The Federal Deposit Insurance Corporation (FDIC), the primary insurance body for bank deposits in the United States, has recently moved to regulate FDIC supervised stablecoin issuers in accordance with the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act.

 

The agency, in a recent press release, announced that its board of directors had approved a Notice of Proposed Rulemaking to implement key provisions under the GENIUS Act.

 

According to the FDIC, this proposal would provide a prudential framework for permitted payment stablecoin issuers under its supervision, setting standards with regard to stablecoin reserve assets, redemption, capital, liquidity, and risk management that will be uniformly adhered to by all FDIC supervised stablecoin issuers.

 

The proposal will also establish requirements for FDIC supervised permitted payment stablecoin issuers and insured depository institutions that provide certain payment stablecoin related custodial and safekeeping services.

 

All entities under FDIC supervision, including permitted payment stablecoin issuers, which are entities legally approved to issue stablecoins in the United States, and insured depository institutions, which include banks and other federally insured financial institutions, must comply with this new FDIC stablecoin prudential rule if they are engaged in issuing stablecoins or providing related services.

 

Although the FDIC insures deposits at more than 4,000 financial institutions in the United States and supervises more than 2,700 banks, there are currently no approved permitted payment stablecoin issuers or insured depository institutions operating under this specific framework. Approval would only follow once the proposal becomes a final rule, after which entities may begin applying for supervision under the FDIC.

 

For the proposal to become a rule, it must be released for public comment, which has already occurred, with a 60-day window provided for feedback. After the 60-day window elapses, the FDIC will review the comments and feedback and make any necessary adjustments based on the public response.

 

The Office of the Comptroller of the Currency, the Federal Reserve, and, in some cases, the Treasury Department may be invited to review the final proposal to ensure it does not conflict with existing banking and financial laws. After this review, the FDIC board may approve it as a final rule, after which it is published in the Federal Register.

 

What happens after the proposal becomes law?

Upon the proposal becoming law, banks and other eligible financial institutions can then apply for designation as a Permitted Payment Stablecoin Issuer (PPSI) under FDIC supervision. The application is reviewed and either approved or denied by the FDIC within a period of 120 days. 

 

The FDIC will also regularly review the capital, reserves, risk controls, and compliance systems of these approved entities to ensure they are safe to operate.