The US Department of the Treasury has proposed a set of rules for stablecoin firms, aiming to prevent illicit transactions and promote transparency. According to the joint proposal by the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), stablecoin businesses will be required to establish effective anti-money laundering programs, including the ability to block, freeze, and reject suspicious transactions.

The proposal also emphasizes the importance of internal controls to comply with the Bank Secrecy Act, which governs the US financial system. The new regulations are 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 proposal will be open for public comment and potential revisions before its finalization. The Treasury Department is taking a tailored approach to stablecoin firms, recognizing that they are best positioned to identify and evaluate their own risks. The proposed rules focus on effectiveness, allowing financial institutions to design their own anti-money laundering programs, as long as they are able to halt flagged transactions and devote more attention to high-risk customers and activities. Stablecoin issuers will also be expected to cooperate with the US authorities in pursuing specific targets and to implement risk-based safeguards for stablecoin activity on primary and secondary markets.

The Treasury Secretary stated that the new regulations will protect the US financial system from national security threats without hindering the growth of American companies in the payment stablecoin ecosystem. The crypto industry has been awaiting regulation to establish stablecoins as safe and reliable assets. However, tensions remain in the wider crypto community, which has a tumultuous relationship with governments.

The decentralized finance (DeFi) sector still needs to be addressed, with ongoing negotiations among the industry, securities sector, and lawmakers over the Digital Asset Market Clarity Act in the US Senate. The GENIUS Act is set to go into full effect by 2027, and firms are already pursuing charters and partnerships to get involved in stablecoins.

The proposed regulations will have a significant impact on the industry, with stringent new controls in place to prevent illicit activities.