The US Department of the Treasury has put forth a proposal that would mandate stablecoin issuers to assume a more proactive role in policing and preventing illicit transactions. According to the proposed rules, which were first reported by CoinDesk, these companies would be required to establish and maintain a range of controls, including the ability to block, freeze, and reject transactions, as well as implement internal safeguards to comply with the Bank Secrecy Act. The proposal, a joint effort by the Treasury's Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), aims to provide a tailored approach for stablecoin firms, allowing them to identify and mitigate their unique risks. The proposal is part of the implementation of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, a landmark legislation that seeks to regulate the stablecoin industry.
The proposed rules will be open for public comment and potential revisions before being finalized. The Treasury Department's effort acknowledges that financial institutions are best positioned to identify and evaluate their own money laundering, terrorist financing, and illicit finance risks. As such, the proposal focuses on effectiveness, allowing firms to design and implement their own risk-based programs.
A firm that maintains an effective anti-money laundering program would generally be considered safe from enforcement actions, unless it demonstrates a significant or systemic failure to maintain that program. The proposal also requires stablecoin issuers to cooperate with US authorities in pursuing specific targets, scouring their records for any activity tied to flagged individuals or entities, and acting as allies in the pursuit of entities identified as primary money laundering concerns. Furthermore, the issuers would be expected to implement risk-based safeguards for stablecoin activity on primary and secondary markets, spotting and rejecting transactions that may violate US sanctions.
The proposal has been welcomed by the crypto industry, which has been awaiting regulation to establish stablecoins as safe and reliable assets. However, some tensions remain, particularly in the decentralized finance (DeFi) sector, which seeks to maintain direct interactions and cut away intermediaries. The illicit-finance controls for DeFi are still unresolved, with ongoing negotiations among the industry, securities sector, and lawmakers.
The Treasury's proposal is part of a broader effort by US financial regulators to sketch out the guardrails for the crypto industry. Earlier this year, the Office of the Comptroller of the Currency proposed its standards and procedures for issuers, and the Federal Deposit Insurance Corp followed with a largely parallel proposal. The GENIUS Act is set to come into full effect by 2027, and firms are already pursuing charters and partnerships to get involved in stablecoins. The proposal has significant implications for the industry, particularly for companies like World Liberty Financial, which is under scrutiny for its business relationships and has applied for a charter as a trust bank.