FDIC Seeks to Establish Pathway for Subsidiaries of Insured Banks to Issue Payment Stablecoins
The Federal Deposit Insurance Corporation (FDIC) has issued a Notice of Proposed Rulemaking (NPR) to establish procedures for an insured depository institution (state-chartered insured banks that are not members of the Federal Reserve System and state-chartered savings associations) to become approved to issue payment stablecoins through a subsidiary pursuant to the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). Comments on the proposal are due 60 days after the NPR is published in the Federal Register.
Under the GENIUS Act, FDIC-supervised institutions with subsidiaries seeking to become a permitted payment stablecoin issuer (PPSI) must apply to the FDIC for the subsidiary to be approved to issue payment stablecoins, while other institution types must apply to the other primary federal payment stablecoin regulators. Once approved, the FDIC will be the entity's primary federal payment stablecoin regulator. The other primary federal payment stablecoin regulators, namely the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration, have not indicated when they will release proposed rules for entities under their supervision to become PPSIs, so stakeholders should continue to monitor for proposed rules from these agencies.
The FDIC's proposed rule would establish the scope, required materials, and processing for applications from such subsidiaries seeking to become PPSIs. The GENIUS Act requires that the FDIC only deny an application to become a PPSI if the activities of the applicant (including the proposed activities of the subsidiary) would be unsafe or unsound based on the factors described in Section 5(c) of the GENIUS Act, which include factors relating to the institution's management, financial condition, redemption policy, and general safety and soundness concerns.
Statutory Background
As outlined in our previous alert, the GENIUS Act was enacted earlier this summer and establishes a regulatory framework for payment stablecoins and their issuers. The Act will take effect within 18 months after enactment or 120 days after any final regulations implementing the Act are issued, whichever is earlier, at which point the issuance of payment stablecoins in the United States by anyone other than a PPSI will be prohibited.
A "payment stablecoin" is defined as a digital asset (i) that is, or is designed to be, used as a means of payment or settlement, and (ii) the issuer of which is obligated to redeem for a fixed amount of monetary value and represents or creates the reasonable expectation that it will maintain a stable value relative to a fixed amount of monetary value.
Proposed Application Requirements
The proposed rule would require applicants to submit the following application materials, among other things:
- A description of the proposed payment stablecoin and proposed activities of the subsidiary, including how the subsidiary plans to maintain the proposed payment stablecoin's stable value (including any planned applicant-provided sources of strength, applicant guarantees or intercompany agreements).
- A description of any proposed activities incidental to payment stablecoin activities or digital asset service provider activities of the subsidiary.
- Relevant financial information for the subsidiary, including planned capital and liquidity structure, reserve assets and composition and associated asset management plan, and financial projections for the first three years of operations.
- Identities, roles and responsibilities of the entities involved in the proposed payment stablecoin activities, including what activities would be performed at the applicant and subsidiary levels or by any third parties.
- Information on the ownership and control structure, governance structure, and proposed directors, officers and shareholders.
- Relevant policies, procedures and customer agreements, including for custody and safekeeping, segregating customer and reserve assets, recordkeeping, reconciliation and transaction processing, redemption procedures in accordance with the GENIUS Act, and Bank Secrecy Act/anti-money laundering/countering the financing of terrorism and economic sanctions requirements.
Moreover, applicants would be required to include an engagement letter with a registered public accounting firm, which is intended to demonstrate that applicants are prepared to comply with the examination of monthly reserve reports and certification requirements established by the GENIUS Act.
Comments Requested
The FDIC is seeking comments on all aspects of the proposed rule, including:
- Whether the FDIC should consider other factors beyond those listed in the GENIUS Act in determining whether an applicant's activities would potentially be unsafe or unsound, and, if so, what factors. At this time the FDIC has not proposed that it will consider any additional factors.
- Whether the proposed rule effectively captures the types of information the FDIC would need to evaluate the statutory factors for unique ownership or control structures of the PPSI.
- What types of information applicants should submit to the FDIC to substantiate the sufficiency of their capital or liquidity structures.
Stinson LLP attorneys are prepared to advise insured depository institutions and other stakeholders regarding their stablecoin issuance services, emphasizing business sense while maintaining regulatory compliance. For more information, please contact Heidi Wicker, Matthew Grimaldi, or the Stinson LLP contact with whom you regularly work.
