The US Department of the Treasury has proposed a set of rules that would require stablecoin issuers to establish strong controls to prevent money laundering, terrorist financing, and other illicit activities. The proposed rules, which were jointly developed by the Treasury's Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), would require stablecoin issuers to implement measures such as blocking, freezing, and rejecting suspicious transactions, as well as maintaining internal protections to comply with the Bank Secrecy Act.
The proposal is part of the US government's efforts to regulate the stablecoin industry, which has grown significantly in recent years. The rules are designed to protect the US financial system from national security threats while allowing American companies to innovate and compete in the payment stablecoin ecosystem.
The proposal is open for public comment and may be revised before it is finalized. The US Treasury Department's effort is seen as a significant move towards implementing the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which was passed last year. The Act aims to establish a regulatory framework for the stablecoin industry and provide clarity on the rules and regulations that apply to stablecoin issuers.
The proposed rules would require stablecoin issuers to have in place effective anti-money laundering (AML) and combating the financing of terrorism (CFT) programs, which would include the ability to identify and report suspicious transactions. The programs would also need to be able to halt specifically flagged transactions and devote more attention and resources to higher-risk customers and activities. The rules would also require stablecoin issuers to act as allies in the agency's pursuit of entities identified as primary money laundering concerns. Additionally, the proposed rules would require stablecoin issuers to implement risk-based safeguards for stablecoin activity on primary and secondary markets, and to spot and reject transactions that may violate US sanctions.
The proposal has been welcomed by the crypto industry, which has been awaiting regulation that would help establish stablecoins as a safe and reliable asset class. However, some 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 and maintain direct interactions, but the illicit-finance controls for that arena are still unresolved. The Treasury Department's proposal is part of a broader effort by US financial regulators to establish guardrails for the crypto industry. Earlier this year, the Office of the Comptroller of the Currency proposed its standards and procedures for issuers it will watch as the primary federal regulator, and the Federal Deposit Insurance Corp proposed a largely parallel proposal. The GENIUS Act is meant to go into full effect by 2027, and firms have been pursuing charters and partnerships to get involved in stablecoins.
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