Proposed Rule2026-02868
Investments in and Licensing of Permitted Payment Stablecoins Issuers
Primary source
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Published
February 12, 2026
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is seeking comment on proposed regulations to implement portions of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The GENIUS Act charges the NCUA with licensing, regulating, and supervising payment stablecoin issuers that are subsidiaries of federally insured credit unions (FICU subsidiaries). The GENIUS Act also requires the NCUA to issue implementing regulations by July 18th, 2026. This proposed rule proposes regulations to implement the statutorily required process for approval and licensure of permitted payment stablecoin issuers (PPSIs) subject to the NCUA's jurisdiction. It also proposes regulations limiting FICUs to investing in NCUA-licensed PPSIs. A forthcoming proposal will propose regulations to implement the standards and restrictions imposed by the GENIUS Act on PPSIs.
Full Text
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<title>Federal Register, Volume 91 Issue 29 (Thursday, February 12, 2026)</title>
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[Federal Register Volume 91, Number 29 (Thursday, February 12, 2026)]
[Proposed Rules]
[Pages 6531-6552]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-02868]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 91, No. 29 / Thursday, February 12, 2026 /
Proposed Rules
[[Page 6531]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 706
RIN 3133-AF69
Investments in and Licensing of Permitted Payment Stablecoins
Issuers
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: The NCUA Board (Board) is seeking comment on proposed
regulations to implement portions of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act). The GENIUS
Act charges the NCUA with licensing, regulating, and supervising
payment stablecoin issuers that are subsidiaries of federally insured
credit unions (FICU subsidiaries). The GENIUS Act also requires the
NCUA to issue implementing regulations by July 18th, 2026. This
proposed rule proposes regulations to implement the statutorily
required process for approval and licensure of permitted payment
stablecoin issuers (PPSIs) subject to the NCUA's jurisdiction. It also
proposes regulations limiting FICUs to investing in NCUA-licensed
PPSIs. A forthcoming proposal will propose regulations to implement the
standards and restrictions imposed by the GENIUS Act on PPSIs.
DATES: Comments must be received by April 13, 2026.
ADDRESSES: Comments may be submitted in one of the following ways.
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
The docket number for this proposed rule is NCUA-2025-1335. Follow the
``Submit a comment'' instructions. If you are reading this document on
<a href="http://federalregister.gov">federalregister.gov</a>, you may use the green ``SUBMIT A PUBLIC COMMENT''
button beneath this rulemaking's title to submit a comment to the
<a href="http://regulations.gov">regulations.gov</a> docket. A plain language summary of the proposed rule
is also available on the docket website.
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mailing address.
Mailed and hand-delivered comments must be received by the close of
the comment period.
Public inspection: Please follow the search instructions on <a href="https://www.regulations.gov">https://www.regulations.gov</a> to view the public comments. Do not include any
personally identifiable information (such as name, address, or other
contact information) or confidential business information that you do
not want publicly disclosed. All comments are public records; they are
publicly displayed exactly as received, and will not be deleted,
modified, or redacted. Comments may be submitted anonymously. If you
are unable to access public comments on the internet, you may contact
the NCUA for alternative access by calling (703) 518-6540 or emailing
<a href="/cdn-cgi/l/email-protection#561911151b373f3a163835233778313920"><span class="__cf_email__" data-cfemail="83ccc4c0cee2eaefc3ede0f6e2ade4ecf5">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT:
Office of Examination and Insurance: Amanda Parkhill, at (703) 518-
6385 or at 1775 Duke Street, Alexandria, VA 22314.
Office of General Counsel: Thomas Zells and Rachel Ackmann, Senior
Staff Attorneys; or Ariel Woodard-Stephens, Staff Attorney at (703)
518-6540 or at the above address.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Legal Authority
III. Proposed Rule
A. Sec. 706.1 Authority, Purpose, and Scope
B. Sec. 706.2 Definitions
C. Sec. 706.101 Scope
D. Sec. 706.102 Rules of General Applicability
E. Sec. 706.103 Filing Required
F. Sec. 706.104 Investigations
G. Sec. 706.105 Evaluation of Applications and Factors To Be
Considered
H. Sec. 706.106 Timing for Decision on Applications
I. Sec. 706.107 Denial
J. Sec. 706.108 Opportunity for Hearing; Final Determination
K. Sec. 706.109 Right To Reapply
L. Sec. 706.110 Certification of Anti-Money Laundering and
Economic Sanctions Compliance Programs
M. Sec. 706.111 Change in Control
N. Sec. 706.112 Investment Limitation
O. Safe Harbor for Pending Applications
P. Relation to Other Licensing Requirements
Q. Reports on Pending Applications
IV. Regulatory Procedures
A. Providing Accountability Through Transparency Act of 2023
B. Executive Orders 12866, 13563, and 14192
C. Regulatory Flexibility Act
D. Paperwork Reduction Act
E. Executive Order 13132 on Federalism
F. Assessment of Federal Regulations and Policies on Families
I. Background
On July 18, 2025, President Trump signed the GENIUS Act into law.
The GENIUS Act establishes a regulatory framework for payment
stablecoins and provides pathways for regulation at both the Federal
and State level.
Under the GENIUS Act, ``insured depository institutions,'' which
the Act defines to include both FDIC-insured depository institutions
and FICUs (collectively referred to as ``IDIs''), cannot be issuers of
payment stablecoins. Instead, IDIs must use ``subsidiaries'' as
issuers. The GENIUS Act defines the term ``subsidiary of an insured
credit union'' to mean ``(A) an organization providing services to the
insured credit union that are associated with the routine operations of
credit unions, as described in section 107(7)(I) of the Federal Credit
Union Act (12 U.S.C. 1757(7)(I)); (B) a credit union service
organization, as such term is used under part 712 of title 12, Code of
Federal Regulations, with respect to which the insured credit union has
an ownership interest or to which the insured credit union has extended
a loan; and (C) a subsidiary of a State chartered insured credit union
authorized under State law.'' The GENIUS Act requires that issuers that
are subsidiaries of IDIs (including subsidiaries of FICUs) must be
regulated by the primary Federal payment stablecoin regulators and does
not allow them to opt for the state-level regulatory framework. Thus,
the NCUA has jurisdiction over payment stablecoin issuers that are FICU
subsidiaries.
Under the GENIUS Act, only PPSIs may issue a payment stablecoin in
the United States, subject to certain
[[Page 6532]]
exceptions and safe harbors. PPSIs are subject to a number of
requirements, including requirements related to reserves, capital,
liquidity, illicit finance, and information technology risk management
standards. For example, PPSIs must maintain reserves backing the
stablecoin on a one-to-one basis using U.S. currency or certain other
liquid assets, as specified. PPSIs must also publicly disclose their
redemption policy and publish monthly the details of their reserves.
The GENIUS Act details the process for the primary Federal payment
stablecoin regulators, which include the NCUA, the Federal Deposit
Insurance Corporation (FDIC), the Office of the Comptroller of the
Currency (OCC), and the Board of Governors of the Federal Reserve
System (Federal Reserve Board), to evaluate and review applications for
licenses to be PPSIs and provides examination, supervision, and
enforcement authority over PPSIs. Other issues addressed in the GENIUS
Act include the provision of custody services for payment stablecoins;
application of the Bank Secrecy Act and anti-money laundering and
economic sanctions requirements; and treatment of payment stablecoin
issuers in insolvency proceedings.
The GENIUS Act establishes clear prohibitions and penalties to
prevent the misrepresentation of Federal backing or insurance for
payment stablecoins and to ensure that only authorized products may be
marketed as such.\1\ The Act explicitly dictates that payment
stablecoins are not backed by the full faith and credit of the United
States, they are not guaranteed by the U.S. Government, nor are they
covered by deposit or share insurance from the FDIC or NCUA. Similarly,
it is unlawful to market any product as a ``payment stablecoin'' in the
United States unless it is issued pursuant to the GENIUS Act's
procedures.\2\
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\1\ See 12 U.S.C. 5903(e).
\2\ 12 U.S.C. 5903(e)(3).
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As detailed below, the GENIUS Act imposes a number of rulemaking,
review, and reporting requirements on the primary Federal payment
stablecoin regulators, including the NCUA. This proposal proposes
regulations to implement the statutorily required process for licensure
of PPSIs subject to the NCUA's jurisdiction. It also proposes
regulations limiting FICUs to investing in NCUA-licensed PPSIs. A
forthcoming proposal will propose regulations to implement the
standards and restrictions imposed by the GENIUS Act on PPSIs.
Separately, as is required by the GENIUS Act, the NCUA is engaging
in a required review of its existing guidance and regulations to
determine what steps are necessary, if any, to amend or promulgate new
regulations and guidance to clarify FICUs' authority to engage in the
payment stablecoin activities and investments contemplated by the
GENIUS Act.
In addition to the above, the GENIUS Act requires the NCUA to
examine and supervise issuers that are FICU subsidiaries. Thus, the
NCUA is working to update various NCUA examination policies, guidance,
and procedures, such as the National Supervision Policy Manual and
Examiner's Guide, to accommodate the new examination and supervision
authority over FICU subsidiaries. The NCUA is also working to determine
whether further guidance to FICUs and FICU subsidiaries may be
necessary on these subjects.
II. Legal Authority
As discussed in Section I. Background of this SUPPLEMENTARY
INFORMATION section, the NCUA is a primary Federal payment stablecoin
regulator with respect to a FICU or FICU subsidiary.\3\ As a primary
Federal payment stablecoin regulator, the GENIUS Act provides authority
for the NCUA to approve and license issuance of payment stablecoins
through FICU subsidiaries,\4\ establish regulations for issuing payment
stablecoins,\5\ and examine for and enforce applicable requirements
imposed on FICU subsidiaries.\6\ The GENIUS Act also confers authority
related to standards for custody of payment stablecoin reserves.\7\ The
GENIUS Act grants the NCUA general authority to promulgate regulations
to carry out the GENIUS Act through appropriate notice and comment
rulemaking.\8\
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\3\ 12 U.S.C. 5901(25)(B).
\4\ 12 U.S.C. 5904.
\5\ 12 U.S.C. 5903(h).
\6\ 12 U.S.C. 5905.
\7\ 12 U.S.C. 5909.
\8\ 12 U.S.C. 5913.
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Apart from the GENIUS Act, the FCU Act grants the NCUA a broad
mandate to issue regulations governing both Federal Credit Unions
(FCUs) and all FICUs. Section 120 of the FCU Act is a general grant of
regulatory authority, and it authorizes the Board to prescribe rules
and regulations for the administration of the FCU Act.\9\ Section 209
of the FCU Act is a plenary grant of regulatory authority to the NCUA
to issue rules and regulations necessary or appropriate to carry out
its role as share insurer for all FICUs.\10\
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\9\ 12 U.S.C. 1766.
\10\ 12 U.S.C. 1789.
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Additionally, Section 204 of the FCU Act authorizes the Board,
through its examiners, ``to examine any [federally] insured credit
union . . . to determine the condition of any such credit union for
insurance purposes.'' \11\ Section 206(e) of the FCU Act authorizes the
Board to take certain actions against a FICU, if, in the opinion of the
Board, the credit union ``is engaging or has engaged, or the Board has
reasonable cause to believe that the credit union or any institution
affiliated party is about to engage, in any unsafe or unsound practice
in conducting the business of such credit union.'' \12\ Therefore, the
Board has statutory authority to determine whether a FICU is operated
in an unsafe or unsound manner and terminate a FICU's insurance if a
FICU is not operated in a safe or sound manner.
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\11\ 12 U.S.C. 1784.
\12\ 12 U.S.C. 1786.
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III. Proposed Rule
The Board interprets the GENIUS Act to limit PPSI status to those
institutions functioning as a subsidiary of an insured depository
institution (including a FICU),\13\ a Federal qualified payment
stablecoin issuer,\14\ and a State qualified payment stablecoin
issuer.\15\
[[Page 6533]]
FICUs are not permitted to issue stablecoins directly. However, the
GENIUS Act provides that subsidiaries of IDIs may apply and be approved
to be PPSIs. As FICUs are expressly defined as IDIs, FICU subsidiaries
may apply for and receive approval and license under the GENIUS Act to
be PPSIs.
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\13\ As discussed throughout the proposed rule, the GENIUS Act
uses banking-specific terminology when defining PPSIs. For example,
the GENIUS Act uses the two defined terms ``subsidiary'' and
``insured depository institution'' without using the defined term,
``subsidiary of an insured credit union.'' With respect to
subsidiaries of FICUs, the Board believes the defined terms
``subsidiary'' of an ``insured depository institution'' should be
read referring to the defined term ``subsidiary of an insured credit
union.'' Given that FICUs are defined as insured depository
institutions, it appears reasonable to read the terms synonymously.
Additionally, the GENIUS Act expressly provides that all
subsidiaries of an insured credit union are subject to NCUA
jurisdiction incorporating the defined term of ``subsidiary of an
insured credit union'' into the definition of primary Federal
payment stablecoin regulator. The term primary Federal payment
stablecoin regulator is used for approvals under section 5 and it
would be inharmonious for the NCUA to approve applications for
issuers that otherwise are not subject to NCUA supervision.
\14\ A Federal qualified payment stablecoin issuer includes (1)
a nonbank entity, (2) an uninsured national bank, and (3) a Federal
branch. A nonbank entity means a person that is not a depository
institution or subsidiary of a depository institution. Therefore,
FICUs and their subsidiaries would not qualify as a Federal
qualified payment stablecoin issuer.
\15\ A State qualified payment stablecoin issuer is an entity
that is: (A) legally established under the laws of a State and
approved to issue payment stablecoins by a State payment stablecoin
regulator; and (B) is not an uninsured national bank chartered by
the OCC, a Federal branch, an IDI, or a subsidiary of a national
bank, Federal branch, or IDI. FICUs and FICU subsidiaries, including
CUSOs, therefore, would not qualify as a State qualified payment
stablecoin issuer.
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Section 5 of the GENIUS Act establishes the procedures and
standards for the ``approval of subsidiaries of insured depository
institutions.'' \16\ The NCUA is required to ``receive, review, and
consider for approval applications'' to issue payment stablecoins
through a FICU subsidiary and to ``establish a process and framework
for the licensing, regulation, examination and supervision of such
entities that prioritizes the safety and soundness of such entities.''
Section 5(a)(2) requires the NCUA to issue regulations to carry out
section 5.\17\ Section 5(g) further requires that the NCUA issue rules
necessary for the regulation of the issuance of payment
stablecoins.\18\
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\16\ 12 U.S.C. 5904.
\17\ 12 U.S.C. 5904(a)(2).
\18\ 12 U.S.C. 5904(g).
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As explained in more detail later in this preamble, the GENIUS Act
does not allow FICUs to directly issue payment stablecoins and instead
provides that they must be issued through FICU subsidiaries that
receive an NCUA-PPSI license. The Board has made certain decisions in
implementing the GENIUS Act's application and licensing requirements
that it believes will simplify the process and reduce the costs for the
credit union industry and the NCUA. The Board discusses this approach
in more detail later in this preamble, but wishes to provide a high-
level summary so that interested parties understand why the Board has
taken this nuanced approach and are able to appreciate the efficiencies
it will allow in implementation.
The Board has preliminarily determined that it is preferrable for
FICU subsidiaries themselves to submit the required applications to be
an NCUA-licensed PPSI jointly with their FICU Parent Company(ies), as
defined in this proposed rule, rather than having every single FICU
investing in them submit an application. The Board's proposed approach
would also require the applying FICU subsidiary, and any of its FICU
Parent Companies and Principal Shareholders, to provide written
certification that any filing or supporting material submitted to the
NCUA contains no material misrepresentations or omissions. Further, as
required by the GENIUS Act, all Directors and Officers of the applying
FICU subsidiary, its FICU Parent Company(ies), and any of its Principal
Shareholders would have to provide certain information so that the NCUA
can evaluate their competence, experience, and integrity and ensure
they do not have felony convictions prohibited by the GENIUS Act.
Finally, the Board is proposing to limit FICUs to investing in NCUA-
licensed PPSIs. The Board believes this limitation is consistent with
the definition of FICU subsidiary in the GENIUS Act and should not pose
a barrier to the credit union industry's ability to facilitate payment
stablecoin services for their members.
The Board has chosen this approach because it believes it is most
consistent with the intent of the GENIUS Act as applied to FICUs and
FICU subsidiaries. The Board believes that if the NCUA required every
single investing FICU to apply to the NCUA directly for PPSI licenses
instead of the FICU subsidiary applying jointly with any FICU Parent
Company(ies), a widely held applying FICU subsidiary would result in an
unmanageable number of applications from each applying FICU. The Board
is of the view that widely held FICU subsidiaries are likely and thinks
that the chosen approach will minimize burdens on both the credit union
industry and the NCUA.
The proposed approach requires the applying FICU subsidiary to work
with FICUs and others investing materially in the subsidiary as part of
the application process. The Board believes that the requirements for
joint application and written certification that any filing or
supporting material submitted to the NCUA contains no material
misrepresentations or omissions will ensure that the applying FICU
subsidiary and all material investors stand behind the application and
understand what services they are intending to offer, their
responsibilities, and their associated risks.
The Board understands that the approach taken in this proposed rule
is nuanced. However, the Board believes that this nuance is key to
ensuring that the NCUA fulfills its obligations in approving permitted
payment stablecoin issuers under the GENIUS Act and minimizing the
administrative burdens and costs on both the NCUA and the credit union
industry. The Board also believes this approach better reflects
standards and characteristics that are unique to the cooperative model
in which credit unions operate
Request for Comment: The Board requests comment on the approach it
has taken with regards to applications, certifications, and investment
limitations and as to whether requiring each FICU investing in a PPSI
to apply would be more prudent.
The NCUA is proposing the below procedures and standards for the
approval of a license for a PPSI that is a FICU subsidiary. Each
section of the proposed rule will be discussed separately.
A. Sec. 706.1. Authority, Purpose, and Scope
The proposed rule would state that the NCUA is issuing part 706
under the GENIUS Act. Section 706.1 would state that part 706 applies
to FICUs and all payment stablecoin issuers with investment or loans
from FICUs and sets forth such entities' requirements for an NCUA-
issued license. Finally, Sec. 706.1 would state that there is nothing
in this part that shall be read to limit the authority of the NCUA to
take action under provisions of law other than the GENIUS Act,
including action to address unsafe or unsound practices or conditions,
or violations of law or regulation, under section 206 of the FCU Act.
B. Sec. 706.2. Definitions
Proposed Sec. 706.2 would provide the definitions used throughout
part 706. It would state that, unless otherwise provided in part 706,
the terms used in this part have the same meanings as set forth in 12
U.S.C. 1752 and 5901. It would also state that all accounting terms not
otherwise defined in this part have meanings consistent with the
commonly accepted meanings under United States generally accepted
accounting principles (U.S. GAAP). Proposed Sec. 706.2 would provide
the following defined terms specific to part 706.
1. Applying Issuer
The proposed rule would define the term ``Applying Issuer'' to mean
any entity applying to the NCUA for an NCUA-PPSI license. The proposed
rule would use this term throughout part 706 to generally refer to any
entity, whether licensed or approved as a PPSI or yet to be licensed or
approved, that is applying for an NCUA-PPSI license. As is required in
proposed Sec. 706.103, an Applying Issuer must apply jointly with any
insured credit union Parent Company(ies), as defined in the proposed
rule.
[[Page 6534]]
2. Director
The proposed rule would define the term ``Director'' to mean an
individual who serves on the board of directors of an Applying Issuer,
a Parent Company of the Applying Issuer, or a Principal Shareholder of
the Applying Issuer. Under the proposed rule, individuals meeting the
definition of a Director will generally need to complete the NCUA's
Biographical and Financial Report so that the NCUA can verify their
competence, experience, and integrity, as is required by the GENIUS
Act.\19\ The Directors and proposed Directors of an Applying Issuer
will also generally need to provide legible fingerprints for a
biometric based criminal history search so that the NCUA can evaluate
whether any of these individuals have been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud as is required
by the GENIUS Act.\20\
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\19\ See 12 U.S.C. 5904(c)(3).
\20\ 12 U.S.C. 5904(c)(2).
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3. Issuing Group
The proposed rule would define the term ``Issuing Group'' to mean
the Applying Issuer and Parent Company(ies) and the Officers,
Directors, and Principal Shareholders, if applicable, of the Applying
Issuer, its subsidiaries, and Parent Company(ies).
4. NCUA-Licensed Permitted Payment Stablecoin Issuer
The proposed rule would define an NCUA-Licensed Permitted Payment
Stablecoin Issuer to mean a person formed in the United States that is
a FICU subsidiary that has been approved and licensed by the NCUA under
subpart A to issue payment stablecoins.
5. Officer
The proposed rule would define the term ``Officer'' to mean the
president, chief executive officer, chief operating officer, chief
financial officer, chief technology officer, chief lending officer,
chief investment officer, chief risk officer, Bank Secrecy Act officer,
and any other individual the NCUA identifies in writing to the Issuing
Group who exercises significant influence over, or participates in,
major policy making decisions of the Issuing Group without regard to
title, salary, or compensation. The term also includes employees of
entities retained by an Issuing Group to perform such functions in lieu
of directly hiring the individuals. Under the proposed rule,
individuals meeting the definition of an Officer will generally need to
complete the NCUA's Biographical and Financial Report so that the NCUA
can verify their competence, experience, and integrity, as is required
by the GENIUS Act.\21\ The Officers and proposed Officers of an
Applying Issuer will also generally need to provide legible
fingerprints for a biometric based criminal history search so that the
NCUA can evaluate whether any of these individuals have been convicted
of a felony offense involving insider trading, embezzlement,
cybercrime, money laundering, financing of terrorism, or financial
fraud as is required by the GENIUS Act.\22\
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\21\ See 12 U.S.C. 5904(c)(3).
\22\ 12 U.S.C. 5904(c)(2).
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6. Parent Company
The proposed rule would define the term ``Parent Company.'' The
GENIUS Act requires that applications for a PPSI license granted by a
primary Federal payment stablecoin regulator be evaluated using
specifically defined factors.\23\ One of these factors requires the
NCUA to evaluate the competency, experience, and integrity of the
Officers and Directors of the Applying Issuer's Parent
Company(ies).\24\ The proposed rule would define the term Parent
Company to specify when a FICU must sign onto an application and when a
FICU's Officers and Directors should be evaluated as part of an
Applying Issuer's licensure application. The term Parent Company would
also be used to determine when a FICU's investment in an NCUA-licensed
PPSI requires prior notice as a change in control.
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\23\ 12 U.S.C. 5904(b)-(c).
\24\ 12 U.S.C. 5904(c)(3).
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The proposed rule would define a Parent Company as ``an insured
credit union(s) that will own, control or hold the power to vote 10
percent or more of any class of voting securities, or has the ability
to direct the management or policies, of a Permitted Payment Stablecoin
Issuer. If no insured credit union will own, control or hold the power
to vote 10 percent or more of any class of voting securities, the FICU
with the largest percentage of voting securities in relation to all
other FICUs is considered the Parent Company.'' Under this definition,
any FICU that owns 10 percent or more of a class of voting securities
would be a Parent Company. Additionally, if no FICU owns 10 percent or
more of a class of voting securities, then the FICU with the greatest
percentage of a class of voting securities in relation to any other
FICU is the Parent Company for purposes of an NCUA PPSI license. The
definition would also provide that a FICU that has the ability to
direct the management or policies of a PPSI would be considered a
Parent Company. The Board believes it is important that the definition
of Parent Company cover FICUs that have the power to direct the
management or policies of a PPSI regardless of their ownership
interests.
The proposed definition is derived from the FDIC's change of
control regulations.\25\ The intent of the definition is to capture
only the FICUs that are most likely to control or direct the management
and policies of the PPSI. Under the proposed definition, if there is an
Applying Issuer that is widely held by FICUs, then only the FICUs with
10 percent or more of a class of voting securities would be considered
Parent Companies. For example, if 87 FICUs have an ownership interest
in an Applying Issuer, but 83 of those FICUs own less than 10 percent,
the NCUA would only require the four FICUs that own 10 percent or more
to jointly file the application.
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\25\ 12 CFR 303, subpart E. The Board is aware that the FDIC's
change in control regulations provide a rebuttable presumption of
control for less than 25 percent ownership of a class of voting
securities, and that the 10 percent threshold depends, in part, on
whether the bank is held publicly or privately. The Board did not
adopt these additional elements to reduce the complexity in the
proposed rule, but has solicited comment on the appropriate
threshold.
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As another example, if one FICU shareholder owns 8 percent of a
class of voting securities and no other FICU shareholder owns 10
percent or more, then the FICU shareholder with 8 percent would be
considered the Parent Company. Under the proposed definition, it does
not matter if there are six other FICU shareholders that own 5 percent
or if there is a non-FICU shareholder that owns 51 percent. However,
if, instead, there is a FICU shareholder that owns 13 percent of a
class of voting securities, then only the FICU with the 13 percent
ownership would be considered the Parent Company.
The Board believes the definition is the best interpretation of the
term Parent Company as used in the GENIUS Act and appropriately
balances the NCUA's allocation of its resources with its statutory
mandate under the GENIUS Act. While the GENIUS Act requires that the
Board evaluate certain statutory factors related to the Officers and
Directors of the Parent Company, the Board does not believe it is
practical or consistent with congressional intent for the NCUA to
review the Officers and Directors of each investing FICU. The Board
also does not believe it is practical or consistent with congressional
intent for the NCUA to review licensure applications from each
[[Page 6535]]
investing FICU. Requiring this level of review would disadvantage
Applying Issuers seeking NCUA licenses and FICUs investing in them as
compared to proposed PPSIs and other IDIs seeking licenses from other
primary Federal payment stablecoin regulators that may be more likely
to have a single-parent ownership structure. It would also impose a
prohibitive burden on the NCUA's resources, especially when considering
the 120-day deadline the GENIUS Act imposes on the NCUA for rendering a
decision on a substantially complete application.
In summary, the Board believes it is prudent to only require joint
application filing and review of the Officers and Directors of an
investing FICU when the FICU would have a material amount of control of
the PPSI. The Board selected 10 percent as that is a reasonable
threshold used for determining a material amount of control under
certain banking laws.
Request for Comment: The Board specifically solicits comment on
whether this is the appropriate threshold. Do commenters believe that a
higher threshold would be appropriate? For example, 25 percent of any
class of voting securities? If so, why? Should other factors be
considered in evaluating control?
Request for Comment: Under the proposed definition, if no FICU owns
10 percent or greater of a class of voting securities, then the FICU(s)
with the greatest ownership interest, even if that ownership is less
than 10 percent, is the Parent Company. In theory, 100 FICUs could each
own 1 percent and all would technically be considered the Parent
Company. Is a widely held subsidiary with equal de minimis ownership
interests likely? If so, should the Board adopt a provision such that
the widely held group selects one FICU to be the Parent Company? The
Board may consider adopting a provision that the widely held Issuing
Group could designate the Parent Company(ies).
7. Principal Shareholder
The proposed rule would define the term ``Principal Shareholder.''
The GENIUS Act requires that applications for a PPSI license granted by
a primary Federal payment stablecoin regulator be evaluated using
specifically defined factors.\26\ One of these factors requires the
NCUA to evaluate the competency, experience, and integrity of the
Officers and Directors of the Appling Issuer's Principal
Shareholders.\27\ The proposed rule would define a Principal
Shareholder to mean ``a person other than an insured credit union that
directly or indirectly or acting in concert with one or more persons or
companies, or together with members of their immediate family, will
own, control, or hold the power to vote 10 percent or more of any class
of voting securities.'' Under this definition, any non-FICU that owns
10 percent or more of a class of voting securities would be a Principal
Shareholder. The proposed rule would include the defined term of
Principal Shareholder to specify when a non-FICU's Officers and
Directors should be evaluated as part of an Applying Issuer's licensure
application.
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\26\ 12 U.S.C. 5904(b)-(c).
\27\ 12 U.S.C. 5904 (c)(3).
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The proposed definition is derived from the FDIC's change of
control regulations.\28\ The intent of the definition is to capture
only the non-FICUs that are most likely to have an ability to control
or direct the management and policies of the PPSI. Under the proposed
definition, if there is an Appling Issuer that is widely held by FICUs
that also has non-FICU shareholders, then only the non-FICU
shareholders with 10 percent or more of a class of voting securities
would be considered Principal Shareholders.
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\28\ 12 CFR part 303, subpart E.
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The Board believes the definition is the best interpretation of the
term Principal Shareholders as used in the GENIUS Act and appropriately
balances the NCUA's allocation of its resources with its statutory
mandate under the GENIUS Act. While the GENIUS Act requires that the
Board evaluate certain statutory factors related to the Officers and
Directors of the Principal Shareholders, the Board does not believe it
is practical or consistent with congressional intent for the NCUA to
review the Officers and Directors of each investing shareholder.
Requiring this level of review would disadvantage Applying Issuers
seeking NCUA licenses and FICUs investing in them as compared to
proposed PPSIs and other IDIs, which are more likely to be wholly
owned, seeking licenses from other primary Federal payment stablecoin
regulators. It would also impose a prohibitive burden on the NCUA's
resources, especially when considering the 120-day deadline the GENIUS
Act imposes on the NCUA for rendering a decision on a substantially
complete application.
In summary, the Board believes it is prudent to only review
Officers and Directors of an investing shareholder when the investing
shareholder would have a material amount of control of the PPSI. The
Board selected 10 percent as that is a common threshold used for
determining a material amount of control under banking law.
Request for Comment: The Board specifically solicits comment on
whether this is the appropriate threshold. Do commenters believe that a
higher threshold would be appropriate? For example, 25 percent of any
class of voting securities? If so, why? Should other factors be
considered in evaluating control?
Request for Comment: The Board also specifically solicits comment
as to whether an NCUA-licensed PPSI should be permitted to have non-
FICU investors or if there should otherwise be a cap on non-FICU
investment.
8. Subsidiary of an Insured Credit Union
The definition of Subsidiary of an Insured Credit Union, or FICU
subsidiary, in the GENIUS Act includes three separate prongs.
Specifically, the GENIUS Act defines a ``subsidiary of an insured
credit union'' to include the following:
(A) an organization providing services to the insured credit union
that are associated with the routine operations of credit unions, as
described in section 1757(7)(I) of this title;
(B) a credit union service organization, as such term is used under
part 712 of title 12, Code of Federal Regulations, with respect to
which the insured credit union has an ownership interest or to which
the insured credit union has extended a loan; and
(C) a subsidiary of a State chartered insured credit union
authorized under State law.\29\
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\29\ 12 U.S.C. 5901(33).
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Each prong is a separate and distinct avenue to qualify as a FICU
subsidiary for purposes of being a PPSI. Each prong will be discussed
separately below.
FCU Subsidiaries
An FCU subsidiary would have two avenues to qualify as a FICU
subsidiary PPSI. First, the GENIUS Act, under the first prong, states
that a FICU subsidiary includes ``an organization providing services to
the insured credit union that are associated with the routine
operations of credit unions, as described in section 1757(7)(I) of the
FCU Act.'' \30\ The GENIUS Act also provides, under the second prong of
the definition, that a credit union service organization (CUSO) as
defined in part 712 of the NCUA's regulations would meet the definition
of FICU subsidiary. Therefore, under the language of the GENIUS Act, an
entity does not have to
[[Page 6536]]
be, but may be, a CUSO under part 712 to qualify as a FICU subsidiary.
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\30\ 12 U.S.C. 5901(33)(A).
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However, the NCUA has historically interpreted the lending and
investment authority under the FCU Act as referring to the same types
of organizations.\31\ The NCUA's first CUSO rule explicitly stated that
``an organization described at Section 107(7)(I) of the [FCU Act], and
a `credit union organization,' as described at Section 107(5)(D) of the
[FCU Act], are identical entities.'' The NCUA explained its
interpretation in the preamble to its 1979 final rule after several
commenters questioned the definitional section of the proposed rule
that defined ``credit union service corporation'' to be both the entity
described at Section 107(7)(1) and Section 107(5)(D). In the preamble,
the NCUA discussed that the thrust of the comments was that the
definition was unduly restrictive and was not legally mandated. In
response, the NCUA stated that ``in light of the mandate in the
legislative history by Congressman St Germain that [investment]
authority is to be `exercised on a carefully controlled basis by NCUA,'
the Administration feels justified in tying the two definitions
together.'' The NCUA also stated that it found no substantive
difference in an organization ``which is established primarily to serve
the needs of its member credit unions, and whose business relates to
the daily operations of the credit unions they serve'' and an
organization ``providing services which are associated with the routine
operations of credit unions.'' The NCUA articulated that the
legislative history indicated that the House committee stands ready to
review investment interpretation matters upon request from NCUA
``[s]hould a case be made for a more liberal interpretation of the
provisions.''
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\31\ 44 FR 12401 (Mar. 7, 1979).
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The NCUA also noted that the FCU Act specifically ``intertwines the
lending and investment powers. For instance, section 107(7)(A) allows a
Federal credit union to ``invest'' its funds in ``loans exclusively to
members.'' Due to the preceding analysis, the NCUA believed that its
interpretation of sections 107(5)(D) and 107(7)(I) were justified. The
NCUA stated that ``[w]hile it may restrict the permissible activities
for Federal credit unions in this field, legislative history mandates a
rather conservative approach.'' \32\
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\32\ Id.
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Given NCUA's longstanding interpretation that the entities
described in sections 107(5)(D) and 1757(7)(I) of the FCU Act are
identical, the proposed rule would require any FCU that seeks to issue
payment stablecoins indirectly to do so through a CUSO. Specifically,
the Board will interpret the first and second prong under the
definition of Subsidiary of an Insured Credit Union as referring to the
same entity. Therefore, any proposed PPSI applicant must meet the
requirements in part 712. The Board is aware there may be some
provisions in part 712 that are unnecessary for NCUA-licensed PPSIs.
For example, investing or lending FICUs would not need to include a
contractual provision with the PPSI for the NCUA's access to books and
records given other more direct examination and enforcement authorities
under the GENIUS Act. However, other requirements such as the CUSO
Registry may be beneficial to apply to NCUA-licensed PPSIs. The CUSO
Registry is intended for the NCUA to gather certain operational and
financial data of CUSOs and could be used by NCUA-licensed PPSIs to
submit certain statutorily required information to NCUA. Additionally,
the public may use the Registry as a resource to find contact and
service information about various CUSOs. Including NCUA-licensed PPSIs
on the Registry would allow the public to search for and verify that a
payment stablecoin issuer is an NCUA-licensed PPSI.
Request for Comment: The Board solicits comments on which
provisions of part 712 should not be applicable to NCUA-licensed PPSIs.
The Board seeks to reduce regulatory redundancies and is considering
whether to explicitly exclude NCUA-licensed PPSIs from certain
provisions in part 712 as part of future rulemakings related to PPSI
issuer standards.
The Board notes that in 2021 it sought comments on whether it
should reconsider its longstanding interpretation of the lending and
investment authorities under the FCU Act.\33\ The Board has not yet
adopted this interpretation. However, if the Board does so at a future
date it would increase the types of organizations that an FCU may
invest in. Under such an interpretation, FCUs could potentially invest
in companies that broadly serve the financial services community, but
do not primarily serve credit unions and their members. For instance,
an FCU could invest in an organization with community banks that could
be primarily used by the community banks' customers but is also used by
the FCU's members.
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\33\ 86 FR 11645 (Feb. 26, 2021).
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If the Board revises its historic interpretation, then the first
and second prong of the Subsidiary of an Insured Credit Union
definition would refer to separate entities. The practical effect of
this would be that FCU subsidiaries that issue payment stablecoins
would not have to meet the ``primarily serve'' test under Sec.
712.3(b).
The Board also notes that the GENIUS Act has slightly different
wording related to FCU investment authority under section 1757(7)(I) of
the FCU Act. The FCU Act provides that any organization in which the
FCU invests must be providing services which are associated with the
routine operations of credit unions. The GENIUS Act, however, states
the organization providing services to the insured credit union must be
associated with the routine operations of credit unions. It appears
that the GENIUS Act requires investing FCUs to receive services from
any PPSI that qualifies as a subsidiary. The Board would more fully
consider the implications of this provision should it reconsider its
historic interpretation on sections 107(5)(D) and 1757(7)(I) of the FCU
Act.
Finally, the Board notes that there is a statutory limitation on
the amount of investment under section 1757(7)(I) of the FCU Act. An
FCU is only authorized to invest up to 1 percent of its total paid in
and unimpaired capital and surplus in organizations. An FCU that has
already invested 1 percent of its total paid in and unimpaired capital
and surplus in CUSOs, would not be able to invest any additional money
in a PPSI. Principally, the Board's interpretation related to sections
107(5)(D) and 1757(7)(I) of the FCU Act does not affect an FCU's total
investments under section 1757(7)(I) of the FCU Act. Total CUSO
investments and PPSI investments must be aggregated and limited to 1
percent of total paid in and unimpaired capital and surplus regardless
of the Board's interpretation.
Request for Comment: Should the Board reconsider in a separate
rulemaking its longstanding interpretation that the entities described
in sections 107(5)(D) and 1757(7)(I) of the FCU Act are identical? If
so, what would the implication be for PPSIs and non-PPSI CUSOs? Would a
revised interpretation result in any additional risk to FCUs?
Request for Comment: What is the impact of the wording differences
in the FCU Act and GENIUS Act related to section 1757(7)(I) of the FCU
Act? Would FCUs have to receive services from any PPSI in which it
invests under section 1757(7)(I) of the FCU Act?
Request for Comment: If the Board revises its historic
interpretation, what provisions of part 712 should apply to
[[Page 6537]]
subsidiaries of insured credit unions, if any? Should non-CUSO FICU
subsidiaries be required to register with the CUSO Registry? The Board
may consider requiring all FICU subsidiaries to register.
FISCU Subsidiaries
The GENIUS Act also broadly defines a subsidiary of a state-
chartered insured credit union (hereinafter a FISCU) as a FICU
subsidiary. Therefore, any entity that meets the FDI Act definition of
a subsidiary and is chartered by a FISCU would meet the definition of a
FICU subsidiary and be subject to NCUA supervisory authority if it is a
PPSI. The Board notes that under part 712, certain State subsidiaries
are defined as CUSOs and subject to certain requirements in part
712.\34\ However, a subsidiary is only a CUSO if that entity is engaged
primarily in providing products or services to credit unions or credit
union members. State subsidiaries that are not engaged primarily in
providing products or services to credit unions or credit union
members, would not meet the definition of CUSO and therefore would not
be subject to part 712.
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\34\ All sections of part 712 apply to FCUs. Sections
712.2(d)(2)(ii), 712.3(d), 712.4, and 712.11(b) and (c) apply to
FISCUs, as provided in Sec. 741.222 of the chapter. FISCUs must
follow the law in the state in which they are chartered with respect
to the sections in part 712 that only apply to FCUs. FISCUs must
follow the law in the state in which they are chartered with respect
to the sections in part 712 that only apply to FCUs.
---------------------------------------------------------------------------
The GENIUS Act definition does not require that the entity meet the
``engaged primarily in providing products or services to credit unions
or credit union members'' standard. Therefore, a FISCU subsidiary may
not be a CUSO, and not subject to part 712, but may be a FICU
subsidiary for purposes of the GENIUS Act and subject to NCUA
supervisory authorities if it is, or applies to be, a PPSI.
Indirect Subsidiaries
A FICU may establish one or more intermediate entities, by itself
or with third parties, to invest in a PPSI. If the FICU is an FCU then
any entity in which it invests is subject to the CUSO regulation as all
levels or tiers of a CUSO are subject to part 712. Therefore,
establishing multi-tiered corporate structures does not circumvent the
NCUA's jurisdiction as a primary Federal payment stablecoin regulator.
This would also be true for subsidiaries of FISCUs that primarily serve
credit unions, as such entities are also subject to the CUSO rule.
However, for a FISCU that has a subsidiary that does not primarily
serve credit unions, part 712 is not applicable.\35\ Therefore, the
proposed rule would provide that all tiers or levels of a FICU
subsidiary are included as a FICU subsidiary under part 706. Thus, if a
FISCU establishes a holding company or issues payment stablecoins
through a multi-tiered subsidiary structure, the NCUA would remain a
primary Federal payment stablecoin regulator with respect to the
subsidiary.
---------------------------------------------------------------------------
\35\ 73 FR 23982 (May 1, 2008).
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Application to Existing CUSOs
The GENIUS Act generally limits the activities that a PPSI may
engage in.\36\ Specifically, a PPSI may only (i) issue payment
stablecoins; (ii) redeem payment stablecoins; (iii) manage related
reserves, including purchasing, selling, and holding reserve assets or
providing custodial services for reserve assets, consistent with State
and Federal law; (iv) provide custodial or safekeeping services for
payment stablecoins, required reserves, or private keys of payment
stablecoins, consistent with the GENIUS Act; and (v) undertake other
activities that directly support any of the above activities. PPSIs may
also engage in digital asset service provider activities specified in
the GENIUS Act and activities incidental thereto, that are authorized
by the primary Federal payment stablecoin regulators.\37\
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\36\ 12 U.S.C. 5903(a)(7).
\37\ See 12 U.S.C. 5903(a)(7)(B); 12 U.S.C. 5901(7) (defining
digital asset service provider).
---------------------------------------------------------------------------
Given this limitation on other activities, the Board believes it is
likely that existing CUSOs would not seek to become PPSIs.
Additionally, the NCUA would have examination and enforcement authority
over the PPSI that it does not have over traditional CUSOs. The Board
notes that for existing CUSOs the NCUA only has contractual rights to
access books and records. For example, the NCUA cannot take an
enforcement action against a CUSO (provided the CUSO is not an
institution-affiliated party), even if the NCUA perceives a risk after
accessing the CUSO's books and records.
Request for Comment: To what extent do commenters believe FICUs
will seek to issue payment stablecoins through existing CUSOs? Or do
commenters believe it will be more likely for FICUs to establish new
subsidiaries if they seek to issue payment stablecoins?
Request for Comment: The Board solicits commenter's feedback on all
of these definitions and the approach to generally incorporating the
definitions in the GENIUS Act by reference. Should the NCUA include the
definitions in the GENIUS Act in the NCUA's regulation? The Board also
notes that further definitions may be proposed as part of a future
notice of proposed rulemaking implementing standards for NCUA-licensed
PPSIs. The Board also requests input as to whether additional defined
terms are necessary for implementation of the GENIUS Act.
C. Sec. 706.101. Scope
Section 706.101 establishes the scope of Subpart A and states the
subpart contains the NCUA rules and procedures for FICUs seeking to
invest in payment stablecoin issuers and for FICUs and their
subsidiaries to jointly apply for a license from the NCUA to be a PPSI.
It also notes that Subpart A contains the information on rules of
applicability, where and how to file an application to become an NCUA-
licensed PPSI, and provides the requirements and policies applicable to
filings.
D. Sec. 706.102. Rules of General Applicability
Section 706.102 sets forth the general rules governing the process
for an Applying Issuer to seek a license to become an NCUA-licensed
PPSI. Paragraph (a) of proposed Sec. 706.102 would state that
additional filing guidance, including policies and procedures, are
included in the NCUA's Payment Stablecoin Issuer Manual (Manual). The
Manual would be posted on NCUA's website and include detailed
information about the application process, including the required
information, examples, forms, and additional resources for Applying
Issuers. Paragraph (b) of proposed Sec. 706.102 would state that
electronic filing is encouraged but not required.
Paragraph (c) of proposed Sec. 706.102 would include a reservation
of authority. The reservation of authority would state that the Board
may adopt materially different procedures for a particular filing, or
class of filings as it deems necessary, for example, in exceptional
circumstances or for unusual transactions. The Board would provide
notice of the change to the filer and to any other party that the Board
determines should receive notice. The Board expects to apply the
reservation of authority only in limited circumstances. When making any
such determination, the Board would consider all relevant factors
affecting the filing and the activities of the Applying Issuer, its
investors, and Parent Company, including their activities, business
models, and risk-management practices. Any exercise of authority under
this section by the Board would be in writing.
[[Page 6538]]
Finally, paragraph (d) of proposed Sec. 706.102 provides
additional information on timing considerations. Specifically, the
proposed rule would provide that the NCUA does not include the day of
the act or event (e.g., the date a filing is received by the NCUA) from
which the period begins to run. When the last day of a period is a
Saturday, Sunday, or Federal holiday, the period runs until the end of
the next day that is not a Saturday, Sunday or Federal holiday.
Request for Comment: The Board seeks comment on these general rules
of applicability. The Board is especially interested in commenter input
as to adoption of a Manual. Do commenters believe this approach is
appropriate? If so, what do commenters believe should be addressed in
the Manual? The Board specifically solicits comment as to:
1. What information or resources would be most helpful for the NCUA
to include in the Manual? Are there specific areas such as financial
projections, risk management strategies, or operational models where
more detailed explanations or model templates would be useful?
2. What documentation or evidence should the Manual suggest
applicants provide to demonstrate the financial condition and resources
necessary to maintain reserves on a 1:1 basis as a payment stablecoin
issuer?
3. What specific documentation or evidence should the Manual detail
that applicants should be able to demonstrate to show that their
technology systems can comply with the terms of any lawful orders and
execute actions required by law enforcement or regulatory authorities,
such as freezing, seizing, burning, reissuing, and preventing the
transfer of stablecoins, and the blocking of stablecoins or accounts?
4. What specific technological capabilities should the Manual
detail applicants should be able to demonstrate with respect to:
a. Transaction monitoring and suspicious activity detection;
b. Reserve management and real time reconciliation; and
c. Cybersecurity and operational resilience?
5. The NCUA is considering requiring applicants to provide
attestations of independent third-party technology assessments or
audits. What standards or frameworks should govern such assessments?
What challenges or benefits do you anticipate this requirement might
pose? How should the Manual help address any challenges?
6. The NCUA is considering requiring audited financial statements
as part of the initial application. What challenges or benefits do you
anticipate this requirement might pose? How should the Manual help
address any challenges?
7. What documentation or evidence should the Manual suggest that an
applicant could provide to demonstrate that they meet operational,
compliance, and information technology risk management requirements and
standards? More specifically, what documentation or information should
the Manual suggest applicants provide regarding their:
a. distributed ledger or blockchain infrastructure, including
network architecture, smart contract design, and protocol governance;
b. technology systems' scalability, reliability, and disaster
recovery capabilities; and
c. ability to demonstrate operational readiness to process
redemptions in a timely manner?
8. It is expected that applicants be able to provide documented
disclosures regarding redemption fees, procedures, and timelines at the
time of application. What challenges or benefits do you anticipate this
requirement might pose? How can the Manual help to address any
challenges?
9. What additional factors, if any, should the NCUA consider in
evaluating applications to ensure the safety and soundness of permitted
payment stablecoin issuers? How can the Manual help address these
factors?
E. Sec. 706.103. Filing Required
Section 5(a)(1)(A) of the GENIUS Act requires the NCUA to receive,
review, and consider for approval applications from any FICU that seeks
to issue payment stablecoins through a FICU subsidiary.\38\ Section
5(a)(1)(B) requires the NCUA to establish a process and framework for
the licensing, regulation, examination, and supervision of such
entities that prioritizes the safety and soundness of such
entities.\39\ Section 5(a)(3) requires that the NCUA, upon receipt of a
substantially complete application, evaluate and make a determination
on each application based on the criteria established under the GENIUS
Act (hereinafter the ``Statutory Evaluation Factors'').\40\
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\38\ 12 U.S.C. 5904(a)(1)(A).
\39\ 12 U.S.C. 5904(a)(1)(B).
\40\ 12 U.S.C. 5904(a)(3).
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The proposed rule states that a FICU subsidiary seeking to issue
payment stablecoins must apply to the NCUA for a license and receive
NCUA approval before issuing the stablecoins. The proposed rule
requires that this application be filed jointly with any insured credit
union Parent Company(ies). The Board notes that the FDIC's proposed
rule requires only the IDI to apply.
The proposed rule would provide that the proposed PPSI would apply
jointly with its FICU Parent Company(ies). The proposed rule would also
require that the proposed PPSI, the Parent Company(ies), and any
Principal Shareholders certify in writing that any filing or supporting
material submitted to the NCUA contains no material misrepresentations
or omissions. The Board believes it is more efficient and practical for
the issuer, the entity receiving the license to engage in issuing
payment stablecoins, to submit the application directly with its FICU
Parent Company(ies) rather than having all investing FICUs apply.
Additionally, the Board believes PPSIs are more likely to be widely
held in the credit union industry than in the banking industry. Jointly
held credit union subsidiaries have the potential to provide
significant value to the credit union industry by facilitating
cooperation among credit unions. To compete effectively in the payment
stablecoin market, FICUs may need to rely on pooling their resources to
jointly fund a FICU subsidiary as the associated costs of issuing
payment stablecoins may be prohibitive for all but a very few of the
largest FICUs.
For these reasons, the Board anticipates that FICUs may jointly
form a FICU subsidiary to issue payment stablecoins. Therefore, the
proposed rule requires the potential PPSI to apply to the NCUA to be an
NCUA-licensed PPSI jointly with only investing FICUs that are
considered Parent Company(ies) under the proposed rule. The definition
of Parent Company in the proposed rule is intended to capture only the
FICUs that are most likely to control or direct the management and
policies of the PPSI and have those FICUs apply jointly with the
Applying Issuer. The Board does not believe it is practical or
consistent with congressional intent for the NCUA to review licensure
applications from each investing FICU.
As noted, the proposed rule would also require that the Applying
Issuer and all Parent Companies and any Principal Shareholders of the
Applying Issuer make certain certifications about the application and
submit certain information on their Officers and Directors. The Board
seeks comments on the proposed application scheme; specifically,
whether (1) the application should be made by the proposed PPSI,
[[Page 6539]]
(2) an application from FICUs is preferred, or (3) the application
should require joint filing and certification of all information in it
by both the Applying Issuer and all investing FICUs.
The Board does understand, however, that requiring the proposed
PPSI and the FICU Parent Company(ies) to apply may result in minor
inconsistencies with the regulations of the other primary Federal
payment stablecoin regulators in certain situations. Paragraph (b) of
proposed Sec. 706.103 provides that filings are submitted as provided
in the NCUA's Payment Stablecoin Issuer Manual.
Paragraph (c) of proposed Sec. 706.103 provides that before
submitting a filing to the NCUA, a potential filer may contact the NCUA
to discuss whether a prefiling meeting would be beneficial. The NCUA
would decide whether to grant a prefiling meeting on a case-by-case
basis and would consider whether the application would represent a
novel, complex, or unique proposal such that a prefiling meeting would
be beneficial. Paragraph (c) notes that submission of a draft business
plan or other relevant information before any prefiling meeting may
expedite the filing review process. It states that a potential filer
considering a novel, complex, or unique proposal is encouraged to
contact the NCUA to request a prefiling meeting early in the
development of its proposal for the early identification and
consideration of policy issues. Finally, paragraph (c) notes that
information on model business plans can be found in the NCUA's Payment
Stablecoin Issuer Manual.
As noted above, paragraph (d) of proposed Sec. 706.103 provides
that an Applying Issuer, and its Parent Company(ies), and any Principal
Shareholders, must certify in writing that any filing or supporting
material submitted to the NCUA contains no material misrepresentations
or omissions. The Board notes that any person responsible for any
material misrepresentation or omission in a filing or supporting
materials may be subject to an enforcement action and other penalties,
including criminal penalties provided in 18 U.S.C. 1001.
Paragraph (e) of proposed Sec. 706.103 states that the NCUA may
require filing fees to accompany certain filings made under Subpart A.
At this time, the Board does not believe a filing fee is necessary.
However, if the number of applications received, or the resources to
process the application, are substantial, the Board may consider
imposing a filing fee. The Board would not impose a filing fee without
publishing an applicable fee schedule on its website at <a href="http://www.NCUA.gov">http://www.NCUA.gov</a>.
Request for Comment: The Board is seeking comments on the pros and
cons of recovering the costs of administering the stablecoin program by
imposing charges on individual FICUs or NCUA-licensed PPSIs. The Board
is particularly interested in comments as to whether annual NCUA costs
for staff and contractors to review proposed stablecoin issuer
applications and conduct examinations should be borne entirely by the
FICUs who own the applying PPSIs or spread across all FICUs through the
NCUA's usual budget process. The Board is considering imposing a
licensing fee or examination fee to offset the NCUA's additional costs.
The Board believes that because payment stablecoin activities are
optional and based on each FICU's business judgment; and that because
it is likely that, at least initially, only a minority of FICUs
participate in payment stablecoin activities, commenters may consider
it more equitable to not pay these costs out of the general FCU
operating fee and National Credit Union Share Insurance Fund (NCUSIF)
overhead transfer.
However, previously when the Board raised the potential for
charging a program-based fee, the Board declined to impose the fee
following the notice and comment process. Previous commenters have
raised negative precedent related to distinct fees; concerns about NCUA
cost estimates; the collective benefit of certain programs are to the
industry even if only select FICUs are engaged in the activity; and
that by reducing risk to the NCUSIF, the specific activity in question
may be saving the agency and the industry money. The Board requests
comments on whether these considerations are present for administering
a program-based fee for PPSI licensing or examination.
Finally, the Board notes that the intent for any charges would not
be to act as a deterrent, but rather as an equitable way of assessing
the cost of payment stablecoin activities and the NCUA's expanded
supervision requirements.
F. Sec. 706.104. Investigations
Section 706.104 of the proposed rule would detail certain
information about examinations and investigations the NCUA may conduct
related to filings. Paragraph (a) of proposed Sec. 706.104 would
express the NCUA's authority to examine or investigate and evaluate
facts related to a filing to the extent necessary to reach an
adequately informed decision. Paragraph (b) of proposed Sec. 706.104
would clarify that for certain filings the NCUA will require legible
fingerprints for a biometric based criminal history search. The Board
believes that such criminal history background checks are necessary for
the NCUA to review the required Statutory Evaluation Factors,\41\ but
requests commenters' input as to this approach.
---------------------------------------------------------------------------
\41\ See 12 U.S.C. 5904(c)(2)-(3).
---------------------------------------------------------------------------
The NCUA reserves the right to assess fees for investigations or
examinations conducted under paragraph (a) of this section. The Board
would not impose a fee without publishing an applicable fee schedule on
its website at <a href="http://www.NCUA.gov">http://www.NCUA.gov</a>.
Request for Comment: The Board specifically solicits commenter
feedback as to whether the proposed rule should address the NCUA's
authority to assess fees related to investigations or examinations
under this section.
G. Sec. 706.105. Evaluation of Applications and Factors To Be
Considered
Upon receipt of a substantially complete application, the NCUA is
required to evaluate and make a determination on each application based
on the criteria established under the GENIUS Act.\42\ The GENIUS Act
requires the NCUA to evaluate a substantially complete application
using the following Statutory Evaluation Factors: \43\
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\42\ 12 U.S.C. 5904(a)(3).
\43\ 12 U.S.C. 5904(b).
---------------------------------------------------------------------------
(1) The ability of the applicant (or, in the case of an applicant
that is an insured depository institution, the subsidiary of the
applicant), based on financial condition and resources, to meet the
requirements set forth under section 4.
(2) Whether an individual who has been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud is serving as an
officer or director of the applicant.
(3) The competence, experience, and integrity of the officers,
directors, and principal shareholders of the applicant, its
subsidiaries, and parent company, including--
(A) the record of those officers, directors, and principal
shareholders of compliance with laws and regulations; and
(B) the ability of those officers, directors, and principal
shareholders to fulfill any commitments to, and any conditions imposed
by, their primary Federal payment stablecoin regulator in connection
with the application at issue and any prior applications.
[[Page 6540]]
(4) Whether the redemption policy of the applicant meets the
standards under section 4(a)(1)(B).
(5) Any other factors established by the primary Federal payment
stablecoin regulator that are necessary to ensure the safety and
soundness of the permitted payment stablecoin issuer.\44\
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\44\ 12 U.S.C. 5904(c)(1)-(5).
---------------------------------------------------------------------------
The NCUA proposes to adopt and implement these required Statutory
Evaluation Factors in Sec. 706.105 as described below.
1. Scope
Paragraph (a) of proposed Sec. 706.105 addresses the scope of the
section and would describe the procedures and requirements governing
NCUA evaluation of an application for an NCUA PPSI license using the
Statutory Evaluation Factors. Proposed Sec. 706.105 clarifies that the
NCUA would evaluate each substantially complete application to
determine whether approval would be consistent with the safety and
soundness of the applying payment stablecoin issuer based on the
Statutory Evaluation Factors set forth in the GENIUS Act and
implemented in proposed Sec. 706.105. Proposed paragraph (a) concludes
by advising that an applicant should consult the NCUA's Payment
Stablecoin Issuer Manual to determine what other information is
necessary for the NCUA to evaluate an application using the Statutory
Evaluation Factors described in this section. As a supplement to these
proposed regulations, the NCUA will be issuing the NCUA's Payment
Stablecoin Issuer Manual to provide guidance to and assist PPSIs in
seeking an NCUA PPSI license.
2. Statutory Evaluation Factors
Paragraph (b) of proposed Sec. 706.105 would state that the NCUA
grants NCUA-PPSI licenses under the authority provided by the GENIUS
Act at 12 U.S.C. 5904, which requires the NCUA to evaluate applications
using the Statutory Evaluation Factors described in subsection (c) of
that section. The proposed rule would specifically codify these
Statutory Evaluation Factors in paragraph (b) as follows:
(1) The ability of the Applying Issuer, based on financial
condition and resources, to meet the requirements set forth under 12
U.S.C. 5903 and incorporated in Subpart B of part 706;
(2) Whether an individual who has been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud is serving as an
Officer or Director of the Applying Issuer;
(3) The competence, experience, and integrity of the Officers,
Directors, and Principal Shareholders of the Applying Issuer, its
subsidiaries, and Parent Company, including:
(i) the record of those Officers, Directors, and Principal
Shareholders of compliance with laws and regulations; and
(ii) the ability of those Officers, Directors, and Principal
Shareholders to fulfill any commitments to, and any conditions imposed
by, the NCUA in connection with the application at issue and any prior
applications;
(4) Whether the redemption policy of the Applying Issuer meets the
standards under 12 U.S.C. 5903(a)(1)(B) and incorporated in Subpart B
of part 706; and
(5) Any other factors established by the NCUA that are necessary to
ensure the safety and soundness of the Applying Issuer.
3. Policy
Paragraph (c) of proposed Sec. 706.105 would provide the policy
considerations that would guide the NCUA's evaluation of an Applying
Issuer's ability to satisfy the Statutory Evaluation Factors provided
by the GENIUS Act at 12 U.S.C. 5904(c) and reproduced in proposed Sec.
706.105(b). Proposed paragraph (c)(1) would detail specific policy
considerations that would guide the NCUA's evaluation. Paragraph (c)(2)
would provide a framework as to the NCUA's policy for cumulatively
evaluating an Applying Issuer based on its Issuing Group and its
business plan together, along with factors specific to the markets and
economic conditions in which an Applying Issuer intends to operate and
the risks specific to the services it intends to provide.
As noted, proposed paragraph (c)(1) would detail specific policy
considerations that would guide the NCUA's evaluation of the Statutory
Evaluation Factors. The first three policy considerations stated in
proposed (c)(1)(i)-(iii), would all relate to the competence,
experience, and integrity Statutory Evaluation Factor. Proposed
paragraph (c)(1)(i) would consider whether the Applying Issuer has an
Issuing Group that has a record of compliance with laws and regulations
and that is familiar with the laws and regulations applicable to PPSIs
and digital asset service providers, as that term is defined in the
GENIUS Act. Proposed paragraph (c)(1)(ii) would consider whether the
Applying Issuer has an Issuing Group with the ability to fulfill any
commitments to, and any conditions imposed by, the NCUA in connection
with the application at issue and any prior applications. Paragraph
(c)(1)(iii) would consider whether the Applying Issuer has competent
management, including a board of directors, with ability and experience
relevant to the types of services to be provided.
The Board recognizes that these policy considerations are somewhat
redundant of the required Statutory Evaluations Factors incorporated in
paragraph (b). However, the Board feels it important to make it clear
how the NCUA will consider the competence, experience, and integrity
factors. Key to these factors would be completion of the NCUA's
Biographical and Financial Report, as would be required in proposed
Sec. 706.105(f)(3).
Paragraph (iv) would articulate that the NCUA will consider whether
the Applying Issuer has the capital, liquidity, and the capital and
liquidity plans, sufficient to support the projected volume and type of
business. The Board views realistic and well-developed capital and
liquidity plans as fundamental to an Applying Issuer's demonstration
that, as is required by the Statutory Evaluation Factors,\45\ it has
the ability, based on financial condition and resources, to meet the
requirements for PPSIs set forth in the GENIUS Act \46\ and to be
implemented in the NCUA's regulations. The Board also views this as key
to ensuring the safety and soundness of the Applying Issuer, as is
required by the Statutory Evaluation Factors.\47\
---------------------------------------------------------------------------
\45\ 12 U.S.C. 5904(c)(1).
\46\ 12 U.S.C. 5903.
\47\ 12 U.S.C. 5904(c)(5).
---------------------------------------------------------------------------
Paragraph (v) would articulate that the NCUA will consider whether
the Applying Issuer has a redemption policy that is sufficient to meet
all requirements in subpart B of this part. The Board views a
redemption policy that is sufficient to meet all requirements in
Subpart B as prescriptively required by the Statutory Evaluation
Factors and key to the safety and soundness of an Applying Issuer.
Paragraph (vi) would articulate that the NCUA will consider whether
the Applying Issuer can reasonably be expected to achieve and maintain
profitability. The Board views a realistic and well-developed plan for
achieving and maintaining profitability as fundamental to an Applying
Issuer's demonstration that, as is required by the Statutory Evaluation
Factors,\48\ it has the ability, based on financial condition and
resources, to meet the requirements for
[[Page 6541]]
PPSIs set forth in the GENIUS Act.\49\ The Board also views this is as
key to ensuring the safety and soundness of the Applying Issuer, as is
required by the Statutory Evaluation Factors.\50\
---------------------------------------------------------------------------
\48\ 12 U.S.C. 5904(c)(1).
\49\ 12 U.S.C. 5903.
\50\ 12 U.S.C. 5904(c)(5).
---------------------------------------------------------------------------
Paragraph (vii) would articulate that the NCUA will consider
whether the Applying Issuer will be operated in a safe and sound
manner. The Board views its consideration of an Applying Issuer's
ability to operate in a safe and sound manner as prescriptively
required by the Statutory Evaluation Factors.\51\ Paragraph (vii) would
clarify that the NCUA's evaluation of an Applying Issuer's ability to
operate in a safe and sound manner would include, but not be limited to
(1) the ability of the Applying Issuer to meet the operational,
compliance, and information technology risk management requirements and
standards to be outlined in subpart B of this part; and (2) the ability
of the Applying Issuer to maintain sufficient technological
capabilities to comply with the terms of any lawful order and all
applicable laws and regulations.
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
As noted, paragraph (c)(2) of proposed Sec. 706.105 would provide
additional information as to how the NCUA cumulatively evaluates an
Applying Issuer based on its Issuing Group and its business plan
together. Paragraph (c)(2) would clarify that the NCUA's judgment
concerning one of these aspects may affect the evaluation of the other.
It would also stress that an Issuing Group and its business plan must
be stronger in markets where economic conditions are marginal,
competition is intense, or the services to be provided have greater or
unknown risk.
The Board believes that this policy for a cumulative evaluation
that considers both the Issuing Group and the business plan together
will best ensure proper consideration of the Statutory Evaluation
Factors and that NCUA-licensed PPSIs are able to be successful, safe,
and sound enterprises. The Board further believes that consideration of
the markets and economic conditions in which an Applying Issuer intends
to operate and the risks specific to the services it intends to provide
are key to this holistic evaluation.
Request for Comment: The Board specifically solicits comment as to
whether these policy considerations should be included in paragraph (c)
and as to whether any additional factors or details should be included.
Request for Comment: The Board also solicits comment as to whether
the policy considerations listed in paragraph (c)(1)(vii) providing
examples relevant to the NCUA's evaluation of an Applying Issuer to
operate safely and soundly are appropriate to include in the
regulation. Should the Board include any examples? Are there additional
examples the Board should include?
4. Issuing Group
Paragraph (d) of proposed Sec. 706.105 would provide specific
requirements applicable to the Applying Issuer's Issuing Group. An
Issuing Group, as defined in proposed Sec. 706.2, would include the
Applying Issuer and the Officers, Directors, and Principal Shareholders
of the Applying Issuer, its subsidiaries, and Parent Company or
Companies. A FICU or other party that is not covered by this
definition, such as a FICU that has invested in the Applying Issuer,
but is not a Parent Company, would not be a member of the Issuing
Group.
Paragraph (d)(1) of proposed Sec. 706.105 would generally discuss
how the NCUA proposes to evaluate an Issuing Group as part of the
Statutory Evaluation Factors and the holistic application. It would
provide that, in general, an Issuing Group must have the competence,
experience, and integrity to be active in directing the Applying
Issuer's affairs in a safe and sound manner. It would require that the
business plan and other information supplied in the application,
including the completed NCUA Biographical and Financial Report forms,
demonstrate an Issuing Group's collective ability to establish and
operate a successful PPSI in the economic and competitive conditions of
the market to be served. This proposed rule would also require that
this be demonstrated with consideration of the activities to be engaged
in by the Applying Issuer and the services it intends to provide.
Paragraph (d)(1) would also state that each member of the Issuing Group
must be knowledgeable about the business plan. The NCUA believes an
inadequate business plan may be a reason for the NCUA to deny an
application because it reflects adversely on the Issuing Group's
qualifications.
Paragraph (d)(2) of proposed Sec. 706.105 would prescribe
standards for selection of management by the Issuing Group.
Specifically, it would require that the initial board of directors
select competent Officers before the NCUA grants an NCUA-PPSI License.
The Board understands that selected Officers may be conditional pending
NCUA's review and approval of the application. Early selection of
Officers, especially the chief executive officer, contributes favorably
to the preparation and review of a business plan that is accurate,
complete, and appropriate for the activities the Applying Issuer
intends to engage in, and is necessary for a substantially complete
application.
Paragraph (d)(3) of proposed Sec. 706.105 would address
requirements related to the financial resources of the Issuing Group.
Specifically, paragraph (d)(3)(i) would require that each member of the
Issuing Group have a history of responsibility, personal honesty, and
integrity. The Board views this as required by the Statutory Evaluation
Factors, both in terms of the competence, experience, and integrity of
the Officers and Directors in the Issuing Group \52\ and the
prohibition on certain felony offenses.\53\ The Board envisions
Officers and Directors in the Issuing Group generally demonstrating
their history of responsibility, personal honesty, and integrity in the
NCUA Biographical and Financial Report form required under paragraph
(f)(3) of this section. However, the Board retains the right to request
additional information in evaluating this requirement.
---------------------------------------------------------------------------
\52\ 12 U.S.C. 5904(c)(3).
\53\ 12 U.S.C. 5904(c)(2).
---------------------------------------------------------------------------
Paragraph (d)(3)(ii) would require the Issuing Group to have a
realistic plan, or plans, for enabling the Applying Issuer to obtain
capital and liquidity when needed. The Board views demonstrating
realistic plans for obtaining capital and liquidity as key to an
Applying Issuer's prospects and viability and a matter that the Issuing
Group must be able to address. However, the Board does not believe
FICUs should attempt to financially obligate themselves beyond their
initial investments in a manner that poses future material risk to the
investing FICUs and thus their members and the NCUSIF. The Board views
it as inappropriate for a FICU to implicitly financially obligate its
members and the NCUSIF as a backstop for Applying Issuers. The Board
also notes that it may consider any purported financial obligation as
an investment in or loan to the PPSI for purposes of the 1 percent
investment and lending limitations under the FCU Act.\54\
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\54\ In the past, the NCUA has deemed all of the following to be
either loan or investment equivalents in the context of the CUSO
rule: standby letter of credit issued by an FCU to cover a CUSO;
sale and leaseback transactions; payment of CUSO expenses by FCU,
such as subsidies; guarantees of CUSO debt or purchase of CUSO
debentures; FCU pledge and guarantee of loans from other entities to
the CUSO; and FCU spin-off of assets to CUSOs. 63 FR 10743 (Mar. 5,
1998). Likewise, the Board would likely consider other contingent
financial obligations to support a PPSI as an investment or loan.
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[[Page 6542]]
Paragraph (d)(3)(iii) would require that any financial or other
business arrangement, direct or indirect, between the Issuing Group or
other insiders and the Applying Issuer must be on non-preferential
terms. The Board believes that financial or other business arrangements
that would show preference to members of the Issuing Group or other
insiders are inconsistent with the GENIUS Act's Statutory Evaluation
Factors related to integrity and are inconsistent with safe and sound
practices.
5. Business Plan
Paragraph (e) of proposed Sec. 706.105 would set forth the
subjects that an Applying Issuer's business plan must address and the
NCUA's process for evaluating the plan. The purpose of this proposed
section is to broadly address what subjects must be addressed in an
Applying Issuer's business plan and how the NCUA will review it. The
Board stresses that, because of the unique nature of any application
and individual business plan, what specific information the NCUA must
review for a particular application and its evaluation of the that
information will vary. The NCUA intends that the NCUA Licensing Manual
and various forms that will be developed for Applying Issuers will
provide guidance to Applying Issuers and help facilitate their
development of business plans and their broader application
submissions.
Paragraph (e)(1)(i) of proposed Sec. 706.105 would state the
general requirement that an Applying Issuer submit a business plan that
adequately addresses the Statutory Evaluation Factors and related
policy considerations set forth in paragraphs (b) and (c) of this
section. It would require that the plan reflect sound business and
financial principles and demonstrate realistic assessments of risk in
light of economic and competitive conditions in the market to be served
and the services to be provided.
Paragraph (e)(1)(ii) would articulate the NCUA's holistic approach
to examining a business plan. It would state that the NCUA may offset
deficiencies in one factor by strengths in one or more other factors.
However, it would also note deficiencies in some factors, such as
unrealistic earnings prospects, may have a negative influence on the
evaluation of other factors, such as capital adequacy, or may be
serious enough by themselves to result in denial. It would articulate
that the NCUA considers inadequacies in a business plan to reflect
negatively on the Issuing Group's ability to operate a successful PPSI.
Paragraph (e)(2) of proposed Sec. 706.105 would broadly speak to
how a business plan must address earnings prospects and financial
condition and how the NCUA will review those aspects. Specifically, it
would require that an Applying Issuer submit balance sheets and income
statements that demonstrate financial stability and earnings prospects
as part of the business plan. This would include both actual and pro
forma balance sheets and income statements, as applicable based on the
availability of actual financial statements. Paragraph (e)(2) would
state the NCUA would review all pro forma projections for
reasonableness of assumptions and consistency with the business plan.
Paragraph (e)(3) of proposed Sec. 706.105 would broadly speak to
how a business plan must address management and articulate specific
requirements that must be followed. Paragraph (e)(3)(i) would require
that the business plan include information sufficient to permit the
NCUA to evaluate the overall management ability of the entire Issuing
Group. If the Issuing Group has limited relevant experience, the
Officers of the Applying Issuer must be able to compensate for such
deficiencies.
Paragraph (e)(3)(ii) would prohibit an Applying Issuer from hiring
an Officer or electing or appointing a Director if the NCUA objects to
that person at any time prior to the date the issuer commences
business. Paragraph (e)(3)(iii) would require all Officers and
Directors of the Issuing Group and any principal shareholders to submit
the biographical and financial report information described in
paragraph (f) to allow the NCUA to evaluate the competence, experience,
and integrity of the Officers, Directors, and Principal Shareholders of
the Applying Issuer, its subsidiaries, and Parent Company(ies) as
described in paragraph (b)(3).
Paragraph (e)(4) of proposed Sec. 706.105 would require that a
business plan address an Applying Issuer's capital and capital plan,
consistent with the requirements of the GENIUS Act and as will be
proposed in Subpart B of part 706. It would state that an Applying
Issuer must have sufficient initial capital, net of any organizational
expenses that will be charged to the Applying Issuer's capital after it
begins operations, to support the institution's projected volume and
type of business. It would also require that the applying issuer have a
longer-term capital plan that is sufficient to support the future
projected volume and type of business as outlined in the business plan.
Paragraph (e)(5) of proposed Sec. 706.105 would require an
Applying Issuer's business plan to address its liquidity and reserve
asset diversification practice. The proposed rule would clarify that
these policies must meet the requirements of Subpart B of this part,
which will be proposed in a future notice of proposed rulemaking and
will be based on the criteria that the GENIUS Act requires.\55\
---------------------------------------------------------------------------
\55\ See 12 U.S.C. 5903(a)(4)(A)(ii)-(iii).
---------------------------------------------------------------------------
Finally, proposed paragraph (e)(6) of proposed Sec. 706.105 would
require the business plan to demonstrate that the Applying Issuer (and
to the extent necessary, the Parent Company(ies)), is aware of, and
understands, applicable laws and regulations, and how to conduct safe
and sound operations and practices.
Request for Comment: The Board requests commenters provide feedback
as to whether this section provides the necessary information for
Applying Issuers and Issuing Groups to develop business plans as part
of their application for an NCUA-PPSI license. The Board is especially
interested in whether commenters feel like additional information needs
to be provided in the regulation and if commenters are comfortable with
the approach the NCUA plans to take with the NCUA Licensing Manual.
Request for Comment: Despite the Board's belief that the proposed
regulations provide enough detail to address what a business plan must
demonstrate, the Board solicits feedback as to whether additional
information should be required as part of a business plan, such as the
information listed below:
<bullet> information detailing how the Applying Issuer plans to
maintain their payment stablecoin's stable value;
<bullet> detailed information about all of the proposed activities
of the Applying Issuer, including activities that are incidental to
their payment stablecoin activities and digital asset service provider
activities;
<bullet> relevant financial information related to the Applying
Issuer's reserve assets, the composition of the reserve assets, and the
associated asset management plan;
<bullet> an engagement letter with a registered public accounting
firm as evidence that the Applying Issuer would be able to comply with
the examination of monthly reserve reports and certification
requirements in section 4 of the GENIUS Act; and
<bullet> relevant policies and procedures and customer agreements,
including for custody and safekeeping, segregation of customer and
reserve assets,
[[Page 6543]]
recordkeeping, reconciliation and transaction processing, and
redemption.
6. Procedures
Paragraph (f) of proposed Sec. 706.105 would articulate various
standard procedures for the submission, review, and decision process of
applications for an NCUA-PPSI license. Pursuant to Section 5(1)(B) of
the GENIUS Act, the NCUA proposes a process and framework for the
licensing of PPSIs that prioritizes the safety and soundness of such
entities and complies with Section 5(3)(d)'s 120-day statutory window
for decisions.
Paragraph (f)(1) of proposed Sec. 706.105 would address the
possibility of a prefiling meeting with the NCUA and the Issuing Group.
Paragraph (f)(1) would state that the Issuing Group of an Applying
Issuer may request a prefiling meeting with the NCUA before the
Applying Issuer files an application. Paragraph (f)(1) would also state
that the prefiling meeting normally would be held virtually.
The Board believes that prefiling meetings may be a beneficial way
to allow proposed issuers applying for an NCUA-PPSI license to maximize
their chances of submitting substantially complete applications and
being granted a license while also helping to preserve the NCUA's
ability to fully evaluate and render decisions on substantially
complete applications within the 120-day statutory window. As part of a
prefiling meeting, the Board believes that all members of the Issuing
Group should be familiar with the NCUA's licensing policy and
procedural requirements as will be articulated in the NCUA's Licensing
Manual. Finally, the Board thinks that providing virtual prefiling
meetings as a default means for meeting will reduce expenses for both
the NCUA and Applying Issuers while allowing the greatest flexibility
for both parties. The Board requests comment on its use of discretion
to propose a virtual prefiling meeting in the NCUA-PPSI licensing
process.
Paragraph (f)(2) of proposed Sec. 706.105 would reiterate the
requirement that an Applying Issuer must file a business plan that
addresses the subjects discussed in paragraph (e) of proposed Sec.
706.105. The Board is proposing to specifically state this procedural
requirement here as it views a well-developed business plan as
essential to demonstrating that an Applying Issuer can satisfy the
Statutory Evaluation Factors.
Paragraph (f)(3) of proposed Sec. 706.105 would require submission
of certain biographical and financial report information and
information necessary for background investigations. Paragraph
(f)(3)(i) would require that each Director or Officer or proposed
Director or Officer of a member of the Issuing Group, and any Principal
Shareholder of the Applying Issuer, submit to the NCUA the information
prescribed in the NCUA Biographical and Financial Report, to be made
available at <a href="http://www.ncua.gov">www.ncua.gov</a>. The proposed rule contemplates the NCUA
adopting an ``NCUA Biographical and Financial Report'' similar to the
Interagency Biographical and Financial Report used by the other primary
Federal payments stablecoin regulators as part of applications for
various other chartering, licensing, and insurance processes.\56\
Paragraph (f)(3)(ii) would require that each Director or Officer or
proposed Director or Officer of only the Applying Issuer submit legible
fingerprints for a biometric based criminal history search. Principal
Shareholders do not need to submit fingerprints. These combined
submissions would allow the NCUA to satisfy its evaluations of the
required statutory factors related to competence, experience, and
integrity \57\ and the prohibited felony convictions.\58\
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\56\ See Interagency Biographical and Financial Report,
available at <a href="https://www.occ.treas.gov/static/licensing/form-ia-bio-financial-v2.pdf">https://www.occ.treas.gov/static/licensing/form-ia-bio-financial-v2.pdf</a>, <a href="https://www.fdic.gov/formsdocuments/f6200-06.pdf">https://www.fdic.gov/formsdocuments/f6200-06.pdf</a>,
and <a href="https://www.federalreserve.gov/apps/reportingforms/Download/DownloadAttachment?guid=e5e9a72a-0667-4c4e-9f5d-af27ab90809b">https://www.federalreserve.gov/apps/reportingforms/Download/DownloadAttachment?guid=e5e9a72a-0667-4c4e-9f5d-af27ab90809b</a>.
\57\ See 12 U.S.C. 5904(c)(3).
\58\ 12 U.S.C. 5904(c)(2).
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Finally, paragraph (f)(3)(iii) would state that the NCUA may
request additional information about any Director or Officer, or
proposed Director or Officer, or any Principal Shareholder, if
appropriate. Proposed (f)(3)(iii) would also state that the NCUA may
waive any of the information requirements of paragraph (f) if the NCUA
determines that it is in the public interest.
Request for Comment: The Board specifically solicits feedback as to
the development and use of an NCUA Financial and Biographical Report.
Should the Board consider alternative approaches to fulfilling these
statutory requirements? Is there specific information that should be
included in the proposed NCUA Financial and Biographical Report?
Request for Comment: The Board solicits feedback as to the proposal
to collect legible fingerprints from the Officers and Directors, or
proposed Officers and Directors, of an Applying Issuer for a biometric
based criminal history search. Should the Board consider alternative
approaches to evaluating whether any of these individuals have been
convicted of a felony offense involving insider trading, embezzlement,
cybercrime, money laundering, financing of terrorism, or financial
fraud as is required by the GENIUS Act?
Paragraph (f)(4) of proposed Sec. 706.105 would require that the
Applying Issuer designate a contact person to represent the Issuing
Group in all contacts with the NCUA.
Paragraph (f)(5) of proposed Sec. 706.105 would state that the
NCUA will notify the contact person and other relevant parties in
writing of its decision on an application to be an NCUA-licensed PPSI.
Paragraph (f)(6) of proposed Sec. 706.105 would require that
before the NCUA grants a license to an Applying Issuer, the Applying
Issuer must be established as a legal entity under State law.
7. Investments in Other Licensed Issuers
Once a FICU has made an investment in a PPSI, the PPSI becomes a
``subsidiary of an insured credit union'' under the GENIUS Act. The
GENIUS Act designates the NCUA as the primary Federal payment
stablecoin regulator of subsidiaries of insured credit unions.
Therefore, the Board is proposing to restrict FICU investment in any
PPSI to only those with an NCUA license.
The Board understands that FICUs may seek to invest in PPSIs that
meet the PPSI definition because they are a subsidiary of a non-FICU
IDI, are a Federal qualified payment stablecoin issuer,\59\ or a State
qualified payment stablecoin issuer.\60\ The Board is also aware that
these investments may create ambiguity regarding designation of the
primary Federal payment stablecoin regulator. The NCUA and the other
primary Federal payment stablecoin regulators may address such
potential interjurisdictional issues in the future.
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\59\ See 12 U.S.C. 5901(11).
\60\ See 12 U.S.C. 5901(31).
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Request for Comment: What approach should the NCUA and other PPSI
regulators take to licensing, examining, and regulating PPSIs that may
be considered subsidiaries of multiple types of insured depository
institutions? Specifically, should PPSIs be required to obtain multiple
licenses in some instances? If multiple licenses are required, should
NCUA provide a process for expedited licensure of a PPSI or rather than
require multiple licenses, rely on the licensure of another Primary
Federal payment stablecoin regulator, if the PPSI has already been
licensed or approved by another regulator?
[[Page 6544]]
H. Sec. 706.106. Timing for Decision on Applications
Section 5(d)(1) of the GENIUS Act addresses the timing for a
primary Federal payment stablecoin regulator to render a decision on an
application to be a licensed PPSI.\61\ Specifically, the GENIUS Act
requires the NCUA to render a decision on the application not later
than 120 days after receiving a substantially complete application.\62\
---------------------------------------------------------------------------
\61\ 12 U.S.C. 5904(d)(1)(A).
\62\ Id.
---------------------------------------------------------------------------
The GENIUS Act also establishes a standard for when an application
shall be considered ``substantially complete'' and obligations on the
applicable primary Federal payment stablecoin regulator to provide
notifications to an applicant regarding the status of the application.
An application shall be considered substantially complete if the
application contains sufficient information for the NCUA to render a
decision on whether the applicant satisfies the factors to be
considered detailed in section 5(c) of the GENIUS Act.\63\ The proposed
rule would detail these factors and how the NCUA will evaluate them in
Sec. 706.105. Additionally, not later than 30 days after receiving an
application, the NCUA must notify the applicant as to whether the NCUA
considers the application to be substantially complete and, if the
application is not substantially complete, the additional information
the applicant must provide for the application to be considered
substantially complete.\64\ An application considered substantially
complete remains substantially complete unless there is a material
change in circumstances that requires the NCUA to treat the application
as a new application.\65\
---------------------------------------------------------------------------
\63\ 12 U.S.C. 5904(d)(1)(B)(i).
\64\ 12 U.S.C. 5904(d)(1)(B)(ii).
\65\ 12 U.S.C. 5904(d)(1)(B)(iii).
---------------------------------------------------------------------------
Finally, the GENIUS Act dictates that the failure of the NCUA to
render a decision on a complete application within the time specified
above shall be deemed an approval of the application.\66\
---------------------------------------------------------------------------
\66\ 12 U.S.C. 5904(d)(3).
---------------------------------------------------------------------------
The NCUA proposes to adopt these requirements as prescribed by the
GENIUS Act in Sec. 706.106.
Request for Comment: Should the Board explicitly state that it may
include conditions on any approval of an application?
I. Sec. 706.107. Denial
The GENIUS Act establishes the grounds under which the NCUA may
deny a substantially complete application. The NCUA may only deny a
substantially complete application received if the NCUA determines that
the activities of the applicant would be unsafe or unsound based on the
factors described in section 5(c) of the GENIUS Act, noted above, and
included in proposed Sec. 706.105.\67\ The GENIUS Act also specifies
that the issuance of a payment stablecoin on an open, public, or
decentralized network shall not be a valid ground for denial of an
application received.\68\ The proposed rule would articulate the
grounds for denial as prescribed by the GENIUS Act in paragraph (a) of
Sec. 706.107.
---------------------------------------------------------------------------
\67\ 12 U.S.C. 5904(d)(2)(A)(i).
\68\ 12 U.S.C. 5904(d)(2)(A)(ii).
---------------------------------------------------------------------------
The GENIUS Act also imposes a requirement upon the NCUA to explain
the denial of an application. If the NCUA denies a substantially
complete application, not later than 30 days after the date of such
denial, the NCUA must provide the applicant with written notice
explaining the denial with specificity, including all findings made by
the NCUA with respect to all identified material shortcomings in the
application, including actionable recommendations on how the applicant
could address the identified material shortcomings.\69\ The proposed
rule would articulate the required explanation as prescribed by the
GENIUS Act in paragraph (b) of Sec. 706.107. Paragraph (b) would state
that if the NCUA denies a substantially complete application received
under this subpart, not later than 30 days after the date of such
denial, the NCUA shall provide the applicant with written notice
explaining the denial with specificity, including all findings made
with respect to all identified material shortcomings in the application
and actionable recommendations on how the applicant could address the
identified material shortcomings.
---------------------------------------------------------------------------
\69\ 12 U.S.C. 5904(d)(2)(B).
---------------------------------------------------------------------------
J. Sec. 706.108. Opportunity for Hearing; Final Determination
In the event the NCUA denies an application to be an NCUA-licensed
PPSI, the GENIUS Act provides the applicant with an opportunity for a
hearing to appeal the denial.\70\ Not later than 30 days after the date
of receipt of any notice of the denial of an application, the applicant
may request, in writing, an opportunity for a written or oral hearing
before the Board to appeal the denial.\71\ Upon receipt of a timely
request for a hearing, the NCUA must notice a time (not later than 30
days after the date of receipt of the request) and place at which the
applicant may appear, personally or through counsel, to submit written
materials or provide oral testimony and oral argument.\72\ Not later
than 60 days after the date of a hearing under this section, the NCUA
is required to notify the applicant of a final determination, which
shall contain a statement of the basis for that determination, with
specific findings.\73\
---------------------------------------------------------------------------
\70\ 12 U.S.C. 5904(d)(2)(C).
\71\ 12 U.S.C. 5904(d)(2)(C)(i).
\72\ 12 U.S.C. 5904(d)(2)(C)(ii).
\73\ 12 U.S.C. 5904(d)(2)(C)(iii).
---------------------------------------------------------------------------
If an applicant does not make a timely request for a hearing to
appeal the denial, the GENIUS Act requires the NCUA to notify the
applicant, not later than 10 days after the date by which the applicant
may have requested a hearing, in writing, that the denial of the
application is a final determination of the NCUA.\74\
---------------------------------------------------------------------------
\74\ 12 U.S.C. 5904(d)(2)(C)(iv).
---------------------------------------------------------------------------
The NCUA proposes to adopt these requirements as prescribed by the
GENIUS Act in Sec. 706.108. The NCUA proposes that hearings to appeal
the denial of an application to be an NCUA-licensed PPSI be before the
Board. The Board believes that this appeal and hearing process should
be excluded from the procedures in part 746 of the NCUA's regulations,
which provides default procedures for appeals of material supervisory
determinations and other initial agency determinations made by NCUA
staff. However, the Board specifically requests comment as to these
approaches and any alternatives the Board should consider. The Board
also solicits comment as to whether it should amend part 746 to exclude
an appeal of a denial of an application to be an NCUA-licensed PPSI
from part 746.
K. Sec. 706.109. Right To Reapply
The GENIUS Act explicitly states that the denial of an application
shall not prohibit the applicant from filing a subsequent
application.\75\
---------------------------------------------------------------------------
\75\ 12 U.S.C. 5904(d)(4).
---------------------------------------------------------------------------
The NCUA proposes to replicate this right to reapply as prescribed
by the GENIUS Act in Sec. 706.109.
L. Sec. 706.110. Certification of Anti-Money Laundering and Economic
Sanctions Compliance Programs
Section 5(i)(1) of the GENIUS Act requires that, not later than 180
days after the approval of an application, and on an annual basis
thereafter, each PPSI shall submit to its primary Federal payment
stablecoin regulator a certification that the issuer has implemented
anti-money laundering
[[Page 6545]]
and economic sanctions compliance programs that are reasonably designed
to prevent the PPSI from facilitating money laundering, in particular,
facilitating money laundering for cartels and organizations designated
as foreign terrorist organizations under section 219 of the Immigration
and Nationality Act (8 U.S.C. 1189), and the financing of terrorist
activities, consistent with the requirements of this Act.\76\ Section
5(i)(2) requires a primary Federal payment stablecoin regulator to make
these certifications available to the Secretary of the Treasury upon
request.\77\
---------------------------------------------------------------------------
\76\ 12 U.S.C. 5904(i)(1).
\77\ 12 U.S.C. 5904(i)(2).
---------------------------------------------------------------------------
Section 5(i)(3) provides specific penalties for failing to submit
the required certification or knowingly submitting a certification that
is false.\78\ The primary Federal payment stablecoin regulator may
revoke the approval of a PPSI that fails to submit the required
certification.\79\ Additionally, any person that knowingly submits a
certification that is false shall be subject to the criminal penalties
set forth under section 1001 of title 18, United States Code.\80\ If
the NCUA or any other Federal or State payment stablecoin regulator,
has reason to believe that any person has knowingly violated the
certification requirement, the applicable regulator may refer the
matter to the Attorney General or to the attorney general of the PPSI's
host State.\81\
---------------------------------------------------------------------------
\78\ 12 U.S.C. 5904(i)(3).
\79\ 12 U.S.C. 5904(i)(3)(A).
\80\ 12 U.S.C. 5904(i)(3)(B)(i).
\81\ 12 U.S.C. 5904(i)(3)(B)(ii).
---------------------------------------------------------------------------
Consistent with section 5 of the GENIUS Act, paragraph (a) of Sec.
706.110 of the proposed rule would require all NCUA-licensed PPSIs to
certify to the NCUA that they have implemented anti-money laundering
and economic sanctions compliance programs, within 180 days of
application approval and annually thereafter. Paragraph (a) would
specifically restate the GENIUS Act's requirement that these programs
must be reasonably designed to prevent the issuer from facilitating
money laundering, especially for cartels and foreign terrorist
organizations,\82\ and the financing of terrorist activities.
---------------------------------------------------------------------------
\82\ As designated under 8 U.S.C. 1189.
---------------------------------------------------------------------------
Paragraph (b) of the proposed rule would reiterate the GENIUS Act's
requirement that failure to submit the certification required under
paragraph (a) shall constitute cause for the NCUA to revoke its
approval and licensure of the PPSI.
As required by the GENIUS Act, the NCUA will make these
certifications available to the Secretary of the Treasury upon request.
The proposed rule does not restate this requirement. The proposed rule
also does not restate the GENIUS Act's criminal penalties for a
knowingly false certification or the NCUA's authority to refer a person
it believes has violated the certification requirement to the Attorney
General. The Board views these statutory provisions as unnecessary to
include in proposed Sec. 706.110. However, the Board solicits
commenter input as to whether it would be beneficial to include these
statutory provisions in Sec. 706.110. The Board also stresses that the
provisions' lack of inclusion in the regulation does not limit their
effect or the Board's ability to make referrals as allowed by the
GENIUS Act.
M. Sec. 706.111. Change in Control
As discussed previously, the proposed rule would require a joint
application with both the Parent Company FICU(s) and proposed PPSI
applying for an NCUA license. While this approach has administrative
efficiencies, especially for widely held FICU subsidiaries, questions
may arise as to whether an NCUA-licensed PPSI needs to reapply when its
Parent Company(ies) changes. For example, if a FICU has a wholly owned
subsidiary and sells it to a subsequent FICU, the underlying PPSI would
remain licensed. However, without an additional filing with NCUA, the
purchasing FICU would become a new Parent Company without NCUA approval
and without NCUA finding that the FICU's Officers and Directors have
the necessary competency, experience, and integrity to be a Parent
Company of an NCUA-licensed PPSI, as is required by the GENIUS Act.\83\
A similar problem would exist where a FICU's investment would make them
a Parent Company of an already NCUA-licensed PPSI.
---------------------------------------------------------------------------
\83\ See 12 U.S.C. 5904(c)(3).
---------------------------------------------------------------------------
To provide clarity, paragraph (a) of Sec. 706.111 of the proposed
rule would require a FICU to provide the NCUA with a written notice
sixty days prior to an acquisition that would make it a Parent Company
of an NCUA-licensed PPSI. The Board would not require an application,
but only prior notice with an opportunity for the NCUA to issue a
notice of disapproval, to reduce burden to both acquiring FICUs and the
NCUA.
Paragraph (b) of proposed Sec. 706.111 would detail what must be
included in the notice. The notice would generally include information
related to the acquiring FICU and not the PPSI. This is intended to
satisfy the GENIUS Act's requirement that the NCUA evaluate whether the
FICU Parent Company's Officers and Directors have the necessary
competency, experience, and integrity to be a Parent Company of an
NCUA-licensed PPSI.\84\ More specifically, proposed paragraph (b)(1)
would require the biographical and financial report information
described in Sec. 706.105(f)(3) of this part be sufficient to allow
the NCUA to (1) evaluate the competence, experience, and integrity of
the proposed Parent Company's Officers and Directors in relation to
payment stablecoins; and (2) evaluate the compliance record of these
Officers and Directors with relevant laws and regulations. The Board
envisions submission of the Biographical and Financial Report form, as
is required by Sec. 706.105(f)(3)(i), as an appropriate method for
allowing the NCUA to ensure these statutory requirements are met.
Finally, proposed paragraph (b)(2) would require the notice to include
a certification that the proposed Parent Company will meet any
commitments and conditions imposed by the NCUA in connection with its
proposed investment.
---------------------------------------------------------------------------
\84\ Id.
---------------------------------------------------------------------------
Proposed Sec. 706.111(c) would state that a FICU may proceed with
its proposed investment to become a Parent Company of an NCUA-licensed
PPSI at the end of the sixty-day period unless the NCUA issues a notice
disapproving the proposed acquisition.
Proposed Sec. 706.111(d) would state that the NCUA may disapprove
a FICU's proposed investment to become a Parent Company of an NCUA-
licensed PPSI if it determines that the competence, experience, or
integrity of the FICU's Officers and Directors indicates that the
investment would not be in the best interests of the PPSI or the
public.
Finally, proposed Sec. 706.111(e) would provide appeal rights
related to an NCUA notice of disapproval. Specifically, the proposed
rule would provide that no later than 30 days after the receipt of a
notice of disapproval, the notificant may request, in writing, an
opportunity for a written or oral hearing before the NCUA to appeal the
denial.
Request for Comment: Does the prior notice requirement impose an
undue burden on acquiring FICUs? Do commenters have alternative
suggestions to ensure subsequent controlling interests in a PPSI meet
the statutory factors for approval necessary when an PPSI license is
initially acquired?
[[Page 6546]]
N. Sec. 706.112. Investment Limitation
Once a FICU has made an investment in a PPSI, the PPSI becomes a
``subsidiary of an insured credit union'' under the GENIUS Act. The
GENIUS Act designates the NCUA as the primary Federal payment
stablecoin regulator of subsidiaries of insured credit unions.
Therefore, the Board is proposing to restrict FICU investment in any
PPSI to only those with an NCUA license.
The Board understands that FICUs may seek to invest in PPSIs that
meet the PPSI definition because they are a subsidiary of a non-FICU
IDI, are a Federal qualified payment stablecoin issuer,\85\ or a State
qualified payment stablecoin issuer.\86\ The Board is also aware that
these investments may create ambiguity regarding designation of the
primary Federal payment stablecoin regulator. The NCUA and the other
primary Federal payment stablecoin regulators may address potential
interjurisdictional issues in the future.
---------------------------------------------------------------------------
\85\ See 12 U.S.C. 5901(11).
\86\ See 12 U.S.C. 5901(31).
---------------------------------------------------------------------------
Request for Comment: The Board solicits feedback as to commenters'
views on FICUs seeking to invest in a PPSI that is already licensed by
another primary Federal payment stablecoin regulator. What steps or
applications, if any, should the NCUA require with respect to the
FICU's interest in the PPSI?
Request for Comment: Can a PPSI that is already licensed and
supervised by another primary Federal payment stablecoin regulator also
be considered a FICU subsidiary? How, if at all, should the NCUA
approve and supervise the PPSI or the FICU's engagement with the PPSI?
Should this answer depend on the relative size of the FICU's interest?
O. Safe Harbor for Pending Applications
Section 5(f) of the GENIUS Act provides that a primary Federal
payment stablecoin regulator may waive the application of the
requirements of the GENIUS Act for a period not to exceed 12 months
beginning on the effective date of the GENIUS Act, with respect to a
subsidiary of an IDI, if the IDI has an application pending for the
subsidiary to become a PPSI on that effective date.\87\
---------------------------------------------------------------------------
\87\ 12 U.S.C. 5904(f)(1).
---------------------------------------------------------------------------
The NCUA is not proposing language to address this waiver in
subpart A of part 706. The Board believes that the statute provides
clear waiver authority for the NCUA, either on a general or case-by-
case basis, if the proposed payment stablecoin issuer has an
application pending to become a PPSI on that effective date.
The NCUA solicits input as to this approach and whether it should
instead include regulatory language addressing the waiver authority.
P. Relation to Other Licensing Requirements
Section 5(h) of the GENIUS Act provides that the provisions of
Section 5 supersede and preempt any State requirement for a charter,
license, or other authorization to do business with respect to a
Federal qualified payment stablecoin issuer or subsidiary of an IDI
that is approved under this section to be a PPSI.\88\ However, it also
clarifies that nothing in this subsection preempts or supersedes the
authority of a State to charter, license, supervise, or regulate an IDI
chartered in such State or to supervise a subsidiary of such IDI that
is approved under this section to be a PPSI.\89\
---------------------------------------------------------------------------
\88\ 12 U.S.C. 5904(h).
\89\ Id.
---------------------------------------------------------------------------
The NCUA is not proposing language to specifically address this
preemption in subpart A of part 706. The Board believes the preemptive
effect of section 5(h) is clear and unnecessary to include in the
NCUA's regulations. The NCUA solicits input as to this determination
and whether it should instead include regulatory language addressing
preemption.
Q. Reports on Pending Applications
Section 5(e) of the GENIUS Act requires each primary Federal
payment stablecoin regulator to notify Congress upon beginning to
process applications under the GENIUS Act.\90\ It also requires each
primary Federal payment stablecoin regulator to annually report to
Congress on the applications that have been pending for 180 days or
more since the date the initial application was filed and for which the
applicant has been informed that the application remains incomplete.
The report must include documentation on the status of such
applications and why such applications have not yet been approved.\91\
---------------------------------------------------------------------------
\90\ 12 U.S.C. 5904(e)(1).
\91\ 12 U.S.C. 5904(e)(2).
---------------------------------------------------------------------------
The NCUA is committed to meeting these notice and reporting
requirements.
IV. Regulatory Procedures
A. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking
include the internet address of a summary of not more than 100 words in
length of a proposed rule, in plain language, that shall be posted on
the internet website under section 206(d) of the E-Government Act of
2002 (44 U.S.C. 3501 note) (commonly known as <a href="http://regulations.gov">regulations.gov</a>).
In summary, the proposed rule would implement the process for
approval and licensure of permitted payment stablecoin issuers (PPSIs)
subject to the NCUA's jurisdiction, as required by the Guiding and
Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act).
It would also limit Federally insured credit unions (FICUs) to
investing in NCUA-licensed PPSIs. The GENIUS Act charges the NCUA with
licensing, regulating, and supervising payment stablecoin issuers that
are subsidiaries of FICUs and requires the NCUA to issue implementing
regulations by July 18th, 2026.
The proposal and the required summary can be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
B. Executive Orders 12866, 13563, and 14192
Pursuant to Executive Order 12866 (``Regulatory Planning and
Review''), as amended by Executive Order 14215, a determination must be
made whether a regulatory action is significant and therefore subject
to review by the Office of Management and Budget (OMB) in accordance
with the requirements of the Executive Order.\92\ Executive Order 13563
(``Improving Regulation and Regulatory Review'') supplements and
reaffirms the principles, structures, and definitions governing
contemporary regulatory review established in Executive Order
12866.\93\ This proposed rule was drafted and reviewed in accordance
with Executive Order 12866 and Executive Order 13563. OMB has
determined that this proposed rule is a ``significant regulatory
action'' as defined in section 3(f) of Executive Order 12866. Executive
Order 14192 (``Unleashing Prosperity Through Deregulation'') requires
that any new incremental costs associated with new regulations shall,
to the extent permitted by law, be offset by the elimination of
existing costs associated with at least 10 prior regulations.\94\ This
proposed rule is not expected to be a regulatory action under Executive
Order 14192 because it imposes no more than de minimis costs.
---------------------------------------------------------------------------
\92\ 58 FR 51735 (Oct. 4, 1993).
\93\ 76 FR 3821 (Jan. 21, 2011).
\94\ 90 FR 9065 (Feb. 6, 2025).
---------------------------------------------------------------------------
[[Page 6547]]
C. Regulatory Flexibility Act
The Regulatory Flexibility Act \95\ generally requires an agency to
conduct a regulatory flexibility analysis of any rule subject to notice
and comment rulemaking requirements, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities. If the agency makes such a certification, it
shall publish the certification at the time of publication of either
the proposed rule or the final rule, along with a statement providing
the factual basis for such certification.\96\ For purposes of this
analysis, the NCUA considers small credit unions to be those having
under $100 million in assets.\97\ The Board fully considered the
potential economic impacts of the regulatory amendments on small credit
unions.
---------------------------------------------------------------------------
\95\ 5 U.S.C. 601 et seq.
\96\ 5 U.S.C. 605(b).
\97\ 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
This rule will only apply to FICUs that wish to invest in NCUA-
approved PPSIs, which are generally CUSOs for purposes of this rule.
The NCUA does not anticipate a significant number of small credit
unions will invest in PPSIs or work with a subsidiary (CUSO) to apply
to become a PPSI. As of June 30, 2025, only 19 percent of small credit
unions have invested in a CUSO, compared to 71 percent of credit unions
with assets over $100 million.
Accordingly, the NCUA certifies the proposed rule would not have a
significant economic impact on a substantial number of small credit
unions.
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemaking in
which an agency creates a new or amends existing information collection
requirements. For purposes of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number.
The proposed rule will require a new information collection request
to be submitted to OMB for approval under the PRA. The NCUA is
submitting a copy of this proposal to OMB for its review and approval.
Persons interested in submitting comments with respect to the
information collection aspects and the estimated burden of the proposed
rule should submit them via email or to OMB as noted below.
Estimated PRA Burden
The proposed rule contains information collection reporting
requirements that would impose PRA burden governing the application and
licensing of permitted payment stablecoin issuers (PPSIs). The NCUA
estimates a total annual burden of 440 hours as follows:
OMB Control Number: 3133-NEW.
Title of Information Collection: Application and Licensing of
Permitted Payment Stablecoin Issuers.
Estimated number of respondents: 10.
Estimated number of responses per respondent: 1.
Estimated total annual responses: 10.
Estimated total annual burden hours per response: 44.
Estimated total annual burden hours: 440.
For each information collection activity, the burden table lists
the estimated annual number of responses per respondent and estimated
time per response.
NCUA Summary of Estimated Annual Burden
[3133-NEW]
----------------------------------------------------------------------------------------------------------------
Total
Information collection (IC) Type of burden Number of Number of Average time estimated
activity (frequency of respondents responses per per response annual burden
response) respondent (hours) (hours)
----------------------------------------------------------------------------------------------------------------
Application to issue payment Reporting (One- 10 1 40 400
stablecoins 12 CFR 706 Time).
(Mandatory).
NCUA Biographical and Reporting (One- 10 1 4 40
Financial Report Form. Time).
---------------------------------------------------------------
Total Estimated Annual ................ 10 1 44 440
Burden.
----------------------------------------------------------------------------------------------------------------
The NCUA invites comments on: (a) Whether the proposed collection
of information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the collection of information on those who
are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology; and (e) estimates of capital or
start-up costs and cost of operation, maintenance, and purchase of
services to provide information.
All comments are a matter of public record. Interested persons are
invited to submit written comments via email to (1)
<a href="/cdn-cgi/l/email-protection#31616370725e5c5c545f4542715f5244501f565e47"><span class="__cf_email__" data-cfemail="2777756664484a4a42495354674944524609404851">[email protected]</span></a> or (2) visit <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>
(find this particular information collection by selecting the tab
titled ``Information Collection Review'' and click on to the section
titled ``Currently under Review--Open for Public comment'').
E. Executive Order 13132 on Federalism
Executive Order 13132 encourages regulatory agencies to consider
the impact of their actions on State and local interests. The NCUA, an
agency as defined in 44 U.S.C. 3502(5), complies with the executive
order to adhere to fundamental federalism principles. As required by
the GENIUS Act, the proposed rule would require that all FICU
subsidiaries, including subsidiaries of FISCUs, seeking to become PPSIs
apply to the NCUA for licensure. As any subsidiary of a FISCU cannot be
licensed a permitted State payment stablecoin regulator, the rulemaking
would not have direct effect
[[Page 6548]]
on the states, the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government.
F. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule would not affect
family well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\98\ While the proposed
rule could contribute to an expansion in access to payment stablecoin
services, the effect would be indirect and not easily quantifiable.
---------------------------------------------------------------------------
\98\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
List of Subjects in 12 CFR Part 706
Accounting, Advertising, Anti-Money Laundering, Appeals,
Applications, Control, Credit unions, Credit union service
organizations, Deadlines, Denials, Federal Credit Union Act, Filings,
Guiding and Establishing National Innovation for U.S. Stablecoins Act,
Hearings, Investigations, Investments, Jurisdiction, Licensing, Payment
stablecoins, Permitted payment stablecoin issuers, Reports,
Requirements, Safe harbor, Sanctions, Shareholders, Subsidiaries,
Technology.
By the National Credit Union Administration Board, this 10th day
of February, 2026.
Melane Conyers-Ausbrooks,
Secretary of the Board.
0
For the reasons stated in the preamble, the NCUA Board proposes to
amend title 12 of the Code of Federal Regulations and add reserved part
706 to Subchapter A to read as follows:
CHAPTER VII--NATIONAL CREDIT UNION ADMINISTRATION
SUBCHAPTER A--REGULATIONS AFFECTING CREDIT UNIONS
PART 706--PAYMENT STABLECOINS
Sec.
706.1 Authority, Purpose and Scope.
706.2 Definitions.
706.101 Scope.
706.102 Rules of General Applicability.
706.103 Filing Required.
706.104 Investigations.
706.105 Evaluation of Applications and Factors to be Considered.
706.106 Timing for Decision on Applications.
706.107 Denial.
706.108 Opportunity for Hearing; Final Determination.
706.109 Right to Reapply.
706.110 Certification of Anti-Money Laundering and Economic
Sanctions Compliance Programs.
706.111 Change in Control.
706.112 Investment Limitation.
Authority: 12 U.S.C. 5901 et seq.; 12 U.S.C. 1766(a), 1786(b),
and 1789(a)(11).
Sec. 706.1 Authority, purpose, and scope.
(a) Authority and purpose. The NCUA is issuing this part pursuant
to its authority under the Guiding and Establishing National Innovation
for U.S. Stablecoins Act or GENIUS Act (12 U.S.C. 5901 et seq.).
(b) Scope. This part applies to insured credit unions and all
payment stablecoin issuers with investment or loans from insured credit
unions and sets forth the requirements for NCUA-issued licenses.
(c) No limitation of authority. Nothing in this part shall be read
to limit the authority of the NCUA to take action under other law,
including action to address unsafe or unsound practices or conditions,
or violations of law or regulation, under section 206 of the FCU Act.
Sec. 706.2 Definitions.
Unless otherwise provided in this part, the terms used in this part
have the same meanings as set forth in 12 U.S.C. 1752 and 5901. All
accounting terms not otherwise defined in this section have meanings
consistent with the commonly accepted meanings under United States
generally accepted accounting principles (U.S. GAAP). The following
definitions apply to this part:
Applying Issuer means any entity applying to the NCUA for an NCUA
permitted payment stablecoin license.
Director means an individual who serves on the board of directors
of an Applying Issuer, a Parent Company of the Applying Issuer, or a
Principal Shareholder of the Applying Issuer.
Issuing Group means the Applying Issuer and Parent Company(ies),
and the Officers, Directors, and Principal Shareholders, if applicable,
of the Applying Issuer, its subsidiaries, and Parent Company(ies).
NCUA-Licensed Permitted Payment Stablecoin Issuer means a person
formed in the United States that is a Subsidiary of an Insured Credit
Union that has been approved and licensed by the NCUA under subpart A
to issue payment stablecoins.
Officer means the president, chief executive officer, chief
operating officer, chief financial officer, chief technology officer,
chief lending officer, chief investment officer, chief risk officer,
Bank Secrecy Act officer, and any other individual the NCUA identifies
in writing to the Issuing Group who exercises significant influence
over, or participates in, major policy making decisions of the Issuing
Group without regard to title, salary, or compensation. The term also
includes employees of entities retained by an Issuing Group to perform
such functions in lieu of directly hiring the individuals.
Parent Company means an insured credit union(s) that will own,
control or hold the power to vote 10 percent or more of any class of
voting securities, or has the ability to direct the management or
policies, of a Permitted Payment Stablecoin Issuer. If no insured
credit union will own, control or hold the power to vote 10 percent or
more of any class of voting securities, the insured credit union with
the largest percentage of voting securities in relation to all other
insured credit unions is considered the Parent Company.
Principal Shareholder means a person other than an insured credit
union that directly or indirectly or acting in concert with one or more
persons or companies, or together with members of their immediate
family, will own, control, or hold the power to vote 10 percent or more
of any class of voting securities.
Subsidiary of an Insured Credit Union means--
(A) An organization providing services to the insured credit union
that are associated with the routine operations of credit unions, as
described in section 107(7)(I) of the Federal Credit Union Act (12
U.S.C. 1757(7)(I));
(B) A credit union service organization, as such term is used under
part 712 of this title, with respect to which the insured credit union
has an ownership interest or to which the insured credit union has
extended a loan;
(C) A subsidiary of a State chartered insured credit union
authorized under State law; and
(D) A subsidiary of any entity that meets the definition of a
Subsidiary of an Insured Credit Union. All tiers or levels of a
Subsidiary of an Insured Credit Union are included as a Subsidiary of
an Insured Credit Union.
Subpart A--Investment in and Approval of Issuers That Are
Subsidiaries of Insured Credit Unions
Sec. 706.101 Scope.
This subpart establishes the NCUA rules and procedures for insured
credit unions seeking to invest in payment stablecoin issuers and for
insured credit unions and their subsidiaries to jointly apply for an
NCUA permitted payment stablecoin issuer license. It contains
information on rules of applicability, where and how to file, and
requirements and policies applicable to filings.
[[Page 6549]]
Sec. 706.102 Rules of general applicability.
(a) NCUA's Permitted Stablecoin Issuer Licensing Manual. The NCUA's
``Permitted Stablecoin Issuer Licensing Manual'' (Payment Stablecoin
Issuer Manual) provides additional filing guidance, including policies
and procedures. This Manual and sample forms are available at
<a href="http://www.ncua.gov">www.ncua.gov</a>.
(b) Electronic filing. The NCUA encourages electronic filing for
all filings. The NCUA's Payment Stablecoin Issuer Manual describes the
NCUA's electronic filing procedures.
(c) Reservation of authority. The rules in this subpart apply to
all sections in this part unless otherwise stated. The NCUA may adopt
materially different procedures for a particular filing, or class of
filings as it deems necessary, for example, in exceptional
circumstances or for unusual transactions, after providing notice of
the change to the filer and to any other party that the NCUA determines
should receive notice.
(d) Computation of time. In computing the period of days under this
subpart, the NCUA does not include the day of the act or event (e.g.,
the date a filing is received by the NCUA) from which the period begins
to run. When the last day of a period is a Saturday, Sunday, or Federal
holiday, the period runs until the end of the next day that is not a
Saturday, Sunday or Federal holiday.
Sec. 706.103 Filing required.
(a) Filing. A Subsidiary of an Insured Credit Union who seeks to
issue payment stablecoins must apply to the NCUA for an NCUA permitted
payment stablecoin issuer license and receive approval before issuing
payment stablecoins. This application must be filed jointly with any
insured credit union Parent Company(ies).
(b) Where to file. Any submission under this part should be
submitted as provided in the NCUA's Payment Stablecoin Issuer Manual.
(c) Prefiling meeting. Before submitting a filing to the NCUA, a
potential filer may contact the NCUA to discuss whether a prefiling
meeting would be beneficial. The NCUA may grant a prefiling meeting on
a case-by-case basis. Submission of a draft business plan or other
relevant information before any prefiling meeting may expedite the
filing review process. A potential filer considering a novel, complex,
or unique proposal is encouraged to contact the NCUA to request a
prefiling meeting early in the development of its proposal for the
early identification and consideration of policy issues. Information on
model business plans can be found in the NCUA's Payment Stablecoin
Issuer Manual.
(d) Certification. An Applying Issuer, and all of its Parent
Companies and any Principal Shareholders, must certify in writing that
any filing or supporting material submitted to the NCUA contains no
material misrepresentations or omissions. The NCUA may review and
verify any information filed in connection with a notice or an
application. Any person responsible for any material misrepresentation
or omission in a filing or supporting materials may be subject to
enforcement action and other penalties, including criminal penalties
provided in 18 U.S.C. 1001.
(e) Filing fees.
(1) The NCUA may require filing fees to accompany certain filings
made under this subpart before it will accept those filings. If the
NCUA requires the aforementioned filing fee, the NCUA will publish an
applicable fee schedule on its website at <a href="http://www.NCUA.gov">http://www.NCUA.gov</a>.
(2) Filing fees must be paid to the NCUA by electronic transfer.
Sec. 706.104 Investigations.
(a) Authority. The NCUA may examine or investigate and evaluate
facts related to a filing to the extent necessary to reach an informed
decision.
(b) Fingerprints. For certain filings, the NCUA requires
fingerprints for a biometric based criminal history search.
Sec. 706.105 Evaluation of applications and factors to be considered.
(a) Scope. This section describes the procedures and requirements
governing NCUA evaluation of an application to be an NCUA-Licensed
Permitted Payment Stablecoin Issuer. The NCUA will evaluate each
substantially complete application to determine whether approval would
be consistent with the safety and soundness of the Applying Issuer
based on the statutory evaluation factors set forth in this section. An
applicant should consult the NCUA's Payment Stablecoin Issuer Manual to
determine what other information is necessary for the NCUA to evaluate
an application using the statutory evaluation factors described in this
section.
(b) Statutory evaluation factors. The NCUA grants permitted payment
stablecoin licenses under the authority of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act, 12 U.S.C. 5901 et seq.,
which requires the NCUA to evaluate:
(1) The ability of the Applying Issuer, based on financial
condition and resources, to meet the requirements set forth under 12
U.S.C. 5903 and incorporated in subpart B of part 706;
(2) Whether an individual who has been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud is serving as an
Officer or Director of the Applying Issuer;
(3) The competence, experience, and integrity of the Officers,
Directors, and Principal Shareholders of the Applying Issuer, its
subsidiaries, and Parent Company, including:
(i) the record of those Officers, Directors, and Principal
Shareholders of compliance with laws and regulations; and
(ii) the ability of those Officers, Directors, and Principal
Shareholders to fulfill any commitments to, and any conditions imposed
by, the NCUA in connection with the application at issue and any prior
applications;
(4) Whether the redemption policy of the Applying Issuer meets the
standards under 12 U.S.C. 5903(a)(1)(B) and incorporated in subpart B
of part 706; and
(5) Any other factors established by the NCUA that are necessary to
ensure the safety and soundness of the Applying Issuer.
(c) Policy--
(1) In general. In determining whether to approve an application to
be an NCUA-Licensed Permitted Payment Stablecoin Issuer based on the
statutory evaluation criteria in paragraph (c), the NCUA is guided by
the following policy considerations as they relate to the Applying
Issuer:
(i) Whether an Issuing Group has a record of compliance with laws
and regulations and whether the Issuing Group is familiar with the laws
and regulations applicable to NCUA-Licensed Permitted Payment
Stablecoin Issuers and digital asset service providers;
(ii) Whether an Issuing Group has the ability to fulfill any
commitments to, and any conditions imposed by, the NCUA in connection
with the application at issue and any prior applications;
(iii) Whether an Issuing Group has competent management, including
a board of directors, with ability and experience relevant to the types
of services to be provided;
(iv) Whether an applicant has capital, liquidity, and capital and
liquidity plans sufficient to support the projected volume and type of
business;
(v) Whether an applicant has a redemption policy that meets all
requirements in subpart B of this part;
[[Page 6550]]
(vi) Whether an applicant can reasonably be expected to achieve and
maintain profitability; and
(vii) Whether an applicant can be operated in a safe and sound
manner by evaluating criteria including, but not limited to, the
following:
(A) the ability to meet the operational, compliance, and
information technology risk management requirements and standards
outlined in subparts B of this part; and
(B) the ability to maintain sufficient technological capabilities
to comply with the terms of any lawful order and all applicable laws
and regulations.
(2) NCUA evaluation. The NCUA evaluates an Issuing Group and its
business plan together. The NCUA's judgment concerning one may affect
the evaluation of the other. An Issuing Group and its business plan
must be stronger in markets where economic conditions are marginal,
competition is intense, or the services to be provided have greater or
unknown risk.
(d) Issuing group--
(1) In general. An Issuing Group must have the competence,
experience, and integrity to be active in directing the Applying
Issuer's affairs in a safe and sound manner. The business plan and
other information supplied in the application, including the completed
NCUA Biographical and Financial Report forms, must demonstrate an
Issuing Group's collective ability to establish and operate a
successful permitted payment stablecoin issuer in the economic and
competitive conditions of the market to be served. This collective
ability must be demonstrated with consideration of the activities to be
engaged in by the Applying Issuer and the services it intends to
provide. Each member of the Issuing Group must be knowledgeable about
the business plan. An inadequate business plan may be a reason for the
NCUA to deny an application because it reflects adversely on the
Issuing Group's qualifications.
(2) Management selection. The initial board of directors must
select competent Officers before the NCUA grants an NCUA permitted
payment stablecoin license. Early selection of Officers, especially the
chief executive officer, contributes favorably to the preparation and
review of a business plan that is accurate, complete, and appropriate
for the activities the proposed permitted payment stablecoin issuer
intends to engage in, and is necessary for a substantially complete
application.
(3) Financial resources.
(i) Each member of the Issuing Group must have a history of
responsibility, personal honesty, and integrity.
(ii) The Issuing Group must have a realistic plan to enable the
Applying Issuer to obtain capital and liquidity when needed.
(iii) Any financial or other business arrangement, direct or
indirect, between the Issuing Group or other insiders and the Applying
Issuer must be on nonpreferential terms.
(e) Business plan--
(1) In general.
(i) An Applying Issuer must submit a business plan that adequately
addresses the statutory and related policy considerations set forth in
paragraphs (b) and (c) of this section. The plan must reflect sound
business and financial principles and demonstrate realistic assessments
of risk in light of economic and competitive conditions in the market
to be served and the services to be provided.
(ii) The NCUA may offset deficiencies in one factor by strengths in
one or more other factors. However, deficiencies in some factors, such
as unrealistic earnings prospects, may have a negative influence on the
evaluation of other factors, such as capital adequacy, or may be
serious enough by themselves to result in denial. The NCUA considers
inadequacies in a business plan to reflect negatively on the Issuing
Group's ability to operate a successful NCUA-Licensed Permitted Payment
Stablecoin Issuer.
(2) Earnings prospects and financial condition. An Applying Issuer
must submit balance sheets and income statements that demonstrate
financial stability and earnings prospects as part of the business
plan. This would include both actual and pro forma balance sheets and
income statements, as applicable based on the availability of actual
financial statements. The NCUA reviews all pro forma projections for
reasonableness of assumptions and consistency with the business plan.
(3) Management.
(i) The Applying Issuer must include in the business plan
information sufficient to permit the NCUA to evaluate the overall
management ability of the Issuing Group. If the Issuing Group has
limited relevant experience, the Officers of the applying issuer must
be able to compensate for such deficiencies.
(ii) The Applying Issuer may not hire an Officer or elect or
appoint a Director if the NCUA objects to that person at any time prior
to the date the Applying Issuer commences business.
(iii) All Issuing Group Officers, Directors, and any Principal
Shareholders must also submit the Biographical and Financial Report
information described in paragraph (f)(3) of this section to allow the
NCUA to evaluate the competence, experience, and integrity of the
Officers, Directors, and Principal Shareholders of the Applying Issuer,
its subsidiaries, and Parent Company or Parent Companies as described
in paragraph (b)(3).
(4) Capital. An Applying Issuer must have sufficient initial
capital, net of any organizational expenses that will be charged to the
Applying Issuer's capital after it begins operations, to support the
Applying Issuer's projected volume and type of business as outlined in
the business plan. An Applying Issuer also must have a longer-term
capital plan that is sufficient to support the future projected volume
and type of business and is consistent with the capital requirements in
subpart B of this part.
(5) Liquidity and reserve asset diversification. An Applying
Issuer's business plan must address its liquidity and reserve asset
diversification practice. Issuers must have liquidity and reserve asset
diversification policies that meet the requirements of subpart B of
this part.
(6) Safety and soundness. The business plan must demonstrate that
the Applying Issuer is aware of, and understands, applicable laws and
regulations, and how to conduct safe and sound operations and
practices.
(f) Procedures--
(1) Prefiling meeting. The Issuing Group of an Applying Issuer may
request a prefiling meeting with the NCUA before the Applying Issuer
files an application. The prefiling meeting normally is held virtually.
(2) Business plan. An applying issuer must file a business plan
that addresses the subjects discussed in paragraph (e) of this section.
(3) Biographical and financial reports.
(i) Each Director or Officer or proposed Director or Officer of a
member of the Issuing Group or Principal Shareholder must submit to the
NCUA the information prescribed in the NCUA's Biographical and
Financial Report, available at <a href="http://www.ncua.gov">www.ncua.gov</a>;
(ii) Each Director or Officer or proposed Director or Officer of
the Applying Issuer must submit legible fingerprints for a biometric
based criminal history search; and
(iii) The NCUA may request additional information about any
Director or Officer, or proposed Director or Officer, or any Principal
Shareholder, if appropriate. The NCUA may waive any of the information
requirements of this paragraph if the NCUA determines that it is in the
public interest.
(4) Contact person. The Applying Issuer must designate a contact
person
[[Page 6551]]
to represent the Issuing Group in all contacts with the NCUA.
(5) Decision notification. The NCUA notifies the contact person and
other relevant parties in writing of its decision on an application.
(6) Activities. Before the NCUA grants a license to an Applying
Issuer, the Applying Issuer must be established as a legal entity under
State law.
Sec. 706.106 Timing for decision on applications.
(a) In general. Not later than 120 days after receiving a
substantially complete application for license as an NCUA-Licensed
Permitted Payment Stablecoin Issuer, the NCUA will render a decision on
the application. If the NCUA fails to render a decision on a complete
application within this period, the application shall be deemed
approved.
(b) Substantially complete applications.
(1) An application is considered substantially complete if the
application contains sufficient information for the NCUA to render a
decision on whether the Applying Issuer satisfies the factors described
in 706.105.
(2) Not later than 30 days after receiving an application, the NCUA
will notify the Applying Issuer as to whether the NCUA determined the
application to be substantially complete and, if the application is not
substantially complete, the additional information the Applying Issuer
must provide for the application to be considered substantially
complete.
(3) Material Change in Circumstances. An application considered
substantially complete under this section will remain substantially
complete unless there is a material change in circumstances that
requires the NCUA to treat the application as a new application.
Sec. 706.107 Denial.
(a) Grounds for denial.
(1) In general. The NCUA will only deny a substantially complete
application received under this subpart if the NCUA determines that the
activities of the Applying Issuer would be unsafe or unsound based on
the statutory evaluation factors described in Sec. 706.104.
(2) Issuance on open, public, or decentralized network not grounds
for denial. The issuance of a payment stablecoin on an open, public, or
decentralized network is not a valid ground for denial of an
application received under this subpart.
(b) Explanation required. If the NCUA denies a substantially
complete application received under this subpart, not later than 30
days after the date of such denial, the NCUA shall provide the Applying
Issuer with written notice explaining the denial with specificity,
including all findings made with respect to all identified material
shortcomings in the application and actionable recommendations on how
the Applying Issuer could address the identified material shortcomings.
Sec. 706.108 Opportunity for hearing; final determination.
(a) In general. Not later than 30 days after the date of receipt of
any notice of the denial of an application under this subpart, the
Applying Issuer may request, in writing, an opportunity for a written
or oral hearing before the NCUA Board to appeal the denial.
(b) Timing. Upon receipt of a timely hearing request, the NCUA will
notice a time not later than 30 days after the date of receipt of the
request and place at which the Applying Issuer may appear, personally
or through counsel, to submit written materials or provide oral
testimony and oral argument.
(c) Final determination. Not later than 60 days after the date of a
hearing under this section, the NCUA will notify the Applying Issuer of
a final determination, which will contain a statement of the basis for
that determination, with specific findings.
(d) Notice if no hearing. If an applicant does not make a timely
request for a hearing under this section, the NCUA will notify the
Applying Issuer, not later than 10 days after the date by which the
Applying Issuer may request a hearing under this subparagraph, in
writing, that the denial of the application is a final determination of
the NCUA.
Sec. 706.109 Right to reapply.
The denial of an application under this subpart does not prohibit
the Applying Issuer from filing a subsequent application.
Sec. 706.110 Certification of anti-money laundering and economic
sanctions compliance programs.
(a) In general. Not later than 180 days after the approval of an
application, and on an annual basis thereafter, each NCUA-Licensed
Permitted Payment Stablecoin Issuer must submit to the NCUA written
certification that the NCUA-Licensed Permitted Payment Stablecoin
Issuer has implemented anti-money laundering and economic sanctions
compliance programs that are reasonably designed to prevent the NCUA-
Licensed Permitted Payment Stablecoin Issuer from facilitating money
laundering, in particular, facilitating money laundering for cartels
and organizations designated as foreign terrorist organizations under
section 219 of the Immigration and Nationality Act (8 U.S.C. 1189), and
the financing of terrorist activities, consistent with the requirements
of this Act.
(b) Failure to submit certification. The failure by an NCUA-
Licensed Permitted Payment Stablecoin Issuer to submit the
certification required under paragraph (a) constitutes cause for the
NCUA to revoke the approval and license of the NCUA-Licensed Permitted
Payment Stablecoin Issuer.
Sec. 706.111 Change in control.
(a) Change in control. An insured credit union must provide the
NCUA with sixty days' prior written notice of a proposed acquisition
that would cause it to become a Parent Company of an NCUA-Licensed
Permitted Payment Stablecoin Issuer.
(b) Notice. The notice must include:
(1) Biographical and financial report information described in
Sec. 706.105(f)(3) of this part sufficient to allow the NCUA to
(i) Evaluate the competence, experience, and integrity of the
proposed Parent Company's Officers and Directors related to payment
stablecoins; and
(ii) Evaluate the record of the proposed Parent Company's Officer
and Directors with compliance with laws and regulations; and
(2) A certification that the proposed Parent Company will fulfill
any commitments to, any conditions imposed by, the NCUA in connection
with its proposed investment.
(c) Timing. The insured credit union may complete its proposed
investment to become a Parent Company of an NCUA-Licensed Permitted
Payment Stablecoin Issuer at the end of the sixty-day period unless the
NCUA issues a notice disapproving the proposed acquisition.
(d) Notice of disapproval. The NCUA may disapprove of an insured
credit union's proposed investment to become a Parent Company of an
NCUA-Licensed Permitted Payment Stablecoin Issuer if it finds that the
competence, experience, or integrity of the insured credit union's
Officers and Directors indicates the investment would not be in the
best interests of the NCUA-Licensed Permitted Payment Stablecoin Issuer
or of the public.
(e) Appeal. Not later than 30 days after the date of receipt of the
notice of disapproval, the notificant may request, in writing, an
opportunity for a written or oral hearing before the NCUA to appeal the
denial.
[[Page 6552]]
Sec. 706.112 Investment limitation.
An insured credit union cannot invest in a payment stablecoin
issuer unless it is an NCUA-Licensed Permitted Payment Stablecoin
Issuer.
[FR Doc. 2026-02868 Filed 2-11-26; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on February 12, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.