) or having an agreement with the Board under
section 25 of the Federal Reserve Act (12 U.S.C. 601 et seq.) (i.e.,
Edge Act and Agreement corporations).
The Board is proposing to define the custodial customers to which
the GENIUS Act's protections apply as ``covered customers.'' This term
would mean a person for or on whose behalf a covered custodian
receives, acquires, or holds covered assets. Covered customers under
this section would generally include (i) a PPSI with respect to any
reserve assets held by a covered custodian for the PPSI; (ii) a person
that has made a loan or other extension of credit secured by payment
stablecoins; and (iii) a PPSI with respect to any private keys used to
issue payment stablecoins that are held by a covered custodian for such
PPSI.
The Board is also proposing to define certain other concepts
relative to covered asset custodial activities. The proposal would
define ``applicable law'' for purposes of subpart C as the law of a
State or other jurisdiction governing a covered custodian's custody
relationships, any applicable Federal law governing those
relationships, the terms of the custody agreement, and any applicable
court order. The proposal would define ``custody agreement'' as a
legally binding contractual agreement between a covered customer, as
the principal, and the custodian, as the agent, that establishes the
custodian's duties and responsibilities in providing safekeeping,
custody and ancillary services to the covered customer. The proposal
would define ``digital wallet'' as a software program or hardware
device that stores and manages the private keys associated with a
particular unit of a digital asset. The proposal would define ``sub-
custodian'' as a person that provides custody and safekeeping services
to a covered custodian, including through a digital wallet for which
such person controls the associated private keys, with respect to the
covered assets of a covered customer for which the covered custodian
otherwise serves as a custodian under this subpart.\127\
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\127\ A sub-custodian would be subject to the requirements
applicable to a custodian under the GENIUS Act, including the
requirements under section 10 of the Act (12 U.S.C. 5909).
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Question 178: Are the proposed definitions for terms relevant to
this section appropriate and sufficiently clear? For example, does the
definition of ``covered custodian'' appropriately scope in all of the
entities that should be subject to proposed subpart C and for which the
Board acts as the primary supervisor or regulator? Would it be helpful
to define any other terms? [similar to OCC question 149]
Question 179: The Board has interpreted ``cash and other property''
to refer to the cash and other property that a covered custodian may
receive as custodial property of covered customers, but only to the
extent such cash or other property is received in connection with the
provision of custodial services for the Act's three core custody
assets. Is this the appropriate approach? Should the Board take a
broader view of what constitutes ``cash and other property''? What are
the costs and benefits of such an approach? Does the proposal
appropriately address the different requirements for noncash covered
assets? [similar to OCC question 150]
Question 180: The Board is proposing to define covered assets in
such a way that the requirements of sections 10(a)-(c) of the Act (12
U.S.C. 5909(a)-(c)) would apply to all covered assets and is proposing
to apply the substantive requirements of those sections as a connected
set of requirements. However, sections 10(a)-(c) of the Act use
slightly different wording when describing the assets to which each
subsection applies and some of the substantive requirements that
apply.\128\ The Board believes that the provisions should be read
together to cover the same set of assets and to provide a cogent and
harmonized set of requirements for covered custodians.\129\ Instead of
the proposed approach, should the Board use the precise statutory
language regarding the scope of assets covered separately in paragraphs
(a), (b), and (c)? What are the advantages or disadvantages of doing
so? [similar to OCC question 151]
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\128\ For example, section 10(a) of the Act refers to ``the
payment stablecoin reserve, the payment stablecoins used as
collateral, or the private keys.'' 12 U.S.C. 5909(a). Section 10(b)
refers to ``the payment stablecoins, private keys, cash, and other
property.'' 12 U.S.C. 5909(b). Section 10(c) refers to ``[p]ayment
stablecoin reserves, payment stablecoins, cash, and other
property.'' 12 U.S.C. 5909(c).
\129\ For example, section 10(b) of the Act refers to property
described in section 10(a), suggesting that the provisions are meant
to be read together to cover the same set of assets.
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Question 181: Sections 10(b) and (c) of the GENIUS Act (12 U.S.C.
5909(b) and (c)) refer to ``payment stablecoins'' and not to ``payment
stablecoins used as collateral,'' which is the phrasing in section
10(a) of the Act (12 U.S.C. 5909(a)). The Board is proposing to
interpret the reference to ``payment stablecoins'' in these sections in
light of section 10(a) of the Act, thereby understanding sections 10(b)
and (c) to refer only to payment stablecoins that are used as
collateral. Should the Board
[[Page 61633]]
instead consider applying the custodial provisions in subpart C to all
``payment stablecoins'' held in custody by covered custodians? What
would be the advantages and disadvantages of such an approach?
Question 182: Proposed subpart C would implement section 10 of the
GENIUS Act (12 U.S.C. 5909) with respect to entities that are regulated
by the Board. Are there issues that the Board should bear in mind if a
Board-regulated entity holds reserve assets on behalf of a stablecoin
issuer that is not regulated by the Board and may not be familiar with
the Board's implementation of section 10 of the GENIUS Act? [similar to
OCC question 152]
Question 183: Section 10(c)(3) of the GENIUS Act (12 U.S.C.
5909(c)(3)) states that the claims of covered customers against a
covered custodian with regards to any payment stablecoins used as
collateral shall have priority over other claims. The section also
allows covered customers to expressly waive this priority. Is the
regulatory framework under the proposed rule consistent with this
statement? What market practices do commenters believe are likely to
arise regarding the use of the contractual provisions that waive a
covered customer's priority regarding payment stablecoins used as
collateral that are held in custody? To what extent should the Board
consider either providing guidance on the use of such contractual
provisions or requiring covered custodians to use such contractual
provisions in their custody agreements? How are customer waivers in
relation to covered custodians likely to impact the resolution of
PPSIs? For example, would they lead to additional complications in
determining the priority of claims? [similar to OCC question 160]
Question 184: Does the proposed approach regarding custody of
covered assets proposed in subpart C, or any alternative approach
discussed in comments or suggested by commenters, pose any concerns
regarding fair competition between covered custodians and entities that
are otherwise permissible custodians under section 10(a) of the GENIUS
Act (12 U.S.C. 5909(a)) but which are not supervised by the Board?
[similar to OCC question 166]
2. Covered Asset Custodial Property Requirements (Proposed Sec.
247.21)
Section 10(b) of the GENIUS Act (12 U.S.C. 5909(b)) requires
covered custodians to ``treat and deal with'' the covered assets of a
covered customer ``as belonging to such customer,'' and to ``take such
steps as are appropriate to protect'' covered assets from the claims of
the covered custodian's creditors. Proposed Sec. 247.21 would
implement these provisions through minimum, principles-based
requirements. In considering minimum, principles-based requirements,
the Board is proposing to require covered custodians to take such steps
that the Board would typically expect a supervised institution to take
as part of sound custodial practices necessary to protect assets under
custody from claims of the custodian's creditors.\130\ The Board
intends these principles-based, minimum requirements to be in line with
sound custodial management practices that the agency understands are
industry standard. In addition, State laws concerning fiduciary
activities apply to covered custodians.
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\130\ To the extent that a covered custodian, as an
accommodation to a covered customer, documents in an account
statement or other similar document any additional assets of that
customer for which the covered custodian does not provide custodial
or safekeeping services, including through use of a sub-custodian of
the covered custodian (commonly referred to as ``accommodation
assets'' or ``below the line assets''), the Board would not expect
such assets to be subject to the requirements of subpart C.
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Under proposed Sec. 247.21(a), a covered custodian must separately
account for the covered assets of each covered customer and must treat
and deal with those covered assets as belonging to such covered
customer and not as the property of the covered custodian. This can
potentially be enabled through comprehensive and accurate
recordkeeping, accounting practices that segregate physically or by
separate accounts property belonging to a covered customer from
property belonging to the custodian, and formal legal arrangements
(e.g., trust or nonfiduciary custody) that segregate customer property
in this manner. Under proposed Sec. 247.21(b)(1), a covered custodian
must take appropriate steps to protect the covered assets of covered
customers from the claims of creditors of the covered custodian and any
sub-custodian, as applicable, including through adopting, implementing,
and maintaining written policies, procedures, and internal controls
that are adequate to comply with applicable law and that are
commensurate with the covered custodian's size, complexity, and risk
profile and with the nature of the applicable covered assets for which
it provides custodial or safekeeping services.
Proposed Sec. 247.21(b)(2)(i) would require that a covered
custodian maintain possession or control of covered assets of a covered
customer that are held directly, including in a digital wallet for
which the covered custodian controls the associated private keys. Under
the proposal, a covered custodian may maintain the covered assets of a
covered customer through the use of a sub-custodian if consistent with
applicable law, provided the covered custodian maintains adequate
safeguards and internal controls reasonably designed to provide the
covered custodian with oversight of such sub-custodian's compliance
with the requirements of this proposed subpart C. Under proposed Sec.
247.21(b)(2)(ii), with regards to any payment stablecoin or payment
stablecoin reserve asset in the form of a tokenized asset held in
safekeeping under proposed subpart C, a covered custodian, or sub-
custodian, as applicable, maintains control for purposes of the
proposed requirement if it can reasonably demonstrate, consistent with
the standard of care established by applicable law, that no other
party, including the covered customer, can transfer the payment
stablecoin or tokenized asset using a distributed ledger without the
consent of the custodian or sub-custodian, as applicable. This
requirement is consistent with past interagency guidance on the control
of crypto-assets for purposes of safekeeping.\131\
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\131\ See Board of Governors of the Federal Reserve System,
Federal Deposit Insurance Corporation, Office of the Comptroller of
the Currency, ``Agencies Issue Joint Statement on Risk-Management
Considerations For Crypto-Asset Safekeeping.''
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The Board proposes codifying in proposed Sec. 247.21(c) the
exception in section 10(c)(2)(B) of the GENIUS Act (12 U.S.C.
5909(c)(2)(B)) to the customer property requirements described in
section 10(b) of the Act (12 U.S.C. 5909(b)) and the requirements of
the commingling prohibition described in section 10(c)(1) of the Act
(12 U.S.C. 5909(c)(1)).\132\ This exception permits, to the extent the
application of section 10(c)(2)(B) of the Act conflicts with the
[[Page 61634]]
requirements of sections 10(b) and (c)(1) of the Act, a covered
custodian to withdraw and apply such share of the covered assets of a
covered customer necessary to ``transfer, adjust, or settle a
transaction or transfer of assets'' applicable to that covered
customer, ``including the payment of commissions, taxes, storage, and
other charges lawfully accruing in connection with the provision of
services'' to that covered customer by the covered custodian. The Board
proposes to specify that any such withdrawal must be consistent with
any applicable law. For example, the Board would expect any such
withdrawal to be undertaken only in compliance with the terms of a
covered customer's written custodial agreement and in accordance with
any accurate recordkeeping practices necessary to comply with sections
10(b) and (c)(1) of the Act and their implementing regulations. The
Board would also expect that any such withdrawal of funds from an
omnibus account would be properly recorded as to not implicate the
custodial assets of any other covered customer.
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\132\ Section 10(c)(2)(B) of the Act, codified in proposed Sec.
247.21(c), provides an exception to both the customer property
requirement, which would be codified in proposed Sec. 247.21, and
the segregation of assets requirement, which would be codified in
proposed Sec. 247.22(a). However, this exception applies only to
the extent that the application of proposed Sec. 247.21(c)
conflicts with the requirements of proposed Sec. Sec. 247.21 and
247.22(a). As such, while a covered custodian may, for example,
commingle covered assets of a covered customer with funds belonging
to the custodian in order to effect transactions related to the
provision of certain services, the custodian must nevertheless
adhere to any accurate recordkeeping practices necessary to comply
with the principles-based requirements under proposed Sec. Sec.
247.21 and 247.22(a).
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Finally, proposed Sec. 247.21(d) would clarify, consistent with
section 10(c)(2)(D) of the GENIUS Act (12 U.S.C. 5909(c)(2)(D)), that
an insured depository institution that is a covered custodian is not
required to separate or segregate from its own property any payment
stablecoin reserves in the form of cash received from a PPSI in
exchange for eligible deposit claims against the insured depository
institution. Such holdings may be reflected as deposit liabilities of
the insured depository institution, provided such treatment is
consistent with Federal law.\133\ For the avoidance of doubt, the Board
does not view receiving payment stablecoin reserves in the form of cash
on deposit and reflecting such holdings as deposit liabilities as
creating a custody relationship between a PPSI and an insured
depository institution. Therefore, an insured depository institution is
a covered custodian only to the extent that such insured depository
institution provides custodial or safekeeping services for other
covered assets. Further, the Board does not view this exception as
permitting payment stablecoin reserves to be held as secured deposits
insulated from the credit risk of the relevant depository institution.
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\133\ Section 10(c)(2)(A) of the GENIUS Act (12 U.S.C.
5909(c)(2)(A)) provides that payment stablecoin reserves in the form
of cash represented as deposit liabilities of a depository
institution need not be separated from the property of the
applicable depository institution. Section 10(c)(2)(D) of the Act
(12 U.S.C. 5909(c)(2)(D)) provides a similar exception with respect
to insured depository institutions. Both statutory exceptions to the
requirements of sections 10(b) and (c)(1) of the Act (12 U.S.C.
5909(b) and (c)(1)) appear to acknowledge that payment stablecoin
reserves in the form of cash deposited at a depository institution
would be liabilities of the depository institution and could not be
mixed or ``commingled'' with the property or assets of such
depository institution. However, a PPSI's reserves in the form of
deposits can only be held at insured depository institutions
pursuant to section 4(a)(1)(A)(ii) of the Act (12 U.S.C.
5903(a)(1)(A)(ii)). Therefore, the Board believes it is appropriate
to limit the exception for cash held as deposit liabilities to
insured State member banks, which are the only insured covered
custodians under the proposed rule.
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Question 185: The Board is proposing applying these principles-
based requirements to covered custodians subject to Board supervision,
rather than requiring Board-supervised PPSIs that seek to custody a
covered asset to only custody such assets with a custodian that can
demonstrate it complies with certain minimum requirements. What are the
costs and benefits of this approach, including with regards to
administrability, jurisdiction, and the promotion of fair competition?
[similar to OCC question 153]
Question 186: The Board proposes principles-based requirements in
line with sound custodial management practices that the agency
understands are industry standard. Does the proposal accurately capture
sound custodial management practices that are industry standard?
[similar to OCC question 154]
Question 187: Does the proposal provide enough detail regarding
what steps are appropriate for a covered custodian to protect the
covered assets of covered customers from the claims of creditors of the
covered custodian? Would more prescriptive or specific requirements be
appropriate to implement the requirements of the Act? For example,
should the Board require a covered custodian to take appropriate steps
to protect the covered assets of covered customers from the claims of
creditors of the covered custodian, including through adopting,
implementing, and maintaining written policies, procedures, and
internal controls adequate for (i) the safekeeping of covered assets of
covered customers; (ii) the documentation of covered customer
relationships through one or more written custody agreements; (iii)
recording and verifying the covered assets of covered customers; and
(iv) the conducting of due diligence in the selection of and periodic
monitoring of sub-custodians, in each case commensurate with the
covered custodian's size, complexity, and risk profile and with the
nature of the applicable covered assets in its covered customer
relationships? What are the costs and benefits of prescriptive versus a
principles-based approach? How would either approach compare or
contrast with the non-covered asset custodial business of covered
custodians and what efficiencies or challenges might arise from each
approach? [similar to OCC question 155]
Question 188: Is it sufficiently clear in a custodial relationship
when and for what assets the minimum, principles-based requirements of
subpart C would apply? For example, are there circumstances where a
custodian may be unaware that stablecoin assets held in an account are
being used as collateral and potentially subject to the requirements of
subpart C? Does the Board appropriately explain why, under the
proposal, the exception for cash held in the form of deposit
liabilities applies only to insured State member banks? [similar to OCC
question 156]
Question 189: The proposed rule describes how a custodian maintains
control of a stablecoin or tokenized stablecoin reserve assets. Is this
description appropriately calibrated? Are there other means by which a
custodian should be deemed to have demonstrated control over these
types of assets? [similar to OCC question 157]
Question 190: Regarding the proposed rule governing the withdrawal
of custodial covered assets to pay certain commissions, taxes, storage,
and other charges, should the Board require any more prescriptive
customer protection requirements, such as those designed to ensure that
such withdrawals do not cause any reserve to fall below any minimum
coverage of a payment stablecoin? What are the costs and benefits of
these or any similar approach? For example, in order to implement an
effective compliance system, would such a requirement impose undue
burdens on a custodian from withdrawing any permitted funds from a
custodial account that contains payment stablecoin reserves? [similar
to OCC question 159]
3. Segregation Requirement and Use of Omnibus Accounts (Proposed Sec.
247.22)
Proposed Sec. 247.22(a) would implement the GENIUS Act's
requirement in section 10(c)(1) of the Act (12 U.S.C. 5909(c)(1)) that
a covered custodian segregate all covered assets of covered customers
and not commingle them with the assets of the covered custodian. As
discussed above, the proposal clarifies that this requirement does not
apply in the case of an insured depository institution that is a
covered custodian that receives from a PPSI
[[Page 61635]]
payment stablecoin reserves in the form of cash in exchange for
eligible deposit claims against the insured depository institution, to
the extent the insured depository institution reflects such holdings as
deposit liabilities and provided such treatment is consistent with
Federal law.
Under section 10(c)(2)(C) of the Act (12 U.S.C. 5909(c)(2)(C)), any
primary Federal stablecoin regulator may prescribe terms and conditions
by which covered assets may be commingled with other property, provided
the covered assets are separately accounted for, treated as, and dealt
with as belonging to the covered customer (including a PPSI customer).
Proposed Sec. 247.22(b) sets the terms by which covered custodians may
use omnibus accounts consistent with the GENIUS Act's requirements to
separately account for, treat as, and deal with covered assets under
custody as belonging to multiple covered customers. The Board is
proposing to allow any covered custodian to commingle the covered
assets of multiple covered customers in one or more omnibus accounts,
to the extent that the steps it has taken pursuant to proposed Sec.
247.21(b) are adequate to maintain safe and sound practices for the use
of omnibus accounts, and to the extent that the use of omnibus accounts
is consistent with applicable law.\134\
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\134\ This provision is also consistent with section 10(c)(2)(A)
of the Act (12 U.S.C. 5909(c)(2)(A)).
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Question 191: Are there additional considerations the Board should
take into account regarding a covered custodian's use of an omnibus
account? For example, should the Board consider a high-level
principles-based approach to apply generally to a covered custodian's
provision of custodial or safekeeping services to covered customers for
covered assets while utilizing a more detailed regulatory framework
regarding a covered custodian's use of omnibus accounts? Alternatively,
to what extent should the Board consider proposing that a covered
custodian may, for convenience, commingle in a single omnibus account
both covered assets and other custodial assets that are not covered
assets? What efficiencies and challenges would such an approach raise?
Are there additional risk considerations the Board should consider if
it takes such an approach? For example, to what extent should the Board
consider prescribing additional recordkeeping, customer account,
disclosure, or other terms or conditions as a precondition to a covered
custodian commingling covered assets and non-covered assets? [similar
to OCC question 158]
Question 192: Are there particular circumstances for which the
Board should provide additional clarification as to the application of
subpart C or the applicability of any exception (e.g., regarding
payment stablecoins locked in a smart contract for purposes of
``wrapping'' the payment stablecoin for use on an unsupported
blockchain)? [similar to OCC question 162]
Question 193: In order to ensure that a PPSI is able to meet
redemptions on a timely basis, should the Board require that any
custody agreement a covered custodian enters into with a PPSI provide
for prompt release of any covered assets held in custody to the covered
customer's control? For example, should a custody agreement require
that a covered custodian have the ability to transfer control of
covered assets comprising payment stablecoin reserves, or execute and
settle at the covered customer's direction any such assets, within a
specific timeframe? What are the costs and benefits of any such
approach? [similar to OCC question 163]
4. Reporting
The Board is considering whether to implement any additional
reporting requirements in subpart C pursuant to section 10(d) of the
GENIUS Act (12 U.S.C. 5909(d)), which requires that a covered custodian
submit to the Board certain information ``in such form and manner as
[the Board] shall determine.'' Furthermore, section 10(a)(1)(B) of the
GENIUS Act (12 U.S.C. 5909(a)(1)(B)) requires State bank supervisors,
as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813), to make available to the Board such information as the Board
determines to be necessary and relevant under section 10(d) of the Act
(12 U.S.C. 5909(d)).
For covered custodians that are State member banks, the Board
proposes to seek to rely on the reporting these banks already provide
on their custodial businesses pursuant to line items and schedules
relating to fiduciary and custody services on the appropriate Schedule
RC-T of the Consolidated Report of Condition and Income (Call
Report).\135\
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\135\ The Board believes that reporting the private key used to
issue a payment stablecoin held in custody at a $1.00 book value
would be consistent with the Call Report Schedule RC-T instructions,
unless the methodology for determining fair value is otherwise set
by applicable law. See, e.g., OCC, Letter from Kerri Corn, Director
for Credit and Market Risk (June 20, 2007), https://www.occ.treas.gov/topics/supervision-and-examination/capital-markets/asset-management/corporate-trust/memo-misc-schedule-rc-t.pdf
(letter to the American Bankers Association regarding owner trustee
fiduciary accounts reported on Schedule RC-T).
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For covered custodians that are bank holding companies or savings
and loan holding companies that have total consolidated assets of $100
billion or more or that have been designated as global systematically
important banking organizations (GSIBs), the Board proposes to rely on
the reporting these entities already provide on their custodial
businesses pursuant to Schedule C, item 3 of Reporting Form FR Y-15
(Systemic Risk Report).
For covered custodians that are the U.S. operations of foreign
banking organizations subject to the supervision or regulation of the
Board pursuant to the International Banking Act of 1978 (12 U.S.C. 3101
et seq.), the Board proposes to rely on the reporting many of these
entities already provide on their custodial businesses pursuant to
Schedule J, item 3 of Reporting Form FR Y-15 \136\ or Schedule T of
Reporting Form FFIEC 002 (Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign Banks).
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\136\ Reporting Form FR Y-15 applies only to foreign banking
organizations with combined U.S. assets of $100 billion or more.
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For covered custodians that are State-qualified PPSIs with an
outstanding issuance value of more than $10 billion and have
transitioned to the Federal regulatory framework administered in
coordination with the Board, the Board proposes to rely on the Board-
supervised PPSI's quarterly report on financial condition discussed in
proposed Sec. 247.14(i).\137\ The Board continues to consider
reporting requirements for other covered custodians, and seeks comment
on the most efficient and effective way to collect such information
concerning a covered custodian's business operations as well as their
processes to protect customer assets.
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\137\ As noted above, section 10(d) of the GENIUS Act (12 U.S.C.
5909(d)) provides an additional statutory grant of authority for
this reporting requirement.
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Nonetheless, requiring covered custodian-specific reporting outside
of the context of these reports may be appropriate. For example,
Schedule RC-T of the Call Report does not provide a breakdown of the
specific assets under custody and may not provide sufficient insight
necessary to effectively supervise the unique risks related to the
custody of covered assets. As such, the Board is considering requiring
covered custodians to report on a separate form maintained by the Board
the following information: (1) total covered assets under custody, and
(2) total payment
[[Page 61636]]
stablecoin reserves under custody. For payment stablecoin reserves
under custody, the Board is further considering requiring covered
custodians to report the following: (a) total payment stablecoin
reserves under custody for (i) an affiliate and (ii) third parties; (b)
total payment stablecoin reserves held in a deposit account at (i) the
covered custodian and (ii) a third-party depository institution; (c)
total payment stablecoin reserves held in a deposit account that are
not covered by FDIC insurance at (i) the covered custodian and (ii) a
third party depository institution; and (d) total payment stablecoin
reserves held in each of the categories listed in section
4(a)(1)(A)(i)-(viii) of the GENIUS Act (12 U.S.C. 5903(a)(1)(A)(i)-
(viii)).
Question 194: To what extent are Schedule RC-T of the Call Report,
in the case of State member banks; Schedule C of Reporting Form FR Y-
15, in the case of applicable bank holding companies, savings and loan
holding companies, and GSIBs; Schedule J of Reporting Form FR Y-15 and
Schedule T of Reporting Forms FFIEC 002 and FFIEC 002S, in the case of
the U.S. operations of foreign banking organizations subject to the
supervision or regulation of the Board pursuant to the International
Banking Act of 1978 (12 U.S.C. 3101 et seq.); and the portions of the
reports required under proposed Sec. 247.14 relevant to custodial
activities, in the case of State-qualified PPSIs that are subject to
the Board's oversight pursuant to proposed Sec. 247.51, appropriate to
ensure that the Board possesses the information necessary to supervise
covered custodians? If other forms of reporting would be helpful, what
are they? If other types of information would be helpful, what are
they? What are the costs and benefits of more detailed reporting
requirements? [similar to OCC question 164]
5. Self-Custody Hardware and Software Exclusion (Proposed Sec. 247.23)
The proposal implements section 10(e) of the GENIUS Act (12 U.S.C.
5909(e)), which provides that the requirements of section 10 of the Act
(12 U.S.C. 5909) do not apply to any person ``solely on the basis that
such person engages in the business of providing hardware or software
to facilitate a customer's own custody or safekeeping of the customer's
payment stablecoins or private keys.'' In proposed Sec. 247.23, the
Board proposes to clarify that the requirements of this proposed
subpart C do not apply to any covered custodian solely on the basis
that such entity engages in the business of providing hardware or
software to facilitate a person's or entity's self-custody of their
payment stablecoins or private keys. The requirements could nonetheless
apply if, for example, an entity controls or holds itself out as
controlling such payment stablecoins or private keys, or provides, or
holds itself out as providing safekeeping or custodial services,
including services that are ancillary or incidental to its custodial
powers, for such payment stablecoins or private keys.
Question 195: Section 10(e) of the GENIUS Act (12 U.S.C. 5909(e))
provides an exclusion from the custodial requirements to any person
solely on the basis that such person engages in the business of
providing hardware or software to facilitate a customer's own custody
or safekeeping of the customer's payment stablecoins or private keys.
The Board proposes to clarify that it would not consider certain
activities to constitute ``solely'' providing hardware or software to
facilitate custody or safekeeping of payment stablecoins or private
keys. Should the Board consider implementing any other language to
prevent the exception from being used to evade the custodial
requirements of the Act? Alternatively, could a Board-supervised
institution provide ancillary custodial services to a user of such
hardware or software (e.g., facilitating the customer's digital asset
and fiat currency exchange transactions, transaction settlement, trade
execution, recordkeeping, valuation, tax services, reporting, or other
appropriate services) while avoiding the minimum, principles-based
requirements of the proposal? [similar to OCC question 161]
D. Subpart E--Rules Applicable To All Permitted Payment Stablecoin
Issuers
Section 4(a)(8) of the GENIUS Act (12 U.S.C. 5903(a)(8)) prohibits
any PPSI from providing services to a customer on the condition that
the customer (i) ``obtain an additional paid product or service from
the [PPSI], or any of its subsidiaries'' (often referred to as tying
arrangements), or (ii) ``agree to not obtain an additional product or
service from a competitor'' of the PPSI or any of its subsidiaries
(often referred to as exclusive dealing arrangements) (together, the
``Tying Prohibition'').\138\ In addition, the Stablecoin Certification
Review Committee must find that a company seeking approval under
section 4(a)(12) of the GENIUS Act (12 U.S.C. 5903(a)(12)) and the
affiliates of such company will comply with the Tying Prohibition in
order to approve such request. Sections 4(a)(8) and 4(h) of the GENIUS
Act (12 U.S.C. 5903(a)(8) and 5903(h)) provide the Board authority to
issue such regulations as are necessary to carry out the Tying
Prohibition and to prevent evasion thereof. Further, under section
4(a)(8)(B) of the GENIUS Act (12 U.S.C. 5903(a)(8)(B)), the Board, in
consultation with other relevant primary Federal payment stablecoin
regulators, may by regulation or order, permit such exceptions to the
Tying Prohibition as the Board considers will not be contrary to the
purpose of the GENIUS Act.
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\138\ If a PPSI is an affiliate of a bank, the tying and
exclusive dealing prohibitions of section 106 of the Bank Holding
Company Act Amendments of 1970 (BHCAA) may prohibit certain
arrangements involving the PPSI. See 12 U.S.C. 1972.
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1. Tying Prohibition (Proposed Sec. 247.40)
Consistent with section 4(a)(8) of the GENIUS Act (12 U.S.C.
5903(a)(8)), proposed Sec. 247.40(a) would provide that a PPSI may not
provide services to a customer on the condition that the customer
obtain an additional paid product or service from the PPSI, or any of
its subsidiaries, or agree to not obtain an additional product or
service from a competitor of the PPSI.
The Board is also proposing to clarify in the proposed rule that
the Tying Prohibition applies to certain companies and their
affiliates, consistent with section 4(a)(12) of the GENIUS Act (12
U.S.C. 5903(a)(12)). Proposed Sec. 247.40(b) would state that with
respect to any company that has obtained a unanimous vote of the
Stablecoin Certification Review Committee pursuant to section 4(a)(12)
of the GENIUS Act, neither the company nor its affiliates may provide
services to a customer on the condition that the customer (i) obtain an
additional paid product or service from the company or its affiliates,
or any subsidiary of the company or its affiliates, or (ii) agree to
not obtain an additional product or service from a competitor of the
company or its affiliates.
The Board notes that GENIUS Act's Tying Prohibition is narrower
than similar tying and exclusive dealing prohibitions under section 106
of the BHCAA. For example, unlike these provisions of the BHCAA, the
Tying Prohibition of the GENIUS Act applies only to arrangements that
place conditions on the availability of services provided by a PPSI or
its subsidiaries. Therefore, arrangements under which a PPSI varies its
pricing in connection with the purchase of an additional paid product
or service from a PPSI or its subsidiary would not necessarily violate
the GENIUS Act's Tying Prohibition, unless the pricing schedule
effectively constrains the availability of a
[[Page 61637]]
service.\139\ Likewise, the Tying Prohibition is narrower than the
BHCAA tying provisions in that it applies only with respect to
arrangements wherein a customer is required to obtain an additional
product or service from a PPSI or any of its subsidiaries, but not from
its affiliates (except with respect to companies subject to section
4(a)(12) of the Act (12 U.S.C. 5903(a)(12)).
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\139\ Cf. 12 U.S.C. 1972 (``A bank shall not in any manner
extend credit, lease or sell property of any kind, or furnish any
service, or fix or vary the consideration for any of the foregoing,
on the condition or requirement . . .'') (emphasis added).
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Question 196: The proposed rule implements the Tying Prohibition in
section 4(a)(8) of the Act (12 U.S.C. 5903(a)(8)) as set out by statute
without codifying any further clarification. Should the Board provide
further clarification regarding the application of the Tying
Prohibition?
Question 197: Beyond what is included in the SUPPLEMENTARY
INFORMATION, should the Board clarify whether any particular type of
arrangement is permitted or prohibited under the Tying Prohibition?
Should the Board address permitted or prohibited bundling of products
and services?
Question 198: The Board is proposing to apply the Tying Prohibition
by rule to any company that has obtained a unanimous vote of the
Stablecoin Certification Review Committee pursuant to section 4(a)(12)
of the GENIUS Act (12 U.S.C. 5903(a)(12)), as well as such company's
affiliates. What are the advantages and disadvantages of this approach?
What additional clarifications would be necessary or beneficial
regarding the application of the Tying Prohibition to such companies
and their affiliates?
2. Tying Exceptions (Proposed Sec. 247.41)
Consistent with section 4(a)(8)(B) of the GENIUS Act (12 U.S.C.
5903(a)(8)(B)), proposed Sec. 247.41(a) would state that the Board
may, by regulation or order, permit exceptions to the Tying Prohibition
that are not contrary to the purpose of the GENIUS Act. Given the
nascence of the payment stablecoin market, the Board is not currently
proposing to include any exceptions to the Tying Prohibition in the
proposed rule. However, the Board is seeking public comment on whether
any exceptions would be appropriate. The Board will consider requests
for exceptions from the Tying Prohibition on a case-by-case basis.
Proposed Sec. 247.41(b) would state that the Board would consult
with the other primary Federal payment stablecoin regulators, as
appropriate, when considering a potential exception to the Tying
Prohibition by regulation. The Board would consult with the primary
Federal payment stablecoin regulator, if any, of a particular PPSI when
considering a potential exception to the Tying Prohibition by order.
Proposed Sec. 247.41(c) would provide that entities subject to the
Tying Prohibition may submit a request to the Secretary of the Board to
seek an exception under proposed Sec. 247.41(a).\140\ Requests and
documents submitted with such requests will be made available for
inspection and copying upon request, except as provided for in the
Board's Rules Regarding Availability of Information, 12 CFR part 261.
Any entity making a request under proposed Sec. 247.41 may elect to
request confidential treatment for such information pursuant to 12 CFR
261.17. Requests for confidential treatment must be made at the time
the information is submitted or within 10 working days thereafter (12
CFR 261.17(a)).
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\140\ Requests may be submitted by email to [email protected], or the email address that would be indicated on
the Board's public website.
---------------------------------------------------------------------------
Under proposed Sec. 247.41(c), requests for an exception from the
Tying Prohibition must include a detailed description of the proposed
arrangement, including (i) the service upon which conditions are being
placed and the entity providing such service; (ii) either (a) the
additional paid services and products and the entity providing such
paid services and products or (b) the additional product or service of
the competitor, as applicable; (iii) the relevant contractual terms,
including copies (or draft copies, as appropriate) of any contracts,
agreements, terms of service, or other documents relevant to the
proposed arrangement; (iv) a description of the benefits, if any, that
the proposed arrangement would produce for customers or other relevant
persons; (v) a discussion of how the proposed arrangement would not be
contrary to the purpose of the GENIUS Act; and (vi) in the case of a
proposed exception for an arrangement providing services to a customer
on the condition that the customer agree to not obtain an additional
product or service from a competitor, whether the additional product or
service will be offered to customers on competitive terms separate from
the service upon which conditions are being placed. These informational
and procedural requirements would facilitate the Board's review of any
such requests. Proposed Sec. 247.41(d) clarifies that the Board may
request additional information, as needed, to assess a request made
under the section.
Question 199: The Board is not proposing to promulgate any
exceptions to the Tying Prohibition by regulation at this time. Should
the Board consider establishing any exceptions by rule? If the Board
were to promulgate exceptions to the Tying Prohibition, what exceptions
would be appropriate?
Question 200: What factors would be particularly relevant to
determining whether an exception would be contrary to the purpose of
the GENIUS Act? Should the Board consider issues of competitive parity
among different types of PPSIs and/or between PPSIs and other financial
institutions?
E. Subpart F--Rules Applicable to State-Qualified Payment Stablecoin
Issuers
The Board has a unique relationship with State payment stablecoin
regulators and State-qualified PPSIs under the GENIUS Act. For example,
section 7(c) of the GENIUS Act (12 U.S.C. 5906(c)) requires State
payment stablecoin regulators and the Board to share information on an
ongoing basis with respect to State-qualified PPSIs.\141\ Additionally,
section 7(b) of the Act (12 U.S.C. 5906(b)) permits State payment
stablecoin regulators and the Board, by mutual agreement, to enter into
memoranda of understanding under which the Board may participate in the
supervision, examination, and enforcement of the GENIUS Act with
respect to State-qualified PPSIs. The Board plans to engage with the
State payment stablecoin regulators directly on the implementation of
such GENIUS Act provisions. The sections below discuss other aspects of
the Board's GENIUS Act responsibilities pertaining to State-qualified
PPSIs--specifically, the Board's backup-enforcement authority during
unusual and exigent circumstances and the transition and waiver process
for uninsured State-chartered depository institutions.
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\141\ State bank supervisors and State credit union supervisors
are also required to make available information to the Board as the
Board determines necessary and relevant under section 10 of the
GENIUS Act. 12 U.S.C. 5909(a)(1)(B).
---------------------------------------------------------------------------
Question 201: Section 7(b) of the GENIUS Act (12 U.S.C. 5906(b))
provides that the Board and each State payment stablecoin regulator
authority may elect, by mutual agreement, to enter into a memorandum of
understanding under which the Board may participate in the supervision,
examination and enforcement of the GENIUS Act with respect to the
State-qualified PPSIs of such State. What considerations should inform
the
[[Page 61638]]
Board's approach to such memoranda of understanding? What are the
advantages and disadvantages of Board involvement with State payment
stablecoin regulator oversight of State-qualified PPSIs? How should the
Board plan to allocate its limited resources with respect to any such
memoranda of understanding?
Question 202: Section 7(c) of the GENIUS Act (12 U.S.C. 5906(c))
provides that State payment stablecoin regulators and the Board shall
share information on an ongoing basis with respect to a State-qualified
PPSI of such State, including a copy of the initial application and any
accompanying documents. What types of documents should the Board
require State payment stablecoin regulators to share? For example,
should the Board require the sharing of State-qualified PPSI financial
reporting or State payment stablecoin regulator examination reports?
What type of information would be most effective in enabling the Board
to administer its unusual and exigent circumstances back-up enforcement
authority? How can the Board minimize burden with respect to such
reporting, while ensuring it obtains sufficient information to carry
out its statutory mandates? What type of information might the Board
possess with respect to State-qualified PPSIs that State payment
stablecoin regulators may require the Board to share? How can the Board
minimize burden with respect to such reporting, while ensuring it
obtains sufficient information to carry out its statutory mandates?
1. Unusual and Exigent Circumstances Enforcement Authority (Proposed
Sec. 247.50)
Section 7(e)(1)(B) of the GENIUS Act (12 U.S.C. 5906(e)(1)(B))
requires the Board to issue rules to set forth the unusual and exigent
circumstances in which the Board may exercise its back-up enforcement
authority with respect to any State-qualified PPSI and its institution-
affiliated parties (IAPs).\142\ The Board proposes to issue Sec.
247.50 to implement section 7(e)(1) of the GENIUS Act (12 U.S.C.
5906(e)(1)). Specifically, proposed Sec. 247.50 would incorporate the
GENIUS Act's unusual and exigent circumstances requirements; describe
the factors that the Board would consider when determining whether
unusual and exigent circumstances exist; specify procedures for the
Board to notify and consult with State-qualified PPSIs and their State
payment stablecoin regulators; and provide for the administrative
review of Board enforcement actions imposed pursuant to this authority.
Proposed Sec. 247.50(a) explains that proposed Sec. 247.50 addresses
the Board's authority to impose restrictions on any State-qualified
PPSI and its IAPs during unusual and exigent circumstances, pursuant to
section 7(e)(1) of the GENIUS Act (12 U.S.C. 5906(e)(1)). For the
avoidance of doubt, proposed Sec. 247.50 would address ``unusual and
exigent circumstances'' only for purposes of section 7(e)(1) of the
GENIUS Act (12 U.S.C. 5906(e)(1)); it would not interpret the meaning
of that term under any other provision of law, including section 13(3)
of the Federal Reserve Act (12 U.S.C. 343(3)).\143\
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\142\ The Board refers to this authority as ``back-up''
enforcement authority because section 7(a) of the GENIUS Act (12
U.S.C. 5906(a)) provides that a State payment stablecoin regulator
has enforcement authority over State-qualified PPSIs of such state,
without imposing conditions of the type imposed on the Board in
section 7(e)(1) of the Act (12 U.S.C. 5906(e)(1)).
\143\ The context for the Board's determination that ``unusual
and exigent circumstances'' exist for purposes of section 7(e)(1) of
the GENIUS Act (12 U.S.C. 5906(e)(1)) and section 13(3) of the
Federal Reserve Act (12 U.S.C. 343) are highly distinct. The
definition provided in this proposed rule is specific to a context
in which the term is used as a necessary condition for taking an
enforcement action against a specific State-qualified PPSI or its
IAPs.
---------------------------------------------------------------------------
a. General Requirements (Proposed Sec. 247.50(b))
Proposed Sec. 247.50(b) would implement sections 7(e)(1)(A) and
(C) of the GENIUS Act (12 U.S.C. 5906(e)(1)(A) and (C)), which provide
the Board with back-up authority to bring enforcement actions against
any State-qualified PPSI and/or its IAPs, provided that the Board makes
four determinations: (i) the Board determines that ``unusual and
exigent circumstances'' exist; (ii) the State-qualified PPSI or IAP
that is the subject of the enforcement action is in violation of the
GENIUS Act; (iii) the Board determines there is reasonable cause to
believe that the continuation of an activity by the State-qualified
PPSI constitutes a serious risk to the financial safety, soundness, or
stability of the State-qualified PPSI; and (iv) the Board provides 48
hours' prior written notice to the applicable State payment stablecoin
regulator.
If the Board determines that these conditions are met, the Board
may impose such restrictions as the Board determines to be necessary to
address the serious risks posed by its identified activity, including,
but not limited to, limitations on (i) the redemption of payment
stablecoins, (ii) a State-qualified PPSI's affiliate transactions, and
(iii) any activities of the State-qualified PPSI that might create a
serious risk that the liabilities of its holding company and the
affiliates of its holding company may be imposed on the State-qualified
PPSI. The restrictions would be issued in the form of a directive, with
the effect of a cease-and-desist order that has become final, to the
State-qualified PPSI, any of its affiliates, and/or any of its IAPs.
For the avoidance of doubt, the Board may also impose other
restrictions as the Board determines necessary to address the risk
posed by the identified activity.
Question 203: The Board's back-up authority under section 7(e)(1)
of the GENIUS Act (12 U.S.C. 5906(e)(1)) enables it to take action
against IAPs of State-qualified PPSIs under unusual and existent
circumstances and when certain other conditions are satisfied. Under
what circumstances might it be appropriate for the Board to exercise
such authority with respect to IAPs? What types of restrictions or
limitations may be appropriate to apply to such persons?
b. Factors for Unusual and Exigent Circumstances (Proposed Sec.
247.50(c))
Under section 7(e)(1)(B) of the GENIUS Act (12 U.S.C.
5906(e)(1)(B)), the Board ``shall issue rules to set forth the unusual
and exigent circumstances'' under which the Board may use its back-up
enforcement authority. For purposes of the GENIUS Act, the Board views
the term ``unusual and exigent circumstances'' as generally referring
to uncommon, urgent situations that require prompt action. The Board
does not view its back-up enforcement authority with respect to State-
qualified PPSIs as punitive. Rather, the Board views it as an important
backstop authority designed to help ensure the safety and soundness of
a State-qualified PPSI, as well as broader financial stability.
Accordingly, proposed Sec. 247.50(c) indicates that the Board will
consider whether any of the following conditions are present with
respect to a particular State-qualified PPSI when considering use of
its back-up enforcement authority:
significant fluctuations in the price of payment
stablecoins issued by a State-qualified PPSI as measured, for example,
by the spread between primary and secondary market prices for payment
stablecoins and implied pricing mechanisms (e.g., fluctuations in
liquidity pool pricing);
disruptions in timely redemptions by a State-qualified
PPSI;
deployment by a State-qualified PPSI of nonstandard
liquidity management tools to dissuade
[[Page 61639]]
redemptions (e.g., swing pricing, liquidity fees, etc.);
volatility in the secondary market for cash-equivalent
securities (e.g., Treasury bills and Treasury repurchase agreements)
that a State-qualified PPSI relies upon to maintain the value of
reserve assets;
actual or likely losses from a State-qualified PPSI's
other activities that impair its ability to meet timely redemptions or
other obligations;
disorderly failure, significant impairment to the
operations, or substantiated concerns about the imminent disorderly
failure, of--
one or more State-qualified PPSIs;
one or more reserve custodians relied upon by the State-
qualified PPSI; or
any infrastructure necessary for the transmission or
redemption of payment stablecoins issued by the State-qualified PPSI;
a request with good cause shown by a State-qualified PPSI
or the State-qualified PPSI's primary regulator to issue a directive
under section 7 of the GENIUS Act (12 U.S.C. 5906); \144\ and
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\144\ As the primary regulator of State-qualified PPSIs, State
payment stablecoin regulators may be better positioned to assess the
relevant State-qualified PPSI's risks. Thus, a request by the State-
qualified PPSI's primary regulator to issue a directive may be
indicative of serious risk to the financial safety, soundness, or
stability of the State-qualified PPSI.
---------------------------------------------------------------------------
any other factor of a similar nature that evinces the
existence of a serious risk to the financial safety and soundness of a
State-qualified PPSI or the stability of the U.S. financial system, as
determined by the Board.
The Board views these factors as indicative of a serious risk to
the financial safety, soundness, or stability of a State-qualified
PPSI. Additionally, the proposed list of factors is intended to provide
the Board with flexibility to address a range of circumstances that are
difficult to forecast given the nascence of the industry. The Board has
preliminarily determined that adopting detailed but flexible criteria
focused on these considerations, as opposed to a limited set of
specific circumstances, would establish an appropriate balance between
providing stakeholders with clarity on when the Board would act
pursuant to this authority while implementing the GENIUS Act's clear
intention to permit the Board to respond to evolving and unforeseeable
circumstances.
To illustrate the application of the conditions the Board will
consider, the following examples describe instances where the Board
believes that ``unusual and exigent circumstances'' may exist:
a State-qualified PPSI is experiencing a run on
redemptions that exceeds, or is likely to soon exceed, its available
liquidity;
a State-qualified PPSI has repeatedly violated its
redemption policy, is routinely failing to redeem coins upon request in
a ``timely'' manner, or there is other strong evidence of insufficient
liquidity management at the State-qualified PPSI;
a State-qualified PPSI's payment stablecoin price is
subject to substantial volatility in the secondary market, which is
significant enough to present the risk of a near-term run on the
payment stablecoin;
there is a sudden loss of confidence in banks that hold a
State-qualified PPSI's reserve assets that presents reasonable risk of
sparking a run on the State-qualified PPSI;
there is evidence of market disruption or liquidity
pressures, especially in relation to a State-qualified PPSI's
permissible reserve assets and/or correlated assets; or
one or more blockchains experience an operational risk
event (e.g., cyberattack) that impairs the timely redemption of payment
stablecoins or otherwise erodes confidence among payment stablecoin
holders, leading to a loss of confidence in the State-qualified PPSI
and mass redemptions.
Question 204: To determine whether unusual and exigent
circumstances exist, the Board will consider whether certain identified
conditions in proposed Sec. 247.50(c) are present with respect to a
particular State-qualified PPSI. Are there any other conditions that
should be assessed by the Board when considering whether unusual and
exigent circumstances exist? If so, what additional conditions should
be included and why? For example, should the Board consider whether a
State-qualified PPSI has incurred significant unanticipated losses?
Should certain conditions be excluded from the list and why? What
clarifications, if any, would be helpful with respect to the proposed
list of conditions?
Question 205: The proposed rule anticipates that the Board will
consider a request with good cause shown by a State-qualified PPSI or a
State-qualified PPSI's primary regulator to issue a directive under
section 7(e)(1) of the Act (12 U.S.C. 5906(e)(1)). What are the
advantages and disadvantages of this approach?
Question 206: What other approaches, if any, should the Board
consider in determining whether ``unusual and exigent circumstances''
exist for purposes of the GENIUS Act's back-up enforcement authority?
For example, should the Board consider the approach proposed by the OCC
in its notice of proposed rulemaking to implement its responsibilities
under the GENIUS Act? This would include considering: (i) whether the
State-qualified PPSI issuer is, or is expected to imminently be,
engaging in an activity (including any act, practice, or omission) that
poses an immediate risk to the financial safety, soundness, or
stability of the issuer or the financial system of the United States;
(ii) the actions of the relevant State payment stablecoin regulator to
promptly address the risk to the issuer or the financial system of the
United States; (iii) risks presented to payment stablecoin holders; and
(iv) any other factors the Board deems appropriate in light of the
particular circumstances and consistent with the purposes of the GENIUS
Act.
Question 207: Should the Board make public when it determines that
unusual and exigent circumstances exist? If so, what information should
the Board include (or not include) in any publication regarding unusual
and exigent circumstances? Additionally, what should the timing be on
such publication? For example, should the Board publish such a
determination on a lag, only after it has determined that imminent
risks are no longer present? Or should there be a specified timeframe?
[similar to OCC question 148]
c. Procedures for Use of Back-Up Enforcement Authority (Proposed Sec.
247.50(d))
Consistent with section 7(e)(1)(A) of the GENIUS Act (12 U.S.C.
5906(e)(1)(A)), the Board is proposing Sec. 247.50(d) to set forth
procedures for notifying and consulting with the applicable State
payment stablecoin regulator or a State-qualified PPSI before issuing
directives under this back-up enforcement authority.
Prior Notice to State Payment Stablecoin Regulators. The Board is
proposing Sec. 247.50(d)(1)(i) to provide 48 hours' prior written
notice to the State payment stablecoin regulator of a State-qualified
PPSI before issuing a directive, which will include the following
information: (i) the Board's determination that unusual and exigent
circumstances exist; (ii) a brief description of how the State-
qualified PPSI is believed to have violated the GENIUS Act; and (iii) a
brief description of the activity conducted by the State-qualified PPSI
that constitutes a serious risk to the financial safety, soundness, or
stability of the State-qualified PPSI. Proposed Sec. 247.50(d)(1)(ii)
states that a State payment stablecoin regulator may
[[Page 61640]]
elect to waive its right to the 48-hour notice period.
Consultations with State-qualified PPSIs and State Payment
Stablecoin Regulators. The Board is proposing Sec. 247.50(d)(2) to set
forth optional procedures for consulting with a State-qualified PPSI
and its State payment stablecoin regulator before issuing a directive
under the back-up enforcement authority. Under these procedures, the
consultation process would inform, but be separate from, the prior
notice required under the GENIUS Act. The consultation process would
not preclude the Board from issuing a directive to a State-qualified
PPSI or its IAPs with only the required 48-hour notice period to the
applicable State payment stablecoin regulator. The proposed
consultation process may involve consulting with the State payment
stablecoin regulator of a State-qualified PPSI and, if necessary, the
State-qualified PPSI itself, if certain conditions are met.
Specifically, under proposed Sec. 247.50(d)(2)(i), the Board would
only consider engaging in this consultation process if the Board has
reason to believe that (i) a State-qualified PPSI is in violation of
the GENIUS Act; (ii) the continuation of an activity by the State-
qualified PPSI constitutes a serious risk to the financial safety,
soundness, or stability of the State-qualified PPSI; or (iii) ``unusual
and exigent circumstances'' exist or will soon exist based on the
potential presence of conditions described in proposed Sec. 247.50(c).
Under proposed Sec. 247.50(d)(2)(ii), the Board may request evidence
from the State payment stablecoin regulator or the State-qualified PPSI
demonstrating why the Board should not issue a directive. Such evidence
could inform the Board's determination of whether use of the back-up
enforcement authority is necessary. While the GENIUS Act does not
require the Board to consult or coordinate with State payment
stablecoin regulators when exercising its back-up enforcement authority
(outside of the required prior notice), the Board believes that it
would be prudent to do so when time and exigencies allow. As the
primary regulator of State-qualified PPSIs, State payment stablecoin
regulators may be better positioned to assess the relevant State-
qualified PPSI's risks. Further, direct communication with State-
qualified PPSIs may be necessary to accurately evaluate and mitigate
adverse circumstances affecting the State-qualified PPSI.
Question 208: The Board is proposing to codify procedures for prior
notice and the consultation process in its regulations. What are the
advantages and disadvantages of this approach? What clarifications, if
any, would be helpful with respect to the proposed procedures?
Question 209: The proposed procedures in proposed Sec.
247.50(d)(1)(ii) provide that a State payment stablecoin regulator may
elect to waive its right to a 48-hour notice period such that the Board
could implement an enforcement action under section 12 U.S.C.
5906(e)(1) on an accelerated basis. What are the benefits and drawbacks
of this approach?
Question 210: Should the Board specify a timeframe, such as 24
hours, for a State payment stablecoin regulator or State-qualified PPSI
to respond to the Board's inquiry for evidence demonstrating why the
Board should not issue a directive under proposed Sec.
247.50(d)(2)(ii)? If so, what should the timeframe be? What are the
advantages and disadvantages of such approach?
d. Administrative Review (Proposed Sec. 247.50(e))
Under section 7(e)(1)(D) of the GENIUS Act (12 U.S.C.
5906(e)(1)(D)), the Board may issue a directive to impose restrictions
that the Board determines to be necessary, to which the State-qualified
PPSI or its IAP that is subject to the directive may object and present
to the Board, in writing, the reasons why the directive should be
modified or rescinded. If the Board does not affirm, modify, or rescind
the directive within ten days of receiving the objection, the directive
will automatically lapse.
Proposed Sec. 247.50(e) reiterates the provisions for the
administrative review described in section 7(e)(1)(D) of the GENIUS Act
(12 U.S.C. 5906(e)(1)(D)), which are applicable to any State-qualified
PPSI or any IAP subject to an unusual and exigent circumstances
directive issued by the Board.
Question 211: The Board is proposing to reiterate the procedures
for administrative review of directives without further clarification.
What are the advantages and disadvantages of this approach? What
clarifications, if any, would be helpful with respect to the
procedures?
2. Transition and Waiver Process for Uninsured State-Chartered
Depository Institutions (Proposed Sec. 247.51)
As explained in more detail below, section 4(d) of the GENIUS Act
(12 U.S.C. 5903(d)) generally requires a State-qualified PPSI to
transition to the Federal regulatory framework of the appropriate
Federal payment stablecoin regulator when it surpasses an outstanding
issuance value of $10 billion, unless it has received a waiver. Under
section 4(d)(1)(A) of the GENIUS Act (12 U.S.C. 5903(d)(1)(A)), not
later than 360 days after reaching such threshold, State-qualified
PPSIs that are uninsured State-chartered depository institutions (for
purposes of this section, ``covered PPSIs'') must transition to the
Federal regulatory framework of the ``primary Federal payment
stablecoin regulator'' which shall be administered by the appropriate
State payment stablecoin regulator and the primary Federal payment
stablecoin regulator, acting jointly.
Section 2(25)(C) of the GENIUS Act (12 U.S.C. 5901(25)(C)) defines
the term ``primary Federal payment stablecoin regulator'' for these
purposes as ``the [FDIC], the [OCC], or the Board.'' The GENIUS Act is
ambiguous as to which of these three Federal banking agencies is
intended to supervise a covered PPSI that has surpassed the $10 billion
outstanding issuance threshold. In the absence of such clarity, a
covered PPSI would generally be required to ``cease issuing new payment
stablecoins'' when its outstanding issuance reaches $10 billion, as it
would not have the ability to transition to the Federal regulatory
framework or to seek a waiver as provided in section 4(d)(3) of the
GENIUS Act (12 U.S.C. 5903(d)(3)). Thus, for a covered PPSI to continue
issuing payment stablecoins, it may effectively be forced to convert to
a Federal charter; however, this is contrary to section 4(d)(3)(C)(i)
of the GENIUS Act (12 U.S.C. 5903(d)(3)(C)(i)), which states that these
statutory provisions do not ``require [State-qualified PPSIs] to
convert to a Federal charter.''
The Board believes that the best interpretation of this statutory
ambiguity is that the Board is the primary Federal payment stablecoin
regulator for covered PPSIs. Under section 7 of the GENIUS Act (12
U.S.C. 5906), the Board has certain authorities relevant to State-
qualified PPSIs that are distinct from the other Federal payment
stablecoin regulators, including (i) the authority to enter into
memoranda of understanding with State payment stablecoin regulators, by
mutual agreement, ``under which the Board may participate in the
supervision, examination, and enforcement'' of the GENIUS Act with
respect to all State-qualified PPSIs (12 U.S.C.Sec. 5906(b)); (ii) the
ability to require State payment stablecoin regulators to share
information on an ongoing basis with respect to any State-qualified
PPSI (and the obligation to share information in return) (12
U.S.C.Sec. 5906(c)); and (iii) the ability to take an enforcement
action
[[Page 61641]]
against any State-qualified PPSI in ``unusual and exigent
circumstances'' (12 U.S.C.Sec. 5906(e)(1)).\145\
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\145\ The OCC has similar authority to take enforcement action
against State-qualified PPSIs in ``unusual and exigent
circumstances,'' but such authority is limited to nonbank State-
qualified PPSIs. 12 U.S.C. 5906(e)(2). As used in this SUPPLEMENTARY
INFORMATION, the term ``nonbank'' has the same meaning as ``nonbank
entity'' as defined in section 2(20) of the GENIUS Act (12 U.S.C.
5901(20)). Relatedly, under the GENIUS Act, the OCC is clearly
identified as the Federal regulator that would administer the
transition process for nonbank State-qualified PPSIs with an
outstanding issuance that exceeds $10 billion. 12 U.S.C. 5903(d)(2).
The alignment of the entities subject these two statutory
authorities provides additional evidence that the Board is the
appropriate primary Federal payment stablecoin regulator of covered
PPSIs, which are subject only to the Board's back-up enforcement
authority. 12 U.S.C. 5906(e)(1).
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The Board proposes to issue Sec. 247.51 to implement the GENIUS
Act's transition standards for covered PPSIs with an outstanding
issuance value of more than $10 billion. Specifically, proposed Sec.
247.51 would require a covered PPSI to notify the Board within five
calendar days after the covered PPSI triggers the transition threshold,
request a waiver if the covered PPSI seeks to remain supervised solely
by the applicable State payment stablecoin regulator, and, if
applicable, provide the Board with information necessary to evaluate an
associated waiver request. Proposed Sec. 247.51 would also establish a
timeframe for the Board's review of the covered PPSI's waiver request.
Proposed Sec. 247.51(a)(1) describes the scope of Sec. 247.51 as
addressing requirements related to covered PPSI transitioning to the
Board's regulatory framework pursuant to section 4 of the GENIUS Act
(12 U.S.C. 5903), and (2) defines ``covered PPSI'' for purposes of
Sec. 247.51 as a State-qualified PPSI that is an uninsured State-
chartered depository institution.
Question 212: Is the term ``covered PPSI,'' as defined in proposed
Sec. 247.51(a)(2) sufficiently clear? What additional clarifications
should the Board consider regarding the institutions that may become
subject to its jurisdiction under section 4(d) of the GENIUS Act (12
U.S.C. 5903(d))?
a. Transition to Federal Oversight
Section 4(d)(1) of the GENIUS Act (12 U.S.C. 5903(d)(1)) addresses
the transition of covered PPSIs to Federal oversight and provides the
Board with authority to supervise such covered PPSIs, jointly with the
relevant State payment stablecoin regulator.\146\ A covered PPSI with a
consolidated total outstanding issuance of more than $10 billion must
transition to the Board's Federal regulatory framework within 360 days
after it crosses the $10 billion threshold or cease issuing new payment
stablecoins immediately. Proposed Sec. 247.51(b)(1) would implement
section 4(d)(1) of the GENIUS Act and would require a covered PPSI that
crosses the $10 billion outstanding issuance threshold to transition to
the Federal regulatory framework under proposed part 247 and to comply
with the provisions of part 247 applicable to Board-supervised PPSIs
within 360 days or cease issuing, on a net basis, new payment
stablecoins until the covered PPSI's outstanding issuance value is
under the $10 billion threshold. The Board proposes to clarify that the
covered PPSI would cease issuing new payment stablecoins on a net
basis. This is to permit a covered PPSI to freeze, burn, mint and issue
new payment stablecoins to the extent necessary to transfer stablecoins
from one blockchain to another without increasing the total outstanding
issuance of the covered PPSI.
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\146\ Section 4(d)(1) of the GENIUS Act (12 U.S.C. 5903(d)(1))
refers to State-qualified PPSIs other than nonbanks (addressed in
section 4(d)(2) of the Act). For simplicity, proposed Sec. 247.51
refers to State-qualified PPSIs that are uninsured State-chartered
depository institutions as ``covered PPSIs.'' State-chartered
depository institution is defined by the Act in proposed Sec. 247.1
to have the meaning given to the term ``State depository
institution'' in section 3(c) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(c)). 12 U.S.C. 5901(29).
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Section 4(h) of the GENIUS Act (12 U.S.C. 5903(h)) authorizes the
Board to issue regulations necessary to administer and carry out the
GENIUS Act's requirements and prevent evasion thereof. To facilitate an
orderly transition to Federal oversight, ensure compliance with the
GENIUS Act's transition requirements, and manage agency resources,
proposed Sec. 247.51(b)(2)(i) would require a covered PPSI of a
payment stablecoin with an outstanding issuance value of more than $10
billion to provide written notification to the Board within five
calendar days after reaching such threshold.\147\ Proposed Sec.
247.51(b)(2)(ii) provides that the written notification must include
the following information: (A) the State or States that currently
regulate the covered PPSI; (B) the covered PPSI's outstanding issuance
value as of the date of the notice; (C) the date that the covered PPSI
reached the $10 billion outstanding issuance value threshold; and (D)
an indication of whether and when the covered PPSI has ceased issuing,
on a net basis, new payment stablecoins and whether the covered PPSI
intends to seek a waiver from transitioning to the Federal regulatory
framework. Proposed Sec. 247.51(b)(4) provides clarity as to when a
covered PPSI transitions to the Federal regulatory framework. Proposed
Sec. 247.51(b)(4)(i) would require a covered PPSI to provide
notification to the Board regarding whether it is in compliance with
the Federal regulatory framework applicable to Board-supervised PPSIs
under proposed part 247. If the covered PPSI is not in compliance with
the Federal regulatory framework applicable to Board-supervised PPSIs
in proposed part 247, the written notice would need to identify the
provisions that the covered PPSI does not comply with, provide the
covered PPSI's plan for remediating its noncompliance, and explain why
the covered PPSI did not comply with the Federal regulatory framework
within the 360-day transition period. Regardless of whether the Board
receives such notice, the Board reserves the right to pursue
appropriate action to ensure compliance with the GENIUS Act with
respect to a covered PPSI that transitions to the Federal regulatory
framework administered by the Board. Under proposed Sec.
247.51(b)(4)(ii), a covered PPSI that does not cease issuing new
payment stablecoins must transition to the Federal regulatory framework
on the earlier of 360 days after reaching the $10 billion outstanding
issuance value threshold or the date on which the covered PPSI provides
written notification under paragraph (b)(4)(i).
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\147\ The proposal would require a covered PPSI to provide
written notification to the Board, regardless of whether it intends
to issue new payment stablecoins.
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To facilitate an orderly transition process, proposed Sec.
247.51(b)(3)(i) would require a covered PPSI to submit an analysis of
its current capital position and anticipated capital needs, sufficient
to ensure ongoing operations, based on its business model and risk
profile to the Board within 270 days of reaching the $10 billion
outstanding issuance value threshold. Covered PPSIs are encouraged to
submit a plan promptly to provide ample time to raise additional
capital before transitioning to the Board's regulatory framework, if
needed. Board-supervised PPSIs, including covered PPSIs that have
transitioned to the Board's regulatory framework, must comply with the
capital requirements in proposed Sec. Sec. 247.15-.18. Accordingly,
proposed Sec. 247.51(b)(3)(ii) would provide that the Board will
review the submitted analysis and evaluate the capital adequacy of the
covered PPSI, including whether such covered PPSI is projected to be in
compliance with the capital requirements in proposed Sec. Sec.
247.15-.18 360 days after the covered PPSI reaches
[[Page 61642]]
the $10 billion outstanding issuance value threshold (i.e., the covered
PPSI's deadline to transition). Proposed Sec. 247.51(b)(3)(iii) would
provide that for purposes of complying with the transition requirements
under proposed Sec. 247.51(b)(1)(i) of this section, the covered PPSI
must comply with the capital requirements in proposed Sec. Sec.
247.15-.18 by the covered PPSI's deadline to transition. Covered PPSIs
that seek to transition early are therefore encouraged to submit their
capital analysis to the Board early, to ensure adequate time to address
any deficiencies. Proposed Sec. 247.51(b)(3)(iv) would provide that a
covered PPSI would not need to submit an analysis of its capital if it
receives a waiver under proposed Sec. 247.51(d). As discussed above, a
covered PPSI that seeks to transition to the Federal regulatory
framework before the end of the 360-day period must certify its
compliance with the regulations applicable to Board-supervised PPSIs in
part 247, which include capital requirements.
Under proposed Sec. 247.51(c), the Board is proposing to require
that a covered PPSI that transitions to the regulatory framework under
proposed part 247 must undergo an initial examination at the Board's
request or no later than six months after the date on which the covered
PPSI provides written notification under proposed Sec.
247.51(b)(4)(i). Because a covered PPSI that transitions to the Federal
framework will already be in operation, the Board intends to conduct
this examination well before the six-month outer limit proposed to
ensure that the issuer can effectively operate under the Federal
framework.
Question 213: Is the proposed rule sufficiently clear regarding the
Federal regulatory framework that would apply to a covered PPSI if it
transitions to the Board's framework under proposed Sec. 247.51?
Question 214: For purposes of determining whether a covered PPSI
has crossed the $10 billion outstanding issuance value threshold,
should the $10 billion threshold be based on a point of time or using a
rolling average over some period of time (e.g., the previous four
calendar quarters)? Should the $10 billion threshold take into account
the outstanding issuance value of any payment stablecoins issued by
non-consolidated affiliates of the covered PPSI? [similar to OCC
question 138]
Question 215: Are there any technical, operational, or other
factors that would prevent a covered PPSI, as defined in proposed Sec.
247.51(a)(2), from providing written notification within five calendar
days as proposed under proposed Sec. 247.51(b)? Should the Board
consider alternate timeframes, including shorter timeframes (e.g.,
within one day) or longer timeframes (e.g., within ten days) for
providing written notification? [similar to OCC question 140]
Question 216: Is the requirement to submit an analysis of capital
in proposed Sec. 247.51(b)(3) appropriately calibrated? Should the
covered PPSI, as defined in proposed Sec. 247.51(a)(2), be required to
submit the report sooner after reaching $10 billion in outstanding
issuance value (e.g., 180 days, 200 days, 250 days)? [similar to OCC
question 145]
Question 217: Is the timeframe for the initial Board examination
after transition to the Federal regulatory framework in proposed Sec.
247.51(c) appropriate? Should the timeframe be shorter (e.g., three
months, four months) or longer (e.g., nine months, 12 months)? [similar
to OCC question 146]
b. Waiver From Federal Supervision
Notwithstanding the transition requirements discussed above, under
section 4(d)(3) of the GENIUS Act (12 U.S.C. 5903(d)(3)), the Board may
permit a covered PPSI that reaches the $10 billion threshold to remain
solely supervised by a State payment stablecoin regulator. In
determining whether to issue a waiver from Federal supervision,
proposed Sec. 247.51(d)(2) implements the requirement in the statute
that provides that the Board must consider four exclusive criteria: (i)
the capital maintained by the covered PPSI; (ii) the past operations
and examination history of the covered PPSI; (iii) the experience of
the State payment stablecoin regulator in supervising payment
stablecoin and digital asset activities; and (iv) the supervisory
framework, including regulations and guidance, applicable to the
covered PPSI with respect to payment stablecoins and digital assets.
To facilitate an orderly waiver process, proposed Sec.
247.51(d)(1) would require a covered PPSI seeking a waiver to submit a
written waiver request to the Board within 240 days of reaching the $10
billion outstanding issuance value threshold.\148\ Nothing would
prohibit a covered PPSI that exceeds the $10 billion threshold from
seeking a waiver earlier, and the Board would recommend that covered
PPSIs that intend to seek a waiver do so promptly. The request must
include information necessary for the Board to evaluate the waiver
criteria enumerated in proposed Sec. 247.51(d)(2) and (d)(3),
discussed below. For example, such information may include the covered
PPSI's reports of condition and examination, financial statements,
investor statements, reports that detail significant examination
findings, business activities, existence of past or current enforcement
orders, and disclosure of any violations of law, as well as other
information as requested by the Board. Additionally, the waiver request
may describe whether the State payment stablecoin regulator has
experience regulating entities that have a similar risk profile. The
waiver request may also include information regarding the frequency and
depth of the State payment stablecoin regulator's examinations. The
Board will review the covered PPSI's waiver request and any associated
information in relation to the waiver criteria.
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\148\ The Board may also issue a waiver of its own accord,
provided that it has information sufficient to evaluate the
statutory criteria for issuing waivers.
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Additionally, proposed Sec. 247.51(d)(3) would incorporate waiver
presumption standards for a covered PPSI that submits a waiver request.
Consistent with section 4(d)(3)(C) of the Act (12 U.S.C.
5903(d)(3)(C)), the Board will presumptively approve a waiver request
if the relevant State payment stablecoin regulator has (A) established
a prudential regulatory regime for the supervision of digital assets or
payment stablecoins as of April 19, 2025 and which has a framework that
has been approved by the Stablecoin Certification Review Committee and
(B) approved one or more State-qualified PPSIs to issue payment
stablecoins under the supervision of such State payment stablecoin
regulator. The waiver presumption is lost if the Board finds, by clear
and convincing evidence, that the covered PPSI does not substantially
meet the waiver criteria in proposed Sec. 247.51(d)(2) or that the
covered PPSI poses significant safety and soundness risks to the
financial system of the United States. If a covered PPSI believes it
qualifies for the waiver presumption, it must indicate so in the waiver
request and provide information sufficient for the Board to evaluate
the waiver presumption standards.
Question 218: Should the Board require that a covered PPSI provide
additional information in its notice under Sec. 247.51(b)? Should the
Board require a covered PPSI to provide specific reports or information
in connection with a waiver request, such as the examples listed in the
SUPPLEMENTARY INFORMATION section? If so, please provide examples.
[similar to OCC question 141]
Question 219: The Board is considering whether to implement
standards when evaluating the past
[[Page 61643]]
operations and exam history of a covered PPSI. For example, the Board
may require that, for a covered PPSI to be eligible for a waiver, it
must not have been cited for violations or have outstanding supervisory
concerns relating to fraud, cybersecurity, technology infrastructure,
and operational disruptions within the past examination cycle. Should
the Board consider standards related to a covered PPSI's supervisory
ratings? [similar to OCC question 142]
Question 220: What would constitute ``clear and convincing''
evidence under which the Board would not approve a waiver request, as
described in proposed Sec. 247.51(d)(3)(ii)?
Question 221: Should waivers from Board supervision for covered
PPSIs be subject to renewal over some time period (e.g., one or five
years) to ensure that the covered PPSI continues to meet the criteria
for the waiver? [similar to OCC question 143]
Question 222: Should the Board reserve the right to discontinue a
waiver granted under proposed Sec. 247.51(d)? If so, under what
circumstances should the Board rescind a waiver? Is 100 days a
reasonable period to provide notice to the covered PPSI? [similar to
OCC question 144]
Question 223: Under section 4(d) of the GENIUS Act (12 U.S.C.
5903(d)), a State-qualified PPSI with total outstanding issuance in
excess of $10 billion must transition to the applicable Federal
regulatory framework within 360 days or else cease issuing new payment
stablecoins until its total outstanding issuance is below the $10
billion threshold. Should the Board adopt a regulation that would
provide a mechanism for covered PPSIs that have transitioned to the
Board's Federal regulatory framework to transition back to the
applicable State regulatory framework if the covered PPSI's outstanding
issuance value has decreased below $10 billion? If so, should the
mechanism explicitly include factors designed to prevent evasion of the
enforcement of the GENIUS Act? For example, what factors should the
Board consider to determine whether a covered PPSI intentionally
reduced its outstanding issuance value to avoid imminent and adverse
Board enforcement or supervisory actions (e.g., the timing or value of
the issuer's decrease in its outstanding issuance)? Should the Board
use its waiver authority under section 4(d)(3) of the GENIUS Act (12
U.S.C. 5903(d)(3)) to permit covered PPSIs that have transitioned to
the Board's Federal regulatory framework to transition back to the
applicable State regulatory framework? [similar to OCC question 139]
F. Proposed Amendments to Part 217
Section 4(a)(4)(C)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(C)(iii)) provides that if a Federal banking agency
``imposes, on a consolidated basis, a leverage capital requirement or
risk-based capital requirement with respect to an insured depository
institution or depository institution holding company . . . that
includes, on a consolidated basis, a [PPSI],'' that insured depository
institution or depository institution holding company ``shall not be
required to hold, with respect to such [PPSI] and its assets and
operations, any amount of regulatory capital in excess of the capital
that such [PPSI] must maintain under the capital requirements issued
pursuant to [section 4(a)(4)(A)(i) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(i))].'' \149\ The Board is proposing to amend its capital
rule (Regulation Q, 12 CFR part 217) to implement this provision with
respect to institutions subject to such rule (Board-regulated
institutions), which include State member banks, bank holding
companies, and savings and loan holding companies.\150\
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\149\ Section 4(a)(4)(A)(i) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(i)) requires the primary Federal payment stablecoin
regulators to establish capital requirements that are ``tailored to
the business model and risk profile of [PPSIs]'' and that ``do not
exceed requirements that are sufficient to ensure the ongoing
operations of [PPSIs].'' See section II.B.6 of this SUPPLEMENTARY
INFORMATION for a discussion of the proposed capital requirements
for Board-supervised PPSIs.
\150\ For the avoidance of doubt, the Board does not believe
there is any obligation on a bank holding company, savings and loan
holding company, or State member bank to serve as a source of
strength to any subsidiary PPSI.
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1. Proposed Approach
Proposed Sec. 217.22(a)(8) would amend the Board's capital rule to
specify that a Board-regulated institution that consolidates a PPSI for
purposes of the Board-regulated institution's GAAP financial statements
would be required first to deconsolidate the PPSI from the Board-
regulated institution's balance sheet.\151\ This would effectively
exclude the PPSI's assets from the calculation of the Board-regulated
institution's standardized total risk-weighted assets, advanced
approaches risk-weighted assets, average total consolidated assets, and
total leverage exposure, as applicable.
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\151\ Deconsolidation, for the purpose of calculating the Board-
regulated institution's regulatory capital requirements, refers to
the derecognition of the PPSI's assets, liabilities, and equity
components from the Board-regulated institution's balance sheet.
Instead, the investment in the PPSI is accounted for according to
the equity method of accounting as prescribed by GAAP.
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Next, the Board-regulated institution would be required to deduct a
dollar amount equal to the total minimum capital the PPSI would be
required to hold under its PPSI-level capital requirements from the
Board-regulated institution's common equity tier 1 capital. This
deduction would prevent the Board-regulated institution from counting
capital required to be held by the PPSI for purposes of the Board-
regulated institution's regulatory capital requirement, but would allow
the Board-regulated institution to include in its consolidated capital
any capital at the PPSI in excess of the PPSI's required minimum
capital. In addition, basing the Board-regulated institution's
deduction on the PPSI's required minimum capital rather than on the
capital it actually holds would also prevent the Board-regulated
institution from benefiting from any shortfalls of the PPSI below its
required minimum capital. The proposal would require the deduction from
common equity tier 1 capital only to avoid the complexity of allocating
the deduction across multiple forms of capital and because common
equity tier 1 capital is the most loss-absorbing form of capital.
The proposed approach would help ensure that, in keeping with the
statutory requirement, the amount of regulatory capital the
consolidated banking organization would be required to hold would not
exceed the sum of the regulatory capital required to be held by the
Board-regulated institution (in the absence of the PPSI) and the PPSI.
2. Alternative Approaches
The Board is seeking comment on two alternatives to the proposed
approach. Under the first alternative approach, the Board-regulated
institution would be required to deconsolidate the PPSI from the Board-
regulated institution's balance sheet (as proposed). The Board-
regulated institution would then be required to deduct from the Board-
regulated institution's common equity tier 1 capital any amount of
positive retained earnings that originates from the PPSI to the extent
not paid out as dividends to the Board-regulated institution. This
deduction would prevent retained earnings of the PPSI from
simultaneously being used to satisfy regulatory capital requirements
for both the PPSI and the Board-regulated institution.
Next, under this first alternative approach, the Board-regulated
institution would be required to exclude a portion of any investment in
the PPSI from its regulatory capital calculations.
[[Page 61644]]
This would be accomplished first by requiring the Board-regulated
institution to deduct from common equity tier 1 capital an amount equal
to its investment in the PPSI (minus the amount of any positive
retained earnings) multiplied by the ratio of the Board-regulated
institution's total capital over total consolidated assets (excluding
assets attributed to the PPSI). Any investment by a Board-regulated
institution in a subsidiary PPSI would be funded by some combination of
capital and liabilities. Under this alternative approach, the Board-
regulated institution would use the ratio of total capital to total
consolidated assets multiplied by the Board-regulated institution's
investment in its PPSI subsidiary to approximate the amount of capital
used to fund such investment.
Finally, under this first alternative approach, the Board-regulated
institution would be required to exclude its investment in the PPSI
from Board-regulated institution's assets for regulatory capital
purposes. This exclusion would also apply to any remaining assets
associated with the PPSI, such as receivables from the PPSI.\152\
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\152\ The denominators of a Board-regulated institution's
capital ratios include standardized total risk-weighted assets and
average total consolidated assets and may include advanced
approaches total risk-weighted assets and total leverage exposure.
See 12 CFR 217.10.
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The Board is also seeking comment on a second alternative approach.
As with the proposed approach, this second alternative approach would
require the Board-regulated institution to deconsolidate the PPSI from
the Board-regulated institution's balance sheet and deduct from the
Board regulated institution's capital any amount of positive retained
earnings from the PPSI to the extent not paid out as dividends to the
Board-regulated institution. This second alternative approach would
also exclude investments in (to the extent not deducted) or
intercompany receivables from the PPSI from the Board-regulated
institution's capital requirement calculations. In contrast to the
first alternative approach discussed above, however, investments in the
PPSI subsidiary would not be deducted from capital.
Question 224: The Board seeks comment on the proposed amendments to
12 CFR part 217. What are the advantages and disadvantages of the
proposed approach, and why? What are the advantages and disadvantages
of requiring a Board-regulated institution to deduct the minimum
capital that a PPSI would be required to maintain from only common
equity tier 1 capital? What changes to the proposed approach should the
Board consider--for example, (i) requiring the deduction from tier 1
capital rather than common equity tier 1 capital; (ii) proportionally
allocating the amount deducted from the Board-regulated institution's
capital to specific regulatory capital components, such as common
equity tier 1, additional tier 1, and tier 2 capital, based on the
composition of the PPSI's capital stack, (iii) deducting half of the
PPSI's required minimum capital from common equity tier 1 capital and
the other half from additional tier 1 capital, or (iv) deducting half
of the PPSI's required minimum capital from tier 1 capital and the
other half from tier 2 capital, similar to 12 CFR 225.22(b)(3)?
Question 225: Under the proposed approach, the Board-regulated
institution would be required to deduct a dollar amount equal to the
total minimum capital the PPSI would be required to hold under its
PPSI-level capital requirements from the Board-regulated institution's
common equity tier 1 capital. The Board seeks comment on whether
clarification is needed as to how to calculate the amount of such
deduction. For example, should the Board specify how the amount of the
deduction should be calculated where a PPSI has multiple capital
requirements in different units (for example, separate requirements for
common equity tier 1, tier 1, and total capital analogous to the risk-
based capital requirements for banking organizations)? What would be
the advantages and disadvantages of specifying that, in such cases, the
deduction should be equal to the amount of the PPSI's largest capital
requirement in dollar terms (for example, in this case, the amount of
the PPSI's largest capital requirement in dollar terms would be the
amount of total capital)? What would be the advantages and
disadvantages of specifying how the deduction should be calculated in
cases where a PPSI is summing capital requirements that are in
different units (for example, a Board-supervised PPSI holding non-
reserve assets would have one tangible equity capital requirement for
reserve assets and operational risks summed with common equity tier 1,
tier 1, and total capital requirements for non-reserve assets)? What
would be the advantages and disadvantages of specifying that, in such
cases, the deduction should be equal to the sum of the largest capital
requirements (for example, in this case, deducting the PPSI's tangible
equity capital requirement plus the PPSI's total capital requirement
based on non-reserve assets)?
Question 226: The Board seeks comment on whether the calculation of
``required minimum capital'' should include only the dollar amount of
capital held to comply with capital requirements applicable to the
PPSI, or whether the calculation should also include additional
capital, such as capital held because of a capital directive,
enforcement action, or supervisory direction. What would be the
advantages and disadvantages of these approaches?
Question 227: The Board seeks comment on whether a pool of liquid
assets held by the PPSI under an operational backstop requirement
should be added to the calculation of ``required minimum capital'' for
purposes of the deduction from the Board-regulated institution's
capital? What would be the advantages and disadvantages of such an
approach?
Question 228: What alternative approaches should the Board consider
that would help ensure compliance with section 4(a)(4)(C)(iii) of the
GENIUS Act (12 U.S.C. 5903(a)(4)(C)(iii))? What are the advantages and
disadvantages of an alternative modification that would require the
Board-regulated institution to deduct from its common equity tier 1
capital the amount of capital a PPSI actually holds (rather than the
amount it is required to hold)? For example what would be the
advantages and disadvantages of the first alternative approach,
discussed in section II.F.2 of this SUPPLEMENTARY INFORMATION, which
would require, among other things, that the Board-regulated institution
deduct from its common equity tier 1 capital an amount equal to its
investment in the PPSI (minus the amount of any positive retained
earnings) multiplied by the ratio of the Board-regulated institution's
total capital over total consolidated assets (excluding assets
attributed to the PPSI), as discussed above? What are the advantages
and disadvantages of the second alternative modification that would
require the Board-regulated institution to deduct investments in (to
the extent not deducted) or intercompany receivables from the PPSI from
the asset calculations but would not deduct the amount of investments
in the PPSI from common equity tier 1 capital calculations of the
Board-regulated institution's capital requirements?
Question 229: What are the advantages and disadvantages of
requiring a Board-regulated institution that includes a consolidated
PPSI subsidiary to treat a PPSI subsidiary for regulatory capital
purposes in the same
[[Page 61645]]
manner that it is required to treat a financial subsidiary? This would
require the Board-regulated institution to deconsolidate the assets and
liabilities of the PPSI subsidiary, exclude the amount of its
investment in the PPSI subsidiary from its total risk-weighted assets,
average total consolidated assets, and other applicable exposure
measures, and deduct the amount of its investment in the PPSI
subsidiary from its common equity tier 1 capital. This approach could
help ensure that the Board-regulated institution's investment in its
PPSI subsidiary does not increase the capital of the Board-regulated
institution, thus avoiding any double counting of capital. At the same
time, this approach could, at least for some period of time upon
establishing a PPSI subsidiary, cause the regulatory capital ratios of
a Board-regulated institution that includes a consolidated PPSI
subsidiary to be lower than the regulatory capital ratios of an
otherwise similar Board-regulated institution that did not establish a
consolidated PPSI subsidiary, thus (relative to the proposal)
potentially increasing the cost of establishing a PPSI subsidiary. If
the Board were to adopt such an approach, what considerations should
the Board consider when calibrating the PPSI capital requirement as a
percentage of the PPSI's total assets or other denominator, rather than
the proposal's fixed minimum capital requirement for PPSIs? What other
alternatives should the Board consider that would satisfy the GENIUS
Act requirement?
Question 230: The Board is not, at this time, proposing changes to
risk-based capital requirements for depository institution holding
companies that are significantly engaged in insurance activities
(insurance depository institution holding companies). While the
proposed changes to part 217 would flow through to the minimum risk-
based capital requirements certain insurance depository institution
holding companies must calculate, the proposed rule would not amend the
building block approach (BBA) calculation. Should the Board amend 12
CFR part 217, subpart J to ensure that the BBA calculation does not
impose capital requirements with respect to a consolidated PPSI and its
assets and operations in excess of the capital that such PPSI is
required to maintain under the capital regulations promulgated under
the GENIUS Act? More specifically, the Board could specify that for
purposes of the BBA, an insurance depository institution holding
company can exclude any requirement that applies to a PPSI subsidiary
or its assets or operations. Comments should address the extent to
which capital requirements prescribed by state insurance regulators
could impose capital requirements on legal entities subject
requirements that would exceed the capital requirements applicable to
PPSIs under the rules implemented by State and Federal regulators
pursuant to the GENIUS Act.
Question 231: Subpart D of the current capital rule does not
prescribe a specific risk-weight treatment for exposures to payment
stablecoins.\153\ However, the Board could consider, for example,
applying a 100 percent risk weight for payment stablecoin exposures
where either: (i) the issuing PPSI's non-reserve assets comprise five
percent or more of total assets; (ii) the issuing PPSI's non-stablecoin
liabilities comprise five percent or more of total liabilities; or
(iii) the issuing PPSI does not publicly report or disclose its non-
reserve assets and non-stablecoin liabilities. For an exposure to a
payment stablecoin where the issuing PPSI's non-reserve assets or non-
stablecoin liabilities fall below thresholds (i) and (ii) above, and
the issuing PPSI maintains more than five percent of reserve assets in
the form of uninsured eligible deposit claims, the Board could consider
assigning a 20 percent risk weight to the payment stablecoin exposure
to reflect the low credit risk from reserve assets. For an exposure to
a payment stablecoin where the issuing PPSI's non-reserve assets or
non-stablecoin liabilities fall below the thresholds that would
otherwise result in a 20 or 100 percent risk weight, and the issuing
PPSI maintains five percent or less of reserve assets in the form of
uninsured eligible deposit claims, the Board could consider assigning a
five or ten percent risk weight to the payment stablecoin exposure to
reflect the minimal but still existing residual credit risk such
issuing PPSIs face given the composition of their reserve assets that
are highly liquid and generally exhibit very low interest rate and
credit risks. What would be the advantages and disadvantages of such an
approach? What alternative risk weights and approaches for setting the
risk weights should the Board consider? What characteristics or
attributes of a PPSI should the Board consider when developing a risk-
weight treatment for exposures to payment stablecoins? What approach of
determining an exposure amount of a payment stablecoin exposure should
the Board consider for a PPSI that holds derivatives contracts with
fair values close to zero or that has off-balance sheet exposures? What
would be the advantages and disadvantages of converting off balance-
sheet exposures into equivalent asset amounts, such as by applying the
methodologies used to calculate total leverage exposure? What would be
the advantages and disadvantages of distinguishing between PPSIs
subject to supervision and regulation by different regulators (federal-
supervised PPSIs, state-supervised PPSI, and others) for purposes of
setting a risk-weight treatment for payment stablecoin exposures? What
would be the advantages and disadvantages of providing equivalent
treatment for payment stablecoins issued by U.S. PPSIs and foreign
payment stablecoin issuers, as that term is defined in 12 U.S.C.
5901(12), that satisfy the requirements of 12 U.S.C. 5907 and 12 U.S.C.
5916 for purposes of setting a risk-weight treatment for payment
stablecoin exposures? Commenters are encouraged to provide supporting
rationale and data to support their recommendations.
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\153\ Under the current capital rule, exposures to payment
stablecoins would be credit exposures to the PPSI. Most payment
stablecoins are currently issued by firms the exposures of which
would be corporate exposures for purposes of the capital rule. See
12 CFR 217.2 (``corporate exposure''). Payment stablecoin exposures
would likely be subject to a 100 percent risk weight under the
current capital rule. See 12 CFR 217.32(f). Additionally, some
payment stablecoins may be issued by firms that qualify as
depository institutions under the current capital rule and could
receive a lower risk weight. See 12 CFR 217.2 (``depository
institution''), 12 CFR 217.32(d).
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G. Proposed Amendments to Parts 208, 211, 225
Section 16(b) of the GENIUS Act (12 U.S.C. 5915(b)) provides that
entities regulated by the Board are ``authorized to engage in the
payment stablecoin activities and investments contemplated by [the
GENIUS] Act, including acting as a principal or agent with respect to
any payment stablecoin and payment of fees to facilitate customer
transactions.'' \154\ Additionally, section 16(b) of the Act requires
the Board to ``review all existing guidance and regulations, and if
necessary, amend or promulgate new regulations and guidance, to clarify
that regulated entities are authorized to engage in such activities and
investments.'' The Board has reviewed its existing guidance and
regulations and believes the amendments to the Board's regulations
discussed below are necessary to clarify
[[Page 61646]]
the authority of State member banks, uninsured State branches and State
agencies of foreign banks, Edge and agreement corporations, and
depository institution holding companies to engage in such activities
and investments.
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\154\ As discussed in section II.B.1.a of this SUPPLEMENTARY
INFORMATION, for avoidance of doubt, acting as a custodian is
permissible as an agency activity.
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1. Proposed Amendment to Part 208
The Board is proposing to amend Regulation H (12 CFR part 208) to
include interpretations in proposed Sec. 208.113 regarding the
authority of (i) a subsidiary of an insured State member bank to issue
payment stablecoins, (ii) an uninsured State member bank to issue
payment stablecoins directly, and (iii) a State member bank to engage
in certain digital asset related activities.\155\
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\155\ For the avoidance of doubt, a State member bank is also
permitted to engage in custody activities, including custody
activities related to payment stablecoins, provided such activities
are permissible under applicable State law.
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Paragraph (b) of proposed Sec. 208.113 would clarify that an
insured State member bank may own the equity securities of a Board-
supervised PPSI, provided that the insured State member bank (i) has a
controlling interest and (ii) has received the prior approval of the
Board for a subsidiary to issue payment stablecoins pursuant to
proposed subpart D of part 247. While State member banks are generally
restricted in their ability to own corporate securities as
principal,\156\ the GENIUS Act specifically empowers an insured State
member bank to own a controlling interest in a PPSI that has been
approved by the Board.\157\
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\156\ 12 U.S.C. 335; 12 U.S.C. 24(Seventh).
\157\ This proposal implements section 16(b) of the GENIUS Act
and thus addresses only controlling investments by State member
banks in PPSIs. Any noncontrolling investments by State member banks
in PPSIs would be governed by section 9(20) of the Federal Reserve
Act and section 24 of the Federal Deposit Insurance Act, as
applicable. State member banks may consult with Federal Reserve
staff regarding the circumstances under which they may make
noncontrolling equity investments in PPSIs. See Frequently Asked
Questions about Regulation H, 12 CFR 208.21 Q2 (March, 31, 2021),
https://www.federalreserve.gov/supervisionreg/legalinterpretations/reg-h-frequently-asked-questions.htm.
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Paragraph (c) of proposed Sec. 208.113 would address the authority
of an uninsured State member bank to issue payment stablecoins
directly. Sections 2(23) and (31) of the GENIUS Act (12 U.S.C. 5901(23)
and (31)) define the term PPSI to include an entity that is legally
established under the laws of a State and approved to issue payment
stablecoins by a State payment stablecoin regulator and that is not,
among other things, an insured depository institution or subsidiary
thereof. Accordingly, an uninsured, State-chartered bank is
simultaneously eligible to become a PPSI under the GENIUS Act and to
apply to become a member of the Federal Reserve System under the
Federal Reserve Act (12 U.S.C. 221 and 321). Paragraph (c) of proposed
Sec. 208.113 would clarify that if an uninsured State member bank is
also a State-qualified PPSI, the entity is subject to supervision,
regulation, and enforcement (i) by the State payment stablecoin
regulator and the Board (pursuant to proposed subpart F of part 247),
under the provisions of the GENIUS Act and its implementing regulations
and, as applicable, the relevant State regulatory framework for State-
qualified PPSIs, and (ii) by the Board pursuant to the provisions of
the Federal Reserve Act and any other laws and regulations applicable
to State member banks.
Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), as discussed above in section II.B.1.a of this SUPPLEMENTARY
INFORMATION, paragraph (d) of proposed Sec. 208.113 would state that a
State member bank may engage in certain digital asset-related
activities. Paragraph (d) of proposed Sec. 208.113 would state that a
State member bank may, in connection with the payment stablecoin
activities and investments contemplated by the GENIUS Act or other
permissible activities and investments, (i) act as principal or agent
with respect to any payment stablecoin; (ii) pay fees to facilitate
customer transactions; (iii) pay fees and undertake other activities as
necessary to conduct testing on distributed ledger-based platforms; and
(iv) hold as principal non-payment stablecoin digital assets necessary
to conduct the activities described in (ii) or (iii), provided that
such principal holdings shall not exceed quantities reasonably expected
to be necessary to meet near-term demand for the conduct of such
activities.
2. Proposed Amendment to Part 211
The Board is proposing to amend Regulation K (12 CFR part 211) to
clarify the permissibility of certain digital asset-related activities
for uninsured State branches, State agencies, and Edge and agreement
corporations.
Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), as discussed above in section II.B.1.a of this SUPPLEMENTARY
INFORMATION, paragraph (b) of proposed Sec. 211.606 would clarify that
an uninsured State branch or State agency of a foreign bank may engage
in certain digital asset-related activities. Paragraph (b) of proposed
Sec. 211.606 would state that uninsured State branches and State
agencies of foreign banks may, in connection with the payment
stablecoin activities and investments contemplated by the GENIUS Act or
other permissible activities and investments, (i) act as principal or
agent with respect to any payment stablecoin; (ii) pay fees to
facilitate customer transactions; (iii) pay fees and undertake other
activities as necessary to conduct testing on distributed ledger-based
platforms; and (iv) hold as principal non-payment stablecoin digital
assets necessary to conduct the activities described in (ii) or (iii),
provided that such principal holdings shall not exceed quantities
reasonably expected to be necessary to meet near-term demand for the
conduct of such activities. With respect to an Edge or agreement
corporation, the proposed rule would amend Regulation K to add proposed
Sec. 211.10(a)(20), which would provide that such activities are usual
in connection with the transaction of banking or other financial
operations abroad.
Question 232: Section 2(11)(C) of the GENIUS Act (12 U.S.C.
5901(11)(C)) indicates that a Federal branch of a foreign bank may
become a PPSI, if it is approved by the OCC to issue payment
stablecoins. Should the Board amend Regulation K to indicate that an
uninsured State branch is permitted to become a PPSI, if approved by
its home State,\158\ provided that its home State's certification of
substantial similarity has been unanimously approved by the Stablecoin
Certification Review Committee? Should State agencies (as defined in
the International Banking Act) also be permitted to become State-
qualified PPSIs under such conditions? If an uninsured State branch of
a foreign bank is permitted to become a State-qualified PPSI, to which
Federal regulatory framework should the State-qualified PPSI transition
(absent a waiver) when it reaches $10 billion in outstanding stablecoin
issuance: the Board's regulatory framework or the OCC's regulatory
framework?
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\158\ A State-qualified PPSI must be ``legally established under
the laws of a State and approved to issue payment stablecoins by a
State payment stablecoin regulator.'' 12 U.S.C. 5901(31)(A).
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3. Proposed Amendment to Part 225
The Board is proposing to amend Regulation Y (12 CFR part 225) to
include an interpretation in proposed Sec. 225.146 regarding the
authority of a bank holding company to make controlling investments in
certain PPSIs and to engage in certain digital asset-related
activities. Under section 16(b) of the GENIUS Act (12 U.S.C. 5915(b)),
HOLA (12 U.S.C. 1467a(c)(2)(F)(i)), and the Board's Regulation LL (12
CFR 238.54) savings and loan holding
[[Page 61647]]
companies would also be permitted to make such investments and engage
in such activities, subject to the terms, conditions, and limitations
placed on bank holding companies with respect to such activities.
Paragraph (b) of proposed Sec. 225.146 would clarify bank holding
companies may, directly or indirectly, own the equity securities of a
PPSI in certain circumstances. First, a bank holding company may,
without the prior approval of the Board, indirectly own the equity
securities of a PPSI that is controlled by the bank holding company's
subsidiary insured depository institution, provided that such insured
depository institution has received the prior approval of the
appropriate Federal banking agency (as that term is defined in 12
U.S.C. 1813) under section 5 of the GENIUS Act (12 U.S.C. 5904).
Second, a banking holding company may, without the prior approval of
the Board, own the equity securities of other PPSIs that are of the
kinds and amounts explicitly eligible by Federal statute for investment
by a national bank in reliance on section 4(c)(5) of the BHC Act (12
U.S.C. 1843(c)(5)) and the Board's Regulation Y (12 CFR 225.22(d)(4)),
provided that the bank holding company controls the PPSI.\159\ This is
permitted because, under the GENIUS Act, an insured depository
institution (including an insured national bank) is specifically
empowered to own a controlling interest in a PPSI that has been
approved by the appropriate Federal banking agency.\160\
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\159\ Such holdings may be permissible under other authorities.
See, e.g., 12 U.S.C. 1843(c)(8); 12 CFR 225.28(b)(5). The Board is
not aware of any provision of law that authorizes bank holding
companies to control uninsured, State-chartered depository
institutions. See 12 U.S.C. 1842(e); 12 CFR 225.4; Fed. Rsrv. Reg.
Serv. 4-815 (Oct. 3, 1973).
\160\ 12 U.S.C. 5901(23); 5904; see also 12 CFR 225.22(e).
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Paragraph (b) of the proposed Sec. 225.146 would also state that a
PPSI controlled by a bank holding company would, as a subsidiary of
such bank holding company, be subject to supervision, regulation, and
enforcement (i) by its primary Federal or State payment stablecoin
regulator under the provisions of the GENIUS Act and its implementing
regulations, and (ii) by the Board under the applicable provisions of
the BHC Act and other laws and regulations applicable to bank holding
companies.\161\
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\161\ See, e.g., supra n.34. For avoidance of doubt, a PPSI
controlled by a savings and loan holding company would, as a
subsidiary of such savings and loan holding company, be subject to
supervision, regulation, and enforcement (i) by its primary Federal
or State payment stablecoin regulator under the provisions of the
GENIUS Act and its implementing regulations, and (ii) by the Board
under the applicable provisions of HOLA and other laws and
regulations applicable to savings and loan holding companies. PPSIs
subject to Board supervision under the BHC Act would be supervised
in the same manner as any other subsidiary of a bank holding
company. The Board's supervision of subsidiaries of a bank holding
company is subject to statutory limitations. See 12 U.S.C. 1844(c).
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Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), as discussed above in section II.B.1.a of this SUPPLEMENTARY
INFORMATION, paragraph (c) of proposed Sec. 225.146 would clarify that
a bank holding company may, in connection with the payment stablecoin
activities and investments contemplated by the GENIUS Act or other
permissible activities and investments, (i) act as principal or agent
with respect to any payment stablecoin; (ii) pay fees to facilitate
customer transactions; (iii) pay fees and undertake other activities as
necessary to conduct testing on distributed ledger-based platforms; and
(iv) hold as principal non-payment stablecoin digital assets necessary
to conduct the activities described in (ii) or (iii), provided that
such principal holdings shall not exceed quantities reasonably expected
to be necessary to meet near-term demand for the conduct of such
activities.\162\
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\162\ Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), the activities enumerated in paragraph (c) of proposed
Sec. 225.146 would also be permissible for savings and loan holding
companies, subject to the terms, conditions, and limitations placed
on bank holding companies with respect to such activities. See also,
supra n.34.
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Question 233: What additional clarifications would be beneficial
regarding Board-supervised banking organizations' authorities to engage
in activities pursuant to section 16(b) of the Act (12 U.S.C. 5915(b))?
Are there other limits or conditions that the Board should consider
with respect to Board-supervised banking organizations acting as
principal or agent with respect to any payment stablecoin?
Question 234: Beyond paying transaction fees or testing a
distributed ledger, do Board-supervised banking organizations need to
hold digital assets other than payment stablecoins for purposes within
the scope of section 16(b) of the Act (12 U.S.C. 5915(b))? If so, under
what circumstances would a Board-supervised PPSI need to hold such
assets?
Question 235: The proposed rules provides that a Board-supervised
banking organization may not hold non-payment stablecoin digital assets
in a quantity that exceeds what is reasonably expected to be necessary
to meet near term demand for the payment of customer fees or near-term
testing of a distributed ledger-based platform. What are the benefits
and drawbacks of codifying this limitation? Should the Board calibrate
the limitation differently, including by capping it to a percentage of
assets or a certain value threshold?
Question 236: The Board is not currently proposing to amend the
Board's Regulation LL (12 CFR part 238) to include an interpretation
regarding the activities permissible for savings and loan holding
companies in connection with the GENIUS Act. What additional
clarifications or actions would be beneficial regarding savings and
loan holding companies' authorities to engage in the payment
stablecoin- and digital asset-related activities discussed in section
II.F.3 of this SUPPLEMENTARY INFORMATION?
Question 237: What additional clarifications, if any, would be
helpful regarding the Board's role and expectations with respect to
uninsured State member banks that elect to become State-qualified
PPSIs?
H. Proposed Amendments to Part 263
The Board is proposing several revisions to the rules of practice
and procedure for adjudicatory proceedings in 12 CFR part 263 to
incorporate the Act's procedural requirements with respect to Board-
supervised PPSIs.
Section 6(b) of the GENIUS Act (12 U.S.C. 5905(b)) requires the
Board to follow certain procedures when bringing an enforcement action
or imposing civil money penalties against a Board-supervised PPSI for
violations of the GENIUS Act, any regulation or order issued under the
Act, or any condition imposed in writing by the Board.
Specifically, section 6(b)(4)(A) of the GENIUS Act (12 U.S.C.
5905(b)(4)(A)) requires the Board to comply with the procedures set
forth in paragraphs (b) and (e) of section 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1818(b) and (e)) if the Board identifies a
violation or attempted violation of the Act or makes a determination
with respect to the enforcement authorities enumerated at sections
6(b)(1)-(3) of the Act (12 U.S.C. 5905(b)(1)-(3)).\163\ Similarly,
section 6(b)(4)(D) of the GENIUS Act (12 U.S.C. 5905(b)(4)(D)) permits
the Board to follow the procedures in section 8(c) of the Federal
Deposit Insurance Act when the Board
[[Page 61648]]
issues a temporary cease-and-desist order.
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\163\ Section 6(b)(1) through (3) of the Act (12 U.S.C.
5905(b)(1)-(3)) give the Board authority to suspend or revoke the
registration of a Board-supervised PPSI, initiate cease-and-desist
proceedings, and remove and prohibit institution-affiliated parties.
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Section 6(b)(5)(D) of the GENIUS Act (12 U.S.C. 5905(b)(5)(D))
clarifies that any civil money penalty imposed under the Act may be
assessed and collected by the Board pursuant to the procedures set
forth in section 8(i)(2) of the Federal Deposit Insurance Act (12
U.S.C. 1818(i)(2)).
Consistent with the GENIUS Act, the Board proposes to revise Sec.
263.1 to clarify that the rules of practice for hearings in part 263
apply to the following proceedings: suspension or revocation of
registration, cease-and-desist, temporary cease-and-desist, removal and
prohibition, or civil money penalties under section 6 of the GENIUS Act
(12 U.S.C. 5905). Additionally, the Board proposes to revise Sec.
263.450 to clarify that the part 263 procedures for formal
investigations apply to formal investigations initiated by the Board
pursuant to section 6 of the GENIUS Act (12 U.S.C. 5905).
The Board also proposes several technical revisions. Specifically,
the Board proposes to revise the definitions of ``institution'' and
``institution-affiliated party'' in Sec. 263.3 to incorporate Board-
supervised PPSIs and actions brought pursuant to the Act.
Question 238: What additional clarifications, if any, are needed
regarding the application of the Board's of the Board's Rule of
Practice for Hearings with respect to Board-supervised PPSIs?
I. Additional Request for Comment
Question 239: Are there any aspects of the OCC's notice of proposed
rulemaking implementing its responsibilities under the GENIUS Act that
the Board should consider adopting?
Question 240: A PPSI must be obligated to convert, redeem, or
repurchase its issued payment stablecoins for a fixed amount of
monetary value, not including a digital asset denominated in a fixed
amount of monetary value. Is additional guidance needed on the
accounting treatment for issued payment stablecoins and the associated
reserve assets? If so, what considerations should factor into any such
guidance (e.g., what legal structures would be relevant to the
accounting treatment)? [similar to OCC question 199]
Question 241: What impact would the proposed rule have on credit
creation? How can the Board minimize any negative impact to credit
creation? [similar to OCC question 200]
Question 242: Should any additional aspects of the proposed rule be
adjusted based on the size of the Board-supervised PPSI? For example,
are there additional aspects of the proposed rule that should be
applied exclusively to Board-supervised PPSIs with outstanding issuance
above a certain amount? Should the Board measure the ``size'' of a
Board-supervised PPSI by its outstanding stablecoin issuance or is
there a better way to measurement? [similar to OCC question 201]
Question 243: Are there any aspects of the proposed rule that the
Board should adjust to promote fair competition between banks and non-
banks? [similar to OCC question 202]
Question 244: Should the proposed rule explicitly address Board-
supervised PPSIs that also issue/redeem the same or similar stablecoins
in one or more foreign jurisdictions? Could these Board-supervised
PPSIs be subject to additional risks or operational challenges that are
not sufficiently addressed by the proposed rule? To what extent should
stablecoin holders be able to distinguish between stablecoins issued
under the GENIUS Act versus another regulatory regime? If the holder
should be able to establish that it is holding a GENIUS Act compliant
stablecoin, how should the Board assist the holder in making this
determination? For example, should the Board impose required
disclosures or technical requirements, such as through smart contracts,
including those that use wrappers or other techniques? [similar to OCC
question 203]
Question 245: What additional issues could arise with respect to a
business model where a foreign affiliate issues or redeems payment
stablecoins abroad? How should the Board address these issues? [similar
to OCC question 204]
Question 246: Are there any other technical developments in
distributed ledger protocols, digital assets, or related technologies
that the proposed rule should address to ensure the purposes of the
GENIUS Act are being met? For example, should the Board consider
automating aspects of reporting or oversight? Should the Board
incorporate additional provisions concerning the use of smart contracts
when considering compliance with aspects of the proposed rule, such as
risk management? Are there dynamics relevant to particular blockchains
that could affect liquidity, redemption, operating risk, or run risk
that the Board should consider and incorporate into any final rule?
[similar to OCC question 205]
Question 247: Are there any particular considerations that the
Board should bear in mind or changes that the Board should make with
respect to Board-supervised PPSIs that are owned or operated by a
consortium of other entities? In cases where the consortium includes
both insured State member banks and other entities (e.g., national
banks or State non-member banks), which agency should be the primary
Federal payment stablecoin regulator (e.g., the primary Federal payment
stablecoin regulator of the majority owner or owners)? [similar to OCC
question 206]
Question 248: Section 11(h) of the GENIUS Act (12 U.S.C. 5910(h))
provides that the primary Federal payment stablecoin regulators shall
perform a study of the potential insolvency proceedings of PPSIs, and
issue a report that includes the findings of the study and any
legislative recommendations. What are some existing gaps in the
bankruptcy laws and rules for PPSIs, including Board-supervised PPSIs?
What impediments exist for payment stablecoin holders' ability to be
paid out in full? What is the utility of orderly insolvency
administration regimes? Are any additional authorities needed to
implement such regimes, and what legislative recommendations should
regulators make?
Question 249: Section 12 of the GENIUS Act (12 U.S.C. 5912)
provides that the primary Federal payment stablecoin regulators, in
consultation with the National Institute of Standards and Technology,
and other relevant standard-setting organizations, and State bank and
credit union regulators, shall assess and, if necessary, prescribe
standards for PPSIs to promote compatibility and interoperability with
other PPSIs and the broader digital finance ecosystem. What efforts are
issuers currently taking to address challenges posed by
interoperability? What considerations should the regulators take into
account in determining whether standards are necessary? Would the
promulgation of standards help to broaden adoption of stablecoins?
[similar to OCC question 208]
Question 250: What are risks posed by different types of
interoperability solutions and how might PPSIs and regulators manage
those risks? How can interoperability solutions aid in addressing risks
facing PPSIs? What risks are introduced by cross-chain bridges and
other interoperability solutions and how do these risks interact with
Bank Secrecy Act/anti-money laundering and sanctions requirements? What
steps can be taken to address such Bank Secrecy Act/anti-money
laundering and sanctions concerns? [similar to OCC question 209]
[[Page 61649]]
Question 251: Is there anything else the Board should do to address
potential fraud concerns in the context of a final rule? For example, a
bad actor may create fraudulent tokens intended to mimic a payment
stablecoin. Are there technical or other requirements the Board should
impose to mitigate the potential for such fraudulent tokens to harm
consumers? For example, should authentic stablecoins be required to
have an electronic signature that can be verified by a recipient? Are
there other areas of potential fraud that the Board should be aware of
and should attempt to mitigate in the final rule? [similar to OCC
question 210]
Question 252: What changes to existing rules should be made in
recognition of the GENIUS Act? For example, should the Board revise any
relevant regulatory thresholds in its rules, such as the capital or
liquidity rules, to provide that stablecoin reserves do not count
against relevant thresholds in those rules? [similar to OCC question
211]
Question 253: What types of relationships or transactions could a
PPSI that is a subsidiary of a member bank engage in with such parent
member bank that could have an adverse effect on the member bank? What
specific actions pursuant to sections 23A and 23B of the Federal
Reserve Act and the Board's Regulation W (12 CFR part 223) should the
Board consider taking to limit potential harm to member banks?
Question 254: Under current law, PPSIs that are subsidiaries of
member banks are treated like operating subsidiaries under Regulation
W. What would be the advantages and disadvantages of treating PPSI
subsidiaries of member banks like financial subsidiaries and
designating them as ``affiliates'' under Regulation W, pursuant to
section 23A(b)(1)(E) of the Federal Reserve Act? What would be the
advantages and disadvantages of treating PPSIs that are subsidiaries of
member banks like insured depository institution subsidiaries of member
banks, thereby subjecting transactions or relationships between a
member bank and its PPSI subsidiary only to (i) the market terms
requirements of section 23B of the Federal Reserve Act; and (ii) the
prohibition on a member bank's purchase of low-quality assets from its
PPSI subsidiary, consistent with the limitations in Regulation W (12
CFR 223.15)?
III. Economic Analysis
A. Introduction
The GENIUS Act sets forth a Federal regulatory framework for
payment stablecoin issuance. As discussed in detail in the previous
sections of this SUPPLEMENTARY INFORMATION, the Board is proposing
rules to implement the requirements of the GENIUS Act for Board-
supervised PPSIs. The proposal would also establish requirements for
Board-supervised entities that engage in providing related custodial or
safekeeping services.
This section discusses the economic effects of the proposal,
including the likely costs and benefits. While the costs and benefits
of the proposal in large part stem from the statutory requirements of
the GENIUS Act, certain costs and benefits are affected by the choices
the Board makes in connection with implementing such requirements. The
economic analysis addresses the costs and benefits resulting from all
the requirements in the proposal.
The subsequent discussion is mostly qualitative in nature, with
emphasis on the direction of the economic effects and their economic
significance, for a few reasons. First, the expected effects of the
proposal are hard to quantify because of the nascent nature of the
stablecoin market and the associated uncertainty regarding the various
factors that would determine the impact of the proposal. For example,
the likelihood that a Board-supervised bank creates a PPSI and enters
the stablecoin market is hard to predict, as there are currently no
PPSIs operating under a uniform Federal framework in the United States.
Additionally, no Board-supervised bank currently owns a stablecoin
issuer, further limiting the availability of applicable data. Further,
some of the economic effects described below, such as increased
transparency, financial stability benefits, and enhanced resilience of
stablecoins, are intangible in nature and thus difficult to quantify.
The Board welcomes comments on the economic analysis of the
proposal, including data or quantitative analysis on relevant benefits
and costs.
B. Broad Economic Considerations
Payment stablecoins function as liquid instruments for settlement
that are used across trading venues, payment platforms, and
institutional digital asset infrastructures. Stablecoins were initially
developed for use in digital asset activities, and the bulk of
stablecoin use continues to be for such activities. In early 2026, the
aggregate market capitalization of stablecoins reached $317
billion,\164\ the approximate equivalent of 15 percent of the non-
stablecoin crypto market capitalization.\165\ However, the role of
stablecoins has the potential to expand beyond digital-asset
environments, including as a tool for increased use in payment and
settlement and as a dollar-denominated store of value.
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\164\ Market capitalization as of April 6, 2026. See Francesca
Carapella, Arazi Lubis & Alexandros Vardoulakis, ``Stablecoins in
2025: Developments and Financial Stability Implications'' (April 8,
2026), https://www.federalreserve.gov/econres/notes/feds-notes/stablecoins-in-2025-developments-and-financial-stability-implications-20260408.html.
\165\ Staff calculations using data from DeFi Llama and
CoinMetrics.
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Within the United States, payment stablecoins are used across
centralized exchanges and decentralized finance platforms, and market
participants are beginning to use them in payment applications and
institutional settlement systems.\166\ U.S. market participants account
for a large share of global stablecoin issuance, trading volume, and
reserve holdings.\167\ The United States also serves as the primary
jurisdiction for one of the largest stablecoin issuers (Circle), whose
reserve assets are mainly cash and short-term U.S. Treasuries.
---------------------------------------------------------------------------
\166\ See VISA, ``Visa Launches Stablecoin Settlement in the
United States, Marking a Breakthrough for Stablecoin Integration''
(December 16, 2025), https://usa.visa.com/about-visa/newsroom/press-releases.releaseId.21951.html; see also Anchorage Digital,
``Anchorage Digital Launches Stablecoin Solutions for Banks to
Modernize Cross-Border USD Settlement'' (February 19, 2026), https://www.anchorage.com/insights/anchorage-digital-launches-stablecoin-solutions-for-banks-to-modernize-cross-border-usd-settlement.
\167\ See International Monetary Fund, ``Understanding
Stablecoins'' 4 (2025), https://www.imf.org/en/-/media/files/publications/dp/2025/english/usea.pdf.
---------------------------------------------------------------------------
Stablecoin regulatory frameworks vary substantially,\168\ resulting
in a market that features high search and monitoring costs for users.
Two similar stablecoins in terms of liquidity and fair value may have
quite different reserve asset, liquidity, redemption, or risk
management policies. Additionally, there are no universal disclosures
or standards to protect stablecoin holders from fraud and the risk of
loss.\169\
---------------------------------------------------------------------------
\168\ See Section III.C of this SUPPLEMENTARY INFORMATION.
\169\ See European Central Bank, ``Stablecoins' role in crypto
and beyond: functions, risks and policy'' (July 2022), https://
www.ecb.europa.eu/press/financial-stability-publications/
macroprudential-bulletin/html/ecb.mpbu202207_2~836f682ed7.en.html;
Financial Stability Board, ``Thematic Review on FSB Global
Regulatory Framework for Crypto-asset Activities'' (2025), https://www.fsb.org/uploads/P161025-1.pdf.
---------------------------------------------------------------------------
Market participants have cited regulatory uncertainty as a key
reason
[[Page 61650]]
for not entering this market,\170\ potentially reducing the supply of
payment stablecoins. Increased competition in the supply of stablecoins
is likely to improve user experience. In addition, increased
competition may reduce the likelihood of episodes of market instability
by reducing market concentration and offering alternatives with the
standards of transparency and risk management that this proposal would
provide. As detailed below, the market for stablecoin issuance can be
currently described as duopolistic with a long tail of smaller
participants. The aforementioned barriers to entry on the supply side,
coupled with the benefits stemming from broad adoption and the
associated liquidity, create a market where a significant number of
users opt for the two leading stablecoin providers.
---------------------------------------------------------------------------
\170\ See, e.g., GFMA, AFME, ASIFMA, et al., ``The Impact of
Distributed Ledger Technology in Capital Markets'' (2025), https://www.gfma.org/wp-content/uploads/2025/08/1.-full-report-impact-of-dlt-in-cap-mkts-final-1.pdf.
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The proposal would provide a regulatory framework that would
increase the transparency of Board-supervised PPSIs for both stablecoin
holders and regulators. In addition, by providing regulatory clarity,
the proposal would create incentives for new participants to enter the
market. Finally, the proposal would establish clear standards that are
calibrated to help ensure payment stablecoins are a safe and sound
financial product and help protect their users from loss.
C. Baseline
Reflecting the current regulatory framework and the associated
absence of PPSIs, the proposal's economic analysis considers a pre-
statutory baseline under which the GENIUS Act is not enacted. Under
this baseline, insured State member banks do not issue payment
stablecoins directly or through a subsidiary given the lack of
regulatory clarity and the high barriers to entry surrounding such
activities. While a few State member banks currently engage in
stablecoin-related activities, they do not issue payment stablecoins
directly or through a subsidiary.\171\
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\171\ For example, some State member banks provide services to
stablecoin arrangements, including managing reserve assets. However,
State member banks do not issue payment stablecoins directly.
---------------------------------------------------------------------------
Before the passage of the GENIUS Act, there was no comprehensive
Federal framework governing payment stablecoin issuance. To date,
payment stablecoin issuance has been subject to State regulations and
money transmission laws, as well as Federal anti-money laundering and
sanctions laws. The New York Department of Financial Services (NYDFS)
Guidance on the Issuance of U.S. Dollar-Backed Stablecoins is currently
the most relied-upon standard for payment stablecoins in the United
States.\172\ NYDFS oversees several prominent stablecoin issuers.
---------------------------------------------------------------------------
\172\ See New York Department of Financial Services, ``Virtual
Currency Guidance'' (2022), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220608_issuance_stablecoins.
NYDFS has proposed new regulations in connection with the GENIUS Act
that are not currently in effect. New York Department of Financial
Services, Proposed New 23 NYCRR 202, https://www.dfs.ny.gov/industry_guidance/regulatory_activity/financial_services.
---------------------------------------------------------------------------
The NYDFS guidance, updated in 2022, includes conditions that U.S.
dollar-backed payment stablecoins be fully backed by a reserve composed
of safe, highly liquid assets. The guidance also requires that reserve
assets be kept separate from the issuer's own operating funds and must
be held in custody by certain eligible entities. Furthermore, issuers
must provide a clear and conspicuous redemption policy. Issuers must
also provide monthly, independent, third-party attestations of their
reserve assets to the public. Separate NYDFS guidance requires that
organizations engaged in virtual currency-related activities, which
include services related to payment stablecoins, submit detailed
information about their enterprise risk management frameworks to
NYDFS.\173\
---------------------------------------------------------------------------
\173\ See New York Department of Financial Services, ``Industry
Letter Regarding Prior Approval for Covered Institutions' Virtual
Currency-Related Activity'' (2022), https://www.dfs.ny.gov/system/files/documents/2025/04/il20221215_prior_approval_rev.pdf. As of
February of 2026, the list of payment stablecoins approved by the
NYDFS include the following U.S. dollar denominated payment
stablecoins: Gemini Dollar (GUSD), GMO USD (ZUSD), Ripple USD
(RLUSD) and WisdomTree Dollar (USDW). See New York Department of
Financial Services, ``Virtual Currency Business Licensing,'' https:/
/www.dfs.ny.gov/
virtual_currency_businesses#:~:text=When%20you%20first%20log%20in,dis
continue%20the%20Greenlist%20process%20entirely.
---------------------------------------------------------------------------
In addition to NYDFS, other States have established laws and
regulations governing stablecoin issuers.\174\ For example, Wyoming has
established reserve requirements for issuers that require full backing
(100 percent-102 percent of reserve assets) by highly-liquid, low risk
assets.\175\ Similarly, the State of Nebraska has established reserve
requirements for issuers that require full backing (100 percent of
reserve assets) by highly-liquid, low risk assets.\176\
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\174\ See, e.g., Wyoming (Wyo. Stat. Sec. 13-12-101, et seq.
(the ``Special Purpose Depository Institutions Act'') and Wyo. Stat.
Sec. 34-29-101, et seq.) and Nebraska (Neb. Rev. St. Sec. 8-3001,
et seq. (the ``Nebraska Financial Innovation Act'')).
\175\ Wyo. Stat. 13-12-105, 13-12-106.
\176\ Neb. Rev. St. Sec. 8-3009.
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Internationally, some jurisdictions have already implemented
regulatory frameworks for payment stablecoins (for example, the
European Union (2023), Japan (2023), United Arab Emirates (2024), and
Singapore (2023)). Other jurisdictions, such as the United Kingdom and
Hong Kong, are developing their frameworks. According to the Financial
Stability Board,\177\ G20 jurisdictions have broadly adopted two
approaches to regulate financial stability risks of digital asset
activities. The first approach extends existing financial regulations
to encompass digital assets, while the second approach introduces
customized regulatory frameworks tailored to the unique features of
digital assets. The GENIUS Act follows the second approach.
---------------------------------------------------------------------------
\177\ See Financial Stability Board, ``Thematic Review on FSB
Global Regulatory Framework for Crypto-asset Activities'' (2025),
https://www.fsb.org/uploads/P161025-1.pdf.
---------------------------------------------------------------------------
In early 2026, the market capitalization of stablecoins was
approximately $317 billion, with U.S. dollar-denominated payment
stablecoins representing most of this value.\178\ This concentration
reflects the continued dominance of the U.S. dollar as the preferred
reference currency for digital asset transactions.
---------------------------------------------------------------------------
\178\ See supra n.164.
---------------------------------------------------------------------------
The global stablecoin market at the end of 2025 was characterized
by a high degree of concentration, with a small number of U.S. dollar-
denominated instruments accounting for most of the supply and
transaction volume. From a competitive point of view, the market
exhibits high concentration with two leading providers and a long tail
of smaller participants. This market structure reflects the network
effects attendant to stablecoin issuance: once a stablecoin reaches a
certain scale, each new stablecoin issued generates more adoption and
utility than the previous one, creating a reinforcing loop and making
it harder for smaller competitors to break through.\179\ As of the
second half of 2025, the top two stablecoin issuers represented a
dominant share of the market: \180\ The value of outstanding Tether
(USDT) stood in the range of
[[Page 61651]]
$173-187 billion as of October 2025, corresponding to roughly 58
percent of total stablecoin supply; USD Coin (USDC) issued by Circle
has the second largest share of the market, with circulating supply of
approximately $70-75 billion in late 2025, representing about 24-25
percent of global stablecoin capitalization. A third tier of
stablecoins accounts for 15 to 20 percent of the market. Examples of
such stablecoins include Paxos Trust (USDP), Gemini Trust (GUSD), and
Paxos Trust for PayPal (PYUSD).
---------------------------------------------------------------------------
\179\ See Bruno Jullien, Alessandro Pavan & Marc Rysman, ``Two-
sided Markets, Pricing, and Network Effects'' (July 2021), https://
faculty.wcas.northwestern.edu/apa522/Two-Sided-Market-and-Network-
Effects.pdf#:~:text=As%20a%20product%20with%20network%20effects%20dif
fuses,effects%20can%20protect%20platform%20owners%20from%20entry.
\180\ See Emir Abyazov, ``Stablecoin Market Surpasses 300
Billion and Keeps Growing'' (October 3, 2025), https://coinpaper.com/11431/stablecoin-market-surpasses-300-billion-and-keeps-growing.
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The stablecoin market in the United States also features
stablecoin-as-a-service (SCaaS) arrangements. These arrangements allow
companies to launch branded stablecoins using pre-built technology from
certain third-party providers. SCaaS arrangements include compliance,
custodial services, and blockchain infrastructure.
1. Affected Parties
a. Regulated Entities That Issue Payment Stablecoins: Board-Supervised
PPSIs
Under the GENIUS Act, the Board is responsible for regulating and
supervising PPSIs that are (i) subsidiaries of insured State member
banks and (ii) State-qualified PPSIs that are uninsured depository
institutions with more than $10 billion in outstanding stablecoin
issuance, unless they receive a waiver.
The GENIUS Act and the proposal would allow insured State member
banks to form PPSI subsidiaries with the Board's prior approval. As of
December 31, 2025, the Federal Reserve System regulated 703 insured
State member banks,\181\ including four that are part of GSIBs and 10
that are State member banks within large and foreign banking
organizations (LFBO).\182\ Subsidiaries of all 703 insured State member
banks would have the potential to seek Board approval for a subsidiary
to issue payment stablecoins.
---------------------------------------------------------------------------
\181\ Of these 703 banking organizations, 647 are State member
banks under the Community Banking Organization (CBO) program and 43
are State member banks under the Regional Banking Organization (RBO)
program.
\182\ Call Report Data, December 31, 2025.
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b. PPSIs Regulated by Other Agencies (Non-Board-Supervised PPSIs)
Certain PPSIs may be regulated by the OCC, the FDIC, NCUA, or State
authorities.\183\ By providing regulatory clarity, the proposal would
encourage the formation of Board-supervised PPSIs. The stablecoins
issued by Board-supervised PPSIs could become potential competitors to
stablecoins issued by non-Board-supervised PPSIs, which could impact
the earnings and growth potential of the former.
---------------------------------------------------------------------------
\183\ 12 U.S.C. 5901(11), (23), (31); 5903(c), (d); 5904.
---------------------------------------------------------------------------
c. Stablecoin End Users
According to the IMF, most stablecoins are still used primarily to
settle digital asset trades in traditional currencies.\184\ Therefore,
most stablecoin users are individuals who trade digital assets and
firms, such as exchanges, that provide related services to them. One
study highlights substantial growth in the use of stablecoins by retail
investors recently.\185\
---------------------------------------------------------------------------
\184\ See Tobias Adrian, Marcello Miccoli & Nobuyasu Sugimoto,
``How Stablecoins Can Improve Payments and Global Finance''
(December 4, 2025), https://www.imf.org/en/blogs/articles/2025/12/04/how-stablecoins-can-improve-payments-and-global-finance.
\185\ Retail investors are defined as ``investors with net
weekly holdings of stablecoins in their wallets that do not exceed
$1000 in value.'' See Francesca Carapella, Arazi Lubis & Alexandros
Vardoulakis, ``Stablecoins in 2025: Developments and Financial
Stability Implications'' (April 8, 2026), https://www.federalreserve.gov/econres/notes/feds-notes/stablecoins-in-2025-developments-and-financial-stability-implications-20260408.html.
---------------------------------------------------------------------------
Nonetheless, an industry survey from 2025 shows growing interest in
stablecoins from traditional corporations and financial
institutions.\186\ For example, out of a sample of 350 firms surveyed
by Ernst and Young (250 corporates and 100 financial institutions), 13
percent had already used stablecoins, and 65 percent expected their
interest in using stablecoins to rise. Interest in using stablecoins
stemmed from potential uses, such as cross-border payments (including
payment to suppliers).
---------------------------------------------------------------------------
\186\ See Ernst & Young, ``Stablecoins in Focus: Navigating the
New Digital Financial Landscape'' (September 2025), https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/insights/financial-services/documents/cs-eyp-stablecoin-survey.pdf.
---------------------------------------------------------------------------
Stablecoin end users should generally benefit from more
standardized regulations for stablecoins. By establishing standards
for, among other things, reserve assets, redemption rights, and capital
requirements, the proposal would help protect end-users from loss and
generally provide confidence about payment stablecoins' safety and
soundness.
d. Board-Supervised Providers of Custodial Services
Section 10 of the GENIUS Act (12 U.S.C. 5909) establishes
requirements for Board-supervised entities seeking to provide custodial
or safekeeping services for payment stablecoin reserve assets, payment
stablecoins used as collateral, or the private keys used to issue
payment stablecoins. Section II.C.2 of this SUPPLEMENTARY INFORMATION
discusses these requirements.
The current market for custody of reserve assets features
participants from both the ``traditional'' banking (for example, BNY
Mellon, State Street) and ``crypto-native'' sectors (for example, Paxos
Trust Company). For example, the majority of USDC's reserve assets are
held in custody at BNY Mellon and managed by BlackRock,\187\ with the
remainder mostly held at other GSIBs.\188\ Custody services are also
one of the ancillary services that SCaaS providers offer to potential
entrants to the stablecoin issuance market.
---------------------------------------------------------------------------
\187\ The proposal only affects Board-supervised entities. State
Street and BNY Mellon are Board-supervised entities, while BlackRock
and Paxos are not.
\188\ See Circle, ``Banks,'' https://www.circle.com/banks.
---------------------------------------------------------------------------
An expanded role of payment stablecoin custodians stemming from
GENIUS Act implementation would catalyze the expansion of the custody
market, potentially incentivizing new entrants to it.
e. U.S. Treasury Market Participants
The U.S. Treasury market is the world's largest and most liquid
sovereign debt market, with a market structure that features multiple
types of participants.\189\ The proposal permits a Board-supervised
PPSI to hold, as part of its reserve assets, Treasury bills, notes, or
bonds with an initial or remaining maturity of 93 days or less; money
received under certain overnight repurchase agreements backed by
Treasury bills with a maturity of 93 days or less; and certain
overnight reverse repurchase agreements that are collateralized by
Treasury notes, bills, or bonds.\190\ It also permits Board-supervised
PPSIs to hold interests in investment companies or other funds that
invest in these assets. These provisions could create linkages between
PPSIs and U.S. Treasury market participants, including primary dealers,
buy-side investors, and sell-side intermediaries.\191\
---------------------------------------------------------------------------
\189\ See U.S. Department of Treasury et al., ``Enhancing the
Resilience of the U.S. Treasury Market: 2024 Staff Progress Report
'' (September 20, 2024), https://home.treasury.gov/system/files/136/2024-IAWG-report.pdf.
\190\ See 12 U.S.C. 5903(a)(1)(A).
\191\ Primary Dealers are trading counterparties of the New York
Federal Reserve Bank in its implementation of monetary policy. Buy-
side investors, which includes mutual funds, pension funds,
insurance companies, banks, foreign sovereigns, and the Federal
Reserve, among others, will compete with PPSIs for short-term
Treasury securities both in the primary and secondary markets. Sell-
side intermediaries, which includes inter-dealer brokers, electronic
trading platforms, and high-frequency trading firms, are important
liquidity providers in the Treasury markets and will interact with
PPSIs to accommodate the reserve asset needs of PPSIs.
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[[Page 61652]]
D. Proposal
The proposal implements the Board's responsibilities under the
GENIUS Act. Section II.B of this SUPPLEMENTARY INFORMATION proposes
regulations applicable to Board-supervised PPSIs to implement certain
provisions in section 4 of the GENIUS Act (12 U.S.C. 5903), including
regulations regarding permissible and prohibited activities, reserve
asset requirements, redemptions and fees, risk management standards,
supervision and audits, and capital. Section II.C of this SUPPLEMENTARY
INFORMATION implements section 10 of the GENIUS Act (12 U.S.C. 5909) by
proposing requirements on Board-supervised persons providing custodial
or safekeeping services for payment stablecoin reserve assets, payment
stablecoins used as collateral, or the private keys used to issue
payment stablecoins. Section II.D of this SUPPLEMENTARY INFORMATION
proposes a tying prohibition on all PPSIs to implement section 4(a)(8)
of the GENIUS Act (12 U.S.C. 5903(a)(8)). Section II.E of this
SUPPLEMENTARY INFORMATION implements the Board's back-up enforcement
authorities with respect to State-qualified PPSIs, and the transition
provisions for State-qualified PPSIs that are uninsured State-chartered
depository institutions with an outstanding issuance of $10 billion.
Finally, sections II.F-II.G of this SUPPLEMENTARY INFORMATION amend
certain elements of the Board's regulations for banking organizations
to reflect particular requirements of the GENIUS Act.
In addition, as detailed in section II.F of this SUPPLEMENTARY
INFORMATION, the proposal would include an amendment to the Board's
capital rule, 12 CFR part 217, which would ensure that banking
organizations that consolidate a PPSI subsidiary would not be required
to hold any additional capital with respect to such PPSI and its assets
and operations in excess of the capital that such PPSI is required to
maintain under the capital regulations promulgated under the GENIUS
Act. Under the baseline, Board-regulated institutions do not
consolidate PPSIs; accordingly, this amendment does not have any
impact.
E. Reasonable Alternatives
This section discusses potential alternatives to the Board's
proposed capital and reserve asset diversification requirements for
Board-supervised PPSIs. The GENIUS Act provides a detailed statutory
framework that limits the Board's regulatory discretion.\192\ This
analysis of reasonable alternatives therefore focuses on specific
provisions where the statute permits flexibility in implementation
choices.
---------------------------------------------------------------------------
\192\ For example, sections 4(a)(4)(A)(i) and (iii) of the
GENIUS Act (12 U.S.C. 5903(a)(4)(A)(i) and (iii)) require the Board
to issue regulations implementing capital requirements and reserve
asset diversification, including deposit concentration at banking
institutions and interest rate risk management standards, that ``are
tailored to the business model and risk profile of [PPSIs]'' and
``do not exceed [requirements/standards] that are sufficient to
ensure the ongoing operations of [PPSIs].'' Further, if the Board
determines that a capital buffer is necessary to ensure the ongoing
operations of a PPSI, it may include buffers that are tailored to
the business model and risk profile of PPSIs.
---------------------------------------------------------------------------
1. Internal Models-Based Capital Requirements
An alternative to the approach proposed by the Board would be to
propose internal models-based capital requirements for Board-supervised
PPSIs. Under such an approach, a Board-supervised PPSI would determine
the required amount of capital consistent with the principles
articulated by the Board's rule. This alternative would allow covered
firms to use their own models to calculate their capital requirements
and would be congruent with the principles-based risk management
requirements in the proposal. This alternative would also be consistent
with the GENIUS Act requirements that the Board establish capital
requirements that are tailored to the business model and risk profile
of a Board-supervised PPSI and do not exceed requirements sufficient to
ensure the ongoing operations of the Board-supervised PPSI.
For example, the Basel III capital proposal for large banking
organizations permits covered firms to use an internal-models-based
approach to estimate capital requirements for market risk.\193\ Within
this framework, firms use their own data and models to estimate
requirements.
---------------------------------------------------------------------------
\193\ See 91 FR 14952 (March 27, 2026).
---------------------------------------------------------------------------
This approach could provide certain benefits. By allowing firms to
develop models specific to own their business models and risks, it
would potentially allow for more risk-sensitive capital requirements
than a standardized approach. Such an approach could better reflect the
dependency across risks and be well-integrated with a firm's risk and
capital management practices.
However, this approach also entails certain costs.\194\ For
instance, Board-supervised PPSIs would need to invest in building and
implementing models to calculate such capital requirements, which
results in compliance costs. Also, this approach would likely lead to
different capital requirements for similar risks across covered firms
when compared with the proposal's standardized credit risk and
operational risk charges, potentially affecting competition among them.
And in cases where internal-models based requirements are
inappropriately calibrated--for example because of the Board-supervised
PPSI not having sufficient data to properly assess risk--the estimated
capital requirements may be insufficient to cover unexpected losses.
---------------------------------------------------------------------------
\194\ For a discussion of the downsides of using internal models
for credit and operational risk in bank capital requirements, see
section II.C of the joint agency proposal on regulatory capital
rule. 91 FR 14952, 14958-59 (March 27, 2026).
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Further, a well-calibrated standardized risk-based capital
framework would help promote consistency and transparency across Board-
supervised PPSIs, which would enhance market discipline. In addition, a
standardized capital framework would make monitoring and enforcement by
supervisors more effective.
2. Simpler Operational Risk Requirement
Alternatively, the standardized operational risk capital
requirement could be made simpler. For example, the operational risk
capital requirement can be made equal to a flat 1 or 2 percent of
stablecoin issuance plus a certain percentage of non-reserve revenues.
Relative to the proposal, this approach would remove the varying
marginal requirements on stablecoin issuance and the effect of losses
on operational risk requirements--thereby lowering the associated data
collection requirements. This approach would also ensure that increases
in stablecoin issuance receive equal marginal operational risk capital
requirements regardless of the scale of the firm.
However, this simpler approach may not be as risk sensitive as the
proposal. If historical operational losses prove predictive of future
operational losses for Board-supervised PPSIs, then the removal of the
loss component would reduce the risk sensitivity. Also, by not
differentiating requirements according to a Board-supervised PPSI's
operational loss experience, such an approach would not introduce
incentives for these firms to reduce their operational risk exposure.
Risk sensitivity might also be reduced under this alternative if
operational risks scale less than proportionally with
[[Page 61653]]
outstanding issuance value. For example, successful theft and transfer
of a larger amount of stablecoin may be more challenging than smaller
amounts, thereby implying that the operational risk associated with
such fraudulent activities may grow less than proportionally with
stablecoin issuance (see section II.B.6.b.iii of this SUPPLEMENTARY
INFORMATION for additional discussion and see comments to Treasury's
Advance Notice of Proposed Rulemaking).\195\
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\195\ See 90 FR 45159 (September 19, 2025); see also 90 FR 47251
(October 1, 2025).
In its comment letter, Circle internet Group states that
``[b]ecause reserve assets are constrained to short-duration, high-
quality instruments, marginal balance-sheet risk does not scale
linearly with token circulation and is heavily dependent on
operational, technology, and infrastructure risk''. See Circle,
``Request for Comment on Implementation of the GENIUS Act''
(November 4, 2025), https://downloads.regulations.gov/TREAS-DO-2025-0037-0259/attachment_1.pdf.
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3. Require an Operational Backstop
Another potential alternative would be to also adopt an operational
backstop such as that proposed by the OCC \196\ in its proposed rules
related to GENIUS Act implementation. An operational backstop is a
designated amount of highly liquid assets to maintain the ongoing
operation of the Board-supervised PPSI during a business disruption.
---------------------------------------------------------------------------
\196\ See 91 FR 10202 (March 2, 2026).
---------------------------------------------------------------------------
The assets of the proposed operational backstop would be
independent of the de novo or ongoing capital requirements and from
reserve assets. The amount of the operational backstop would be based
on the Board-supervised PPSI's total expenses as reported in a
predetermined number of recent quarterly reports.
The intended benefit of the operational backstop would be to
further help ensure that, if a business disruption impacts operations
of a Board-supervised PPSI, a liquid pool of identifiable assets would
exist to enable the Board-supervised PPSI to meet its short-term
liquidity needs. This could help stabilize the Board-supervised PPSI
after the disruption, and enable it to resume normal operations. One
limitation of this approach is that the operational backstop could be
financed by short-term funding, posing a potential liquidity risk.
The proposal's capital requirements and requirements on reserve
assets, however, would help ensure the ability of the Board-supervised
PPSI to continue operations through a business disruption. As such, the
marginal benefits of the operational backstop would be limited.
4. Reserve Asset Requirements With Prescriptive Conditions
As an alternative to the proposal's principles-based reserve asset
requirements, one could propose a set of reserve asset requirements
with specific limits on certain types of assets. This alternative could
mirror OCC's Safe Harbor/Option B requirements. Specifically, on each
business day, a Board-supervised PPSI would have to maintain the
following: \197\
---------------------------------------------------------------------------
\197\ Id.
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[ssquf] At least 10 percent of its required reserve assets as
deposits, insured shares, or reserve bank balances.
At least 30 percent of its reserve assets as deposits;
insured shares; reserve bank balances; or amounts receivable within 5
business days on pending sales of reserve assets, maturing reserve
assets, or other maturing transactions.
No more than 40 percent of reserve assets at any one
eligible financial institution (as that term is defined by the OCC in
its GENIUS Act notice of proposed rulemaking).
No more than five percent of reserve assets that are
deposits at any ``one eligible financial institution.''
Weighted average maturity of all reserve assets of no more
than 20 days.
By capping assets at 40 percent per institution and deposits at
five percent per institution, this alternative would help reduce
concentration risk by limiting the exposure of a Board-supervised PPSI
to a single bank or financial institution, as applicable. However, the
proposal's principles-based standards provide greater flexibility that
would allow Board-supervised PPSIs to tailor their reserve asset
diversification strategy to reflect their specific business model and
risk profile.
5. Reserve Asset Requirements That Limit Exposure to One Eligible
Financial Institution
Alternatively, the Board could adopt other reserve asset
requirements to limit counterparty risk. For example, the FDIC proposed
a reserve asset diversification requirement that would limit the
exposure of a PPSI to any one eligible financial institution (as that
term is defined by the FDIC in its GENIUS Act notice of proposed
rulemaking) to no more than 40% of its reserve assets, across all the
stablecoins issued by the PPSI.\198\
---------------------------------------------------------------------------
\198\ See 91 FR 18534, 18572 (April 10, 2026).
---------------------------------------------------------------------------
This alternative would reduce concentration risk and provide a
simple measurable standard and would therefore be relatively easy to
administer. Nonetheless, the Board's proposed principles-based standard
provides greater flexibility to Board-supervised PPSIs while still
addressing concentration risks.
F. Benefits of the Proposal
By providing sensible guardrails and regulatory clarity, the
proposal would result in a more resilient stablecoin market and
increase protection for stablecoin users. By doing so, the proposal
could facilitate growth of this market. As described below, this growth
could increase demand for U.S. financial products and help enhance
operational efficiencies in financial markets.
1. Enhanced System Resilience
The proposal is likely to improve market resilience. Stablecoin
adoption could grow significantly in the next few years. Absent the
proposal, some of the growth could come from stablecoin issuers that
fail to maintain one-to-one reserve backing or that do not finance
themselves with sufficient capital to sustain unexpected losses and,
thus, pose a greater risk of loss to stablecoin holders. Further, this
growth could involve interaction between payment stablecoins and swaths
of the traditional financial system, which, in turn, could lead to new
systemic risks if the stablecoins themselves are vulnerable. Absent the
proposal, complex intermediation chains and vertical integration in the
stablecoin ecosystem result in opacity and transparency challenges for
market participants.\199\ The proposal would reduce those risks by
establishing clear standards designed to ensure that payment
stablecoins remain fully backed, and regular disclosure requirements
increase transparency for market participants.
---------------------------------------------------------------------------
\199\ See Francesca Carapella, Arazi Lubis & Alexandros
Vardoulakis, ``Stablecoins in 2025: Developments and Financial
Stability Implications'' (April 8, 2026), https://www.federalreserve.gov/econres/notes/feds-notes/stablecoins-in-2025-developments-and-financial-stability-implications-20260408.html.
---------------------------------------------------------------------------
2. More Resilient Stablecoins
The proposal would enhance the resilience of stablecoins by
increasing protection and transparency for users. In addition, by
improving regulatory clarity, the proposal may encourage entry into and
enhance competition in what is currently a concentrated market.
a. Protecting Payment Stablecoin Holders
Maintaining the one-to-one requirement for payment stablecoins.
Arguably, the most important issue for
[[Page 61654]]
holders of payment stablecoins is that the instruments maintain their
par value. Key features of stablecoins include that they operate as
digital cash and can be readily exchanged for fiat currency. Such
features are threatened when there is a mismatch between the par value
of outstanding stablecoins and the reserve assets backing the
stablecoin, potentially exposing holders of payment stablecoins to the
risk of loss. The proposal would help maintain the one-to-one
requirement by, among other things, limiting reserve assets to assets
with minimal financial risks.
Improvements in transparency of reserve assets. The proposal would
require all Board-supervised PPSIs to publish monthly the total number
of outstanding payment stablecoins they have issued and the fair value
and composition of their reserve assets, including the average tenor
and geographic location of custody of each category of reserve asset.
In addition, the proposal would require Board-supervised PPSIs to have
this report examined by a registered public accounting firm prior to
publication and certified by the Board-supervised PPSI's Chief
Executive Officer and Chief Financial Officer.\200\ The monthly
disclosure requirement would reduce information asymmetries between
Board-supervised PPSIs and payment stablecoin holders, allowing the
market to differentiate across payment stablecoin issuers by the
quality of their reserve requirements.
---------------------------------------------------------------------------
\200\ See Section II.B.2.d of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
Enhanced custodial requirements. The GENIUS Act would require
entities that custody payment stablecoin reserve assets to be subject
to supervision or regulation by a Federal or State financial regulator,
to treat covered assets as customer property, to separately account for
and not commingle covered assets unless permitted under a listed
exception, and to provide their supervisor with certain regulatory
information. The proposal implements these requirements with respect to
Board-supervised custodians.
Altogether, these requirements protect customer funds held in
custody and improve the visibility that regulators have over the
activities and conduct of covered custodians. Similarly, these
custodial requirements would help ensure that the reserve assets
backing payment stablecoins are protected, which in turn protects
payment stablecoin holders.
Clarity in redemption policies. Under the proposal, payment
stablecoin holders would have the right to redeem their payment
stablecoins for fiat currency within two business days following the
date of the requested redemption.\201\ Holders would also have detailed
information about the redemption process. This additional clarity
provides certainty to transactions and improves the efficiency of
stablecoins as a cash equivalent instrument.
---------------------------------------------------------------------------
\201\ See Section II.B.3 of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
Clear delineation of permissible and prohibited activities by
PPSIs. Under the proposed requirements, Board-supervised PPSIs would be
limited in the scope of activities that they can undertake in parallel
to issuing payment stablecoins. Activities such as rehypothecating,
pledging, or reusing reserve assets expose a Board-supervised PPSI's
reserve assets to additional financial risks, including those posed by
stress at a counterparty. Limiting these activities helps protect
payment stablecoin holders from such risks. Moreover, limiting Board-
supervised PPSIs to engaging in payment stablecoin-related activities
prevents Board-supervised PPSIs from taking on risks outside the
business of issuing stablecoins, helping limit the exposure of
stablecoin end users to such risks. The prohibitions on deceptive
marketing, representations, or naming would reduce the risk that
stablecoin end-users mistakenly believe a payment stablecoin is insured
by the FDIC, backed by the full faith and credit of the United States,
or issued by the Federal government, among other things.
Protecting Board-supervised PPSI from risky transactions with
insiders or affiliates. The proposal \202\ addresses insider and
affiliate transactions and would ensure that transactions between the
Board-supervised PPSI and insiders or affiliates do not pose a
significant risk of material financial loss to the PPSI.\203\ By
requiring transactions to be conducted on terms at least as favorable
to the PPSI as those prevailing for comparable arm's-length
transactions, the proposal would mitigate risks of self-dealing and
conflicts of interest that could otherwise deplete the reserve assets
backing outstanding stablecoins.
---------------------------------------------------------------------------
\202\ See proposed Sec. 247.13(a)(7).
\203\ With respect to a Board-supervised PPSI that is a
subsidiary of an insured State member bank, these restrictions do
not apply to transactions with such insured State member bank.
---------------------------------------------------------------------------
The provision would also help address the moral hazard inherent in
situations where insiders have access to preferential terms or can
extract value from the Board-supervised PPSI to the detriment of
stablecoin end users or other stakeholders. By establishing the ``same
or more favorable'' standard analogous to Regulation O's requirement
that insider loans be made on substantially the same terms as those
prevailing for comparable transactions with non-insiders, the proposal
would ensure that insiders cannot exploit their positions for personal
financial advantage.
b. Increased Competition
In addition to the protections described above, the proposal would
likely increase competition in the market for payment stablecoin
issuance. As discussed in section III.C of this SUPPLEMENTARY
INFORMATION, the current market for payment stablecoins is dominated by
two providers. The proposal would help increase competition in
stablecoin issuance by providing regulatory clarity to potential new
entrants. Enhanced competition among stablecoin issuers could support
innovation in this market, generating potential benefits to stablecoin
end users.
In addition, the tying prohibitions described in section II.D.1 of
this SUPPLEMENTARY INFORMATION prevent PPSIs from using their market
power in one stablecoin-related market to gain a competitive advantage
in another stablecoin-related market. This set of requirements would
protect customer choice and reduce barriers to entry, as new
competitors can enter specific markets without having to worry about
competing in additional products. This set of requirements would also
encourage price transparency, which is reduced when products are
bundled. Finally, increased competition among PPSIs would encourage
broader adoption of stablecoins and new use cases.
The proposal's principles-based approach to reserve asset
diversification may also promote competition by reducing barriers to
entry. Unlike prescriptive numerical standards that may favor firms
with existing scale and established counterparty relationships, the
flexible framework allows new Board-supervised PPSIs to develop reserve
asset strategies tailored to their specific circumstances and business
models. Unlike prescriptive percentage-based limits, which may become
inappropriate as market conditions shift, a principles-based approach
enables real-time risk assessment and portfolio adjustments. A
principles-based approach also acknowledges that normal variations in
reserve asset composition may occur due to inflows of cash to purchase
payment stablecoins, outflows of cash to facilitate redemption of
payment stablecoins, and
[[Page 61655]]
the regular maturity of permissible investments (e.g., overnight repo
and Treasury securities).
3. Increased Demand for U.S. Financial Products
Increasing adoption of payment stablecoins coupled with the reserve
asset requirements set forth in section II.B.2 of this SUPPLEMENTARY
INFORMATION could increase the demand for U.S. financial products,
particularly U.S. Treasuries.\204\ By specifying short-term Treasury
bills and repurchase agreements secured by Treasuries as required
reserve assets, the proposal creates structural demand for such
securities. These provisions could have potential benefits for the
funding of the U.S. government via increased demand for short-term
government debt.\205\
---------------------------------------------------------------------------
\204\ See Yesha Yadav & Brendan Malone, ``Stablecoins and the US
Treasury Market'' (June 10, 2025), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5286924.
\205\ Rashad Ahmed and Inaki Aldasoro find that a 2-standard
deviation inflow into stablecoins lowers 3-month Treasury bill
yields by 2.5-3.5 basis points (bps), with limited to no spillover
effects on other tenors. See Rashad Ahmed & Inaki Aldasoro,
``Stablecoins and safe asset prices,'' BIS Working Paper No. 12
(February 2025), https://www.bis.org/publ/work1270.pdf.
---------------------------------------------------------------------------
The proposal is also likely to increase demand for U.S. dollars,
with attendant benefits. The expected increased resiliency of payment
stablecoins resulting from policies such as the proposal's reserve
assets requirement and capital requirements could encourage foreign
investor demand for payment stablecoins that, in turn, would allow a
broader set of transactions to be denominated in U.S. dollars.
4. Enhanced Operational Efficiencies in Financial Markets
Payment stablecoins also have the potential to bring new
operational efficiencies to financial markets. Realizing these
efficiencies depends on establishing robust reserve asset standards and
capital requirements for PPSIs, such as those contained in the
proposal. These requirements support broader institutional adoption by
ensuring stablecoins maintain their value and operational resilience,
helping realize operational benefits. For instance, payment stablecoins
offer instant settlement functionality. Payment stablecoins are also
programmable and can be used, among other things, to facilitate post-
trade processes. For example, the CFTC has acknowledged potential
benefits of digital assets in collateral management and has taken steps
to modernize its regulatory framework to allow for the use of digital
assets, including payment stablecoins, as collateral in derivatives
markets.\206\ Such regulatory acceptance of stablecoins as collateral
is predicated on issuers meeting stringent reserve and capital
standards that minimize risk. Also, an industry-wide study has examined
the benefits of using digital ledger technologies across the full asset
trading lifecycle, including issuance, trading, settlement, and
servicing.\207\ The report estimated significant cost savings across a
range of financial market activities. Many such use cases are
facilitated or enhanced by stablecoin usage.
---------------------------------------------------------------------------
\206\ See Commodity Futures Trading Commission, ``Acting
Chairman Pham Launches Tokenized Collateral and Stablecoins
Initiative'' (September 23, 2025), https://www.cftc.gov/PressRoom/PressReleases/9130-25.
\207\ See, e.g., GFMA, AFME, ASIFMA, et al., ``The Impact of
Distributed Ledger Technology in Capital Markets'' (2025), https://www.gfma.org/wp-content/uploads/2025/08/1.-full-report-impact-of-dlt-in-cap-mkts-final-1.pdf.
---------------------------------------------------------------------------
As the financial services industry develops new instruments,
technologies, and custodial arrangements, a principles-based approach
to reserve asset requirements allows Board-supervised PPSIs to adopt
these innovations efficiently. This is particularly important in the
digital asset ecosystem where new custody solutions, settlement
mechanisms, and liquidity management tools continue to emerge.
G. Costs of the Proposal
Implementation of the new GENIUS Act requirements would create
costs that would be borne mainly by Board-supervised PPSIs and Board-
supervised custodians. These market participants would have to ensure
that they conform to the proposal's capital, disclosure regime, reserve
asset policies, and risk management frameworks.
The degree to which these additional costs could be passed on from
Board-supervised PPSIs to end users in the form of fees and other
charges would partially depend on the market power of Board-supervised
PPSIs,\208\ the future growth of the stablecoin issuance market, and
how the proposal would affect both the level of competition across
PPSIs and the competition between PPSIs and other payment alternatives.
These same considerations apply to service providers that custody
payment stablecoins.
---------------------------------------------------------------------------
\208\ See RBB Economics, ``Cost pass-through: theory,
measurement, and potential policy implications'' (February 2014),
https://www.gov.uk/government/publications/cost-pass-through-theory-measurement-and-policy-implications.
---------------------------------------------------------------------------
1. Costs of the Proposal's Reserve Asset Requirements for Board-
Supervised PPSIs
The Board's proposed reserve asset diversification requirements are
principles-based, and therefore do not provide specific quantitative
limits. Instead, Board-supervised PPSIs will have to interpret how the
principles apply to their individual circumstances, which could involve
developing models or processes and procedures. These efforts could
involve additional costs to Board-supervised PPSIs. Moreover, the
proposed principles-based approach could entail certain risks that
could be mitigated by a more prescriptive standard. While eligible
reserve assets are highly safe and liquid, unexpected events may result
in a loss to the Board-supervised PPSI. Nonetheless, the proposed
approach embodies a reasonable balance of principles-based supervision
that would allow Board-supervised PPSI to apply the requirements in a
manner consistent with their business model.
Moreover, the applicable disclosure and audit requirements for
reserves mitigates these risks and provides for monitoring by payment
stablecoin holders. The mandated monthly reserves disclosures will
permit payment stablecoin holders to identify and evaluate Board-
supervised PPSIs with reserve practices consistent with their business
models, thus promoting market discipline.
2. Costs of the Proposal's Compliance Requirements
Costs of the proposal's redemption and fees requirements. As
discussed in section II.B.3 of this SUPPLEMENTARY INFORMATION,\209\ a
Board-supervised PPSI must publicly disclose its redemption policy with
specific details. Having a maximum redemption timeframe of two days may
represent an additional cost to Board-supervised PPSIs when compared to
no redemption deadline because, all things being equal, the shorter
redemption window increases the need for liquid reserve assets.\210\
Limiting the redemption period to two days may also create operational
costs of meeting redemption requests in a timely manner, including
relationships with financial institutions that allow for prompt
settlement of transactions, and the ability to meet redemption surges.
---------------------------------------------------------------------------
\209\ See proposed Sec. 247.12.
\210\ Under proposed Sec. 247.12(b)(2), redemptions may not
exceed two business days following the date of the requested
redemption.
---------------------------------------------------------------------------
Costs of the proposal's risk management standards. Compliance
[[Page 61656]]
with the proposal's risk management standards would entail additional
costs in the form of the specialized labor needed to comply with these
principles-based requirements and standards. These costs are tempered,
however, by the proposed provision allowing subsidiaries of State
member banks to be deemed to be in compliance with the risk management
requirements in section II.B.4.c of this SUPPLEMENTARY INFORMATION if
the Board-supervised PPSI participates in the enterprise-wide risk
management framework of its parent State member bank or consolidated
banking organization, provided that such framework is in compliance
with applicable requirements. Most Board-supervised banking
organizations use such enterprise-wide risk management frameworks.
Board-supervised PPSIs would also incur costs to establish
policies, procedures, and systems to identify covered transactions,
determine whether terms are at least as favorable to the Board-
supervised PPSI as those for comparable transactions with non-insiders,
and document the basis for such determinations. Moreover, for Board-
supervised PPSIs that are part of larger financial groups, the
provision may restrict intra-group arrangements with affiliates that
could serve helpful business purposes without posing undue risk to the
Board-supervised PPSI.
Costs of the proposal's audit and reporting requirements. The
proposal would require a Board-supervised PPSI to report applicable
information to supervisors,\211\ disclose the composition of reserve
assets at a monthly frequency and be subject to period audits.\212\
These costs entail hiring compliance staff, setting up information
systems to comply with the proposal's reserve asset reporting
requirements, and payment of fees to outsider providers, including
auditors.
---------------------------------------------------------------------------
\211\ Including confidential weekly reporting and quarterly
reports of financial condition, as described in Sec. 247.14(h) and
Sec. 247.14(i), correspondingly.
\212\ See Section II.B.5 of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
3. Costs of the Proposal's Capital Requirements
The proposal establishes capital requirements for Board-supervised
PPSIs as discussed in section II.6 of this SUPPLEMENTARY INFORMATION.
Regulatory capital is a costly form of funding, particularly relative
to inexpensive funding in the form of stablecoin issuance, and this
requirement would likely lower the profitability of Board-supervised
PPSI.\213\ That said, regulatory capital helps ensure the safe and
sound operations of a Board-supervised PPSI. Furthermore, unlike
insured banks, a PPSI's low cost of funding is heavily contingent on
its solvency. To the extent that a sound capital level is required to
compete successfully for the inexpensive funding, the marginal cost of
the requirement is reduced.
---------------------------------------------------------------------------
\213\ See Malcolm Baker & Jeffrey Wurgler, ``Do Strict Capital
Requirements Raise the Cost of Capital? Bank Regulation, Capital
Structure and the Low-Risk Anomaly,'' 105 Am. Econ. Rev. (Papers &
Proc.) 315 (May 2015).
---------------------------------------------------------------------------
The proposed regulatory capital requirements would be commensurate
to the scale of financial risks faced by Board-supervised PPSIs.
Specifically, operational risk capital requirements are expected to be
greater for larger Board-supervised PPSIs given potential for large
operational loss events, and for Board-supervised PPSIs with a worse
record of past operational losses. The capital requirement for
uninsured eligible deposit claims would incentivize Board-supervised
PPSIs to reduce their exposure to such reserve assets. Further, the
capital requirement for under-collateralized reverse repurchase
agreements could incentivize Board-supervised PPSIs to engage in
reverse repo transactions with standardized haircuts. Overall,
requirements would be higher for PPSIs with higher risks and,
therefore, the proposal would impose higher costs on those firms.
4. Costs of the Proposal's Requirements for Covered Custodians
Section II.C of this SUPPLEMENTARY INFORMATION would also create
new requirements on Board-supervised banking organizations seeking to
provide custodial or safekeeping services for payment stablecoin
reserve assets, the payment stablecoins used as collateral, or the
private keys used to issue payment stablecoins. The Board expects that
institutions acting as custodians for payment stablecoin reserve assets
and other covered assets would likely already be specialized custodial
institutions for other asset classes or already provide custodian
services for digital assets, including stablecoins. In which case, the
marginal costs of the proposal's requirements would be small. If
custody requirements for payment stablecoin reserve assets and other
covered assets differ from existing requirements, Board-supervised
custodians may experience some additional costs under the proposal.
As mentioned in section II.C of this SUPPLEMENTARY INFORMATION, for
specific classes of covered custodians the proposal relies on the
reporting that these organizations already provide on their custodial
operations. This minimizes additional reporting costs faced by covered
custodians.
H. Conclusion
The proposal would implement the requirements of the GENIUS Act for
Board-supervised PPSIs. By doing so, it would provide regulatory
clarity to potential issuers and put in place a framework that would
support growth of this market. The safeguards in the proposal,
including principles-based reserve asset diversification requirements,
and requirements on disclosure and capital, would facilitate the safe
and sound operation of Board-supervised PPSIs. In addition, these
requirements would help protect holders of payment stablecoins issued
by Board-supervised PPSIs from loss. The proposal could also generate
certain ancillary benefits, such as increased demand for U.S. financial
assets. While meeting the requirements in the proposal would entail
some costs by Board-supervised PPSI, such as the costs associated with
the capital and disclosure requirements, they would presumably enter
the market only if the expected payoffs from doing so exceed these
costs.
Based on the above analysis, the Board concludes that the benefits
of the proposal justify the costs.
IV. Regulatory Analysis
A. Paperwork Reduction Act
Certain provisions of the proposed rule contain ``collections of
information'' within the meaning of the Paperwork Reduction Act (PRA)
of 1995.\214\ In accordance with the requirements of the PRA, the Board
may not conduct or sponsor, and the respondent is not required to
respond to, an information collection unless it displays a currently
valid Office of Management and Budget (OMB) control number. The Board
has reviewed the proposed rule under authority delegated to the Board
by the OMB. The proposed rule contains a new information collection and
revisions to current information collections subject to the PRA. To
implement these requirements, the Board would implement (1) the
Reporting, Recordkeeping, and Disclosure Requirements Associated with
Regulation UU (FR UU; OMB No. 7100-NEW); (2) revise and extend for
three years the Reporting, Recordkeeping, and Disclosure
[[Page 61657]]
Requirements Associated with Regulation Q (FR Q; OMB No. 7100-0313);
and (3) revise and extend for three years the Reporting, Recordkeeping,
and Disclosure Requirements Associated with Market Risk Capital Rules
(FR Q-2; OMB No. 7100-0314).
---------------------------------------------------------------------------
\214\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
Comments are invited on:
(a) whether the collections of information are necessary for the
proper performance of the Board's functions, including whether the
information has practical utility;
(b) the accuracy of the estimates of the burden of the information
collections, including the validity of the methodology and assumptions
used;
(c) ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments on aspects of this document that may affect reporting,
recordkeeping, or disclosure requirements and burden estimates should
be sent to the addresses listed in the ADDRESSES section. A copy of the
comments may also be submitted to the OMB desk officer: By mail to U.S.
Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503 or by facsimile to (202) 395-5806, Attention,
Federal Banking Agency Desk Officer.
Proposed Implementation of the Following Information Collection
Collection Title: Reporting, Recordkeeping, and Disclosure
Requirements Associated with Regulation UU.
Collection Identifier: FR UU.
OMB Number: 7100-NEW.
General Description of Collection: The FR UU collection comprises
the information requirements of the proposed Regulation UU that would
be found in 12 CFR part 247. This information would be used to carry
out the Board's responsibilities under the GENIUS Act, including (i) to
establish regulatory framework applicable to Board-supervised PPSIs,
including requirements related to reserves, capital, activities, and
risk management, as discussed in sections II.B and II.H of this
SUPPLEMENTARY INFORMATION; (ii) to implement rules regarding State-
qualified PPSIs setting forth (a) the unusual and exigent circumstances
in which the Board may exercise its back-up enforcement authority with
respect to any State-qualified PPSI, and (b) the transition and waiver
process for covered PPSIs with an outstanding issuance value of more
than $10 billion, as discussed in section II.F of this SUPPLEMENTARY
INFORMATION; (iii) to implement rules for Board-supervised entities
seeking to provide custodial services for reserves backing payment
stablecoins and certain other assets, as discussed in section II.C of
this SUPPLEMENTARY INFORMATION; (iv) to make certain changes to its
rules for banking organizations, including bank capital requirements
and activities rules, to facilitate banking organization participation
in payment stablecoin activities, as discussed in sections II.F and
II.G of this SUPPLEMENTARY INFORMATION; and (v) to promulgate a
framework related to the GENIUS Act's prohibition on tying, which would
apply to all PPSIs (including PPSIs for which the Board is not the
primary regulator), as discussed in section II.E of this SUPPLEMENTARY
INFORMATION.
Current Actions: The proposed rule includes reporting,
recordkeeping, and disclosure requirements, as follows:
Reporting Requirements
Section II.B.5.d of this SUPPLEMENTARY INFORMATION would state that
Board expects to include a condition regarding changes in control of a
Board-supervised PPSI in any approval of an application by a State
member bank seeking approval for a subsidiary to issue payment
stablecoins under subpart D of part 247 (separately proposed by the
Board). The condition would impose a requirement that the Board-
supervised PPSI, and all officers, directors, and principal
shareholders of the Board-supervised PPSI, cause any person seeking to
acquire control of the Board-supervised PPSI to follow the procedures
of the Change in Bank Control Act (12 U.S.C. 1817(j)) and the Board's
Regulation Y (12 CFR part 225) as if the Board-supervised PPSI was an
insured depository institution.
Proposed Sec. 247.10(c)(4)(iii) would provide that a Board-
supervised PPSI may rebut the presumption that a remuneration
arrangement violates the Remuneration Prohibition in proposed Sec.
247.10(c)(4)(i) by submitting written materials that, in the Board's
judgment, demonstrate that the contract, agreement, or other
arrangement is not prohibited under proposed Sec. 247.10(c)(4) and is
not an attempt to evade theRemuneration Prohibition.
Proposed Sec. 247.11(d) would provide that by noon on the last day
of each month, a Board-supervised PPSI must publish the monthly
composition of the Board-supervised PPSI's reserves held pursuant to
the GENIUS Act as of noon on the last day of the previous month on the
website of the Board-supervised PPSI, using a format substantially
similar to the template provided in Table 1 to proposed Sec.
247.11(d), containing: (1) the total number of outstanding payment
stablecoins issued by the Board-supervised PPSI; and (2) the amount and
composition of the reserves described in proposed Sec. 247.11(a)(1),
including the average tenor and geographic location of custody of each
category of reserve instruments.
Proposed Sec. 247.11(e)(2) would provide that the Chief Executive
Officer and Chief Financial Officer (or the persons performing the
equivalent functions) of a Board-supervised PPSI must submit a
certification as to the accuracy of the monthly reserve composition
report required under proposed Sec. 247.11(d) to the Board.
Proposed Sec. 247.11(f)(1)(i) would provide that if, at any time,
a Board-supervised PPSI fails to satisfy the one-to-one requirement in
proposed Sec. 247.11(a)(1)(iii), the Board-supervised PPSI must
submit, within 24 hours of such a failure, notification to the Board
through its Federal Reserve Bank of such a failure
Proposed Sec. 247.11(f)(1)(ii) would provide that if, at any time,
a Board-supervised PPSI fails to satisfy the one-to-one requirement in
proposed Sec. 247.11(a)(1)(iii), the Board-supervised PPSI must,
within 24 hours of such a failure, submit a plan describing how the
Board-supervised PPSI will return to compliance with such requirement.
Proposed Sec. 247.11(g) would require that if at any point the
Board determines that a Board-supervised PPSI has not demonstrated that
it meets the reserve asset requirements in proposed Sec. 247.11(a)-
(c), the Board may require the PPSI to submit a plan describing how it
will attain compliance, as well as the timeline for the plan.
Proposed Sec. 247.14(k) would provide that not later than 180 days
after the approval of an application under subpart D of part 247
(separately proposed by the Board), and on an annual basis thereafter,
a Board-supervised PPSI must submit to the Board a certification by its
board of directors that the Board-supervised PPSI has implemented anti-
money laundering and economic sanctions compliance programs that are
reasonably designed to prevent the Board-supervised PPSI from
facilitating money laundering, in particular,
[[Page 61658]]
facilitating money laundering for cartels and organizations designated
as foreign terrorist organizations under section 219 of the Immigration
and Nationality Act (8 U.S.C. 1189) and the financing of terrorist
activities, consistent with the requirements of the GENIUS Act.
Proposed Sec. 247.14(l)(2)(ii) would require a Board-supervised
PPSI with more than $50 billion in outstanding issuance value that is
not subject to the reporting requirements under section 13(a) or 15(d)
of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d))
to submit audited financial statements annually, within 120 days after
the end of its fiscal year, to the Board.
Proposed Sec. 247.14(l)(2)(iii) would provide that if a Board-
supervised PPSI with more than $50 billion in outstanding issuance
value that is not subject to the reporting requirements under section
13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)) fails to timely file all or any portion of the
financial statement described in proposed Sec. 247.14(l)(2)(ii), it
must submit a written notice of late filing to the Board and such
notice must (i) disclose the Board-supervised PPSI's inability to
timely file all, or specified portions, of its annual financial
statement and the reasons therefore in reasonable detail, (ii) include
the date by which the financial statement will be filed, and (iii) be
filed on or before the deadline for filing the financial statement.
Proposed Sec. 247.15(c) provides that if a Board-supervised PPSI
fails to satisfy its minimum capital requirements in proposed Sec.
247.15(b) as of the end of a quarter, it must, within 5 business days
of the end of such quarter, submit a capital plan to the Board that:
(i) provides a detailed strategy for restoring its capital levels to
ensure that it meets or exceeds the minimum capital requirements under
Sec. 247.15(b), and (ii) is feasible for returning the Board-
supervised PPSI to compliance within one quarter given general market
conditions and the Board-supervised PPSI's specific circumstances.
Proposed Sec. 247.41(c) would provide that entities subject to the
tying prohibition in proposed Sec. 247.40 may submit a request to the
Secretary of the Board to seek an exception from such prohibition. Any
entity seeking an exception must provide a detailed description of the
proposed arrangement, including: (1) the service upon which conditions
are being placed and the entity providing such service; (2) either (i)
the additional paid services and products and the entity providing such
paid services and products or (ii) the additional product or service of
the competitor, as applicable; (3) the relevant contractual terms,
including copies (or draft copies, as appropriate) of any contracts,
agreements, terms of service, or other documents relevant to the
proposed arrangement; (4) a description of the benefits, if any, that
the proposed arrangement would produce for customers or other relevant
persons; (5) a discussion of how the proposed arrangement would not be
contrary to the purpose of the GENIUS Act; and (6) in the case of a
proposed exception for an arrangement providing services to a customer
on the condition that the customer agree to not obtain an additional
product or service from a competitor, whether the additional product or
service will be offered to customers on competitive terms separate from
the service upon which conditions are being placed.
Proposed Sec. 247.50(e) would provide that, after a directive
under proposed Sec. 247.50(b) is issued, a State-qualified PPSI, or
any institution-affiliated party of the State-qualified PPSI subject to
the directive, may object and present to the Board, in writing, the
reasons why the directive should be modified or rescinded; if, after 10
days after the receipt of a response described in proposed Sec.
247.50(e)(1), the Board does not affirm, modify, or rescind the
directive, the directive shall automatically lapse.
Proposed Sec. 247.51(b)(2) would require a State-qualified PPSI
that is an uninsured State-chartered depository institutions (for
purposes of this section, ``covered PPSI'') with an outstanding
issuance value of more than $10 billion to provide written notification
to the Board within five calendar days after reaching such threshold.
Such written notification must include the following information: (A)
the State or States that currently regulate the covered PPSI; (B) the
covered PPSI's outstanding issuance value as of the date of the notice;
(C) the date that the covered PPSI first reached the $10 billion
outstanding issuance value threshold; and (D) an indication of whether
and when the covered PPSI ceased issuing, on a net basis, new payment
stablecoins and whether the covered PPSI intends to seek a waiver
pursuant to proposed Sec. 247.51(d).
Proposed Sec. 247.51(b)(3) would require a covered PPSI, within
270 days of reaching the $10 billion outstanding issuance value
threshold, to submit an analysis of the covered PPSI's current capital
position and anticipated capital needs, sufficient to ensure ongoing
operations, based on its business model and risk profile.
Proposed Sec. 247.51(b)(4) would provide that for purposes of
complying with proposed Sec. 247.51(b)(1)(i), a covered PPSI must
provide written notification to the Board regarding whether it is in
compliance with the Federal regulatory framework applicable to Board-
supervised PPSIs under proposed part 247. If the covered PPSI is not in
compliance with the Federal regulatory framework applicable to Board-
supervised PPSIs under the proposal, the notice would be required to
identify the provisions with which the covered PPSI does not comply,
provide the covered PPSI's plan for remediating its noncompliance, and
explain why the covered PPSI did not comply with the Federal regulatory
framework within the 360-day transition period.
Proposed Sec. 247.51(d) would provide that a covered PPSI seeking
to remain solely supervised by a State payment stablecoin regulator
must submit to the Board a written waiver request containing
information necessary to evaluate such request under proposed Sec.
247.51(d)(2)-(3) within 240 days of reaching the $10 billion
outstanding issuance value.
Recordkeeping Requirements
Section II.B.2.a of this SUPPLEMENTARY INFORMATION would state that
to comply with proposed Sec. 247.11(a)(1)(i), Board-supervised PPSIs
must maintain appropriate records to ensure documented ownership and
legal entitlement to individual reserve assets.
Proposed Sec. 247.11(a)(2) would provide that a Board-supervised
PPSI must record the fair value of reserve assets required under
proposed Sec. 247.11(a)(1) at a minimum of once each calendar day at
5:00 p.m. in the time zone of the Board-supervised PPSI's Federal
Reserve Bank.
Proposed Sec. 247.13(a)(1) would provide that a Board-supervised
PPSI must have internal controls and information systems to support
effective risk management that are tailored to the size and complexity
of the Board-supervised PPSI and the nature, scope, and risk of its
activities. The internal controls and information systems must provide
for: (i) an organizational structure with appropriate segregation of
duties and an internal control structure that establishes clear lines
of authority and responsibility for monitoring adherence to established
policies; (ii) effective risk assessment; (iii) timely and accurate
financial, operational, and regulatory reporting, including with
respect to the reports required under this part; (iv) adequate
procedures to monitor, safeguard,
[[Page 61659]]
manage, control, and monetize assets, including reserve assets; and (v)
compliance with applicable laws and regulations.
Proposed Sec. 247.13(a)(2) would provide that a Board-supervised
PPSI must have an internal audit system that is tailored to the size
and complexity of the Board-supervised PPSI and the nature, scope, and
risk of its activities and that provides for, among other things,
adequate documentation of tests and findings and any corrective
actions.
Proposed Sec. 247.13(b) would require a Board-supervised PPSI to
implement a comprehensive written information security risk and control
framework, including a program that assesses and manages information
technology and information security risks, that complies with the
requirements set out in proposed Sec. 247.13(b).
Proposed Sec. 247.14(f) would require a Board-supervised PPSI to
maintain a complete set of books and records in English.
Proposed Sec. 247.14(g) would require Board-supervised PPSIs to
develop and implement a record retention policy that ensures the Board-
supervised PPSI can demonstrate compliance with all the GENIUS Act,
proposed part 247, and all applicable laws and regulations.
Proposed Sec. 247.17(a)(2)(iii) would require, for purposes of
netting sets under the capital requirement for reverse repurchase
agreements, Board-supervised PPSIs to conduct a sufficient legal review
to conclude with a well-founded basis (and maintain sufficient
documentation of that legal review) that certain netting and repo-
related agreements meet the applicable requirements of proposed Sec.
247.17(a)(2)(iii)(B)(4) and (C)(2), respectively, and are legal, valid,
binding, and enforceable under applicable law in the relevant
jurisdictions.
Proposed Sec. 247.18(c)(1)(i) would require Board-supervised PPSIs
to have operational loss event data collection processes that must
satisfy several criteria.
Proposed Sec. 247.18(c)(1)(ii) would require Board-supervised
PPSIs to have documented procedures for the identification and
collection of internal loss event data.
Proposed Sec. 247.21(a) would require a covered custodian, as
defined in proposed Sec. 247.20, to separately account for the covered
assets of a covered customer and to treat and deal with those covered
assets as belonging to such covered customer and not as the property of
the covered custodian.
Proposed Sec. 247.21(b)(1) would require covered custodian to take
appropriate steps to protect the covered assets of covered customers
from the claims of creditors of the covered custodian and any sub-
custodian, as applicable, including through adopting, implementing, and
maintaining written policies, procedures, and internal controls that
are adequate to comply with applicable law and that are commensurate
with the covered custodian's size, complexity, and risk profile and
with the nature of the applicable covered assets for which it provides
custodial or safekeeping services.
Disclosure Requirements
Proposed Sec. 247.11(d) would provide that by noon on the last day
of each month, a Board-supervised PPSI must publish the monthly
composition of the Board-supervised PPSI's reserves held pursuant to
the GENIUS Act as of noon on the last day of the previous month on the
website of the Board-supervised PPSI, using a format substantially
similar to the template provided in Table 1 to proposed Sec.
247.11(d), containing: (1) the total number of outstanding payment
stablecoins issued by the Board-supervised PPSI; and (2) the amount and
composition of the reserves described in proposed Sec. 247.11(a)(1) of
this section, including the average tenor and geographic location of
custody of each category of reserve instruments.
Proposed Sec. 247.11(e)(1) would require a Board-supervised PPSI
to publish a registered public accounting firm's examination report of
the monthly composition report required under proposed Sec. 247.11(d)
on its public website at the same time as such report.
Proposed Sec. 247.12(a), (b)(1) would provide that a Board-
supervised PPSI must publicly disclose its redemption policy and
include, at a minimum, the following information: (i) the timeframe in
which the Board-supervised PPSI will redeem payment stablecoins and the
timeframe under which the Board-supervised PPSI is required to redeem
payment stablecoins under proposed Sec. 247.12(b)(2); (ii) a statement
explaining the limitation in proposed Sec. 247.12(b)(3); (iii) a
statement explaining the scenarios under proposed Sec. 247.12(c) and
(d) proposed Sec. 247.12(b)(2); (iv) a statement with clear
instructions on how a customer can redeem a payment stablecoin,
including a link to the website(s) where a customer can redeem the
payment stablecoin; and (v) the minimum number of payment stablecoins,
if any, that the Board-supervised PPSI will redeem, provided that the
Board-supervised PPSI must redeem any number greater than or equal to
one payment stablecoin, subject to appropriate customer screening and
onboarding. A Board-supervised PPSI's redemption policy must provide:
(i) clear and conspicuous procedures for timely redemption of
outstanding payment stablecoins; (ii) that timely redemption may not
exceed two business days following the date of the requested
redemption; and (iii) that any discretionary limitations on timely
redemptions may only be imposed by the Board or, in the case of a
State-qualified PPSI, by the Board or the State payment stablecoin
regulator, as applicable.
Proposed Sec. 247.12(e)(1) would require a Board-supervised PPSI
to publicly, clearly, and conspicuously disclose in plain language and
in a format that is readily noticeable to customers, readily
understandable by customers, and not mixed in with other information:
(i) the name of the Board-supervised PPSI that issues the payment
stablecoin; (ii) that the Board-supervised PPSI is the entity that is
obligated to convert, redeem, or repurchase the payment stablecoin for
a fixed amount of monetary value; (iii) the link to the monthly
composition report of the relevant Board-supervised PPSI's reserves
required under proposed Sec. 247.11(d); and (iv) all fees associated
with purchasing or redeeming payment stablecoins. Proposed Sec.
247.12(e)(3) would require a Board-supervised PPSI to publish the
disclosures in proposed Sec. 247.12(e)(1) on the Board-supervised
PPSI's website.
Proposed Sec. 247.12(e)(2) would require a Board-supervised PPSI
to update the disclosures in proposed Sec. 247.12(e)(1)(iv) if there
are any changes in fees associated with purchasing or redeeming payment
stablecoins and provide customers at least seven calendar days' prior
notice of the change, including by securely delivering the notice to
current customers for which the Board-supervised PPSI has contact
information. Proposed Sec. 247.12(e)(3) would require a Board-
supervised PPSI to publish any updates made in accordance with proposed
Sec. 247.12(e)(2) on the Board-supervised PPSI's website.
Proposed Sec. 247.12(e)(4) would provide that a Board-supervised
PPSI must include the disclosures in proposed Sec. 247.12(e)(1) and
any updates made in accordance with paragraph proposed Sec.
247.12(e)(2) of this section in any customer agreements that it
provides.
Proposed 247.14(l)(1) would require Board-supervised PPSI with more
than $50 billion in outstanding issuance value that is not subject to
the reporting
[[Page 61660]]
requirements under section 13(a) or 15(d) of the Securities and
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) to prepare, in
accordance with GAAP, an annual financial statement that must include
the disclosure of any related party transactions, as defined by GAAP. A
registered public accounting firm must perform an audit of the
financial statements. The audit must be conducted in accordance with
all applicable auditing standards established by the Public Company
Accounting Oversight Board, including those relating to auditor
independence, internal controls, and related party transactions.
Proposed 247.14(l)(2)(i) would require a Board-supervised PPSI with
more than $50 billion in outstanding issuance value, that is not
subject to the reporting requirements under section 13(a) or 15(d) of
the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) to
make its audited financial statements publicly available on the Board-
supervised PPSI's website.
Frequency: Daily, monthly, annually, and event-generated.
Respondents: Permitted payment stablecoin issuers, covered
custodians, and other companies.
Total estimated number of respondents: 5 (20 for sections 247.21(a)
and (b)(1)).
Estimated average hours per response:
Initial Setup
Reporting
Preamble II.B.5.d-10.
Section 247.10(c)(4)(iii)-0.5.
Section 247.11(f)(1)(i)-1.
Section 247.11(f)(1)(ii)-4.
Section 217.11(h)-4.
Section 247.14(l)(2)(ii)-480.
Section 247.15(c)-10.
Section 247.41(c)-1.
Section 247.50(e)-1.
Section 247.51(b)(2)-4.
Section 247.51(b)(3)-40.
Section 247.51(b)(4)-8.
Section 247.51(d)-8.
Recordkeeping
Section 247.17(a)(2)(iii)-16.
Disclosure
Sections 247.12(a) and (b)(1)-8.
Section 247.12(e)(1)-8.
Section 247.12(e)(2)-8.
Section 247.12(e)(4)-8.
Ongoing
Reporting
Section 247.11(d)-3.3.
Section 247.11(e)(2)-0.7.
Section 247.14(k)-80.
Section 247.14(l)(2)(ii)-40.
Section 247.14(l)(2)(iii)-8.
Recordkeeping
Preamble II.B.2.a-40.
Section 247.11(a)(2)-1.27.
Section 247.13(a)(1)-80.
Section 247.13(a)(2)-80.
Section 247.13(b)-160.
Section 247.14(f)-40.
Section 247.14(g)-40.
Section Sec. 247.17(a)(2)(iii)-4.
Section 247.18(c)(1)(i)-100.
Section 247.18(c)(1)(ii)-30.
Section 247.21(a)-8.
Section 247.21(b)(1)-8.
Disclosure
Section 247.11(d)-3.3.
Section 247.11(e)(1)-3.3.
Section 247.12(e)(2)-8.
Section 247.14(l)(1)-160.
Section 247.14(l)(2)(i)-8.
Total estimated annual burden hours: 10,338 (2,706 hours for
initial setup and 7,632 hours for ongoing compliance).
Total cost: $768,630.
Methodology and assumptions: There is considerable uncertainty
regarding the number of firms that would elect to engage in the
activities or make the investments that would cause the firms to come
within the scope of the requirements of this proposed rule.
Rules applicable to Board-supervised PPSIs. The
Board is not aware of any method of determining the number of Board-
supervised PPSIs that may come into existence, given that there are no
such entities at this time and it is difficult to predict how this
market will develop. The Board considered the estimates of the number
of PPSI respondents in the notices of proposed rulemaking issued by
other Federal payment stablecoin regulators, the number of insured
State member banks compared to the number of other IDIs, and the
existing market of state-regulated payment stablecoin issuers. As a
result, the Board has assumed that it would supervise five Board-
supervised PPSIs. The population of Board-supervised PPSIs that are
subsidiaries of State member banks could be higher or lower depending
on market demand, strategic operational choices of eligible
institutions, and future developments in the digital landscape. For
reporting, recordkeeping, and disclosure requirements that would apply
to less than all Board-supervised PPSIs (such as requirements that
depend on actions or choices in the discretion of the Board-supervised
PPSI), the Board assumes that one Board-supervised PPSI would be
subject to the requirement, in order to reflect the potential burden of
each requirement subject to the PRA.
Tying Prohibition Applicable to All PPSIs.
Subpart E of the proposed rule would apply to (i) all PPSIs pursuant to
section 4(a)(8) of the GENIUS Act (12 U.S.C. 5903(a)(8)), and (ii) any
company, and certain of its subsidiaries and affiliates, that has
obtained a unanimous vote of the Stablecoin Certification Review
Committee pursuant to section 4(a)(12) of the GENIUS Act (12 U.S.C.
5903(a)(12)). The Board is not aware of any method of determining
number of firms that would be subject to subpart E of the proposed
rule. There is considerable uncertainty regarding the number of PPSIs
that would be approved by the various Federal and State regulators with
licensing authority under the GENIUS Act and would thereby become
subject to the tying prohibition in section 4(a)(8) of the Act (12
U.S.C. 5903(a)(8)). Further, it is not possible to determine how many
companies would obtain a unanimous vote of the Stablecoin Certification
Review Committee under section 4(a)(12) of the GENIUS Act and therefore
be subject, together with certain of the company's subsidiaries and
affiliates, to subpart E of the proposed rule. The Board considered the
estimates of the number of PPSI respondents in the notices of proposed
rulemaking issued by other Federal payment stablecoin regulators and
the existing market of state-regulated payment stablecoin issuers. The
Board assumed that a small fraction of firms subject to the tying
prohibition in proposed Sec. 247.40 would submit a request to seek an
exception from such prohibition under proposed Sec. 247.41(c), and
thus has assumed five firms may seek an exception under that provision.
Rules Applicable to Board-Supervised Custodians.
There is considerable uncertainty regarding the number of firms that
would engage in custodial or safekeeping activities that would be
subject to subpart C of the Board's proposed rule.\215\ It is possible
[[Page 61661]]
that many of the firms the Board supervises could elect to provide
custodial services to PPSIs. However, it is most likely that Board-
supervised firms that are already significantly engaged in custodial
activities would seek to offer custodial services to PPSIs with respect
to their reserve assets. Because the acceptance of cash represented by
deposit liabilities is excepted from the substantive requirements of
subpart C of the proposed rule, insured state member banks that accept
PPSI reserves as principal in a deposit relationship would not be
considered ``covered custodians'' under subpart C of the proposed rule.
As a result, the Board assumes that 20 entities that it supervises
would engage in custodial or safekeeping activities that would be
subject to subpart C of the proposed rule.
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\215\ Subpart C of the proposed rule would apply to covered
custodians, which would generally include (i) a State member bank;
(ii) a Board-supervised PPSI; (iii) a bank holding company (as
defined in section 2(a) of the BHC Act (12 U.S.C. 1841(a)); (iv) a
savings and loan holding company (as defined in section 10(a)(1) of
HOLA (12 U.S.C. 1467a(a)(1)); (v) a subsidiary of a bank holding
company or a savings and loan holding company that is not (a) a
national bank or depository institution subject to supervision by
the OCC or FDIC; (b) a PPSI subject to supervision by another
primary Federal payment stablecoin regulator, (c) an entity subject
to functional regulation by the SEC or CFTC, or (d) an entity, other
than a State member bank, subject to supervision by a State bank
supervisor, as defined in section 3(r) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(r)); (vi) the U.S. operations of
foreign banking organizations subject to the supervision or
regulation of the Board pursuant to the International Banking Act of
1978 (12 U.S.C. 3101 et seq.); and (vii) any corporation organized
under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.)
or having an agreement with the Board under section 25 of the
Federal Reserve Act (12 U.S.C. 601 et seq.) (i.e., Edge Act and
Agreement corporations).
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The burden hours estimated for each reporting, recordkeeping, or
disclosure requirement reflects the amount of time the Board estimates
will expended by the relevant respondent to maintain, retain, or
disclose or provide information to the Board. Where possible, the
estimates were benchmarked against the estimates provided by other
agencies in their notices of proposed rulemaking implementing the
GENIUS Act and the estimates of burden for comparable or similar
requirements in other of the Board's information collections. The total
burden is calculated as the sum of the burden hours multiplied by the
number of respondents for each reporting, recordkeeping, or disclosure
requirement.
Total cost to the responding public is estimated using the
following formula: total burden hours, multiplied by the cost of
staffing, where the cost of staffing is calculated as a percent of time
for each occupational group multiplied by the group's hourly rate and
then summed (30% Office & Administrative Support at $25, 45% Financial
Managers at $90, 15% Lawyers at $89, and 10% Chief Executives at $130).
Hourly rates for each occupational group are the (rounded) mean hourly
wages from the Bureau of Labor Statistics (BLS).\216\ Occupations are
defined using the BLS Standard Occupational Classification System.\217\
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\216\ Occupational Employment and Wages, May 2025, published May
15, 2026, https://www.bls.gov/news.release/ocwage.t01.htm.
\217\ https://www.bls.gov/soc/.
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Proposed Extension for Three Years, With Revision, of the Following
Information Collection
(1) Collection title: Reporting, Recordkeeping, and Disclosure
Requirements Associated with Regulation Q.
Collection identifier: FR Q.
OMB control number: 7100-0313.
General description of collection: The Board's Regulation Q--
Capital Adequacy of Bank Holding Companies, Savings and Loan Holding
Companies, and State Member Banks (12 CFR part 217) sets forth the
capital adequacy requirements for State member banks (SMBs), certain
bank holding companies (BHCs), U.S. intermediate holding companies
(IHCs), and certain covered savings and loan holding companies
(SLHCs).\218\
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\218\ The Board's capital rule generally does not apply to BHCs
or covered SLHCs that meet the requirements of the Small Bank
Holding Company and Savings and Loan Holding Company Policy
Statement, 12 CFR part 225, Appendix C. For the definition of
``Covered savings and loan holding company,'' see 12 CFR 217.2.
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The reporting, recordkeeping, and disclosure requirements included
in the FR Q information collection provide the Board and other
stakeholders, including market participants, with information regarding
the interaction between firms and the regulatory capital framework.
Specifically, the reporting and recordkeeping requirements allow the
Board to verify that firms are appropriately implementing the capital
framework; they also provide the Board with information necessary for
monitoring firms participating in the advanced approaches framework.
The disclosure requirements are intended to support market discipline
by providing information regarding banking organizations' activities,
overall risk profiles, and risk management policies. Together, these
requirements help to ensure the safety and soundness of the financial
system by facilitating the identification of problems at firms and
ensuring that firms have implemented any corrective actions imposed by
the Board, as well as by allowing stakeholders to make meaningful
assessments of firms' financial position.
Frequency: Annual, quarterly, and event-generated.
Respondents: SMBs, certain BHCs, IHCs, and certain covered SLHCs.
Total estimated change in respondents: 1.
Total estimated number of respondents: 1,056.
Total estimated change in burden: 36.
Total estimated annual burden hours: 76,286.
Total cost: $5,671,864.\219\
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\219\ Total cost to the responding public is estimated using the
following formula: total burden hours, multiplied by the cost of
staffing, where the cost of staffing is calculated as a percent of
time for each occupational group multiplied by the group's hourly
rate and then summed (30% Office & Administrative Support at $25,
45% Financial Managers at $90, 15% Lawyers at $89, and 10% Chief
Executives at $130). Hourly rates for each occupational group are
the (rounded) mean hourly wages from the BLS, Occupational
Employment and Wages, May 2025, published May 15, 2026, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined
using the BLS Standard Occupational Classification System, https://www.bls.gov/soc/.
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Proposed revisions: The Board is proposing to revise the scope of
the respondents for the reporting, recordkeeping, and disclosure
requirements included in the FR Q information collection to include
Board-supervised PPSIs, pursuant to Regulation UU. This proposed rule
would not modify the reporting, recordkeeping, or disclosure
requirements in the FR Q information collection in any way.
(2) Collection title: Reporting, Recordkeeping, and Disclosure
Requirements Associated with Regulation Q (Market Risk Capital Rule).
Collection identifier: FR Q-2.
OMB control number: 7100-0314.
General description of collection: The market risk rule, which
requires banking organizations to hold capital to cover their exposure
to market risk, is a component of the Board's regulatory capital
framework, Regulation Q--Capital Adequacy of Bank Holding Companies,
Savings and Loan Holding Companies, and State Member Banks (12 CFR part
217). The rule includes information collections that permit the Board
to monitor the market risk profile of Board-regulated banking
organizations that have significant market risk. These information
collections provide current statistical data identifying market risk
areas on which to focus onsite and offsite examinations. They also
allow the Board to assess the levels and components of each reporting
institution's risk-based capital requirements for market risk and the
adequacy of the institution's capital under the market risk rule.
Frequency: Annual, quarterly, and event-generated.
Respondents: Bank holding companies, covered savings and loan
holding companies,\220\ U.S. intermediate holding companies of foreign
banking organizations, and state member banks (collectively, banking
organizations) that meet certain risk thresholds. The
[[Page 61662]]
market risk rule applies to any such banking organization with
aggregate trading assets and trading liabilities equal to (1) 10
percent or more of quarter-end total assets or (2) $1 billion or more.
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\220\ For the definition of ``covered savings and loan holding
company,'' see 12 CFR 217.2.
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Total estimated change in respondents: 1.
Total estimated number of respondents: 38.
Total estimated change in burden: 960.
Total estimated annual burden hours: 37,196.
Total cost: $2,765,523.\221\
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\221\ See supra n. 219.
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Proposed revisions: The Board is proposing to revise the scope of
the respondents for the reporting, recordkeeping, and disclosure
requirements included in the FR Q-2 information collection to include
to include Board-supervised PPSIs, pursuant to Regulation UU. This
proposed rule would not modify the reporting, recordkeeping, or
disclosure requirements in the FR Q-2 information collection in any
way.
B. Regulatory Flexibility Act
The Board is providing an Initial Regulatory Flexibility Analysis
(IRFA) with respect to this proposed rule. The Regulatory Flexibility
Act (RFA) \222\ requires an agency to consider the impact of its
proposed rules on small entities. Under regulations issued by the U.S.
Small Business Administration (SBA), a ``small'' entity includes a
depository institution, bank holding company, or savings and loan
holding company with total assets of $850 million or less.\223\ For
purposes of this section, any reference to ``small'' entities is a
reference to this definition.
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\222\ 5 U.S.C. 601 et seq.
\223\ See 13 CFR 121.201. Consistent with the SBA's General
Principles of Affiliation, the Board includes the assets of all
domestic and foreign affiliates toward the applicable size threshold
when determining whether to classify a particular entity as a small
entity. See 13 CFR 121.103.
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In connection with a proposed rule, the RFA generally requires an
agency to prepare an IRFA describing the impact of the rule on small
entities, unless the head of the agency certifies that the proposed
rule, if promulgated, will not have a significant economic impact on a
substantial number of small entities and publishes such certification
along with a statement providing the factual basis for such
certification in the Federal Register. An IRFA must contain: (1) a
description of the reasons why action by the agency is being
considered; (2) a succinct statement of the objectives of, and legal
basis for, the proposed rule; (3) a description of and, where feasible,
an estimate of the number of small entities to which the proposed rule
will apply; (4) a description of the projected reporting,
recordkeeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirements and the type of professional skills
necessary for preparation of the report or record; (5) an
identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap with, or conflict with the proposed
rule; and (6) a description of any significant alternatives to the
proposed rule that accomplish its stated objectives and minimize any
significant economic impact of the proposed rule on small
entities.\224\
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\224\ 5 U.S.C. 603(b)-(c).
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The Board has considered the potential impact of the proposal on
small entities in accordance with the RFA. Based on its analysis and
for the reasons stated below, the proposal is not expected to have a
significant economic impact on a substantial number of small entities.
Nevertheless, the Board is publishing and inviting comment on this
initial regulatory flexibility analysis.
1. Reasons Why Action Is Being Considered by the Board
The GENIUS Act was enacted in July 2025 to provide a framework for
the regulation of payment stablecoins. The Act establishes requirements
applicable to PPSIs and provides Federal regulators with regulatory,
supervisory, and enforcement authority over PPSIs subject to their
jurisdiction. The GENIUS Act directs the Board to issue various rules,
and the proposal would address each of the Board's responsibilities
under the GENIUS Act, as described in greater detail below. The GENIUS
Act's effective date is the earlier of 18 months after the enactment
date of July 18, 2025, or 120 days after the primary Federal payment
stablecoin regulators issue any final regulations implementing the Act.
2. The Objectives of, and Legal Basis for, the Proposed Rule
The Board is proposing regulations to implement the provisions of
the GENIUS Act for which the Board has responsibility. The GENIUS Act
directs the Board to issue rules (i) to establish regulatory framework
applicable to Board-supervised PPSIs, including requirements related to
reserves, capital, activities, and risk management, as discussed in
sections II.B and II.H of this SUPPLEMENTARY INFORMATION; (ii) to
implement rules regarding State-qualified PPSIs setting forth (a) the
unusual and exigent circumstances in which the Board may exercise its
back-up enforcement authority with respect to any State-qualified PPSI
and (b) the transition and waiver process for uninsured, state-
chartered depository institutions that are State-qualified PPSIs with
an outstanding issuance value of more than $10 billion, as discussed in
section II.F of this SUPPLEMENTARY INFORMATION; (iii) to implement
rules for Board-supervised entities seeking to provide custodial
services for reserves backing payment stablecoins and certain other
assets, as discussed in section II.C of this SUPPLEMENTARY INFORMATION;
(iv) to make certain changes to its rules for banking organizations,
including bank capital requirements and activities rules, to facilitate
banking organization participation in payment stablecoin activities, as
discussed in sections II.F and II.G of this SUPPLEMENTARY INFORMATION;
and (v) to promulgate a framework related to the GENIUS Act's
prohibition on tying, which would apply to all PPSIs (including PPSIs
for which the Board is not the primary regulator), as discussed in
section II.E of this SUPPLEMENTARY INFORMATION. The proposal would
address each of these statutory responsibilities.
3. Description of the Compliance Requirements of the Proposal and
Estimate of the Number of Small Entities
Different aspects of the proposed rule would apply to different
firms. This section provides a discussion of the scope, impact, and the
estimate of small entities impacted by the proposal for each subpart of
proposed part 247 and for each amendment to existing rules separately.
Consistent with the analysis in section III of this SUPPLEMENTARY
INFORMATION, the Board utilizes a pre-statutory baseline under which
the GENIUS Act is not enacted. Under this baseline, insured State
member banks do not issue payment stablecoins directly or through a
subsidiary given the lack of regulatory clarity and the high barriers
to entry surrounding such activities.
Rules Applicable to Board-Supervised PPSIs. Subpart B of the
proposed rule would apply to Board-supervised PPSIs, which are (i)
subsidiaries of insured State member banks that have been approved by
the Board to issue payment stablecoins and (ii) State-qualified PPSIs
that are uninsured State-chartered depository institutions that have
transitioned to the Board's regulatory
[[Page 61663]]
framework under section 4(d) of the GENIUS Act (12 U.S.C. 5903(d)) and
proposed Sec. 247.51.\225\
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\225\ These Board-supervised PPSIs are also subject to proposed
amendments to the rules of practice and procedure for adjudicatory
proceedings in 12 CFR part 263.
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The Board expects that the impact of the proposed rule on Board-
supervised PPSIs could be significant. The GENIUS Act imposes an
entirely new regulatory framework on Board-supervised PPSIs,
introducing novel compliance burdens that could have significant
impact. Additionally, as discussed in section IV.A of this
SUPPLEMENTARY INFORMATION, the reporting, recordkeeping, and disclosure
requirements of subpart B are expected to be $39,538 for initial setup
and $103,175 for ongoing compliance per Board-supervised PPSI.\226\
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\226\ See supra n. 219.
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By definition, subpart B of the proposed rule would only apply to a
State-qualified PPSIs that have an outstanding issuance value of more
than $10 billion, and which, accordingly, would not be considered small
for the purposes of this IRFA. This analysis therefore focuses only on
Board-supervised PPSIs that are subsidiaries of State member banks. The
Board is not aware of any method of determining the identity, industry,
or size of Board-supervised PPSIs that are subsidiaries of State member
banks, given that there are no such entities at this time and it is
difficult to predict how this market will develop. Further, SBA
regulations do not provide small entity thresholds specific to PPSIs.
As a result, this section of the IRFA discusses the size of the parent
State member banks of such PPSIs. The Board believes this approach is
appropriate because, under the GENIUS Act, an insured State member bank
must have ``control'' of a Board-supervised PPSI.\227\
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\227\ As discussed in section II.A.2 of this SUPPLEMENTARY
INFORMATION, the Board is proposing to define ``control'' such that
a person would control another person if: (1) the person directly or
indirectly or acting through one or more other persons owns,
controls, or has power to vote 25 percent or more of any class of
voting securities of the other person; (2) the person controls in
any manner the election of a majority of the directors or trustees
of the other person; or (3) the Board determines, after notice and
opportunity for hearing, that the person directly or indirectly
exercises a controlling influence over the management or policies of
the other person.
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As of December 31, 2025, there were: 703 insured State member
banks, and of those institutions, 439 are considered ``small'' for the
purposes of the RFA.\228\ The Board recognizes considerable uncertainty
regarding the number of firms that would engage in activities or make
investments that would subject the firms to the requirements of this
proposed rule. For this analysis, the Board estimates that between 5
and 10 insured State member banks may, with the Board's permission,
form a Board-supervised PPSI subsidiary in the first few years after
the finalization of the proposed rule. Given the early stages of the
payment stablecoin market, this range accounts for uncertainty
regarding the volume of future participants. The population of Board-
supervised PPSIs that are subsidiaries of State member banks could be
higher or lower depending on market demand, strategic operational
choices of eligible institutions, and future developments in the
digital landscape. By utilizing this range, the Board aims to establish
an estimate that serves as the basis for evaluating the economic
effects of the proposed rule, while acknowledging the inherent
uncertainty resulting from a lack of historical precedent.
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\228\ Call Report Data, December 31, 2025.
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The Board expects that insured State member banks that are most
likely to seek to form a Board-supervised PPSI subsidiary initially
will be larger institutions with the compliance infrastructure and
capital necessary to support payment stablecoin issuance. As such, the
Board anticipates that most, if not all, insured State member banks
with Board-supervised PPSIs would not be small entities as defined by
the SBA. Even assuming the unlikely scenario that all, i.e., the upper-
bound number of 10 insured State member banks, would be small and that
all 10 insured State member banks would be significantly impacted by
the proposed rule, these impacted entities would comprise a very small
percentage of small insured State member banks.
Rules Applicable to State-Qualified PPSIs. Subpart F of the
proposed rule would apply to State-qualified PPSIs. By definition, the
transition and waiver process in proposed Sec. 247.51 would only apply
to State-qualified PPSIs that would have or are approaching an
outstanding issuance value of more than $10 billion, and accordingly,
would not be considered ``small'' for the purposes of this IRFA.
The State-qualified PPSIs subject to the Board's back-up
enforcement authority under proposed Sec. 247.50 could include small
entities. However, it is difficult to know how many small entities may
be affected by proposed Sec. 247.50 in subpart F of the proposed rule
because it remains unclear how many States will choose to adopt a
regulatory framework for payment stablecoins and how many State
certifications would be approved by the Stablecoin Certification Review
Committee. It is also difficult to predict how many entities such
States would license to become State-qualified PPSIs.
Nonetheless, the Board expects that the impact of proposed Sec.
247.50 would be insignificant. While the enforcement actions under this
authority would impose significant burdens on a firm subject to such
enforcement action, the Board would only exercise such authority in
``unusual and exigent circumstances'' as described in the proposed
rule, and only when any action taken by the State payment stablecoin
regulator has not adequately mitigated the risks presented.
Rules Applicable to Board-Supervised Custodians. Subpart C of the
proposed rule would apply to covered custodians, which would generally
include (i) a State member bank; (ii) a Board-supervised PPSI; (iii) a
bank holding company (as defined in section 2(a) of the BHC Act (12
U.S.C. 1841(a)); (iv) a savings and loan holding company (as defined in
section 10(a)(1) of HOLA (12 U.S.C. 1467a(a)(1)); (v) a subsidiary of a
bank holding company or a savings and loan holding company that is not
(a) a national bank or depository institution subject to supervision by
the OCC or FDIC; (b) a PPSI subject to supervision by another primary
Federal payment stablecoin regulator, (c) an entity subject to
functional regulation by the SEC or CFTC, or (d) an entity, other than
a State member bank, subject to supervision by a State bank supervisor,
as defined in section 3(r) of the Federal Deposit Insurance Act (12
U.S.C. 1813(r)); (vi) the U.S. operations of foreign banking
organizations subject to the supervision or regulation of the Board
pursuant to the International Banking Act of 1978 (12 U.S.C. 3101 et
seq.); and (vii) any corporation organized under section 25A of the
Federal Reserve Act (12 U.S.C. 611 et seq.) or having an agreement with
the Board under section 25 of the Federal Reserve Act (12 U.S.C. 601 et
seq.) (i.e., Edge Act and Agreement corporations).
For those small entities that choose to provide custodial or
safekeeping services subject to subpart C of the proposed role, the
Board expects that the direct impact of the proposed rule would be
insignificant.\229\ The requirements discussed in section II.C of this
SUPPLEMENTARY INFORMATION are principles-based, and the proposal does
not include new reporting requirements
[[Page 61664]]
on covered custodians. While covered custodians would be required to
maintain records necessary to separately account for the covered assets
of each customer and take appropriate steps to protect the covered
assets from the claims of creditors, these requirements are consistent
with typical business practices of banking organizations providing
custody services and not likely to result in significant compliance
obligations.
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\229\ The Board anticipates that the direct impact of the
proposed rule for insured State member banks that only provide
custody or safekeeping services for covered assets in the form of
cash would be insignificant because such cash may be held in the
form of a deposit liability and would not be subject to the
substantive requirements under subpart C.
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As of December 31, 2025, there were: 704 State member banks
(including 703 insured State member banks and one uninsured State
member bank), and of those institutions, 439 are considered small for
the purposes of the RFA; \230\ 3,453 bank holding companies, and of
those institutions, 2,380 are considered small for purposes of the RFA;
\231\ 170 savings and loan holding companies, and of those
institutions, 115 are considered small for purposes of the RFA.\232\
The Board recognizes considerable uncertainty regarding the number of
firms that would engage in custodial or safekeeping activities that
would be subject to subpart C of the proposed rule. The Board expects
that the initial adopters of the technology needed to custody payment
stablecoins or private keys used to issue payment stablecoins will
likely be larger institutions with the compliance infrastructure and
capital necessary to such activities. A broader range of institutions,
however, may custody payment stablecoin reserves, since that is a
traditional activity for banking organizations. Smaller firms generally
are not significantly engaged in offering custody services for
securities, so small insured State member banks may be more likely to
accept payment stablecoin reserves in the form of cash and represent
such cash as deposit liabilities. The acceptance of cash represented by
deposit liabilities is excepted from the substantive requirements of
subpart C of the proposed rule, and, therefore, insured State member
banks who provide this service are unlikely to incur new compliance
obligations.
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\230\ Call Report Data, December 31, 2025.
\231\ FR Y-9C Data, December 31, 2025; FR Y-9SP Data, December
31, 2025.
\232\ FR Y-9C Data, December 31, 2025; FR Y-9SP Data, December
31, 2025.
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Amendments to Rules Applicable Banking Organizations--Capital Rule.
First, the proposed amendments to 12 CFR part 217, described in section
II.F of this SUPPLEMENTARY INFORMATION, would apply to Board-regulated
institutions, as that term is defined in 12 CFR part 217.2, which
includes State member banks, bank holding companies, and savings and
loan holding companies, that consolidate a PPSI. Under the baseline,
Board-regulated institutions do not consolidate payment stablecoin
issuers; accordingly, this amendment does not have any impact.
Moreover, the GENIUS Act specifies that the appropriate federal banking
agency cannot require an insured depository institution or depository
institution holding company to hold any amount of regulatory capital
with respect to a consolidated PPSI subsidiary and its assets and
operations in excess of the capital that such PPSI is required to
maintain under the capital regulations promulgated under the GENIUS
Act. Given the specificity of this provision, any alternatives
considered by the Board are unlikely to have a materially different
impact. The number of State member banks, bank holding companies, and
savings and loan holding companies, and the number of each such firm
that is considered small for purposes of the RFA, is provided above. As
stated above, the Board recognizes considerable uncertainty regarding
the total number of PPSIs, including Board-supervised PPSIs and PPSIs
that are not supervised by the Board, that may be affected by the
proposed amendments to 12 CFR part 217 because of a direct or indirect
ownership interest by a Board-supervised institution.
Consistent with the discussion above, the Board expects that Board-
supervised firms seeking to invest in PPSIs would be larger
institutions with the compliance infrastructure and capital necessary
to support payment stablecoin issuance. Relatedly, the Board expects
that the firms initially interested in engaging in payment stablecoin
transactions as principal or agent are likely to be larger institutions
that seek to adopt the technology or third-party relationships and
controls necessary to own and control payment stablecoins.
Amendments to Rules Applicable Banking Organizations--
Permissibility Rules. The proposed amendments to parts 208, 211, and
225 of title 12, described in section II.G of this SUPPLEMENTARY
INFORMATION, would apply to State member banks, uninsured State
branches and State agencies of foreign banks, Edge and agreement
corporations, and depository institution holding companies. These
proposed amendments would somewhat reduce burdens for small entities
that seek to engage in the activities addressed in the amendments, as
the proposed rule would clarify permissibility of such activities. As
of December 31, 2025, there were: 21 uninsured State agencies of
foreign banks, and of those institutions, 8 are considered small for
purposes of the RFA; \233\ 101 uninsured State branches of foreign
banks, and of those institutions, 27 are considered small for purposes
of the RFA; \234\ 30 Edge and agreement corporations, and of those
institutions, 12 are considered small for purposes of the RFA; \235\
121 U.S. operations of foreign banks, and of those institutions, 11 are
considered small for purposes of the RFA.\236\ The estimates of State
member banks, bank holding companies, and savings and loan holding
companies is provided above, in the discussion of subpart C of the
proposed rule. Similar to the discussion above, the Board expects that
firms seeking to invest in PPSIs, directly issue payment stablecoins,
or engage in certain distributed ledger technology-related activities
would be larger institutions with the compliance infrastructure and
capital necessary to support such activities or investments.
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\233\ FFIEC 002 Data, December 31, 2025.
\234\ FFIEC 002 Data, December 31, 2025.
\235\ FR 2886b Data, December 31, 2025.
\236\ FR Y-7Q Data, December 31, 2025.
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Tying Prohibition Applicable to All PPSIs. Subpart E of the
proposed rule would apply to (i) all PPSIs pursuant to section 4(a)(8)
of the GENIUS Act (12 U.S.C. 5903(a)(8)), and (ii) any company, and
certain of its subsidiaries and affiliates, that has obtained a
unanimous vote of the Stablecoin Certification Review Committee
pursuant to section 4(a)(12) of the GENIUS Act (12 U.S.C. 5903(a)(12)).
For those small entities subject to subpart E of the proposed rule, the
procedural requirements for requesting an exception to the tying
prohibition would result in reporting burden of $72 per entity, as
discussed in section IV.A of this SUPPLEMENTARY INFORMATION.\237\ The
burdens of subpart E of the proposed rule, including the reporting
burdens and the compliance burdens related to the prohibition, would be
insignificant.
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\237\ See supra n. 219.
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The Board does not believe that it is feasible to provide an
estimate of the number of small entities to which subpart E of the
proposed rule will apply. First, the Board recognizes considerable
uncertainty regarding the number of PPSIs that would be approved by the
various Federal and State regulators with licensing authority under the
GENIUS Act and would thereby become subject to the tying prohibition in
section 4(a)(8) of the Act (12 U.S.C. 5903(a)(8)). Further, it is not
possible to determine how many companies would obtain a unanimous
[[Page 61665]]
vote of the Stablecoin Certification Review Committee under section
4(a)(12) of the GENIUS Act and therefore be subject, together with
certain of the company's subsidiaries and affiliates, to subpart E of
the proposed rule. The Board is not aware of any method of determining
the identity, industry, or size of the parties that would be subject to
subpart E of the proposed rule. As stated above, the Board expects that
the initial adopters of this technology will likely be larger
institutions with the compliance infrastructure and capital necessary
to support payment stablecoin issuance.
4. Consideration of Duplicative, Overlapping, or Conflicting Rules and
Significant Alternatives to the Proposal
The Board is aware of no other federal rules that duplicate,
overlap, or conflict with the proposal. While other Federal and State
regulators are required to adopt similar rules, each set of rules would
apply to a different and defined scope of institutions. The GENIUS Act
requires the Board to issue the rules described above. The Board is
seeking comment on certain potential alternative approaches to discrete
aspects of the final rule, as discussed elsewhere in this SUPPLEMENTARY
INFORMATION, that would not significantly change the estimated economic
impact of the proposed rule. Subpart B implements an entirely new
regulatory framework that could have significant economic impact on any
small Board-supervised PPSIs, and the alternatives would not materially
minimize such impact. Similarly, other sections are not expected to
have a significant impact on covered firms, and the alternatives
considered would not meaningfully affect the impact on any small
entities.
5. Conclusion
Based on its analysis and for the reasons stated above, the Board
believes that the proposed rule is unlikely to have a significant
economic impact on a substantial number of small entities. The Board
welcomes comment on all aspects of its analysis. In particular, the
Board requests that commenters describe the nature of any impact on
small entities and provide empirical data to illustrate and support the
extent of the impact. Additionally, the Board requests that commenters
describe the number of small entities under the RFA and the impact on
small entities.
C. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4802(a)), in
determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
each Federal banking agency must consider, consistent with principles
of safety and soundness and the public interest, any administrative
burdens that such regulations would place on depository institutions,
including small depository institutions and customers of depository
institutions, as well as the benefits of such regulations. In addition,
section 302(b) of the RCDRIA (12 U.S.C. 4802(b)) requires new
regulations and amendments to regulations that impose additional
reporting, disclosures, or other new requirements on insured depository
institutions generally to take effect on the first day of a calendar
quarter that begins on or after the date on which the regulations are
published in final form. The Board requests comment on any
administrative burdens that the proposed rule would place on depository
institutions, including small depository institutions, and their
customers, and the benefits of the proposed rule that the agencies
should consider in determining the effective date and administrative
compliance requirements for a final rule.
D. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)), requires that a notice of proposed rulemaking
include the internet address of a summary of not more than 100 words in
length of a proposed rule, in plain language, that shall be posted on
the internet website under section 206(d) of the E-Government Act of
2002 (44 U.S.C. 3501 note).
The Board of Governors of the Federal Reserve System (Board)
proposes to issue regulations to implement the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act) with respect
to Board-supervised permitted payment stablecoin issuers (PPSIs) and
certain other entities that are subject to the Board's jurisdiction. In
addition, the Board proposes to issue regulations to implement the
prohibition on tying in section 4(a)(8) of the GENIUS Act (12 U.S.C.
5903(a)(8)), which is applicable generally to all PPSIs.
The proposal and the required summary can be found at https://www.regulations.gov and https://www.federalreserve.gov/apps/proposals/.
E. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \238\ requires the
Federal banking agencies to use plain language in all proposed and
final rules published after January 1, 2000. The Board has sought to
present the proposed rule in a simple and straightforward manner and
invites comment on the use of plain language. For example:
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\238\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999),
12 U.S.C. 4809.
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Has the Board organized the material to suit your needs?
If not, how could they present the proposed rule more clearly?
Are the requirements in the proposed rule clearly stated?
If not, how could the proposed rule be more clearly stated?
Does the proposed regulation contain technical language or
jargon that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the proposed regulation easier to
understand? If so, what changes would achieve that?
Would more, but shorter, sections be better? If so, which
sections should be changed?
What other changes can the Board incorporate to make the
proposed regulation easier to understand?
List of Subjects
12 CFR Part 208
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Investments, Reporting and recordkeeping requirements,
Securities, State member banks.
12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Investments,
Reporting and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Risk, Securities.
12 CFR Part 225
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Holding companies, Investments, Reporting and
recordkeeping requirements, Securities.
[[Page 61666]]
12 CFR Part 247
Administrative practice and procedure; Banks, banking; Federal
Reserve System; Stablecoins, Stablecoin Issuers.
12 CFR Part 263
Administrative practice and procedure, Federal Reserve System,
Investigations.
For the reasons set out in the preamble, the Board proposes to
amend 12 CFR chapter II as follows:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
0
1. The authority citation for part 208 is revised to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1817(a)(3),
1817(a)(12), 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p-
1, 1831r-1, 1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 3310, 3331-
3351, 3905-3909, 5371, 5371 note, and 5901 et seq.; 15 U.S.C. 78b,
78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, 78w, 1681s, 1681w, 6801,
and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and
4128.
0
2. Add Sec. 208.113 to read as follows:
Sec. 208.113 Payment stablecoin activities and investments.
(a) Section 16(b) of the Guiding and Establishing National
Innovation for U.S. Stablecoins (GENIUS) Act (12 U.S.C. 5915(b))
provides that entities regulated by the Board are authorized to engage
in the payment stablecoin activities and investments contemplated by
the GENIUS Act, including acting as a principal or agent with respect
to any payment stablecoin and payment of fees to facilitate customer
transactions. Additionally, section 16(b) of the GENIUS Act requires
the Board to review all existing guidance and regulations, and if
necessary, amend or promulgate new regulations and guidance, to clarify
that regulated entities are authorized to engage in such activities and
investments. This section sets out such clarifications with respect to
State member banks.
(b) Controlling investments in permitted payment stablecoin issuers
(PPSIs). An insured State member bank may own the equity securities of
a Board-supervised PPSI, as that term is defined in Sec. 247.2 of this
title, provided that the insured State member bank (i) has a
controlling interest in such Board-supervised PPSI and (ii) has
received the prior approval of the Board for a subsidiary to issue
payment stablecoins pursuant to part 247, subpart D of this title.
(c) Uninsured State member banks and payment stablecoin issuance.
If an uninsured State member bank is also a State-qualified PPSI, as
that term is defined in Sec. 247.2 of this title, the entity would be
subject to supervision, regulation, and enforcement (i) by the State
payment stablecoin regulator, as that term is defined in Sec. 247.2 of
this title, and the Board pursuant to part 247, subpart F of this
title, under the provisions of the GENIUS Act and its implementing
regulations, and, as applicable, the relevant State regulatory
framework for State-qualified PPSIs, and (ii) by the Board pursuant to
the provisions of the Federal Reserve Act and any other laws and
regulations applicable to State member banks.
(d) Additional digital asset-related activities. A State member
bank may, in connection with the payment stablecoin activities and
investments contemplated by the GENIUS Act (12 U.S.C. 5901 et seq.) or
other permissible activities and investments:
(1) Act as principal or agent with respect to any payment
stablecoin, as that term is defined in 12 U.S.C. 5901(22);
(2) Pay fees to facilitate customer transactions;
(3) Pay fees and undertake other activities as necessary to conduct
testing on distributed ledger-based platforms; and
(4) Hold as principal non-payment stablecoin digital assets, as
that term is defined in 12 U.S.C. 5901(6), necessary to conduct the
activities described in (ii) or (iii), provided that such principal
holdings shall not exceed quantities reasonably expected to be
necessary to meet near-term demand for the conduct of such activities.
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
0
3. The authority citation for part 211 is revised to read as follows:
Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq.,
3101 et seq., 3901 et seq., 5101 et seq., and 5901 et seq.; 15
U.S.C. 1681s, 1681w, 6801 and 6805.
0
4. Add Sec. 211.10(a)(20) to read as follows:
Sec. 211.10 Permissible activities abroad.
(a) * * *
(20) Certain digital asset-related activities. In connection with
the payment stablecoin activities and investments contemplated by the
GENIUS Act (12 U.S.C. 5901 et seq.) or other permissible activities and
investments:
(i) Acting as principal or agent with respect to any payment
stablecoin, as that term is defined in 12 U.S.C. 5901(22);
(ii) Paying fees to facilitate customer transactions;
(iii) Paying fees and undertaking other activities as necessary to
conduct testing on distributed ledger-based platforms; and
(iv) Holding as principal non-payment stablecoin digital assets, as
that term is defined in 12 U.S.C. 5901(6), necessary to conduct the
activities described in (ii) or (iii) of this subparagraph, provided
that such principal holdings shall not exceed quantities reasonably
expected to be necessary to meet near-term demand for the conduct of
such activities.
* * * * *
0
5. Add Sec. 211.606 to read as follows:
Sec. 211.606 Payment stablecoin-related activities.
(a) Section 16(b) of the Guiding and Establishing National
Innovation for U.S. Stablecoins (GENIUS) Act (12 U.S.C. 5915(b))
provides that entities regulated by the Board are authorized to engage
in the payment stablecoin activities and investments contemplated by
the GENIUS Act, including acting as a principal or agent with respect
to any payment stablecoin and payment of fees to facilitate customer
transactions. Additionally, section 16(b) of the GENIUS Act requires
the Board to review all existing guidance and regulations, and if
necessary, amend or promulgate new regulations and guidance, to clarify
that regulated entities are authorized to engage in such activities and
investments. This section sets out such clarifications with respect to
uninsured State branches or State agencies of a foreign bank.
(b) Digital asset-related activities. Uninsured State branches and
State agencies of foreign banks may, in connection with the payment
stablecoin activities and investments contemplated by the GENIUS Act
(12 U.S.C. 5901 et seq.) or other permissible activities and
investments:
(1) Act as principal or agent with respect to any payment
stablecoin, as that term is defined in 12 U.S.C. 5901(22);
(2) Pay fees to facilitate customer transactions;
(3) Pay fees and undertake other activities as necessary to conduct
testing on distributed ledger-based platforms; and
(4) Hold as principal non-payment stablecoin digital assets, as
that term is defined in 12 U.S.C. 5901(6), necessary to conduct the
activities described in (ii) or (iii) of this subparagraph, provided
that such principal holdings shall not
[[Page 61667]]
exceed quantities reasonably expected to be necessary to meet near-term
demand for the conduct of such activities.
PART 217--CAPITAL ADEQUACY STANDARDS
0
6. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, 5371 note, 5903, and sec. 4012,
Pub. L. 116-136, 134 Stat. 281.
0
7. In Sec. 217.2, add, in alphabetical order, the definition of
``Permitted payment stablecoin issuer (PPSI)'' to read as follows:
Sec. 217.2 Definitions.
* * * * *
Permitted payment stablecoin issuer (PPSI) is defined in Sec.
247.2 of this title.
* * * * *
0
8. Amend Sec. 217.22 by adding a new paragraph (a)(8) to read as
follows:
Sec. 217.22 Regulatory capital adjustments and deductions.
(a) * * *
(8) Permitted payment stablecoin issuers (PPSIs). With respect to a
Board-regulated institution that consolidates a PPSI under GAAP:
(i) The Board-regulated institution must deconsolidate the PPSI
from the Board-regulated institution's balance sheet for purposes of
its regulatory capital ratios.
(ii) The Board-regulated institution must deduct from the Board-
regulated institution's common equity tier 1 capital a dollar amount
equal to the total capital the PPSI is required to hold pursuant to
capital requirements imposed on such PPSI by its primary Federal
payment stablecoin regulator, as that term is defined in 12 U.S.C.
5901(25), or State payment stablecoin regulator, as that term is
defined in 12 U.S.C. 5901(30).
(iii) The Board-regulated institution must exclude any investment
in (to the extent not deducted under paragraph (a)(8)(i) of this
section) and receivable from the PPSI when calculating standardized
total risk-weighted assets, advanced approaches risk-weighted assets,
average total consolidated assets, total consolidated assets, and total
leverage exposure, as applicable.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
9. The authority citation for part 225 is revised to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3354,
3906, 3907, 3909, 5915(b); 15 U.S.C. 1681s, 1681w, 6801 and 6805.
0
10. Add Sec. 225.146 to read as follows:
Sec. 225.146 Payment stablecoin-related activities and investments.
(a) Section 16(b) of the Guiding and Establishing National
Innovation for U.S. Stablecoins (GENIUS) Act (12 U.S.C. 5915(b))
provides that entities regulated by the Board are authorized to engage
in the payment stablecoin activities and investments contemplated by
the GENIUS Act, including acting as a principal or agent with respect
to any payment stablecoin and payment of fees to facilitate customer
transactions. Additionally, section 16(b) of the GENIUS Act requires
the Board to review all existing guidance and regulations, and if
necessary, amend or promulgate new regulations and guidance, to clarify
that regulated entities are authorized to engage in such activities and
investments. This section sets out such clarifications with respect to
bank holding companies.
(b) Controlling investments in certain permitted payment stablecoin
issuers (PPSIs).--(1) A bank holding company may, directly or
indirectly, own the equity securities of a PPSI, as that term is
defined in Sec. 247.2 of this title, without the prior approval of the
Board, provided that:
(i) The bank holding company indirectly owns the equity securities
of a PPSI that is controlled by the bank holding company's subsidiary
insured depository institution and such insured depository institution
has received the prior approval of the appropriate Federal banking
agency, as that term is defined in 12 U.S.C. 1813, under section 5 of
the GENIUS Act (12 U.S.C. 5904); or
(ii) The bank holding company controls (within the meaning of 12
CFR 225.2) a PPSI, other than a PPSI described in paragraph (b)(1)(i)
of this section, the securities of which are of the kinds and amounts
explicitly eligible by Federal statute for investment by a national
bank in reliance on section 4(c)(5) of the Bank Holding Company Act (12
U.S.C. 1843(c)(5)) and the Board's Regulation Y (12 CFR 225.22(d)(4)).
(2) A PPSI controlled by a bank holding company would, as a
subsidiary of such bank holding company, be subject to supervision,
regulation, and enforcement (i) by its primary Federal or State payment
stablecoin regulator under the provisions of the GENIUS Act and its
implementing regulations, and (ii) by the Board under the applicable
provisions of the Bank Holding Company Act and other laws and
regulations applicable to bank holding companies.
(c) Additional digital asset-related activities. A bank holding
company may, in connection with the payment stablecoin activities and
investments contemplated by the GENIUS Act (12 U.S.C. 5901 et seq.) or
other permissible activities and investments:
(1) Act as principal or agent with respect to any payment
stablecoin, as that term is defined in 12 U.S.C. 5901(22);
(2) Pay fees to facilitate customer transactions;
(3) Pay fees and undertake other activities as necessary to conduct
testing on distributed ledger-based platforms; and
(4) Hold as principal non-payment stablecoin digital assets, as
that term is defined in 12 U.S.C. 5901(6), necessary to conduct the
activities described in (ii) or (iii) of this subparagraph, provided
that such principal holdings shall not exceed quantities reasonably
expected to be necessary to meet near-term demand for the conduct of
such activities.
0
11. Add part 247 to read as follows:
PART 247--STABLECOINS (REGULATION UU)
Subpart A--Authority, Purpose, Scope, Definitions, and Severability
Sec. 247.1 Authority, purpose and scope.
Sec. 247.2 Definitions.
Sec. 247.3 Severability.
Sec. Sec. 247.4-247.9 [Reserved]
Subpart B--Rules Applicable to Board-Supervised Permitted Payment
Stablecoin Issuers.
Sec. 247.10 Permissible and prohibited activities.
Sec. 247.11 Reserve assets.
Sec. 247.12 Redemption and fees.
Sec. 247.13 Risk management.
Sec. 247.14 Audits, reports, and supervision.
Sec. 247.15 Capital adequacy and minimum requirements.
Sec. 247.16 Capital elements.
Sec. 247.17 Capital requirements for uninsured eligible deposit
claims.
Sec. 247.18 Capital requirements for operational risks.
Sec. 247.19 [Reserved]
Subpart C--Custody
Sec. 247.20 Definitions.
Sec. 247.21 Covered asset custodial property requirements.
[[Page 61668]]
Sec. 247.22. Segregation requirement and use of omnibus accounts.
Sec. 247.23 Self-custody hardware and software exclusion.
Sec. Sec. 247.24-247.29 [Reserved]
Subpart D--[Reserved]
Subpart E--Rules Applicable to All Permitted Payment Stablecoin Issuers
Sec. 247.40 Tying prohibition.
Sec. 247.41 Tying exceptions.
Sec. Sec. 247.42-247.49 [Reserved]
Subpart F--Rules Applicable to State-Qualified Payment Stablecoin
Issuers
Sec. 247.50 Unusual and exigent circumstances enforcement
authority.
Sec. 247.51 Transition and waiver process for uninsured State-
chartered depository institutions.
Sec. Sec. 247.52-247.59 [Reserved]
Authority: 12 U.S.C. 248, 321-339a, 483, 602, 1818, 1828, 1831o,
1831p-1, 3901 et. seq., and 5901 et. seq.
Subpart A--Purpose, Scope, Definitions, and Severability
Sec. 247.1 Authority, purpose, and scope.
(a) Authority and purpose. This part is issued pursuant to the
Guiding and Establishing National Innovation for U.S. Stablecoins
(GENIUS) Act (12 U.S.C. 5901 et seq.) to implement the Board's
regulatory responsibilities under the GENIUS Act.
(b) Scope. This part applies to Board-supervised PPSIs and certain
other persons. Specifically:
(1) subpart B of this part implements certain provisions of section
4 of the GENIUS Act (12 U.S.C. 5903), which requires the Board to issue
regulations applicable to Board-supervised PPSIs;
(2) subpart C of this part implements section 10 of the GENIUS Act
(12 U.S.C. 5909), which imposes requirements on Board-supervised
persons seeking to provide custodial or safekeeping services for
payment stablecoin reserves, payment stablecoins used as collateral, or
the private keys used to issue payment stablecoins;
(3) subpart D of this part implements section 5 of the GENIUS Act
(12 U.S.C. 5904), which requires the Board to establish applications
procedures applicable to insured State member banks seeking approval
for a subsidiary to issue payment stablecoins;
(4) subpart E of this part implements section 4(a)(8) of the GENIUS
Act (12 U.S.C. 5903(a)(8)), which imposes a tying prohibition on all
PPSIs, and applies that tying prohibition in a manner consistent with
section 4(a)(12)(B)(i)(III) (12 U.S.C. 5903(a)(12)(B)(i)(III)) to
certain companies unanimously approved by the Stablecoin Certification
Review Committee under section 4(a)(12) of the GENIUS Act (12 U.S.C.
5903(a)(12); and
(5) subpart F of this part implements rules pertaining to State-
qualified PPSIs--specifically, the Board's backup-enforcement authority
during unusual and exigent circumstances under section 7(e) of the
GENIUS Act (12 U.S.C. 5906(e)) and the transition and waiver process
for uninsured State-chartered depository institutions under section
4(d) of the GENIUS Act (12 U.S.C. 5903(d)).
Sec. 247.2 Definitions.
For purposes of this part, the following definitions apply:
Affiliate means a person that controls, is controlled by, or is
under common control with another person.
Bank Secrecy Act means:
(1) section 21 of the Federal Deposit Insurance Act (12 U.S.C.
1829b);
(2) chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951 et
seq.); and
(3) subchapter II of chapter 53 of title 31, United States Code and
notes thereto (31 U.S.C. 5311 et seq.).
Board means the Board of Governors of the Federal Reserve System.
Board of directors means an entity's board of directors or the
group of individuals that serve the nearest equivalent function of
acting as the governing body of the entity.
Board-supervised PPSI means a permitted payment stablecoin issuer
supervised and regulated by the Board pursuant to the GENIUS Act (12
U.S.C. 5901 et seq.).
Control. A person controls another person if:
(1) the person directly or indirectly or acting through one or more
other persons owns, controls, or has power to vote 25 percent or more
of any class of voting securities of the other person;
(2) the person controls in any manner the election of a majority of
the directors or trustees of the other person; or
(3) the Board determines, after notice and opportunity for hearing,
that the person directly or indirectly exercises a controlling
influence over the management or policies of the other person.
Covered shareholder means a person who directly or indirectly or
acting in concert with one or more persons, or together with members of
their immediate family, will own, control, or hold the power to vote 25
percent or more of any class of voting securities of an entity; who
controls in any manner the election of a majority of the entity's board
of directors; or that the Board determines has the power, directly or
indirectly, to exercise a controlling influence over the management or
policies of an entity. A person is presumed to exercise a controlling
influence over the management or policies of an entity if such person,
directly or indirectly or acting in concert with one or more persons,
together with members of their immediate family, will own, control, or
hold the power to vote 10 percent or more of any class of voting
securities of an entity.
Customer means a person that purchases (through any consideration)
the products or services of another person.
Deposit means ``deposit'' as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(l)).
Deposit liability means the liability issued by an insured
depository institution (including an insured credit union) to a
depositor (or member) in respect of any amount standing to the credit
of a deposit account (or share account), which is a liability to a
depositor (or member) from the perspective of the insured depository
institution.
Depository institution means
(1) a depository institution as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(c)(1)); or
(2) a credit union.
Digital asset has the same meaning as in section 2(6) of the GENIUS
Act (12 U.S.C. 5901(6)).
Director means an individual who serves on the board of directors
of an entity, except an advisory director who:
(1) is not elected by the shareholders of the entity;
(2) does not have the authority to vote on matters before the board
of directors or any committee of the board of directors; and
(3) and provides solely general policy advice to the board of
directors or any committee.
Distributed ledger means technology in which:
(1) data is shared across a network that creates a public digital
ledger of verified transactions or information among network
participants; and
(2) cryptography is used to link the data to maintain the integrity
of the public ledger and execute other functions.
Eligible deposit claim means:
(1) the insured or uninsured claim of a PPSI against an insured
depository institution (including any foreign branches or agents,
including correspondent banks, of an insured depository institution)
other than an insured credit union in respect of any amount standing to
the credit of a deposit account and payable on demand, which is an
asset from the
[[Page 61669]]
perspective of the depositor, including a Board-supervised PPSI; and
(2) the insured claim of a PPSI against an insured credit union in
respect of any amount standing to the credit of a share account, which
is an asset from the perspective of the accountholder, including a
Board-supervised PPSI.
Fair value means fair value as determined under GAAP.
FDIC means the Federal Deposit Insurance Corporation.
GAAP means generally accepted accounting principles as used in the
United States.
GDP growth adjustment means the most recent annual scalar published
by the Board equal to the greater of:
(1) the ratio of:
(i) the average of nominal United States gross domestic product in
the three calendar years prior to publication of the scalar, as
reflected by the most current estimates published by the Bureau of
Economic Analysis on or before September 30th of the year of the
publication of the scalar, or a comparable value; to
(ii) the average of nominal United States gross domestic product in
the three calendar years prior to [the effective date of a final rule],
as reflected by the most current estimates published by the Bureau of
Economic Analysis; or
(2) the GDP growth adjustment published by the Board the prior
calendar year.
Immediate family means the spouse of an individual, the
individual's minor children, and any of the individual's children
(including adults) residing in the individual's home.
Insider means a covered shareholder, an executive officer, a
director, or a related interest of or the immediate family of any of
these persons.
Institution-affiliated party has the same meaning as in section
2(13) of the GENIUS Act (12 U.S.C. 5901(13)).
Insured depository institution means
(1) an insured depository institution, as defined in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)); and
(2) an insured credit union, as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752).
Insured State member bank means a State member bank, the deposits
of which are insured by the FDIC.
Monetary value has the same meaning as in section 2(17) of the
GENIUS Act (12 U.S.C. 5901(17)).
Money means
(1) monetary value; and
(2) any other medium of exchange that the Board has determined is
currently authorized or adopted by a domestic or foreign government,
including a monetary unit of account established by an
intergovernmental organization or by agreement between two or more
countries.
Nonpublic personal information, as used in this part:
(1) means information--
(i) provided by a customer to a Board-supervised permitted payment
stablecoin issuer to obtain a financial product or service;
(ii) about a customer resulting from any transaction involving a
financial product or service between the Board-supervised permitted
payment stablecoin issuer and a customer; or
(iii) otherwise obtained by the Board-supervised permitted payment
stablecoin issuer in connection with providing a financial product or
service to a customer; and
(2) does not include publicly available information, unless such
publicly available information, when combined with other information,
would reveal the identity of a customer or would enable access to the
customer's account.
OCC means the Office of the Comptroller of the Currency.
Officer means the president, chairman, chief executive officer,
chief operating officer, chief financial officer, chief investment
officer, chief risk officer, chief technology officer, and Bank Secrecy
Act officer. The term includes any individual serving in the functional
capacity of the listed titles or their equivalent, without regard to
title, salary, or compensation. The term also includes any other person
identified by the Board or appropriate Federal Reserve Bank, whether or
not hired as an employee, with significant influence over, or who
participates in, major policymaking decisions of the entity.
Outstanding issuance value means the total consolidated par value
of all of a permitted payment stablecoin issuer's outstanding payment
stablecoins.
Payment stablecoin has the same meaning as section 2(22) of the
GENIUS Act (12 U.S.C. 5901(22)).
Permitted payment stablecoin issuer or PPSI has the same meaning as
in section 2(23) of the GENIUS Act (12 U.S.C. 5901(23)).
Person has the same meaning as in section 2(24) of the GENIUS Act
(12 U.S.C. 5901(24)).
Primary Federal stablecoin regulator has the same meaning as in
section 2(25) of the GENIUS Act (12 U.S.C. 5901(25)).
Principal shareholder means a person who directly or indirectly or
acting in concert with one or more persons, or together with members of
their immediate family, will own, control, or hold the power to vote 10
percent or more of any class of voting securities of an entity; or any
person that the Board determines has the power, directly or indirectly,
to exercise a controlling influence over the management or policies of
an entity.
Private key means the unique alphanumeric sequence that allows an
individual to transfer a particular unit of a digital asset using a
distributed ledger.
Publicly available information means any information that a person
has a reasonable basis to believe is lawfully made available to the
general public from:
(1) Federal, State, or local government records;
(2) widely distributed media;
(3) disclosures to the general public that are required to be made
by Federal, State, or local law; or
(4) a distributed ledger.
Registered public accounting firm has the meaning set forth in
section 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(12)).
Related interest has the same meaning as in 12 CFR 215.2.
Reserve asset means an asset maintained by a permitted payment
stablecoin issuer of a type enumerated in Sec. 247.11(b).
Stablecoin Certification Review Committee has the meaning set forth
in section 2(27) of the GENIUS Act (12 U.S.C. 5901(27)).
State has the same meaning as in section 2(28) of the GENIUS Act
(12 U.S.C. 5901(28)).
State-chartered depository institution has the meaning given the
term ``State depository institution'' in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(c)(5)).
State member bank means a State-chartered bank that has been
approved for membership in the Federal Reserve System.
State payment stablecoin regulator has the meaning set forth in
section 2(30) of the GENIUS Act (12 U.S.C. 5901(30)).
State-qualified payment stablecoin issuer or State-qualified PPSI
has the meaning set forth in section 2(31) of the GENIUS Act (12 U.S.C.
5901(31)).
Subsidiary has the meaning set forth in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(w)(4)).
Trading volume means the aggregate number of payment stablecoins
issued by a permitted payment stablecoin issuer that were purchased or
sold on exchanges during a specified period of time.
Voting securities has the same meaning as in Sec. 225.2 of this
title.
[[Page 61670]]
Sec. 247.3 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Board's intention that the remaining provisions shall continue in
effect.
Sec. Sec. 247.4-247.9 [Reserved]
Subpart B--Rules Applicable to Board-Supervised Permitted Payment
Stablecoin Issuers
Sec. 247.10 Permissible and prohibited activities.
(a) Permitted activities. A Board-supervised PPSI may only:
(1) issue payment stablecoins;
(2) redeem payment stablecoins;
(3) manage reserves related to the issuance or redemption of
payment stablecoins, including purchasing, selling, and holding reserve
assets or providing custodial services for reserve assets, consistent
with applicable State and Federal law;
(4) provide custodial or safekeeping services for payment
stablecoins, required reserves, or private keys of payment stablecoins,
consistent with subpart C of this part;
(5) assess fees associated with purchasing or redeeming payment
stablecoins;
(6) in connection with the payment stablecoin activities and
investments contemplated by the GENIUS Act:
(i) act as principal or agent with respect to any payment
stablecoin;
(ii) pay fees to facilitate customer transactions;
(iii) pay fees and undertake other activities as necessary to
conduct testing on distributed ledger-based platforms;
(iv) hold as principal non-payment stablecoin digital assets, as
that term is defined in 12 U.S.C. 5901(6), necessary to conduct the
activities described in (ii) or (iii) of this subparagraph, provided
that such principal holdings shall not exceed quantities reasonably
expected to be necessary to meet near-term demand for the conduct of
such activities; and
(7) undertake any other activities that directly support any of the
activities described in paragraphs (a)(1) through (4) of this section.
(b) Rule of construction. A Board-supervised PPSI may conduct an
activity that is not listed in paragraph (a) of this section only if
(i) the proposed activity is (A) incidental to the activities specified
in paragraphs (a)(1) through (4) and (a)(7) of this section, or (B) is
a digital asset service provider activity specified in section 2(7)(A)
of the Act (12 U.S.C. 5901(7)(A)) or an activity incidental thereto;
(ii) the activity is permissible under applicable State and Federal
laws; (iii) the activity is expressly authorized by the Board; and (iv)
the claims of payment stablecoin holders rank senior to any potential
claims of non-stablecoin creditors with respect to the reserve assets,
consistent with section 11 of the GENIUS Act.
(c) Prohibitions.--(1) Prohibition on the use of deceptive names. A
Board-supervised PPSI must not use a deceptive name by using any
combination of terms relating to the United States Government,
including ``United States,'' ``United States Government,'' and ``USG,''
in the name of the payment stablecoin. This prohibition does not apply
to abbreviations relating directly to the currency to which the payment
stablecoin is pegged, such as ``USD.''
(2) Prohibition on deceptive marketing. A Board-supervised PPSI
must not market a payment stablecoin in such a way that a reasonable
person would perceive the payment stablecoin to be:
(i) legal tender as described in 31 U.S.C. 5103;
(ii) issued by the United States; or
(iii) guaranteed or approved by the Government of the United
States.
(3) Prohibition on deceptive representations. A Board-supervised
PPSI must not directly or through implication represent that payment
stablecoins are backed by the full faith and credit of the United
States, guaranteed by the United States Government, or subject to
Federal deposit insurance or Federal share insurance.
(4) Prohibition on remuneration. A Board-supervised PPSI must not
pay the holder of any payment stablecoin any form of interest or yield
(whether in cash, tokens, or other consideration) solely in connection
with the holding, use, or retention of such payment stablecoin.
(i) The Board presumes that a Board-supervised PPSI is paying
interest or yield (whether in cash, tokens, or other consideration) to
the holder of a payment stablecoin solely in connection with the
holding, use, or retention of such payment stablecoin if:
(A) the Board-supervised PPSI has a contract, agreement, or other
arrangement with an affiliate of the Board-supervised PPSI or related
third party to pay interest or yield to the affiliate or related third
party; and
(B) the affiliate or related third party identified in paragraph
(c)(4)(i)(A) of this section or, if the person is a related third
party, an affiliate of such related third party, has a contract,
agreement, or other arrangement to pay interest or yield (whether in
cash, tokens, or other consideration) to a holder of any payment
stablecoin issued by the Board-supervised PPSI solely in connection
with the holding, use, or retention of such payment stablecoin.
(C) To the extent the person, or an affiliate of the person,
identified in paragraph (c)(4)(i)(A) of this section is a related third
party of the Board-supervised PPSI because the Board-supervised PPSI
issues payment stablecoins on the related third party's behalf or under
the related third party's branding, the arrangement identified in
paragraph (c)(4)(i)(B) of this section considers the holder of the
payment stablecoin to be the holder of a payment stablecoin issued by
the Board-supervised PPSI on the related third party's behalf or under
the related third party's branding.
(ii) For purposes of paragraph (c)(4)(i) of this section, a related
third party means:
(A) a person offering to pay interest or yield to payment
stablecoin holders as a service; and
(B) any person that the Board-supervised PPSI issues payment
stablecoins on the person's behalf or under the person's branding.
(iii) A Board-supervised PPSI may rebut the presumption in
paragraph (c)(4)(i) of this section by submitting written materials
that, in the Board's judgment, demonstrate that the contract,
agreement, or other arrangement is not prohibited under paragraph
(c)(4) of this section and is not an attempt to evade the prohibition.
(5) Prohibition on rehypothecation. With the exception of reserve
assets permitted under Sec. 247.11(b)(4) or (5), a Board-supervised
PPSI must not pledge, rehypothecate, or reuse any assets held as
reserves under Sec. 247.11(a)(1) either directly or indirectly (e.g.,
through a third-party custodian of the reserve assets) except for the
purpose of:
(i) satisfying margin obligations in connection with investments in
permitted reserves under Sec. 247.11(b)(4) or (5);
(ii) satisfying obligations associated with the use, receipt, or
provision of standard custodial services; or
(iii) creating liquidity to meet reasonable expectations of
requests to redeem payment stablecoins, such that reserves in the form
of Treasury bills may be sold as purchased securities in repurchase
agreements with a maturity of 93 days or less, provided that either:
(A) the repurchase agreements are cleared by a clearing agency
registered
[[Page 61671]]
with the Securities and Exchange Commission; or
(B) the Board-supervised PPSI receives prior approval from the
Board.
(6) Prohibition on evasive activity. A Board-supervised PPSI must
not engage in any activity that the Board determines is an evasion of
the requirements of section 4 of the GENIUS Act (12 U.S.C. 5903) or its
implementing regulations.
Sec. 247.11 Reserve assets.
(a) Reserve requirement. A Board-supervised PPSI must:
(1) maintain reserve assets that:
(i) are identifiable;
(ii) are segregated from, are not commingled with other assets
owned or held by the Board-supervised PPSI, and are not available to
satisfy the claims of any creditor (other than through the redemption
of payment stablecoins) unless and until all payment stablecoins have
been redeemed at par;
(iii) at all times have a total fair value that equals or exceeds
the outstanding issuance value of the Board-supervised PPSI; and
(iv) are held:
(A) in custody by a person that is eligible to provide such
services under, and is in compliance with, the provisions in section 10
of the GENIUS Act (12 U.S.C. 5909) and any applicable implementing
regulations;
(B) as an eligible deposit claim;
(C) as money standing to the credit of an account at a Federal
Reserve Bank; or
(D) by the Board-supervised PPSI;
(2) record the fair value of reserve assets required under
paragraph (a)(1) of this section at a minimum of once each calendar day
at 5:00 p.m. in the time zone of the Board-supervised PPSI's
appropriate Federal Reserve Bank;
(3) demonstrate the operational capability to access and monetize
the identifiable reserve assets, commensurate with the Board-supervised
PPSI's risk profile and business model; and
(4) withdraw excess reserve assets only once per month (upon the
publication of the composition report required by paragraph (d) of this
section) and only when the total fair value of all reserve assets
exceeds outstanding issuance value. A Board-supervised PPSI may
withdraw any excess reserve assets, calculated and reported as of the
last day of the previous month, after the information in the month-end
report is examined and certified pursuant to paragraph (e) of this
section, provided that a Board-supervised PPSI may not withdraw any
reserve assets if the withdrawal would cause the current fair value of
reserve assets to fall below the current outstanding issuance value,
calculated as of the day of withdrawal.
(b) Permissible reserve assets. The reserve assets required under
paragraph (a)(1) of this section must comprise exclusively:
(1) United States coins and currency (including Federal Reserve
notes) or money standing to the credit of an account with a Federal
Reserve Bank;
(2) eligible deposit claims subject to any limitation established
by the FDIC and the National Credit Union Administration, as
applicable, pursuant to section 4(a)(1)(A) of the GENIUS Act (12 U.S.C.
5903(a)(1)(A)) to address safety and soundness risks of such insured
depository institution;
(3) Treasury bills, Treasury notes, or Treasury bonds with a
remaining maturity of 93 days or less;
(4) money received under repurchase agreements, with the Board-
supervised PPSI acting as a seller of securities and with a no longer
than overnight maturity, that are backed by Treasury bills with a
maturity of 93 days or less;
(5) reverse repurchase agreements, with the Board-supervised PPSI
acting as a purchaser of securities and with a no longer than overnight
maturity, that are collateralized by Treasury bills, Treasury notes,
Treasury bonds on a no longer than overnight basis, subject to
overcollateralization in line with standard market terms, that are:
(i) tri-party;
(ii) centrally cleared through a clearing agency registered with
the Securities and Exchange Commission; or
(iii) bilateral with a counterparty that the Board-supervised PPSI
has determined to be adequately creditworthy even in the event of
severe market stress;
(6) securities issued by an investment company registered under
section 8(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
8(a)), or other registered Government money market fund, and that are
invested solely in underlying assets described in paragraphs (b)(1)
through (5) of this section;
(7) any other similarly liquid Federal government-issued asset
approved by the Board, in consultation with the State payment
stablecoin regulator, if applicable, of the Board-supervised PPSI. In
determining whether a potential reserve asset qualifies as ``any other
similarly liquid Federal government-issued asset,'' the Board will
consider the following factors, among others, with respect to assets
issued by the Federal government (and not assets that are merely
guaranteed by or are otherwise obligations of the Federal government):
(i) the asset has liquidity characteristics, including during times
of stress, comparable to the other reserve assets allowed under
paragraph (b);
(ii) Board-supervised PPSIs will be operationally capable of
monetizing the asset to meet redemption requests, including sudden and
high-volume requests;
(iii) the asset poses levels of risk comparable to those of the
assets allowed under this paragraph (b) including interest rate risk
and counterparty credit risk; and
(iv) whether the asset introduces additional risks that may be
difficult for Board-supervised PPSIs to manage; or
(8) any reserve described in paragraphs (b)(1) through (3) of this
section or paragraph (b)(6) or (7) of this section in tokenized form,
provided that such tokenized asset (i) confers legal rights that are
identical to those of the non-tokenized form of the same asset, and
(ii) is in compliance with all applicable laws and regulations.
(c) Reserve asset diversification and concentration. A Board-
supervised PPSI must maintain reserve assets that are sufficiently
diverse to ensure that it can comply with the one-to-one requirement at
all times, including under stress. Among other actions, a Board-
supervised PPSI must manage concentration risks from:
(1) uninsured eligible deposit claims against one or a small number
of insured depository institutions, including any foreign branches or
agents (including correspondent banks) of an insured depository
institution; and
(2) reverse repurchase transaction exposures to one or a small
number of counterparties and their affiliates, excluding designated
financial market utilities.
(d) Composition report. By noon on the last day of each month, a
Board-supervised PPSI must publish the monthly composition of the
Board-supervised PPSI's reserves held pursuant to the GENIUS Act as of
noon on the last day of the previous month on the website of the Board-
supervised PPSI, using a format substantially similar to the template
provided in table 1 to this paragraph (d) of this section, containing:
(1) the total number of outstanding payment stablecoins issued by
the Board-supervised PPSI; and
(2) the amount and composition of the reserves described in
paragraph (a)(1) of this section, including the average tenor and
geographic location of custody of each category of reserve instruments.
[[Page 61672]]
Table 1 to Sec. 247.11(d)--Monthly Composition Template
----------------------------------------------------------------------------------------------------------------
Geographic
As of YYYY/MM/DD in thousands of U.S. dollars Amount location Average tenor
----------------------------------------------------------------------------------------------------------------
Number of Outstanding Payment Stablecoins
----------------------------------------------------------------------------------------------------------------
1.\1\
2.
3.
4. Total Outstanding Payment Stablecoins.
----------------------------------------------------------------------------------------------------------------
Fair Value of Reserve Assets
----------------------------------------------------------------------------------------------------------------
5. United States coin and currency, or money standing to the
credit of a Federal Reserve Bank account.
6. Eligible deposit claims:
7. Insured eligible deposit claims.
8. Uninsured eligible deposit claims.
9. Treasury bills, Treasury notes, or Treasury bonds.
10. Other similarly liquid Federal government-issued assets
approved by Board.
11. Money received under repurchase agreements.
12. Reverse repurchase agreements.
13. Securities issued by an investment company solely invested
in qualifying reserve assets.
14. Reserves in tokenized form.\2\
15. Total Reserve Assets.\3\
16. Outstanding repurchase agreement liabilities.
17. Total Reserve Assets Net of Outstanding Repurchase Agreement
Liabilities.
----------------------------------------------------------------------------------------------------------------
\1\ List different classes of payment stablecoin separately, if applicable. To the extent that different classes
of payment stablecoins are secured by distinct pools of reserve assets, Board-supervised PPSIs should publish
a composition table for each class of payment stablecoin and describe the legal mechanism for how the assets
are separately secured.
\2\ Board-supervised PPSIs must separately list any reserves in tokenized form by category of reserve asset,
using multiple rows if appropriate.
\3\ Do not double count any reserve assets that may be listed in more than one row for purposes of computing the
total.
(e) Monthly certification; examination of reports by registered
public accounting firm.--(1) The report required under paragraph (d) of
this section must have been examined by a registered public accounting
firm prior to publication. The registered public accounting firm's
examination report must be published on the website of the Board-
supervised PPSI at the same time as the month-end report required under
paragraph (d) of this section.
(2) Certification. The Chief Executive Officer and Chief Financial
Officer (or the persons performing the equivalent functions) of a
Board-supervised PPSI must submit a certification as to the accuracy of
each monthly report required under paragraph (d) of this section to the
Board.
(f) Failure to meet the one-to-one requirement.--(1) If, at any
time, a Board-supervised PPSI fails to satisfy the requirement in
paragraph (a)(1)(iii) of this section, the Board-supervised PPSI must,
within 24 hours of such a failure, submit:
(i) notification to the Board through its appropriate Federal
Reserve Bank of such failure; and
(ii) a plan describing how the Board-supervised PPSI will return to
compliance with such requirement.
(A) The Board reserves discretion to require the Board-supervised
PPSI to modify the plan under paragraph (f)(1)(ii) of this section as
appropriate in light of circumstances surrounding the shortfall.
(2) Automatic liquidation and prohibition on fees. By no later than
5:00 p.m. in the time zone of the Board-supervised PPSI's appropriate
Federal Reserve Bank on the business day following the deadline for
submission of a plan under paragraph (f)(1) of this section, the Board-
supervised PPSI must:
(i) begin liquidating all of its reserve assets and redeeming
outstanding payment stablecoins, consistent with Sec. 247.12, unless
either:
(A) the Board-supervised PPSI has returned to compliance with the
minimum reserve asset requirement under paragraph (a)(1)(iii) of this
section, or
(B) the Board directs the Board-supervised PPSI to proceed with the
plan submitted under paragraph (f)(1)(ii) and as may be modified
pursuant to paragraph (f)(1)(ii)(A) of this section;
(ii) not charge customers a fee to redeem their payment stablecoins
at any time during the liquidation; and
(iii) not issue payment stablecoins at any time during the
liquidation.
(g) Failure to meet reserve asset requirements.--If at any point
the Board determines that a Board-supervised PPSI has not demonstrated
that it meets the reserve asset requirements in paragraph (a), (b), or
(c) of this section, the Board may require the Board-supervised PPSI to
submit a plan describing how it will attain compliance, as well as the
timeline for the plan. If the Board determines, either before or after
the submission of a plan, that a Board-supervised PPSI faces a
significant risk of being unable to attain compliance with the reserve
requirements in paragraph (a), (b), or (c) of this section within a
reasonable period, the Board may order the Board-supervised PPSI to
redeem all of its outstanding payment stablecoins. The Board's
authority to require a compliance plan or order redemption does not
limit the Board's authority to pursue other measures, including
enforcement actions, if appropriate.
Sec. 247.12 Redemption and fees.
(a) Redemption policy. A Board-supervised PPSI must publicly
disclose its redemption policy and include, at a minimum, the following
information:
(1) the timeframe in which the Board-supervised PPSI will redeem
payment stablecoins and the timeframe under which the Board-supervised
PPSI is required to redeem payment stablecoins under paragraph (b)(2)
of this section;
(2) a statement explaining the limitation in paragraph (b)(3) of
this section;
(3) a statement explaining the scenarios under subsections (c) and
(d) of this section in which the redemption may take longer than the
time period
[[Page 61673]]
provided for in paragraph (b)(2) of this section;
(4) a statement with clear instructions on how a customer can
redeem a payment stablecoin, including a link to the website(s) where a
customer can redeem the payment stablecoin; and
(5) the minimum number of payment stablecoins, if any, that the
Board-supervised PPSI will redeem, provided that the Board-supervised
PPSI must redeem any number greater than or equal to one payment
stablecoin, subject to appropriate customer screening and onboarding.
(b) Redemption policy requirements. A Board-supervised PPSI's
redemption policy must provide:
(1) clear and conspicuous procedures for timely redemption of
outstanding payment stablecoins;
(2) that timely redemption may not exceed two business days
following the date of the requested redemption; and
(3) that any discretionary limitations on timely redemptions may
only be imposed by the Board or, in the case of a Board-supervised PPSI
that is a State-qualified PPSI, by the Board or the State payment
stablecoin regulator, as applicable.
(c) Timeliness extended in certain scenarios. The Board may, in its
discretion, extend timely redemption described in paragraph (b)(2) of
this section if the Board determines that the Board-supervised PPSI
faces a threat to its safety and soundness or poses a threat to
financial stability, or that such an extension is otherwise in the
public interest.
(d) Safe harbors for failing to timely redeem. A Board-supervised
PPSI shall not be deemed to have failed to timely redeem a payment
stablecoin if the Board-supervised PPSI can demonstrate to the Board's
satisfaction that: (i) additional time is (or was) needed to conduct
customer identification and due diligence reviews in connection with
legal requirements under the Bank Secrecy Act, sanctions, or federal
anti-money laundering/countering the financing of terrorism laws or
regulations; or (ii) the delay is (or was) outside of the Board-
supervised PPSI's control. Reliance on either safe harbor under this
paragraph is contingent on the Board-supervised PPSI demonstrating that
it has made all reasonable efforts to resolve the delay in a timely
manner.
(e) Disclosures and fees associated with purchase and redemption. A
Board-supervised PPSI must:
(1) publicly, clearly, and conspicuously disclose in plain language
and in a format that is readily noticeable to customers, readily
understandable by customers, and not mixed in with other information:
(i) the name of the Board-supervised PPSI that issues the payment
stablecoin;
(ii) that the Board-supervised PPSI is the entity that is obligated
to convert, redeem, or repurchase the payment stablecoin for a fixed
amount of monetary value;
(iii) the link to the monthly composition report of the relevant
Board-supervised PPSI's reserves required under Sec. 247.11(d); and
(iv) all fees associated with purchasing or redeeming payment
stablecoins.
(2) update the disclosures in paragraph (e)(1)(iv) of this section
if there are any changes in fees associated with purchasing or
redeeming payment stablecoins and provide customers at least seven
calendar days' prior notice of the change, including by securely
delivering the notice to current customers for which the Board-
supervised PPSI has contact information;
(3) publish the disclosures in paragraph (e)(1) of this section and
any updates made in accordance with paragraph (e)(2) of this section on
the Board-supervised PPSI's website; and
(4) include the disclosures in paragraph (e)(1) of this section and
any updates made in accordance with paragraph (e)(2) of this section in
any customer agreements that it provides.
Sec. 247.13 Risk management.
(a) General operational and managerial standards.--(1) Internal
controls and information systems. A Board-supervised PPSI must have
internal controls and information systems to support effective risk
management that are tailored to the size and complexity of the Board-
supervised PPSI and the nature, scope, and risk of its activities. The
internal controls and information systems must provide for:
(i) an organizational structure with appropriate segregation of
duties and an internal control structure that establishes clear lines
of authority and responsibility for monitoring adherence to established
policies;
(ii) effective risk assessment;
(iii) timely and accurate financial, operational, and regulatory
reporting, including with respect to the reports required under this
part;
(iv) adequate procedures to monitor, safeguard, manage, control,
and monetize assets, including reserve assets; and
(v) compliance with applicable laws and regulations.
(2) Internal audit system. A Board-supervised PPSI must have an
internal audit system that is tailored to the size and complexity of
the Board-supervised PPSI and the nature, scope, and risk of its
activities and that provides for:
(i) adequate monitoring of the system of internal controls through
an internal audit function, or for a Board-supervised PPSI whose size,
complexity, or scope of operations does not warrant a full-scale
internal audit function, a system of independent reviews of key
internal controls;
(ii) independence and objectivity;
(iii) qualified persons responsible for the audit function;
(iv) adequate independent testing and review of internal controls
and information systems, and verification of published information
available to customers, calculations for required reserves, and
regulatory filings;
(v) adequate documentation of tests and findings and any corrective
actions;
(vi) verification and review of management actions to address
deficiencies; and
(vii) review by the Board-supervised PPSI's audit committee or
board of directors of the effectiveness of the internal audit system.
(3) Asset growth. A Board-supervised PPSI's asset growth must be
prudent and commensurate with a Board-supervised PPSI's risk management
capabilities, operational capacity, and staffing.
(4) Earnings. A Board-supervised PPSI must evaluate and monitor
earnings and ensure that earnings are sufficient to support operations
and maintain the capital levels required by Sec. Sec. 247.15 through
247.18.
(5) Oversight of third-party relationships. A Board-supervised PPSI
must:
(i) exercise appropriate due diligence in its third party
relationships;
(ii) require its service providers by contract to implement
appropriate measures designed to satisfy the applicable requirements
under this part; and
(iii) as appropriate, monitor its third-party relationships,
including by reviewing audits, summaries of test results, or other
equivalent evaluations.
(6) Interest rate exposure. A Board-supervised PPSI must:
(i) manage interest rate risk in a manner that is appropriate to
the size and complexity of the Board-supervised PPSI and the complexity
of its assets and liabilities; and
(ii) provide periodic reporting to management and the board of
directors regarding interest rate risk with adequate information for
management and the board of directors to assess the level of risk.
[[Page 61674]]
(7) Insider and affiliate transactions. A Board-supervised PPSI
shall ensure that transactions between the Board-supervised PPSI and
its insiders or affiliates (other than, for a Board-supervised PPSI
that is a subsidiary of an insured State member bank, such insured
State member bank):
(i) do not pose a significant risk of material financial loss; and
(ii) either:
(A) are conducted on terms that are the same or at least as
favorable to the Board-supervised PPSI as those prevailing at the time
for comparable transactions with or involving non-insiders or non-
affiliates; or
(B) in the absence of comparable transactions, are offered on terms
and under circumstances that, in good faith, would be offered to or
would apply to non-affiliates or non-insiders.
(b) Information technology and security.--(1) Information
technology and security program. A Board-supervised PPSI must implement
a comprehensive written information security risk and control
framework, including a program that assesses and manages information
technology and information security risks. A Board-supervised PPSI's
information technology and security program should be tailored to its
size and complexity and the nature, scope, and risk of its activities.
(2) Board of directors approval. The board of directors or an
appropriate board committee must approve the information technology and
security program described in paragraph (b)(1) of this section and
oversee the development, implementation, and maintenance of the
program, including the appointment of a qualified Information
Technology and Security Officer. Such oversight includes assigning
specific responsibility for program implementation and review of
program-related reports.
(3) Required elements of program. A Board-supervised PPSI's
information technology and security program must include:
(i) an inventory and classification of assets, processes, and
sensitivity of data;
(ii) controls supporting and safeguarding sensitive information and
processes;
(iii) evaluation, validation, and reporting processes to ensure
that key information technology systems and controls, including smart
contracts, are operating as intended;
(iv) periodic independent testing; and
(v) a comprehensive and effective incident identification and
assessment process and incident response program.
(4) Business continuity. A Board-supervised PPSI's information
technology and security program must include measures to ensure
continuity of operations and recover critical functions in the face of
disruptions, including by conducting business impact analyses, testing
vulnerabilities, and testing with critical service providers.
(5) Nonpublic personal information. A Board-supervised PPSI's
information technology and security program must include
administrative, technical, and physical safeguards designed to:
(i) ensure the security and confidentiality of records containing
nonpublic personal information about a customer;
(ii) protect against any anticipated threats or hazards to the
security or integrity of such records;
(iii) protect against unauthorized access to or use of such records
that could result in substantial harm or inconvenience to any customer;
and
(iv) ensure the proper disposal of such records.
(6) Safe handling of digital assets. A Board-supervised PPSI must
develop, implement, and maintain appropriate measures to ensure secure
handling of digital assets, including private key management, backup,
and recovery, incorporating:
(i) relevant technical, operational, strategic, market, legal, and
compliance considerations relating to each digital asset and its
underlying ledger; and
(ii) information on material developments specifically related to
supported digital assets and their underlying ledgers.
(c) Board-supervised PPSIs that are subsidiaries of State member
banks. A Board-supervised PPSI that is a subsidiaries of a State member
bank is deemed to be in compliance with the requirements of this
section if:
(i) such Board-supervised PPSI participates in the enterprise-wide
risk management framework of its parent State member bank or
consolidated banking organization, and
(ii) that parent State member bank or consolidated banking
organization has an enterprise-wide risk management framework that
aligns to the guidelines in appendix D-1 of part 208 of this title.
(d) Bank Secrecy Act/anti-money laundering and sanctions
requirements.--(1) Definitions. For the purposes of this section:
(i) AML/CFT enforcement action means any formal or informal action
taken under authority of the GENIUS Act (12 U.S.C. 5901 et seq.), or
other applicable law, that seeks to penalize, remedy, prevent, or
respond to noncompliance with past or ongoing violations of, or past or
ongoing deficiencies relating to, an AML/CFT requirement applicable to
a Board-supervised PPSI. The term includes--
(A) a cease-and-desist order, written agreement, consent order, or
memorandum of understanding; or
(B) the assessment of a civil money penalty.
(ii) AML/CFT requirement means:
(A) a requirement of the Bank Secrecy Act or the implementing
regulations at 31 CFR Chapter X applicable to a Board-supervised PPSI;
or
(B) a requirement of 12 U.S.C. 5903(a)(5)(A)(i)-(v), 12 U.S.C.
5903(a)(6)(B), or 12 U.S.C. 5903(f)(1) applicable to a Board-supervised
PPSI.
(iii) Significant AML/CFT supervisory action means any written
communication or other formal supervisory determination that--
(A) identifies one or more alleged deficiencies, weaknesses,
violations of law, or unsafe or unsound practices or conditions
relating to an AML/CFT requirement;
(B) communicates supervisory expectations to a Board-supervised
permitted payment stablecoin issuer regarding actions or remedial
measures required to correct the deficiency, weakness, violation, or
practice or condition; and
(C) contemplates significant or programmatic actions or remedial
measures to be taken by the Board-supervised permitted payment
stablecoin issuer.
(D) The term does not include examiner observations, suggestions,
or other informal comments.
(2) In order to ensure compliance with Bank Secrecy Act and
sanctions requirements, each Board-supervised permitted payment
stablecoin issuer must comply with the Bank Secrecy Act, sections
4(a)(5) and 4(a)(6) of the GENIUS Act, and applicable regulations at 31
CFR Chapter V and 31 CFR Chapter X, including any AML/CFT program,
sanctions program, recordkeeping, and reporting requirements.
(3) Enforcement and supervision policy.--(i) In general. Except
with respect to a significant or systemic failure to implement the AML/
CFT program in accordance with applicable regulations at 31 CFR Chapter
X, a Board-supervised permitted payment stablecoin issuer that has
established an AML/CFT program in accordance with applicable
regulations at 31 CFR Chapter X will not be subject to an AML/CFT
enforcement action or to a significant AML/CFT supervisory action.
[[Page 61675]]
(ii) Program establishment violations. Nothing in this paragraph
(d) may be construed to restrict an AML/CFT enforcement action or a
significant AML/CFT supervisory action with respect to any failure to
establish an AML/CFT program.
(iii) Criminal Enforcement Unaffected. Nothing in this paragraph
(d) may be construed to affect criminal enforcement under the Bank
Secrecy Act.
Sec. 247.14 Audits, reports, and supervision.
(a) General. The Board will conduct a full-scope examination of
every Board-supervised PPSI subject to its supervision at least once
during each 12-month period, unless otherwise specified in paragraph
(d) of this section. Such examinations may be undertaken in conjunction
with, or separately from, an examination of the parent State member
bank.
(b) Access to books and records. Upon request by the Board, a
Board-supervised PPSI must grant the Board prompt and complete access
to all officers, directors, employees, agents, and relevant books,
records, or documents of any type.
(c) Location of examinations. The Board may conduct examinations of
every Board-supervised PPSI subject to its supervision, as specified in
paragraph (a) of this section, either on-site or remotely.
(d) Extended exam cycle for certain Board-supervised PPSIs.
Notwithstanding paragraph (a) of this section, the Board may conduct a
full-scope examination of a Board-supervised PPSI subject to its
supervision at least once during each 18- to 36-month period, as
determined by the Board in its sole discretion, if the following
conditions are satisfied:
(1) The Board-supervised PPSI currently is not subject to a formal
enforcement proceeding or order;
(2) No person acquired control, as defined in Sec. 247.2, of the
Board-supervised PPSI during the preceding 12-month period in which a
full-scope examination would have been required but for this paragraph
(d);
(3) The Board-supervised PPSI has an outstanding issuance value of
less than $1 billion multiplied by the GDP growth adjustment or less
than $25 billion multiplied by the GDP growth adjustment in total
monthly trading volume; and
(4) The Board-supervised PPSI is in compliance with all of the
reserve requirements set forth in Sec. 247.11 and the reporting
requirements of this section.
(e) Authority to conduct more frequent examinations. This section
does not limit the authority of the Board to examine any Board-
supervised PPSI as frequently as the Board deems necessary, including
examinations of a limited scope.
(f) Recordkeeping requirements. All Board-supervised PPSIs must
maintain a complete set of books and records in English.
(g) Records retention policy. All Board-supervised PPSIs must
develop and implement a records retention policy that ensures the
Board-supervised PPSI can demonstrate compliance with the GENIUS Act,
this part, and all applicable laws and regulations.
(h) Confidential weekly reporting. All Board-supervised PPSIs must
submit to the Board, on a weekly basis, in the manner and form
specified by the Board, a confidential report containing the
information requested in the form available on the Board's public
website.
(i) Quarterly reports of financial condition and income. All Board-
supervised PPSIs must submit to the Board a quarterly report on the
financial condition and income of the Board-supervised PPSI, including,
but not limited to, an income statement, which includes gross income,
expenses, and net income and a balance sheet which includes assets
including reserve assets and their total fair value, liabilities
including stablecoin liabilities and their total outstanding issuance
value, capital, changes in equity, and assets under custody, if any, in
a standardized format as prescribed by the Board, within 30 days of the
end of the prior quarter. Forms and instructions are available on the
Board's public website. Each quarterly report of financial condition
and income must contain a declaration by the Board-supervised PPSI's
Chief Financial Officer, or the individual performing an equivalent
function, that the report is true and correct to the best of their
knowledge and belief. The correctness of the report of financial
condition must be attested to by the signatures of the directors and
senior management of the Board-supervised PPSI other than the Chief
Financial Officer, or the individual performing an equivalent function,
making such declaration, with the attestation stating that the report
has been examined by them and to the best of their knowledge and belief
is true and correct.
(j) Submission of other reports. All Board-supervised PPSIs must,
upon request, submit to the Board a report on:
(1) the financial condition of the Board-supervised PPSI;
(2) the systems of the Board-supervised PPSI for monitoring and
controlling financial and operational risks;
(3) compliance of the Board-supervised PPSI and any subsidiary
thereof with the GENIUS Act, including section 4(a)(5) of the Act (12
U.S.C. 5903(a)(5)), and this part.
(k) Ongoing compliance reporting. Not later than 180 days after the
approval of an application under subpart D of this part, and on an
annual basis thereafter, a Board-supervised PPSI must submit to the
Board a certification by its board of directors that the Board-
supervised PPSI has implemented anti-money laundering and economic
sanctions compliance programs that are reasonably designed to prevent
the Board-supervised PPSI from facilitating money laundering, in
particular, facilitating money laundering for cartels and organizations
designated as foreign terrorist organizations under section 219 of the
Immigration and Nationality Act (8 U.S.C. 1189) and the financing of
terrorist activities, consistent with the requirements of the GENIUS
Act.
(l) Audits. A Board-supervised PPSI with more than $50 billion in
outstanding issuance value that is not subject to the reporting
requirements under section 13(a) or 15(d) of the Securities and
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) must prepare, in
accordance with GAAP, an annual financial statement that must include
the disclosure of any related party transactions, as defined by GAAP.
(1) A registered public accounting firm must perform an audit of
the financial statements described in this paragraph (l). The audit
must be conducted in accordance with all applicable auditing standards
established by the Public Company Accounting Oversight Board, including
those relating to auditor independence, internal controls, and related
party transactions.
(2) A Board-supervised PPSI required to prepare an audited annual
financial statement under this paragraph (l) must:
(i) make the audited financial statements publicly available on the
Board-supervised PPSI's website; and
(ii) submit the audited financial statements annually, within 120
days after the end of its fiscal year, to the Board.
(3) If a Board-supervised PPSI is unable to timely file all or any
portion of the financial statement described in this paragraph (l), it
must submit a written notice of late filing to the Board. The notice
must:
[[Page 61676]]
(i) disclose the Board-supervised PPSI's inability to timely file
all, or specified portions, of its annual financial statement and the
reasons therefore in reasonable detail;
(ii) include the date by which the financial statement will be
filed; and
(iii) be filed on or before the deadline for filing the financial
statement.
(m) Use of existing reports. In supervising and examining a Board-
supervised PPSI, the Board will, to the fullest extent possible, use
existing reports and other supervisory information.
(n) Avoidance of duplication. The Board will, to the fullest extent
possible, avoid duplication of examination activities, reporting
requirements, and requests for information.
Sec. 247.15 Capital adequacy and minimum requirements.
(a) General. Each Board-supervised PPSI must meet the overall
capital adequacy standards in accordance with Sec. Sec. 247.15 through
247.18 at all times.
(b) Minimum capital requirements. A Board-supervised PPSI must hold
minimum capital as provided in this paragraph.
(1) Total minimum capital requirement. Each Board-supervised PPSI
must maintain the total minimum capital specified in paragraph
(b)(1)(i) of this section and in paragraph (b)(1)(ii) of this section.
(i) A dollar amount of tangible equity equal to the sum of:
(A) the credit risk requirement for uninsured eligible deposit
claims in Sec. 247.17(a)(1);
(B) the credit risk requirement for reverse repurchase agreements
in Sec. 247.17(a)(2);
(C) the indirect exposure requirement in Sec. 247.17(a)(3); and
(D) the operational risk requirement in Sec. 247.18.
(ii) The capital the Board-supervised PPSI holds to satisfy the
capital requirements in Sec. 247.17(b).
(2) De novo capital requirement.--(i) Notwithstanding paragraph
(b)(1) of this section, a Board-supervised PPSI that is in its de novo
period must maintain total minimum capital that is equal to the greater
of:
(A) $5 million multiplied by the GDP growth adjustment; and
(B) the total minimum capital requirement, calculated under
paragraph (b)(1) of this section.
(ii) For purposes of this paragraph (b)(2), a Board-supervised PPSI
is in its de novo period if less than three years have elapsed since
Board-supervised PPSI received initial approval from an appropriate
Federal or State payment stablecoin regulator to issue payment
stablecoins.
(c) Failure to meet minimum capital requirements.--(1) If a Board-
supervised PPSI fails to satisfy its minimum capital requirements in
paragraph (b) of this section as of the end of a quarter, it must,
within 5 business days of the end of such quarter, submit a capital
plan to the Board that:
(i) provides a detailed strategy for restoring its capital levels
to ensure that it meets or exceeds the minimum capital requirements
under paragraph (b) of this section, and
(ii) is feasible for returning the Board-supervised PPSI to
compliance within one quarter given general market conditions and the
Board-supervised PPSI's specific circumstances.
(2) If a Board-supervised PPSI fails to meet its minimum capital
requirements paragraph (b) of this section by the end of the quarter
following the quarter described in paragraph (c)(1) of this section, it
must, starting the next day:
(i) begin liquidation of reserve assets and redemption of
outstanding stablecoins, consistent with Sec. 247.12, concluding
liquidation of all reserve assets as soon as practicable;
(ii) not charge customers a fee to redeem their payment stablecoins
at any time during the liquidation; and
(iii) not issue any new payment stablecoins going forward.
(d) Capital adequacy. Notwithstanding the minimum capital
requirements in this part, a Board-supervised PPSI must hold an amount
of tangible equity sufficient to ensure the ongoing operations of the
Board-supervised PPSI.
(e) Reservation of authority.--(1) Additional capital in the
aggregate. The Board may require a Board-supervised PPSI to hold an
amount of regulatory capital greater than otherwise required under this
part if the Board determines that the Board-supervised PPSI's capital
requirements under this part are not commensurate with the Board-
regulated institution's credit, market, interest rate, operational, or
other risks.
(2) De novo capital requirements. With respect to any Board-
supervised PPSI, the Board may shorten or extend the de novo period
under paragraph (b)(2)(ii) of this section, and may increase or
decrease the minimum capital requirement under paragraph (b)(2)(i)(A)
of this section, provided that the Board determines the revised amount
is sufficient to ensure the ongoing operations of Board-supervised
PPSI.
(3) Capital components. If the Board determines that a particular
common stock or any cumulative or non-cumulative perpetual stock
instrument has characteristics or terms that diminish its ability to
absorb losses, or otherwise presents concerns regarding the sufficiency
of support it provides for the ongoing operations of a Board-supervised
PPSI, the Board may require the Board-supervised PPSI to exclude all or
a portion of such element from tangible equity.
(4) Capital requirements. If the Board determines that any of the
Board-supervised PPSI's capital requirements are not commensurate with
the Board-supervised PPSI's risks, the Board may:
(i) direct a Board-supervised PPSI to assign a different credit
risk requirement for uninsured eligible deposit claims than would
otherwise be required under Sec. 247.17(a)(1) or for reverse
repurchase agreements than would otherwise be required under Sec.
247.17(a)(2);
(ii) require a Board-supervised PPSI to adjust its methodology for
calculating its indirect exposure requirement under Sec. 247.17(a)(3);
(iii) require a Board-supervised PPSI to calculate its baseline
operational risk requirement using a different methodology than under
Sec. 247.18;
(iv) require a Board-supervised PPSI to assign a different scalar
floor, scaled loss rate, threshold loss rate, or loss elasticity for
its calculation of operational risks under Sec. 247.18(b); or
(v) direct a Board-supervised PPSI to adjust its methodology for
collecting data on or calculating its annual operational losses for
purposes of Sec. 247.18.
(5) Capital requirements for non-reserve assets. If the Board
determines that a Board-supervised PPSI's capital requirements under
Sec. 247.17(b) are not commensurate with the risks of the Board-
supervised PPSI's non-reserve assets, the Board may require the Board-
supervised PPSI to adjust its requirements under Sec. 247.17(b) or its
approach for complying with the requirements of part 217 of this title
pursuant to Sec. 247.17(b).
Sec. 247.16 Capital elements.
(a) Regulatory capital components. A Board-supervised PPSI's
regulatory capital consists of tangible equity.
(b) Tangible equity. Tangible equity is the sum of equity capital
elements in this paragraph (b) minus regulatory adjustments and
deductions in paragraph (c) of this section. The tangible equity
capital elements are:
(1) any common stock instruments (plus any related surplus) issued
by the Board-supervised PPSI, net of treasury stock, that meet all the
following criteria:
[[Page 61677]]
(i) the instrument is paid-in, is issued directly by the Board-
supervised PPSI, and represents the most subordinated claim in a
receivership, insolvency, liquidation, or similar proceeding of the
Board-supervised PPSI;
(ii) the instrument has no maturity date and can only be redeemed
via discretionary repurchases;
(iii) any cash dividend payments are fully discretionary and may be
paid only after all legal and contractual obligations of the Board-
supervised PPSI have been satisfied, including payments due on more
senior claims;
(iv) the holders of the instruments bear losses as they occur
equally, proportionately, and simultaneously with the holders of all
other common stock instruments before any losses are borne by holders
of claims on the Board-supervised PPSI with greater priority in a
receivership, insolvency, liquidation, or similar proceeding; and
(v) if the Board-supervised PPSI purchases or buys back the
instrument, the Board-supervised PPSI must either:
(A) replace the instrument to be purchased with an equal amount of
instruments that meet the criteria under paragraph (b)(1) of this
section; or
(B) demonstrate to the satisfaction of the Board that, following
the purchase or buy-back, the Board-supervised PPSI will continue to
hold capital commensurate with its risk;
(2) any cumulative or non-cumulative perpetual stock instrument
(plus any related surplus) issued by the Board-supervised PPSI, net of
treasury stock, that meets the following criteria:
(i) the paid-in amount is classified as equity under GAAP;
(ii) the instrument is paid-in and issued directly by the Board-
supervised PPSI;
(iii) the instrument has no maturity date and does not contain a
dividend step-up or any other term or feature that creates an incentive
to redeem;
(iv) the instrument is not secured, not covered by a guarantee of
the Board-supervised PPSI or of an affiliate of the Board-supervised
PPSI, and not subject to any other arrangement that legally or
economically enhances the seniority of the instrument;
(v) the instrument is subordinate to the claims of general
creditors and subordinated debt holders of the Board-supervised PPSI in
a receivership, insolvency, liquidation, or similar proceeding;
(vi) the instrument, by its terms, provides for the payment of
dividends only after a declaration by the board of directors of the
Board-supervised PPSI; and
(vii) if callable by its terms, the instrument may be called by the
Board-supervised PPSI only after a minimum of five years following
issuance (except that the terms of the instrument may allow it to be
called earlier than five years upon the occurrence of a regulatory
event that precludes the instrument from being included in tangible
equity or a tax event), and only upon the following conditions:
(A) the Board-supervised PPSI did not create at issuance of the
instrument, through any action or communication, an expectation that
the call option will be exercised; and
(B) prior to exercising the call option, or immediately thereafter,
the Board-supervised PPSI must either
(1) replace the instrument to be called with an equal amount of
instruments that meet the criteria under paragraph (b)(1) or (b)(2) of
this section; or
(2) demonstrate to the satisfaction of the Board that following
redemption, the Board-supervised PPSI will continue to hold capital
commensurate with its risk;
(3) retained earnings; and
(4) accumulated other comprehensive income, as reported under GAAP.
(c) Regulatory capital adjustments and deductions. A Board-
supervised PPSI must deduct from the sum of its regulatory capital
goodwill and other intangible assets.
Sec. 247.17 Capital requirements for financial risks.
(a) Risk-based capital requirements for stablecoin reserves.--A
Board-supervised PPSI must calculate its risk-based capital
requirements under paragraphs (a)(1) through (a)(3) daily, using the
most recent available data.
(1) Credit risk requirement for uninsured eligible deposit claims.
The credit risk requirement for uninsured eligible deposit claims is
equal to two percent of the Board-supervised PPSI's uninsured eligible
deposit claims held as reserves under Sec. 247.11(a)(1).
(2) Credit risk requirement for reverse repurchase agreements. The
credit risk requirement for reverse repurchase agreements is equal to 2
percent of the total counterparty exposure amount, as calculated under
the methodology set forth in paragraphs (a)(2)(i) through (iii) of this
section.
(i) Total counterparty exposure amount. A Board-supervised PPSI
must determine the total counterparty exposure amount for reverse
repurchase agreements held as reserves under Sec. 247.11(a)(1) or a
netting set of qualifying repo transactions by summing the exposure
amounts, as determined by paragraph (a)(2)(ii) of this section, for all
such transactions or netting sets.
(ii) Exposure amount equation. The exposure amount for a reverse
repurchase agreement or netting set of qualifying repo transactions is
equal to max {0, [([Sigma]E - [Sigma]C) + [Sigma](Es x Hs)]{time} ,
where:
(A) [Sigma]E equals the value of the exposure (the sum of the cash
the Board-supervised PPSI has sold subject to repurchase or posted as
collateral to the counterparty under the transaction (or netting set));
(B) [Sigma]C equals the value of the collateral (the sum of the
current fair values of all instruments the Board-supervised PPSI has
purchased subject to resale or taken as collateral from the
counterparty under the transaction (or netting set));
(C) Es equals the absolute value of the net position in a given
instrument; and
(D) Hs equals the market price volatility haircut appropriate to
the instrument referenced in Es as provided in Table 1.
Table 1 to Sec. 247.17. Market Price Volatility Haircuts
------------------------------------------------------------------------
Haircut to the
fair value of the
Residual maturity collateral (in
percent)
------------------------------------------------------------------------
93 days or less...................................... 0.0%
Greater than 93 days and less than or equal to 1 year 0.35
Greater than 1 year and less than or equal to 5 years 1.41
Greater than 5 years................................. 2.83
------------------------------------------------------------------------
[[Page 61678]]
(iii) The definitions below apply for purposes of paragraph (a)(2)
of this section.
(A) ``Netting set'' means a group of qualifying repo transactions
with a single counterparty that are subject to a qualifying master
netting agreement.
(B) ``Qualifying master netting agreement'' means a written,
legally enforceable agreement that:
(1) creates a single legal obligation for all individual
transactions covered by the agreement upon an event of default
following any stay permitted by paragraph (2) of this definition,
including upon an event of receivership, conservatorship, insolvency,
liquidation, or similar proceeding, of the counterparty;
(2) provides the Board-supervised PPSI the right to accelerate,
terminate, and close-out on a net basis all transactions under the
agreement and to liquidate or set-off collateral promptly upon an event
of default, including upon an event of receivership, conservatorship,
insolvency, liquidation, or similar proceeding, of the counterparty,
provided that, in any such case:
(i) any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than where the agreement is subject by its terms to, or incorporates,
any of the laws referenced in this paragraph (a)(2)(iii)(B)(2)(i); or
in receivership, conservatorship, or resolution under the Federal
Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any
similar insolvency law applicable to GSEs, or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (a)(2)(iii)(B)(2)(i) in order to
facilitate the orderly resolution of the defaulting counterparty; and
(ii) the agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of subpart I of the Board's Regulation YY (part
252 of this title), part 47 of this title, or part 382 of this title,
as applicable; and
(3) does not contain a walkaway clause (that is, a provision that
permits a non-defaulting counterparty to make a lower payment than it
otherwise would make under the agreement, or no payment at all, to a
defaulter or the estate of a defaulter, even if the defaulter or the
estate of the defaulter is a net creditor under the agreement).
(4) For purposes of this paragraph (a)(2)(iii)(B), in order to
conclude that a qualifying master netting agreement is legally
enforceable, the Board-supervised PPSI must:
(i) conduct sufficient legal review to conclude with a well-founded
basis (and maintain sufficient written documentation of that legal
review) that the criteria listed in paragraphs (a)(2)(iii)(B)(1)
through (3) of this section are satisfied and that, in the event of a
legal challenge (including one resulting from default or from
receivership, insolvency, liquidation, or similar proceeding), the
relevant court and administrative authorities would find the agreement
to be legal, valid, binding, and enforceable under the law of the
relevant jurisdictions; and
(ii) establish and maintain written procedures to monitor possible
changes in relevant law and to ensure that the agreement continues to
satisfy the criteria listed in paragraphs (a)(2)(iii)(B)(1) through (3)
of this section.
(C) ``Qualifying repo transactions'' means transactions described
in Sec. 247.11(b)(4) or Sec. 247.11(b)(5) held as reserves under
Sec. 247.11(a)(1), provided that:
(1)(i) the transaction is a ``repurchase agreement'' under section
599 of the Bankruptcy Code (11 U.S.C. 559) or section 11(e)(8)(D)(v) of
the Federal Deposit Insurance Act; or
(ii) if the transaction does not meet the criteria set forth in
paragraph (a)(2)(iii)(C)(1)(i) of this section, then the transaction is
executed under an agreement that provides the Board-regulated
institution the right to accelerate, terminate, and close-out the
transaction on a net basis and to liquidate or set-off collateral
promptly upon an event of counterparty default; and
(2) the Board-supervised PPSI has conducted sufficient legal review
to conclude with a well-founded basis (and maintain sufficient
documentation of that legal review) that the agreement underlying the
exposure:
(i) meets the requirements of paragraph (a)(2)(iii)(C)(1) of this
section, and
(ii) is legal, valid, binding, and enforceable under applicable law
in the relevant jurisdictions.
(3) Indirect exposure requirement. If a Board-supervised PPSI holds
securities in an investment company or other fund pursuant to Sec.
247.11(b)(6), the indirect exposure requirement is calculated according
to any reasonable methodology by which the Board-supervised PPSI looks
through the investment company or other fund to assess the Board-
supervised PPSI's indirect credit risk from uninsured eligible deposit
claims or reverse repurchase agreements in a manner that is similar to
how the Board-supervised PPSI would apply the requirement in paragraphs
(a)(1) and (a)(2) of this section as if it held the assets of the
investment company or other fund directly.
(b) Non-reserve assets.--(1) Applicable framework.--(i) A Board-
supervised PPSI with a parent State member bank is subject to part 217
of this title as if it were its parent State member bank, subject to
the exclusions and adjustments in paragraph (b)(2) of this section.
(ii) A Board-supervised PPSI that is a State-qualified PPSI that
has transitioned to the Board's regulatory framework pursuant to Sec.
247.51 is subject to part 217 of this title as if it is a State member
bank, subject to the adjustments in paragraph (b)(2) of this section.
(2) Adjustments.--(i) Reserve asset exclusion. A Board-supervised
PPSI must exclude reserve assets held under Sec. 247.11(a)(1) from
standardized total risk-weighted assets, advanced approaches risk-
weighted assets, average total consolidated assets, total consolidated
assets, and total leverage exposure, as applicable.
(ii) Tangible equity deduction.--(A) For the purposes of Sec. Sec.
247.15 through 247.18, an excluded tangible equity instrument is an
instrument that the Board-supervised PPSI designates as an excluded
tangible equity instrument under paragraph (b)(2)(ii)(B) of this
section.
(B) A Board-supervised PPSI must designate an instrument as an
excluded tangible equity instrument if such instrument is held to
satisfy the minimum capital requirements and capital adequacy standards
in Sec. 247.15, other than Sec. 247.15(b)(1)(ii).
(C) A Board-supervised PPSI must:
(1) deduct common stock designated as an excluded tangible equity
instrument from the sum of the Board-supervised PPSI's common equity
tier 1 capital elements, before making any adjustments to or deductions
from common equity tier 1 capital under Sec. 217.22 of this title;
(2) deduct any non-cumulative perpetual preferred stock instrument
designated as an excluded tangible equity instrument from the sum of
the Board-supervised PPSI's additional tier 1 capital elements, before
making any adjustments to or deductions from additional tier 1 capital
under Sec. 217.22 of this title; and
[[Page 61679]]
(3) deduct any cumulative perpetual preferred stock instrument
designated as an excluded tangible equity instrument from the sum of
the Board-supervised PPSI's tier 2 capital elements, before making any
adjustments to or deductions from tier 2 capital under Sec. 217.22 of
this title.
(iii) Reporting. For purposes of compliance with the capital
adequacy requirements and calculations in part 217, any references to
the Call Report, FR Y-9C, or other forms, or schedules or line items
thereof, should be deemed to be references to the reporting forms
Board-supervised PPSIs are required to submit pursuant to Sec.
247.14(i).
(iv) Risk-weighted assets. A Board-supervised PPSI must calculate
risk-weighted assets using part 217, subpart D of this title and may
not calculate risk-weighted assets using part 217, subpart E of this
title.
Sec. 247.18 Capital requirements for operational risks.
(a) A Board-supervised PPSI must calculate its operational risk
requirement as of the end of the quarter, using the most recent
available data. The operational risk requirement is equal to:
(1) the baseline operational risk requirement, as calculated under
paragraph (b)(1) of this section, multiplied by
(2) the loss scalar, as calculated under paragraph (b)(2) of this
section.
(b) For purposes of this section:
(1) A Board-supervised PPSI must calculate its baseline operational
risk requirement in accordance with Table 1 to Sec. 247.18:
Table 1 to Sec. 247.18--Baseline Operational Risk Requirement
------------------------------------------------------------------------
If the outstanding issuance
value of the Board-Supervised The baseline operational risk requirement
PPSI is: is:
------------------------------------------------------------------------
Less than or equal to $20 2.0% of the outstanding issuance value
billion. plus 25% of three-year average revenue.
Greater than $20 billion and $400 million plus 1.5% of the excess
less than or equal to $50 outstanding issuance value over $20
billion. billion plus 25% of three-year average
revenue.
Greater than $50 billion..... $850 million plus 1.0% of the excess
outstanding issuance value over $50
billion plus 25% of three-year average
revenue.
------------------------------------------------------------------------
where:
(i) the outstanding issuance value, as defined as in Sec. 247.2,
is calculated using daily values averaged over the quarter;
(ii) three-year average revenue is the average of annual revenues
excluding revenues earned from reserve assets, calculated on a rolling
quarterly basis, over the preceding three years, where annual revenue
excluding reserve assets is equal to:
(A) annual revenues of the Board-supervised PPSI, minus
(B) annual revenues of the Board-supervised PPSI from reserve
assets, held under Sec. 247.11(a)(1), including any interest payments
on reserve assets or gain from the sale of any reserve assets; and
(iii) the dollar values in Table 1 to Sec. 247.18 are multiplied
by the GDP growth adjustment.
(2) A Board-supervised PPSI must calculate its loss scalar as
follows:
[GRAPHIC] [TIFF OMITTED] TP29SE26.005
where the:
(i) scalar floor is 0.8,
(ii) threshold loss rate is 1/15,
(iii) loss elasticity is 0.5, and
(iv) scaled loss rate is four times the 20-quarter average,
calculated on a rolling quarterly basis, of the ratio of the Board-
supervised PPSI's quarterly operational losses, calculated
consistent with paragraph (c) of this section, to the baseline
operational risk requirement for the same such quarter.
(c) A Board-supervised PPSI's calculation of quarterly operational
losses for purposes of paragraph (b) of this section must be based on
internal loss data collected by the Board-supervised PPSI, except as
provided for in paragraphs (c)(2) and (c)(3) of this section.
(1) A Board-supervised PPSI must have operational loss event data
collection processes that meet the following requirements:
(i) The processes must produce operational loss event data that
satisfy the following criteria:
(A) Operational loss event data must be comprehensive and capture
all operational loss events that resulted in operational losses equal
to or higher than $20,000 multiplied by the GDP growth adjustment
(before any recoveries are taken into account) from all activities and
exposures of the Board-supervised PPSI;
(B) Operational loss event data must include operational loss event
data relating to entities that have been acquired by or merged with the
Board-supervised PPSI during the preceding five years, including for
any period prior to the acquisition or merger during the five-year
period, for each year during which such entities were in operation;
(C) Operational loss event data must include gross operational loss
amounts, recovery amounts, the date when the event occurred or began
(occurrence date), the date when the Board-supervised PPSI became aware
of the event (discovery date), and the date (or dates) when losses or
recoveries related to the event were recognized in the Board-supervised
PPSI's profit and loss accounts (accounting date). In addition, the
Board-supervised PPSI must collect descriptive information about the
drivers of operational loss events.
(D) A Board-supervised PPSI must identify internal losses as
pertaining to at least one of the following seven categories of losses:
(i) internal fraud, (ii) external fraud, (iii) employment practices and
workplace safety, (iv) clients, products, and business practices, (v)
damage to physical assets, (vi) business disruption and system
failures, (vii) execution, delivery, and process management. A Board-
supervised PPSI must be able to map its operational loss event data
into the seven operational loss event type categories. In so
categorizing, the Board-supervised PPSI must assign each dollar of loss
to only one operational loss event type category.
(ii) Procedures for the identification and collection of internal
loss event data must be documented.
[[Page 61680]]
(iii) The Board-supervised PPSI must have processes to
independently review the comprehensiveness and accuracy of operational
loss event data.
(iv) The Board-supervised PPSI must subject the procedures in
paragraph (c)(1)(ii) of this section and the processes in (c)(2)(iii)
of this section to regular independent review by internal or external
audit functions.
(2) For any year in which a Board-supervised PPSI was not operating
during the full year or was not required to collect internal loss data
because the Board-supervised PPSI was not yet subject to part 247, a
Board-supervised PPSI should calculate that quarter's scaled loss rate
as the threshold loss rate multiplied by 1.5[supcaret](1/(Loss
Elasticity)).
(3) Notwithstanding paragraph (c)(1) of this section, a Board-
supervised PPSI may, with the Board's prior written approval, calculate
a given quarter's scaled loss rate as the threshold loss rate
multiplied by 1.5[supcaret](1/(Loss Elasticity)) and would not be
subject to the requirements in paragraph (c)(1).
Sec. 247.19 [Reserved]
Subpart C--Rules Applicable to Board-Supervised Custodians
Sec. 247.20 Definitions.
For the purposes of this subpart, the following definitions apply:
Applicable law means the law of a State or other jurisdiction
governing a covered custodian's custody relationships, any applicable
Federal law governing those relationships, the terms of the custody
agreement, and any applicable court order.
Covered assets means payment stablecoin reserves, payment
stablecoins used as collateral, and private keys used to issue payment
stablecoins, as well as cash and other property received in the course
of the provision of custodial or safekeeping services for payment
stablecoin reserves, payment stablecoins used as collateral, and
private keys.
Covered custodian means any entity that (i) provides custodial or
safekeeping services for covered assets, (ii) is subject to supervision
or regulation by the Board, and (iii) is not (a) a PPSI (as defined in
Sec. 247.2 of this part), bank, savings association, Federal branch,
or insured branch (as those terms are defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813)) that is subject to
supervision by the FDIC or OCC; (b) an entity, other than a federally
regulated depository institution, subject to supervision by a State
bank supervisor, as defined in section 3(r) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(r)), provided that such State bank
supervisor makes available to the Board such information as the Board
determines necessary and relevant under section 10(d) of the Act (12
U.S.C. 5909(d)); or (c) an entity for which the Securities and Exchange
Commission or Commodity Futures Trading Commission is the primary
financial regulatory agency as described in section 2(12) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5301(12)).
Covered custodians under this section would generally include (i) a
State member bank; (ii) a Board-supervised PPSI; (iii) a bank holding
company (as defined in section 2(a) of the BHC Act (12 U.S.C. 1841(a));
(iv) a savings and loan holding company (as defined in section 10(a)(1)
of the Home Owners' Loan Act (12 U.S.C. 1467a(a)(1)); (v) a subsidiary
of a bank holding company or a savings and loan holding company that is
not (a) a national bank or depository institution subject to
supervision by the OCC or FDIC; (b) a PPSI subject to supervision by
another primary Federal payment stablecoin regulator, (c) an entity
subject to functional regulation by the SEC or CFTC, or (d) an entity,
other than a State member bank, subject to supervision by a State bank
supervisor, as defined in section 3(r) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(r)), provided that such State bank supervisor makes
available to the Board such information as the Board determines
necessary and relevant under section 10(d) of the Act (12 U.S.C.
5905(d)); (vi) the U.S. operations of foreign banking organizations
subject to the supervision or regulation of the Board pursuant to the
International Banking Act of 1978 (12 U.S.C. 3101 et seq.); and (vii)
any corporation organized under section 25A of the Federal Reserve Act
(12 U.S.C. 611 et seq.) or having an agreement with the Board under
section 25 of the Federal Reserve Act (12 U.S.C. 601 et seq.) (i.e.,
Edge Act and Agreement corporations).
Covered customer means a person for or on whose behalf a covered
custodian receives, acquires, or holds covered assets.
Digital wallet means a software program or hardware device that
stores and manages the private keys associated with a particular unit
of a digital asset.
Sub-custodian means a person that provides custody and safekeeping
services to a covered custodian, including through a digital wallet for
which such person controls the associated private keys, with respect to
covered assets of a covered customer, for which the covered custodian
otherwise serves as a custodian under this subpart.
Sec. 247.21 Covered asset custodial property requirements.
(a) Separate accounting, treatment, and dealing. A covered
custodian must separately account for the covered assets of a covered
customer and must treat and deal with those covered assets as belonging
to such covered customer and not as the property of the covered
custodian.
(b) Protection, possession, and control.--(1) A covered custodian
must take appropriate steps to protect the covered assets of covered
customers from the claims of creditors of the covered custodian and any
sub-custodian, as applicable, including through adopting, implementing,
and maintaining written policies, procedures, and internal controls
that are adequate to comply with applicable law and that are
commensurate with the covered custodian's size, complexity, and risk
profile and with the nature of the applicable covered assets for which
it provides custodial or safekeeping services.
(2) (i) A covered custodian must maintain possession or control of
the covered assets of a covered customer that are held directly,
including in a digital wallet for which the covered custodian controls
the associated private keys; however, a covered custodian may maintain
the covered assets of a covered customer through the use of a sub-
custodian if consistent with applicable law, provided the covered
custodian maintains adequate safeguards and internal controls
reasonably designed to provide the covered custodian with oversight of
such sub-custodian's compliance with the requirements of this subpart.
(ii) With regards to any payment stablecoin or stablecoin reserve
in the form of a tokenized asset held in safekeeping under this
subpart, a covered custodian, or sub-custodian, as applicable,
maintains control for purposes of paragraph (b)(2)(i) of this section
if it can reasonably demonstrate, consistent with the standard of care
established by applicable law, that no other party, including the
covered customer, can transfer the payment stablecoin or tokenized
asset using a distributed ledger without the consent of the custodian
or sub-custodian, as applicable.
(c) Withdrawals and application of covered assets. Notwithstanding
any other provision of this subpart, a covered custodian may withdraw
and apply such share of the covered assets of a covered customer
necessary to
[[Page 61681]]
transfer, adjust, or settle a transaction or transfer of assets
applicable to that covered customer, including the payment of
commissions, taxes, storage, and other charges lawfully accruing in
connection with the provision of services to that covered customer by
the covered custodian.
(d) Holdings of cash. Notwithstanding any other provision of this
section, an insured depository institution that is a covered custodian
is not required to separate or segregate from its own property any
payment stablecoin reserves in the form of cash received from a PPSI in
exchange for eligible deposit claims against the insured depository
institution. Such holdings may be reflected as deposit liabilities of
the insured depository institution, provided such treatment is
consistent with Federal law.
Sec. 247.22 Segregation requirement and use of omnibus accounts.
(a)Segregation of covered assets. A covered custodian must
segregate all covered assets of covered customers from and not
commingle them with the assets of the covered custodian, except as
permitted under Sec. 247.21(d).
(b) Commingling covered assets. A covered custodian may, for
convenience, commingle the covered assets of multiple covered
customers, in one or more omnibus accounts to the extent that the steps
it has taken pursuant to Sec. 247.21(b) are adequate to maintain safe
and sound practices for the use of omnibus accounts, and to the extent
that the use of omnibus accounts is consistent with applicable law.
Sec. 247.23 Self-custody hardware and software exclusion.
The requirements of this subpart do not apply to any covered
custodian solely on the basis that such entity engages in the business
of providing hardware or software to facilitate a person's or entity's
self-custody of their payment stablecoins or private keys.
Sec. 247.24-.29 [Reserved]
Subpart D--[Reserved]
Subpart E--Rules Applicable to All Permitted Payment Stablecoin
Issuers
Sec. 247.40 Tying prohibition.
(a) Tying prohibition. A PPSI may not provide services to a
customer on the condition that the customer (i) obtain an additional
paid product or service from the PPSI, or any of its subsidiaries, or
(ii) agree to not obtain an additional product or service from a
competitor of the PPSI.
(b) Certain non-financial companies. With respect to any company
that that has obtained a unanimous vote of the Stablecoin Certification
Review Committee pursuant to 12 U.S.C. 5903(a)(12), neither the company
nor its affiliates may provide services to a customer on the condition
that the customer (i) obtain an additional paid product or service from
the company or its affiliates, or any subsidiary of the company or its
affiliates, or (ii) agree to not obtain an additional product or
service from a competitor of the company or its affiliates.
Sec. 247.41 Tying exceptions.
(a) Exceptions to tying prohibition. The Board may, by regulation
or order, permit exceptions to the prohibition set forth in Sec.
247.40, provided that such exception to Sec. 247.40 would not be
contrary to the purpose of the GENIUS Act (12 U.S.C. 5901 et seq.).
(b) Consultation. The Board would consult with the other primary
Federal payment stablecoin regulators, as appropriate, when considering
a potential exception to the prohibition in Sec. 247.40 by regulation.
The Board would consult with the primary Federal payment stablecoin
regulator, if any, of a particular PPSI when considering a potential
exception to the prohibition in Sec. 247.40 by order.
(c) Procedures for an exception request. Entities subject to the
prohibition in Sec. 247.40 may submit a request to the Secretary of
the Board to seek an exception from such prohibition. Any entity
seeking an exception must provide a detailed description of the
proposed arrangement, including:
(1) the service upon which conditions are being placed and the
entity providing such service;
(2) either (i) the additional paid services and products and the
entity providing such paid services and products or (ii) the additional
product or service of the competitor, as applicable;
(3) the relevant contractual terms, including copies (or draft
copies, as appropriate) of any contracts, agreements, terms of service,
or other documents relevant to the proposed arrangement;
(4) a description of the benefits, if any, that the proposed
arrangement would produce for customers or other relevant persons;
(5) a discussion of how the proposed arrangement would not be
contrary to the purpose of the GENIUS Act; and
(6) in the case of a proposed exception for an arrangement
providing services to a customer on the condition that the customer
agree to not obtain an additional product or service from a competitor,
whether the additional product or service will be offered to customers
on competitive terms separate from the service upon which conditions
are being placed.
(d) Additional information. The Board may require additional
information in connection with any request under this section.
Sec. Sec. 247.42-247.49 [Reserved]
Subpart F--Rules Applicable to State-Qualified Payment Stablecoin
Issuers
Sec. 247.50 Unusual and exigent circumstances enforcement authority.
(a) Scope. This section addresses the Board's authority to impose
restrictions on any State-qualified PPSI and its institution-affiliated
parties during unusual and exigent circumstances pursuant to section
7(e)(1) of the GENIUS Act (12 U.S.C. 5906(e)(1)).
(b) In general. If the Board determines that unusual and exigent
circumstances exist under subsection (c), and that there is reasonable
cause to believe that the continuation of any activity, including the
failure to act, by a State-qualified PPSI constitutes a serious risk to
the financial safety, soundness, or stability of the State-qualified
PPSI, the Board may, after requisite notice to the relevant State
payment stablecoin regulator under subsection (d), take an enforcement
action against a State-qualified PPSI or an institution-affiliated
party of such State-qualified PPSI for a violation of the GENIUS Act
(12 U.S.C. 5901 et seq.) in the form of a directive with the effect of
a cease-and-desist order that has become final. These restrictions may
include, but are not limited to, limitations on:
(1) redemptions of payment stablecoins;
(2) transactions between the State-qualified PPSI, its holding
company, and the subsidiaries or affiliates of either the State-
qualified PPSI or the holding company; and
(3) any activities of the State-qualified PPSI that might create a
serious risk that the liabilities of a holding company and the
affiliates of the holding company may be imposed on the State-qualified
PPSI.
(c) Unusual and exigent circumstances. In determining whether
unusual and exigent circumstances exist for purposes of 12 U.S.C.
5906(e)(1) and this section, the Board will consider whether any of the
following conditions are present with respect to a particular State-
qualified PPSI:
[[Page 61682]]
(1) significant fluctuations in the price of stablecoins issued by
a State-qualified PPSI;
(2) disruptions in timely redemptions as defined in 12 CFR 247.12
by a State-qualified PPSI;
(3) deployment by a State-qualified PPSI of nonstandard liquidity
management tools to dissuade redemptions;
(4) volatility in the secondary market for cash-equivalent
securities that a State-qualified PPSI relies upon to maintain the
value of reserve assets;
(5) actual or likely losses from a State-qualified PPSI's other
activities that impair the State-qualified PPSI's ability to meet
timely redemptions or other obligations;
(6) disorderly failure, significant impairment to the operations,
or substantiated concerns about the imminent disorderly failure, of--
(i) one or more State-qualified PPSIs;
(ii) one or more reserve custodians relied upon by the State-
qualified PPSI; or
(iii) any infrastructure necessary for the transmission or
redemption of payment stablecoins issued by the State-qualified PPSI;
(7) a request with good cause shown by a State-qualified PPSI or
the State-qualified PPSI's primary regulator to issue a directive under
12 U.S.C. 5906(e)(1); and
(8) any other factor of a similar nature that evinces the existence
of a serious risk to the financial safety and soundness of a State-
qualified PPSI or the stability of the U.S. financial system, as
determined by the Board.
(d) Procedures.
(1) Prior written notice.
(i) Elements of notice. The Board will provide the State payment
stablecoin regulator of a State-qualified PPSI with not less than 48
hours' prior written notice before taking an enforcement action under
12 U.S.C. 5906(e)(1) and this section. The prior written notice will
include:
(A) the Board's determination that unusual and exigent
circumstances exist;
(B) a brief description of how the State-qualified PPSI is believed
to have violated the GENIUS Act; and
(C) a brief description of the activity conducted by the State-
qualified PPSI that constitutes a serious risk to the financial safety,
soundness, or stability of the State-qualified PPSI.
(ii) Waiver. A State payment stablecoin regulator may elect to
waive its right to a 48-hour notice period.
(2) Consultation.--(i) Prior to taking an enforcement action under
12 U.S.C. 5906(e), the Board may elect to consult with a State-
qualified PPSI or its State payment stablecoin regulator regarding the
factors described in subsection (c), if the Board has reason to
believe:
(A) the State-qualified PPSI is in violation of the GENIUS Act;
(B) the continuation of an activity by the State-qualified PPSI
constitutes a serious risk to the financial safety, soundness, or
stability of the State-qualified PPSI; or
(C) ``unusual and exigent circumstances'' exist or may soon come
into existence based on the considerations described in Sec.
247.50(c).
(ii) The Board may request evidence from the State-qualified PPSI
or its State payment stablecoin regulator demonstrating why the Board
should not issue a directive under this section.
(e) Administrative review.--(1) After a directive under subsection
(b) of this section is issued, the applicable State-qualified PPSI, or
any institution-affiliated party of the State-qualified PPSI subject to
the directive, may object and present to the Board, in writing, the
reasons why the directive should be modified or rescinded.
(2) If, after 10 days after the receipt of a response described in
paragraph (e)(1) of this section, the Board does not affirm, modify, or
rescind the directive, the directive shall automatically lapse.
Sec. 247.51 Transition and waiver process for uninsured State-
chartered depository institutions.
(a) Scope.--(1) This section addresses requirements related to a
State-qualified PPSI that is an uninsured State-chartered depository
institution transitioning to the Board's regulatory framework pursuant
to section 4(d) of the GENIUS Act (12 U.S.C. 5903(d)).
(2) For purposes of this section a ``covered PPSI'' refers only to
those State-qualified PPSIs that are uninsured State-chartered
depository institutions.
(b) Transition to Federal regulatory framework.--(1) Transition
requirements. A covered PPSI with an outstanding issuance value of more
than $10 billion must:
(i) not later than 360 days after reaching such threshold,
transition to the Federal regulatory framework under this part and
comply with the provisions of this part applicable to Board-supervised
PPSIs; or
(ii) beginning on the date the payment stablecoin reaches such
threshold, cease issuing, on a net basis, new payment stablecoins until
the issuer is under the $10 billion outstanding issuance value
threshold.
(2) Initial notice requirement.--(i) A covered PPSI with an
outstanding issuance value of more than $10 billion must provide
written notification to the Board within five calendar days after
reaching such threshold.
(ii) The written notification must include the following
information:
(A) the State or States that currently regulate the covered PPSI;
(B) the covered PPSI's outstanding issuance value as of the date of
the notice;
(C) the date that the covered PPSI first reached the $10 billion
outstanding issuance value threshold; and
(D) an indication of whether and when the covered PPSI ceased
issuing, on a net basis, new payment stablecoins and whether the
covered PPSI intends to seek a waiver pursuant to paragraph (d) of this
section.
(3) Capital.--(i) Within 270 days of reaching the $10 billion
outstanding issuance value threshold, a covered PPSI must submit an
analysis of the covered PPSI's current capital position and anticipated
capital needs, sufficient to ensure ongoing operations, based on its
business model and risk profile.
(ii) The Board will review the submission required under paragraph
(b)(3)(i) of this section and evaluate the capital adequacy of the
covered PPSI, including whether such PPSI is projected to be in
compliance with the capital requirements in Sec. Sec. 247.15 through
247.18 360 days after the covered PPSI reaches the $10 billion
outstanding issuance value threshold.
(iii) For purposes of complying with the transition requirements
under paragraph (b)(1)(i) of this section, the covered PPSI must comply
with the capital requirements set out in Sec. Sec. 247.15 through
247.18 within 360 days after the covered PPSI reaches the $10 billion
outstanding issuance value threshold.
(iv) A covered PPSI is not required to submit a capital analysis
under this paragraph (b)(3) if the covered PPSI has received a waiver
pursuant to paragraph (d) of this section.
(4) Compliance notice requirement and transition date.--(i) For
purposes of complying with paragraph (b)(1)(i) of this section, a
covered PPSI must provide written notification to the Board regarding
whether it is in compliance with the Federal regulatory framework
applicable to Board-supervised PPSIs under this part. If the covered
PPSI is not in compliance with the Federal regulatory framework
applicable to Board-supervised PPSIs under this part, the written
notice must identify the provisions with which the covered PPSI does
not comply, provide the covered PPSI's plan for remediating its
noncompliance, and explain why the covered PPSI did not comply with the
[[Page 61683]]
Federal regulatory framework within the 360-day transition period.
(ii) A covered PPSI that does not cease issuing new payment
stablecoins in accordance with paragraph (b)(1)(ii) of this section
must transition to the regulatory framework applicable to Board-
supervised PPSIs under this part on the earlier of 360 days after
reaching the $10 billion outstanding issuance value threshold or the
date on which the covered PPSI provides written notification under
paragraph (b)(4)(i) of this section.
(c) Initial examination. A covered PPSI that transitions to the
regulatory framework under this part must undergo an initial Board
examination at the Board's request or no later than six months after
the date on which the covered PPSI provides written notification under
paragraph (b)(4)(i) of this section.
(d) Waiver from Federal supervision.--(1) Waiver request. A covered
PPSI seeking to remain solely supervised by a State payment stablecoin
regulator must submit to the Board a written waiver request containing
information necessary to evaluate such request under paragraphs (d)(2)
and (3) of this section within 240 days of reaching the $10 billion
outstanding issuance value.
(2) Waiver criteria. The Board will consider the following
exclusive criteria when deciding whether to grant a waiver:
(i) the adequacy of capital maintained by the covered PPSI;
(ii) the past operations and examination history of the covered
PPSI;
(iii) the experience of the State payment stablecoin regulator in
supervising payment stablecoin and digital asset activities; and
(iv) the supervisory framework, including regulations and guidance,
applicable to the covered PPSI with respect to payment stablecoins and
digital assets.
(3) Waiver presumption.--(i) Except as provided in paragraph
(d)(3)(ii) of this section, the Board will approve a waiver request
under this section if the relevant State payment stablecoin regulator
has:
(A) established a prudential regulatory regime (including
regulations and guidance) for the supervision of digital assets or
payment stablecoins as of April 19, 2025, and which has a framework
that has been approved pursuant to section 4(c) of the GENIUS Act (12
U.S.C. 5903(c)); and
(B) approved one or more State-qualified PPSIs to issue payment
stablecoins under the supervision of such State payment stablecoin
regulator.
(ii) Paragraph (d)(3)(i) of this section does not apply to a waiver
request if the Board finds by clear and convincing evidence that the
criteria in paragraph (d)(2) of this section are not substantially met
or that the covered PPSI poses significant safety and soundness risks
to the financial system of the United States.
Sec. Sec. 247.52-247.59 [Reserved]
PART 263-RULES OF PRACTICE FOR HEARINGS
0
12. The authority citation for part 263 is revised to read as follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 248, 324, 334, 347a,
504, 505, 1464, 1467, 1467a, 1817(j), 1818, 1820(k), 1829, 1831o,
1831p-1, 1832(c), 1847(b), 1847(d), 1884, 1972(2)(F), 3105, 3108,
3110, 3349, 3907, 3909(d), 4717, 5323, 5362, 5365, 5463, 5464, 5466,
5467, 5905; 15 U.S.C. 21, 78l(i), 78o-4, 78o-5, 78u-2; 1639e(K); 28
U.S.C. 2461 note; 31 U.S.C. 5321; and 42 U.S.C. 4012a.
0
13. Revise Sec. 263.1 to read as follows:
Sec. 263.1 Scope.
* * * * *
(h) Suspension or revocation of registration, cease-and-desist,
temporary cease-and-desist, removal and prohibition proceedings, or
civil money penalties under section 6 of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (``GENIUS Act'') (12
U.S.C. 5905).
(i) This subpart also applies to all other adjudications required
by statute to be determined on the record after opportunity for an
agency hearing, unless otherwise specifically provided for in the Local
Rules (see Sec. 263.3(i)).
* * * * *
0
14. Revise Sec. 263.3 to read as follows:
Sec. 263.3 Definitions.
* * * * *
(g) Institution includes:
* * * * *
(9) Any Board-supervised PPSI, as that term is defined in 12 CFR
247.2; and
(10) Any other entity subject to the supervision of the Board.
(h) Institution-affiliated party means any institution-affiliated
party as that term is defined in section 3(u) of the FDICA (12 U.S.C.
1813(u)). For actions pursuant to the GENIUS Act, institution-
affiliated party means any institution-affiliated party as that term is
defined in section 2(13) of the GENIUS Act (12 U.S.C. 5901(13)).
* * * * *
0
15. Revise Sec. 263.450 to read as follows
Sec. 263.450 Scope.
(a) The procedures of this subpart must be followed when a formal
investigation is instituted and conducted pursuant to: section 8(n) of
the FDIA (12 U.S.C. 1818(n)); section 10(c) of the FDIA (12 U.S.C.
1820(c)); section 7(j)(15) of the FDIA (12 U.S.C. 1817(j)(15)); section
5(f) of the BHC Act (12 U.S.C. 1844(f)); sections 10(b)(4) and 10(g)(2)
of HOLA (12 U.S.C. 1464(b)(4) and 1467a(g)(2)); section 162 of the
Dodd-Frank Act (12 U.S.C. 5362); and section 6 of the GENIUS Act (12
U.S.C. 5905).
* * * * *
By order of the Board of Governors of the Federal Reserve
System.
Michele Taylor Fennell,
Associate Secretary of the Board.
[FR Doc. 2026-19860 Filed 9-28-26; 8:45 am]
BILLING CODE 6210-01-P