The US Department of the Treasury has proposed a set of rules for stablecoin companies, which would require them to implement robust controls to prevent and detect illicit transactions. The proposed rules, announced by the Treasury's Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), aim to bring stablecoin companies in line with traditional financial institutions in terms of anti-money laundering and combating the financing of terrorism. The rules would require stablecoin companies to have the ability to 'block, freeze and reject' suspicious transactions and to implement internal controls 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, which was passed last year. The rules would be subject to a public comment period and potential revisions before being finalized. The Treasury Department's proposal emphasizes the importance of effective anti-money laundering controls and suggests that financial institutions are best positioned to identify and evaluate their own risks. The proposal also requires stablecoin companies to act as allies in the pursuit of entities identified as 'primary money laundering concerns' and to implement risk-based safeguards for stablecoin activity on primary or secondary markets.
The rules would also require stablecoin companies to scour their records for any activity tied to individuals or entities flagged by FinCEN. The proposal has been welcomed by the crypto industry, which has been awaiting regulation to 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 sketch out the guardrails for the crypto industry.
Earlier this year, the independent Office of the Comptroller of the Currency proposed its standards and procedures for issuers, and the Federal Deposit Insurance Corp did the same with 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. The company is under fresh scrutiny this week after reportedly being unaware that its AB DAO partner was involved in a project with potential ties to Cambodia’s Prince Group, the target of major US investigations, sanctioning and the seizure last year of a record $14 billion in bitcoin.