The US Department of the Treasury has unveiled a joint proposal from the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), outlining stringent controls for stablecoin businesses. These measures include the ability to block, freeze, and reject transactions, as well as internal safeguards to comply with the Bank Secrecy Act.
The proposal is part of the implementation of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, the first major crypto-sector law in the US. The rules are designed to be effective and recognize that financial institutions are best positioned to identify and evaluate their money laundering, terrorist financing, and illicit finance risks. The proposal is open for public comment and potential revisions before it is finalized. The Treasury Department's effort emphasizes the importance of stablecoin issuers having appropriate money-laundering preventions in place, which would generally protect them from enforcement actions unless there is a significant or systemic failure to maintain such programs.
FinCEN expects stablecoin issuers' programs to be able to halt specifically flagged transactions and devote more attention and resources to higher-risk customers and activities. When pursuing a specific target, regulated issuers would be required to scour their records for any activity tied to individuals or entities flagged by FinCEN. The issuers would also be expected to act as allies in the agency's pursuit of entities identified as primary money laundering concerns. On the sanctions front, OFAC would require stablecoin issuers to run risk-based safeguards for stablecoin activity on primary or secondary markets, with policies that spot and reject transactions that may violate US sanctions.
The proposal is seen as a significant move towards establishing stablecoins as safe and reliable assets, and the crypto industry has been awaiting such regulation. However, tensions remain in the wider crypto community, which has had a tumultuous relationship with governments since its beginnings. The decentralized finance (DeFi) sector remains a space that seeks to cut away intermediaries, but the illicit-finance controls for that arena are still unresolved. The Treasury's stablecoin proposal and others from US financial regulators are beginning to sketch out the guardrails, but wide swaths of crypto activity still need to be addressed.
The GENIUS Act is set to go into full effect by 2027, and firms have been pursuing charters and partnerships to get involved in stablecoins. The company World Liberty, partially owned and controlled by the family of President Donald Trump, has applied for a charter as a trust bank and manages the USD1 stablecoin, and is under fresh scrutiny after reportedly being unaware of its partner's involvement in a project with potential ties to Cambodia's Prince Group, which is the target of major US investigations and sanctioning.