Proposed Rule2026-09915
Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the National Credit Union Administration
Primary source
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Published
May 18, 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). In February 2026, the NCUA issued proposed regulations to govern investments in and licensing of permitted payment stablecoin issuers subject to the NCUA's jurisdiction. This current proposal supplements the previous proposal and would govern the issuance of Payment Stablecoins and certain related activities by entities subject to the NCUA's jurisdiction. This proposal would also make amendments to address share insurance coverage, tokenized shares, and other conforming and clarifying amendments.
Full Text
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<title>Federal Register, Volume 91 Issue 95 (Monday, May 18, 2026)</title>
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[Federal Register Volume 91, Number 95 (Monday, May 18, 2026)]
[Proposed Rules]
[Pages 28956-29035]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09915]
[[Page 28955]]
Vol. 91
Monday,
No. 95
May 18, 2026
Part VI
National Credit Union Administration
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12 CFR Parts 702, 704, et al.
Implementing the Guiding and Establishing National Innovation for U.S.
Stablecoins Act for the Issuance of Stablecoins by Entities Subject to
the Jurisdiction of the National Credit Union Administration; Proposed
Rule
Federal Register / Vol. 91 , No. 95 / Monday, May 18, 2026 / Proposed
Rules
[[Page 28956]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702, 704, 706, 745, and 747
RIN 3133-AG10
Implementing the Guiding and Establishing National Innovation for
U.S. Stablecoins Act for the Issuance of Stablecoins by Entities
Subject to the Jurisdiction of the National Credit Union Administration
AGENCY: National Credit Union Administration (NCUA).
ACTION: Supplemental 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). In February 2026, the NCUA issued
proposed regulations to govern investments in and licensing of
permitted payment stablecoin issuers subject to the NCUA's
jurisdiction. This current proposal supplements the previous proposal
and would govern the issuance of Payment Stablecoins and certain
related activities by entities subject to the NCUA's jurisdiction. This
proposal would also make amendments to address share insurance
coverage, tokenized shares, and other conforming and clarifying
amendments.
DATES: Comments must be received by July 17, 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-2026-1024. 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#baf5fdf9f7dbd3d6fad4d9cfdb94ddd5cc"><span class="__cf_email__" data-cfemail="7f30383c321e16133f111c0a1e51181009">[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. The NCUA Licensing Proposal
IV. The NCUA Standards Proposal
V. General Request for Comment
VI. Regulatory Procedures
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.
Stablecoins are Digital Assets, i.e., digital representations of
value recorded on a cryptographically secured Distributed Ledger,\1\
such as a blockchain.\2\ In contrast to many other types of Digital
Assets, stablecoins are intended to maintain a stable value relative to
a reference asset, most often fiat currency.\3\ Most stablecoin issuers
use a pool of high quality and highly liquid reserve assets to back the
stablecoin and maintain a stable value.\4\ Stablecoins often rely on
smart contracts (i.e., self-executing programs that automatically
enforce agreements between users) for different aspects of their
functionality.\5\ When an issuer redeems a tendered stablecoin, it
typically accepts a stablecoin from a user or third party in exchange
for a fixed amount of Monetary Value, e.g., one dollar.\6\ Stablecoins
are frequently used to facilitate trading in Digital Assets and may be
used for retail and institutional payments.\7\ Certain stablecoin
issuers have the capability to freeze funds or block transactions
involving their stablecoin, which they may do, for example, to
effectuate a court order.\8\
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\1\ 12 U.S.C. 5901(6).
\2\ White House, ``Strengthening American Leadership in Digital
Financial Technology,'' at 15 (July 17, 2025), [hereinafter, Digital
Financial Technology Report], <a href="https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf">https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf</a>. A
cryptographically secured ledger uses cryptography to maintain the
integrity of the ledger. See also E.O. No. 14178, Strengthening
American Leadership in Digital Financial Technology, 90 FR 8647
(Jan. 31, 2025) (defining blockchain to mean ``any technology where
data is: (i) shared across a network to create a public ledger of
verified transactions or information among network participants;
(ii) linked using cryptography to maintain the integrity of the
public ledger and to execute other functions; (iii) distributed
among network participants in an automated fashion to concurrently
update network participants on the state of the public ledger and
any other functions; and (iv) composed of source code that is
publicly available'').
\3\ Digital Financial Technology Report at 88, 130.
\4\ See id. at 90.
\5\ See id. at 11.
\6\ Currently, rather than mint or redeem stablecoins through
the issuer, most market participants rely on digital asset
trading platforms to exchange stablecoins for national
currencies (or even other stablecoins).
\7\ Id. at 93.
\8\ See id. at 105.
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The GENIUS Act focuses on a subset of stablecoins: Payment
Stablecoins. Under section 2(22) of the Act, ``payment stablecoin''
means ``a digital asset--(i) that is, or is designed to be, used as a
means of payment or settlement; and (ii) the issuer of which--(I) is
obligated to convert, redeem, or repurchase for a fixed amount of
monetary value, not including a digital asset denominated in a fixed
amount of monetary value; and (II) represents that such issuer will
maintain, or create the reasonable expectation that it will maintain, a
stable value relative to the value of a fixed amount of monetary
value[.]'' \9\ The term does not include a Digital Asset that is (i) a
national currency; (ii) a deposit, including a deposit recorded using
distributed ledger technology; or (iii) a security, as defined in 15
U.S.C. 77b, 78c, or 80a-2.\10\
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\9\ 12 U.S.C. 5901(22).
\10\ The Act provides that, for the avoidance of doubt, no bond,
note, evidence of indebtedness, or investment contract that was
issued by a permitted payment stablecoin issuer shall qualify as a
security solely by virtue of its satisfying the conditions described
in section 2(22)(A) of the Act, consistent with section 17 of the
Act. 12 U.S.C. 5901(22)(B)(iii).
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The GENIUS Act generally prohibits any Person other than a
permitted payment stablecoin issuer (PPSI) from issuing a Payment
Stablecoin in the
[[Page 28957]]
United States.\11\ It further prohibits digital asset service providers
\12\ from offering or selling a Payment Stablecoin to a Person in the
United States unless the issuer is a PPSI or the issuer is a foreign
payment stablecoin issuer that meets certain requirements.\13\ The
GENIUS Act sets forth various regulatory and licensing requirements for
PPSIs and foreign payment stablecoin issuers. In many instances, the
GENIUS Act states that the specific requirements applicable to these
entities (e.g., those related to capital, liquidity, operational risk
management), shall be set forth by regulations issued by the relevant
primary Federal payment stablecoin regulator, in coordination with
other relevant agencies, as appropriate.\14\ This proposed rulemaking
represents one piece of the GENIUS Act's implementing regulations.\15\
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\11\ See 12 U.S.C. 5902(a). See also 12 U.S.C. 5916 (excepting
foreign payment stablecoin issuers that meet certain requirements
from the prohibition in section 3 of the Act).
\12\ ``Digital asset service provider'' means a person that, for
compensation or profit, engages in the business in the United States
(including on behalf of customers or users in the United States) of:
(1) exchanging digital assets for monetary value; (2) exchanging
digital assets for other digital assets; (3) transferring digital
assets to a third party; (4) acting as a digital asset custodian; or
(5) participating in financial services relating to digital asset
issuance. See 12 U.S.C. 5901(7). The term ``digital asset service
provider'' does not include (1) a distributed ledger protocol; (2)
an immutable and self-custodial software interface; or (3) a person
solely by virtue of their (A) developing, operating, or engaging in
the business of developing distributed ledger protocols or self-
custodial software interfaces; (B) developing, operating, or
engaging in the business of validating transactions or operating a
distributed ledger; or (C) participating in a liquidity pool or
other similar mechanism for the provisioning of liquidity for peer-
to-peer transactions. See id. A liquidity pool is a portfolio of
digital assets that is algorithmically bound and traded based on
smart contracts. Liquidity providers and takers interact with
liquidity pools by adding assets that the liquidity pools trade and
receive a liquidity pool token in return that is proportionate to
the percentage of assets they have contributed to the liquidity
pool. Digital Financial Technology Report at 23.
\13\ The prohibition against digital asset service providers
offering or selling Payment Stablecoins that are not issued by PPSIs
begins on July 18, 2028. See 12 U.S.C. 5902(b)(1). The prohibition
against digital asset service providers offering or selling Payment
Stablecoins that are not issued by foreign payment stablecoin
issuers that meet certain requirements goes into effect as of the
effective date of the GENIUS Act. See 12 U.S.C. 5902(b)(2). The
prohibitions that apply to a digital asset service provider would
apply to an issuer to the extent that the issuer is a digital asset
service provider.
\14\ See, e.g., 12 U.S.C. 5903(a)(4), (b), (h).
\15\ For example, on September 19, 2025, the Department of the
Treasury issued an advance notice of proposed rulemaking concerning
the GENIUS Act. See 90 FR 45159 (Sept. 19, 2025). On December 19,
2025, the FDIC released a notice of proposed rulemaking related to
certain application provisions under the GENIUS Act. 90 FR 59409
(Dec. 19, 2025). On February 12, 2026, the NCUA issued a notice of
proposed rulemaking relating to investments in and licensing of
PPSIs. 91 FR 6531 (Feb. 12, 2026). On March 2, 2026, the OCC issued
a notice of proposed rulemaking relating to the issuance of Payment
Stablecoins and certain related activities by entities subject to
the OCC's jurisdiction. 91 FR 10202 (Mar. 2, 2026).
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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.'' \16\ 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.
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\16\ 12 U.S.C. 5901(33).
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Under the GENIUS Act, only PPSIs may issue a Payment Stablecoin in
the United States, subject to certain 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 Payment 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 PPSIs 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.\17\ The GENIUS 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 a product in the United States as a Payment
Stablecoin unless it is issued pursuant to the GENIUS Act.\18\
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\17\ See 12 U.S.C. 5903(e).
\18\ 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 supplemental proposal
proposes regulations to implement the standards and restrictions
imposed by the GENIUS Act on PPSIs (hereinafter, the ``NCUA Standards
Proposal''). This NCUA Standards Proposal supplements the notice of
proposed rulemaking that the NCUA published in the Federal Register on
February 12, 2026, entitled ``Investments in and Licensing of Permitted
Payment Stablecoins Issuers'' (hereinafter, the ``NCUA Licensing
Proposal'').\19\
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\19\ 91 FR 6531 (Feb. 12, 2026).
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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 these FICU subsidiaries. The NCUA is also working to
determine
[[Page 28958]]
whether further guidance to FICUs and FICU subsidiaries may be
necessary on these subjects.
This proposal sets forth, and seeks comment on, the regulations
that would apply to NCUA-Licensed Permitted Payment Stablecoin Issuers
(NCUA-Licensed PPSIs) as well as certain custody activities conducted
by FICUs and NCUA-Licensed PPSIs. These proposed regulations do not
address stablecoins that do not qualify as Payment Stablecoins or
issuers for which the NCUA does not have regulatory or enforcement
authority. The GENIUS Act's effective date is the earlier of 18 months
after the enactment date (July 18, 2025) or 120 days after the primary
Federal payment stablecoin regulators issue final regulations
implementing the GENIUS Act. The NCUA anticipates that these
implementing regulations will be updated, as necessary, in the years
following the effective date of the GENIUS Act as the business
practices of NCUA-Licensed PPSIs continue to evolve and develop. In
addition, other regulations beyond those addressed in this rulemaking
may need to be updated in light of the passage of the GENIUS Act. This
proposal would also make amendments to address share insurance
coverage, tokenized shares, and other conforming and clarifying
amendments.
A. Self-Executing Provisions
The GENIUS Act includes a number of self-executing provisions that
are not addressed in this rulemaking. For example, the GENIUS Act
includes several provisions addressing the applicability of State law
to PPSIs. These provisions ensure that FICU subsidiaries approved to be
NCUA-Licensed PPSIs are not subject to State licensure and address the
effect of the GENIUS Act on State consumer protection laws.
Section 5(h) of the GENIUS Act expressly preempts ``any State
requirement for a charter, license, or other authorization to do
business with respect to a'' FICU subsidiary approved to be an NCUA-
Licensed PPSI.\20\ As a result, these entities are only required to
obtain authorization to do business from the NCUA, which reduces the
unnecessary complexity that would result from requiring these entities
to also obtain a charter, license, or other authorization from one or
more States. Section 7(f)(4) of the GENIUS Act provides that nothing in
the GENIUS Act preempts State consumer protection laws.\21\
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\20\ 12 U.S.C. 5904(h).
\21\ 12 U.S.C. 5906(f)(4).
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Together, these GENIUS Act provisions establish a framework for
assessing the applicability of State law to a FICU subsidiary approved
to be an NCUA-Licensed PPSI.\22\ Because these GENIUS Act provisions
are self-executing, the NCUA is not proposing regulatory text to
implement them. However, the agency invites public comment on all
aspects of this framework, including whether the self-executing
provisions of the GENIUS Act should be codified in the NCUA's
regulations for convenience.
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\22\ The GENIUS Act also addresses the applicability of State
law to State qualified payment stablecoin issuers. See, e.g.,
section 7(f) of the Act (12 U.S.C. 5906(f)).
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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.\23\ 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,\24\ establish regulations for issuing
Payment Stablecoins,\25\ and examine for and enforce applicable
requirements imposed on FICU subsidiaries.\26\ The GENIUS Act also
confers authority related to standards for custody of Payment
Stablecoins, Private Keys, and reserves.\27\ The GENIUS Act grants the
NCUA general authority to promulgate regulations to carry out the
GENIUS Act through appropriate notice and comment rulemaking.\28\
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\23\ 12 U.S.C. 5901(25)(B).
\24\ 12 U.S.C. 5904.
\25\ 12 U.S.C. 5903(h).
\26\ 12 U.S.C. 5903 and 5905.
\27\ 12 U.S.C. 5909.
\28\ 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.\29\ 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.\30\
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\29\ 12 U.S.C. 1766.
\30\ 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.'' \31\ 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.'' \32\ 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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\31\ 12 U.S.C. 1784.
\32\ 12 U.S.C. 1786.
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With respect to proposed amendments to clarify the share insurance
coverage of funds deposited in Share Accounts at FICUs that serve as
Reserve Assets and the treatment of tokenized Share Accounts, in
addition to the broad FCU Act authorities provided in sections 120 and
209 of the FCU Act, the FCU Act provides that the ``[d]etermination of
the net amount of share insurance under subparagraph (A), shall be in
accordance with such regulations as the Board may prescribe . . .''
\33\ and that the ``Board may define, with such classifications and
exceptions as it may prescribe, the extent of the share insurance
coverage provided for member accounts. . ..'' \34\ As discussed later
in this preamble, the FCU Act also defines the term ``member account.''
\35\ The NCUA insures member accounts at all FICUs. Importantly, this
term is not limited to those persons enumerated in the credit union's
field of membership who have become members. It also includes as member
accounts certain nonmembers, such as other nonmember credit unions;
nonmember public units and political subdivisions; and, in the case of
credit unions serving predominantly low-income members, deposits of
nonmembers generally. In other words, the NCUA provides share insurance
coverage to members and those otherwise eligible to maintain insured
accounts at FICUs.
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\33\ 12 U.S.C. 1787(k)(1)(B).
\34\ 12 U.S.C. 1787(k)(1)(C).
\35\ 12 U.S.C. 1752(5).
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III. The NCUA Licensing Proposal
On February 12, 2026, the NCUA published a notice of proposed
rulemaking in the Federal Register entitled ``Investments in and
Licensing of Permitted Payment Stablecoins Issuers.'' The NCUA
Licensing Proposal served as the first of two main proposed
[[Page 28959]]
rules that the NCUA anticipated issuing to implement the GENIUS Act.
The NCUA is providing a high-level summary of that proposal to assist
stakeholders as they review this second NCUA supplemental proposed
rulemaking, the NCUA Standards Proposal, addressing standards for NCUA-
Licensed PPSIs and FICUs, among other subjects.
The NCUA interprets the GENIUS Act to limit PPSI status to those
institutions functioning as a subsidiary of an IDI (including a
FICU),\36\ a Federal qualified payment stablecoin issuer,\37\ and a
State qualified payment stablecoin issuer.\38\ FICUs are not permitted
to issue Payment 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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\36\ 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.
\37\ A Federal qualified payment stablecoin issuer includes (1)
a nonbank entity, (2) an uninsured national bank, and (3) a Federal
branch. FICUs and their subsidiaries would not qualify as Federal
qualified payment stablecoin issuers.
\38\ 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.'' \39\ 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.\40\ Section 5(g) further requires that the NCUA issue rules
necessary for the regulation of the issuance of Payment
Stablecoins.\41\
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\39\ 12 U.S.C. 5904.
\40\ 12 U.S.C. 5904(a)(2).
\41\ 12 U.S.C. 5904(g).
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As explained in more detail in the NCUA Licensing Proposal, 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 made certain decisions in
proposing to implement 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 in the NCUA Licensing Proposal.
The NCUA Licensing Proposal 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 the NCUA-Licensing Proposal, 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 NCUA Licensing Proposal proposed limiting 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.
Further information about the proposed regulations to govern the
process for reviewing and granting NCUA-PPSI licenses can be found in
the NCUA Licensing Proposal.
IV. The NCUA Standards Proposal
The NCUA is issuing this supplemental proposed rule governing the
issuance of Payment Stablecoins and certain related activities by
entities subject to the NCUA's jurisdiction to supplement the NCUA
Licensing Proposal and substantially implement the NCUA's proposed
regulatory regime for NCUA-Licensed PPSIs and FICUs.
The NCUA is proposing the following procedures and standards for
NCUA-Licensed PPSIs. Each section of the proposed rule will be
discussed separately. As noted, the NCUA is providing a high-level
summary of portions of the NCUA Licensing Proposal to assist
stakeholders as they review this NCUA Standards Proposal. Unless
explicitly stated in this supplemental proposal, the NCUA is not
reproposing or otherwise modifying those provisions proposed in the
NCUA Licensing Proposal.
The NCUA also notes that, as discussed throughout the NCUA
Licensing Proposal, the GENIUS Act frequently uses banking-specific
terminology and standards. Given this reliance on banking-specific
terminology and the importance of providing consistent regulatory
terminology and standards across the various primary Federal payment
stablecoin regulators, where possible, proposed part 706 would maintain
consistency with the standards and terminology proposed by the other
primary Federal payment stablecoin regulators.
A. Sec. 706.1. Authority, Purpose, and Scope
The NCUA Licensing Proposal proposed Sec. 706.1 to describe the
authority, purpose, and scope of part 706. The NCUA Standards Proposal
is not proposing changes to what was previously proposed, but is
restating the explanation provided in the NCUA Licensing Proposal to
assist stakeholders as they review this proposal. Proposed Sec. 706.1
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 PPSIs
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.
[[Page 28960]]
B. Sec. 706.2. Definitions
Proposed Sec. 706.2 would provide the definitions used throughout
part 706.\42\ 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.
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\42\ The definitions in proposed Sec. 706.2 describe only terms
used in proposed part 706. These definitions do not interpret terms
for purposes of any other statute or regulation and are not issued
pursuant to section 3(d) of the GENIUS Act (12 U.S.C. 5902(d)).
---------------------------------------------------------------------------
This NCUA Standards Proposal restates the definitions provided in
the NCUA Licensing Proposal to assist commenters. Except where
explicitly noted, the NCUA Standards Proposal does not modify the
proposed definitions from the NCUA Licensing Proposal.
As discussed throughout the NCUA Licensing Proposal, the GENIUS Act
frequently uses banking-specific terminology and standards. Given this
reliance on banking-specific terminology and the importance of
providing consistent regulatory terminology and standards across the
various primary Federal payment stablecoin regulators, where possible,
proposed part 706 would maintain consistency with the standards and
terminology proposed by the other primary Federal payment stablecoin
regulators. The GENIUS Act's reliance on banking-specific terminology
also compels the NCUA to at times clarify the best meaning of credit
union specific terminology in part 706.
The NCUA solicits stakeholder input as to the below definitions and
specifically as to whether individual definitions appropriately balance
consistent meaning across the primary Federal payment stablecoin
regulators with needed differences to accommodate the credit union
industry.
1. Affiliate
The NCUA is proposing to define the term ``Affiliate'' consistent
with the definition proposed by the OCC in their Payment Stablecoin
notice of proposed rulemaking published in the Federal Register on
March 2nd (hereinafter, the ``OCC Proposal''). The OCC proposal would
define the term consistent with the definition in the Bank Holding
Company Act, 12 U.S.C. 1841(k), but modified to use the defined term
``Person'' in place of the term ``company.'' \43\ Under the proposed
rule, the term ``Affiliate'' would mean a Person that controls, is
controlled by, or is under common Control with another person. The NCUA
believes the proposed definition of Affiliate would include the
appropriate individuals and entities that could be involved in Payment
Stablecoin issuance. As articulated above, the NCUA also believes that
it is important to, where possible, provide consistent regulatory
standards across the various primary Federal payment stablecoin
regulators.
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\43\ While the proposed definition of ``Affiliate'' is
consistent with the definition in the Bank Holding Company Act, the
NCUA would retain interpretive authority with respect to this
definition for purposes of proposed 12 CFR part 706.
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2. Applying Issuer
As proposed in the NCUA Licensing Proposal, the term ``Applying
Issuer'' would mean any entity applying to the NCUA for an NCUA-PPSI
license. This term would be used throughout part 706 to generally refer
to any entity 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 NCUA
Licensing Proposal.
3. Bank Secrecy Act
The NCUA is proposing to define the term ``Bank Secrecy Act''
consistent with the definition provided in the GENIUS Act, 12 U.S.C.
5901(2). Under the proposal, the term ``Bank Secrecy Act'' would mean:
(1) section 21 of the Federal Deposit Insurance Act (12 U.S.C. 1829b);
(2) chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951 et seq.);
and (3) subchapter II of chapter 53 of title 31, United States Code and
notes thereto (31 U.S.C. 5311 et seq.). The proposal would add the
phrase ``and notes thereto'' as a clarification.
4. Control
The NCUA is defining ``Control'' such that a Person would control
another Person if: (1) the Person directly or indirectly or acting
through one or more other Persons owns, controls, or has power to vote
25 percent or more of any class of voting securities of the other
Person; (2) the Person controls in any manner the election of a
majority of the Directors or trustees of the other Person; or (3) the
NCUA determines, after notice and opportunity for hearing, that the
Person directly or indirectly exercises a controlling influence over
the management or policies of the other Person. Like the definition of
``Affiliate,'' the proposed definition of ``Control'' is generally
consistent with the Bank Holding Company Act.\44\ The NCUA notes that
Sec. 706.111, as proposed in the NCUA Licensing Proposal, included
certain provisions regarding changes in control of an NCUA-Licensed
PPSI related to ownership interests of FICU Parent Companies. As
discussed later in this NCUA Standards Proposal, the NCUA is proposing
to change proposed Sec. 706.111 to refer to changes in FICU Parent
Companies rather than changes in control. This is to help clarify that
NCUA-Licensed PPSIs obtaining investment from FICUs and the investing
FICUs should refer to the standards for FICUs that are or would be
Parent Companies as described in Sec. 706.111 while NCUA-Licensed
PPSIs obtaining investment from non-FICU investors and the non-FICU
investors should refer to this definition of Control and Sec.
706.205(m). This is not intended to create a substantive change from
the standards applicable to FICU Parent Companies initially proposed in
the NCUA Licensing Proposal.
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\44\ While the proposed definition of Control is consistent with
the definition in the Bank Holding Company Act, the NCUA would
retain interpretive authority with respect to this definition for
purposes of proposed 12 CFR part 706.
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5. Customer
The NCUA is proposing to define the term ``Customer'' to mean a
Person that purchases (through any consideration) the products or
services of another Person. This term appears in a variety of different
contexts in the proposed rule, so the NCUA has proposed a broad
definition for the term. The definition for purposes of the proposed
rule is not intended to affect any customer identification program or
customer due diligence rules.
6. Digital Asset
The NCUA is proposing to define the term ``Digital Asset'' as
provided in section 2(6) of the GENIUS Act.\45\ Under the proposed
rule, the term ``Digital Asset'' would mean any digital representation
of value that is recorded on a cryptographically secured Distributed
Ledger.
---------------------------------------------------------------------------
\45\ 12 U.S.C. 5901(6).
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7. Director
As provided in the NCUA Licensing Proposal, proposed Sec. 706.2
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
[[Page 28961]]
Issuer. Under the NCUA-Licensing Proposal, 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.\46\ 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.\47\
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\46\ 12 U.S.C. 5904(c)(3).
\47\ See 12 U.S.C. 5903(f).
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As part of this NCUA Standards Proposal, the NCUA is proposing to
amend the definition as proposed in the NCUA Licensing Proposal to
specifically include individuals who serve on the board of directors of
an NCUA-Licensed PPSI and to exempt certain advisory directors. These
are not intended to be substantive changes, but instead to make clear
that (1) an individual that is a Director of an Applying Issuer remains
covered by the term Director once the Appling Issuer becomes an NCUA-
Licensed PPSI; and (2) the definition is not intended to cover advisory
directors who do not have the authority to vote on matters before the
board of directors or any committee of the board of directors and
provide solely general policy advice to the board of directors or any
committee. Additionally, it is worth noting that Directors of NCUA-
Licensed PPSIs would be subject to a number of additional requirements
imposed by the NCUA Standards Proposal, including those related to
Insider and Affiliate transactions in proposed Sec. 706.204(a)(6).
Finally, as noted above, the NCUA is also proposing to include
language in the definition of Director exempting advisory directors who
do not have the authority to vote on matters before the board of
directors or any committee of the board of directors and provides
solely general policy advice to the board of directors or any
committee.
8. Distributed Ledger
The NCUA is proposing to define the term ``Distributed Ledger'' as
provided in the GENIUS Act with certain technical edits.\48\ The
proposed rule would define the term ``Distributed Ledger'' to mean
technology in which (1) data is shared across a network that creates a
public digital ledger of verified transactions or information among
network participants and (2) cryptography is used to link the data to
maintain the integrity of the public ledger and execute other
functions. The proposed definition reformats the definition in the
GENIUS Act by using numbering to distinguish between the two components
of the definition. The formatting changes are technical and do not have
a substantive effect on the definition.
---------------------------------------------------------------------------
\48\ 12 U.S.C. 5901(8).
---------------------------------------------------------------------------
9. Distributed Ledger Protocol
The NCUA is proposing to define the term ``Distributed Ledger
Protocol'' as provided in the GENIUS Act.\49\ The term ``Distributed
Ledger Protocol'' would mean publicly available and accessible
executable software deployed to a Distributed Ledger, including smart
contracts or networks of smart contracts.
---------------------------------------------------------------------------
\49\ 12 U.S.C. 5901(9).
---------------------------------------------------------------------------
10. Eligible Financial Institution
The NCUA is proposing to define ``Eligible Financial Institution''
to mean (1) a Person that (a) is eligible to hold Reserve Assets in
custody under section 10(a) of the GENIUS Act; \50\ (b) complies with
the applicable requirements in section 10(b), (c), and (d) of the
GENIUS Act,\51\ including with applicable implementing regulations
issued by a relevant Federal payment stablecoin regulator as defined in
12 U.S.C. 5901(25), primary financial regulatory agency described in 12
U.S.C. 5301(12)(B) or (C), State bank supervisor, or State credit union
supervisor; and (c), if applicable, enters into a custody agreement
with an NCUA-Licensed PPSI documenting the Person's compliance with
section 10(b), (c) and (d) of the Act as well as policies and
procedures to ensure compliance; or (2) a Federal Reserve Bank.
---------------------------------------------------------------------------
\50\ 12 U.S.C. 5909(a).
\51\ 12 U.S.C. 5909(b)-(d).
---------------------------------------------------------------------------
The term ``Eligible Financial Institution'' is relevant to the
Reserve Asset diversification and concentration requirements in
proposed Sec. 706.202(c) of the proposed rule. Under section 10(a) of
the GENIUS Act, a Person may only engage in the business of providing
custodial or safekeeping services for the Payment Stablecoin reserve,
the Payment Stablecoins used as collateral, or the Private Keys used to
issue Payment Stablecoins if the Person (1) is subject to (A)
supervision or regulation by a primary Federal payment stablecoin
regulator or a primary financial regulatory agency described under
subparagraph (B) or (C) of section 2(12) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (12 U.S.C. 5301(12)); or (B)
supervision by a State bank supervisor, as defined under section 3 of
the FDI Act (12 U.S.C. 1813), or a State credit union supervisor, as
defined under section 6003 of the Anti-Money Laundering Act of 2020 (31
U.S.C. 5311 note), and such State bank supervisor or State credit union
supervisor makes available to the Federal Reserve such information as
the Federal Reserve determines necessary and relevant to the categories
of information under section 10(d) of the Act; and (2) complies with
the requirements under section 10(b), unless such Person holds such
property in accordance with similar requirements as required by a
primary Federal payment stablecoin regulator, the Securities and
Exchange Commission, or the Commodity Futures Trading Commission.
Eligible Financial Institutions would include IDIs regardless of
whether the entities engaged in stablecoin activities or provided
custody services to NCUA-Licensed PPSIs because these entities are
subject to supervision or regulation by a primary Federal payment
stablecoin regulator. Thus, for example, under proposed Sec.
706.202(c) an NCUA-Licensed PPSI could deposit reserves in Share
Accounts at a FICU regardless of whether the FICU acted as custodian
for the NCUA-Licensed PPSI's other Reserve Assets.
To meet the proposed definition, a financial institution must also
comply with the applicable requirements of section 10 of the Act,\52\
and the relevant custody agreement must reflect compliance with section
10 as well as policies and procedures to ensure such compliance.\53\
These criteria are intended to ensure compliance with section 10 of the
Act and to encourage appropriate due diligence of entities that hold
Reserve Assets for NCUA-Licensed PPSIs.
---------------------------------------------------------------------------
\52\ 12 U.S.C. 5909.
\53\ As discussed above, to the extent that an Eligible
Financial Institution does not engage in custody of covered assets,
section 10 of the GENIUS Act (12 U.S.C. 5909) would not apply.
---------------------------------------------------------------------------
The NCUA recognizes that multiple agencies will regulate PPSIs and
that multiple agencies regulate the entities that may permissibly
custody Reserve Assets. The proposed rule would impose requirements on
where and how NCUA-Licensed PPSIs may hold Reserve Assets and would
also impose requirements on NCUA-regulated institutions that hold
Reserve Assets on behalf of PPSIs, including PPSIs not regulated by the
NCUA. Accordingly, there may be overlap between the
[[Page 28962]]
requirements imposed by different regulators with separate requirements
implementing section 10 of the GENIUS Act that govern how their
regulated entities must handle Reserve Assets placed by other PPSIs.
The NCUA invites comment on the best ways to manage potentially
overlapping requirements. The proposed rule would require that an
``Eligible Financial Institution'' comply with the requirements in
section 10(b), (c), and (d) of the GENIUS Act, including applicable
implementing regulations. Accordingly, even if different types of
Eligible Financial Institutions are subject to different regulations on
the safe handling of Payment Stablecoin Reserve Assets, an NCUA-
Licensed PPSI could still custody Reserve Assets at any entity that
meets the requirements in the definition of ``Eligible Financial
Institution.'' Given the diverse set of entities that may permissibly
hold Payment Stablecoin reserves, the proposed definition of ``Eligible
Financial Institution'' would not necessarily require that Eligible
Financial Institutions be subject to uniform regulations implementing
the requirements in section 10(b), (c), and (d) of the GENIUS Act. The
proposed rule would require an NCUA-Licensed PPSI to enter into a
custody agreement with an Eligible Financial Institution, which would
establish a baseline that the Eligible Financial Institution is
adhering to the requirements in section 10(b), (c), and (d), along with
any implementing regulations. In the absence of this requirement,
Reserve Assets might be placed at a financial institution without the
financial institution even purporting to comply with the requirements
in section 10(b), (c), or (d), or possibly even knowing that its
Customer's assets represent Payment Stablecoin reserves.
11. Fair Value
The NCUA is proposing to include a definition of the term ``Fair
Value'' in the rule. As proposed, the term ``Fair Value'' would mean
the fair value as determined under GAAP.\54\ Fair value is used in
proposed Sec. 706.202 in describing proposed reserve requirements.
---------------------------------------------------------------------------
\54\ See discussion of the definition of ``GAAP,'' infra.
---------------------------------------------------------------------------
12. FDIC
The NCUA is proposing to define FDIC to mean the Federal Deposit
Insurance Corporation. This accords with the definition of
``Corporation'' in section 2(5) of the GENIUS Act.\55\ The NCUA has
opted not to use the term ``Corporation'' to describe the FDIC because
that term is used more broadly in the definition of Person, discussed
below.
---------------------------------------------------------------------------
\55\ 12 U.S.C. 5901(5).
---------------------------------------------------------------------------
13. GAAP
The NCUA is proposing to include a definition of the term GAAP in
the rule. The proposed rule would define the term ``GAAP'' to mean the
generally accepted accounting principles as used in the United States.
GAAP is used in the definition of Fair Value and proposed subparts B
and D.
14. Immediate Family
The NCUA is proposing to define the term ``Immediate Family'' to
mean the spouse of an individual, the individual's minor children, and
any of the individual's children (including adults) residing in the
individual's home. This term is relevant to the risk management
standards concerning Insider and Affiliate transactions. It aligns with
the definition in the OCC Proposal and is consistent with the
definition in Regulation O.\56\
---------------------------------------------------------------------------
\56\ 12 CFR part 215.
---------------------------------------------------------------------------
15. Insider
The NCUA is proposing to define the term ``Insider'' to mean: (1)
an Officer or Director of an NCUA-Licensed PPSI; (2) any Parent
Company, and the Officers and Directors of the Parent Company, of an
NCUA-Licensed PPSI; (3) any Principal Shareholder, and Officers and
Directors of the Principal Shareholder, of an NCUA-Licensed PPSI; and
(4) a Related Interest of or the Immediate Family of any of these
Persons. This term is relevant to the risk management standards
concerning Insider and Affiliate transactions. It aligns with the
definition in the OCC Proposal, which was adapted from the definition
in Regulation O,\57\ while accounting for Parent Company FICUs and
their Officers and Directors. It has been adapted to make direct
reference to the Immediate Family of one of the covered groups of
Officers, Directors, Parent Companies, and Principal Shareholders to
mitigate the risk of an Insider engaging in inappropriate transactions
to benefit Immediate Family members.
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\57\ Id.
---------------------------------------------------------------------------
16. Insured Credit Union
The NCUA proposes to define the term ``Insured Credit Union''
consistent with the definition of the term in the GENIUS Act.\58\ As
proposed, the term ``Insured Credit Union'' would have the meaning
given to that term in section 101 of the Federal Credit Union Act.\59\
---------------------------------------------------------------------------
\58\ 12 U.S.C. 5901(14).
\59\ 12 U.S.C. 1752.
---------------------------------------------------------------------------
17. Insured Depository Institution
The NCUA is proposing to define the term ``Insured Depository
Institution'' consistent with the definition of the term in the GENIUS
Act.\60\ As proposed, the term ``Insured Depository Institution'' would
mean an Insured Depository Institution, as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813) and an Insured Credit
Union.
---------------------------------------------------------------------------
\60\ 12 U.S.C. 5901(15).
---------------------------------------------------------------------------
18. Issuing Group
As proposed in the NCUA Licensing Proposal, proposed Sec. 706.2
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).
As part of this NCUA Standards Proposal, the NCUA is proposing to
amend the definition as proposed in the NCUA Licensing Proposal to
specifically include NCUA-Licensed PPSIs. This is not intended to be a
substantive change, but instead to make clear that an Applying Issuer
that becomes an NCUA-Licensed PPSI remains a member of the Issuing
Group and is subject to the requirements proposed part 706 imposes on
Issuing Groups.
19. Monetary Value
The NCUA is proposing to define the term ``Monetary Value'' as
provided in the GENIUS Act.\61\ The proposal would define ``Monetary
Value'' to mean a National Currency or deposit (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)) denominated in a
National Currency.
---------------------------------------------------------------------------
\61\ 12 U.S.C. 5901(17).
---------------------------------------------------------------------------
However, as noted throughout the NCUA's Licensing Proposal and this
NCUA Standards Proposal, the GENIUS Act frequently relies on banking-
specific terminology. The references to a ``deposit'' as defined by the
FDI Act in the GENIUS Act's definitions of ``Monetary Value'' \62\ and
``Payment Stablecoin'' \63\ are an example of this. Despite these
references to FDI Act ``deposits,'' which do not explicitly cover
``accounts,'' \64\ as defined by the FCU Act, or ``shares'' at FICUs
(defined as ``Share Accounts'' in this proposal), the Board believes
the GENIUS Act broadly contemplates treating deposits
[[Page 28963]]
at banks and savings associations and funds in Share Accounts at FICUs
interchangeably and is concerned that to do otherwise could potentially
create interpretive and implementation issues.
---------------------------------------------------------------------------
\62\ See 12 U.S.C. 5901(17).
\63\ See 12 U.S.C. 5901(22).
\64\ See 12 U.S.C. 1752(5).
---------------------------------------------------------------------------
More specifically, the GENIUS limits ``Payment Stablecoins'' to
Digital Assets that the issuer must (1) ``be obligated to convert,
redeem, or repurchase for a fixed amount of monetary value'' and (2)
``represent[ ] that such issuer will maintain, or create the reasonable
expectation that it will maintain, a stable value relative to the value
of a fixed amount of monetary value[.]'' \65\ The GENIUS Act generally
defines ``Monetary Value'' to mean (1) a National Currency; or (2) a
deposit (as defined by the FDI Act) denominated in a National
Currency.\66\ In relevant part, a National Currency is defined by the
GENIUS Act to include Federal Reserve notes and Money standing to the
credit of an account with a Federal Reserve Bank.\67\ The Payment
Stablecoin definition also clarifies that Digital Assets that are a
National Currency or a deposit (as defined by the FDI Act), including a
deposit recorded using Distributed Ledger technology, are not Payment
Stablecoins.\68\
---------------------------------------------------------------------------
\65\ See 12 U.S.C. 5901(22)(A)(ii)(I)-(II).
\66\ 12 U.S.C. 5901(17)
\67\ See 12 U.S.C. 5901(19)(A)-(B).
\68\ See 12 U.S.C. 5901(22)(B)(i)-(ii).
---------------------------------------------------------------------------
While the Payment Stablecoin and Monetary Value definitions do not
explicitly address ``accounts'' or ``shares'' at FICUs (Share
Accounts), the Board believes that an overall reading of the GENIUS Act
warrants that funds in Share Accounts at FICUs have Monetary Value (1)
for which an issuer is ``obligated to convert, redeem, or repurchase''
their Payment Stablecoins for; and (2) against which an issuer can
utilize as ``a fixed amount of monetary value.'' The GENIUS Act
provides numerous instances demonstrating the intention that
``deposits'' at FDIC-insured banks and savings associations and
``shares'' at FICUs be treated the same, including: (1) parallel
treatment of ``demand deposits'' and ``insured shares'' at all
``insured depository institutions,'' which the Act defines to include
both FDIC-insured banks and FICUs, as permissible reserves by which
Payment Stablecoins can be backed; \69\ (2) explicitly granting FDIC-
insured banks and FICUs the power to accept Payment Stablecoin reserves
as ``cash on deposit'' when providing custody services for PPSIs; \70\
(3) explicit recognition that the GENIUS Act does not limit the
authority of a bank or credit union to ``accept[] or receiv[e] deposits
or shares (in the case of a credit union), and issu[e] digital assets
that represent those deposits or shares''; \71\ (4) recognition that
``[e]ntities regulated by the primary Federal payment stablecoin
regulators [including FICUs] are authorized to engage in the Payment
Stablecoin activities and investments contemplated by this Act,
including acting as a principal or agent with respect to any Payment
Stablecoin and payment of fees to facilitate customer transactions'';
\72\ and (5) a parallel prohibition for misrepresentation of insured
status of Payment Stablecoins by FDIC-insured banks and NCUA-insured
credit unions.\73\
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\69\ See 12 U.S.C. 5903(a)(1)(A)(ii).
\70\ See 12 U.S.C. 5909(c)(2)(D).
\71\ See 12 U.S.C. 5915(a)(1).
\72\ See 12 U.S.C. 5915(b).
\73\ See 12 U.S.C. 5903(e).
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Given the GENIUS Act's clear intention that, despite the use of
banking-specific terminology, Share Accounts at FICUs and deposits at
banks are to be given parallel treatment, the NCUA is specifically
seeking comment as to whether the NCUA should adopt a definition of the
term ``Deposit'' and, if so, the proper definition. Should the
parenthetical to the Federal Deposit Insurance Act definition of a
``deposit'' be dropped? Should a definition specifically include
``deposits'' as defined by the Federal Deposit Insurance Act and
``accounts'' as defined by the FCU Act (and defined as Share Accounts
in this proposal)? Relatedly, the Board seeks comment as to whether the
NCUA should provide an explicit interpretation in Part 706, the final
rule's preamble, or other guidance that the definition of Monetary
Value and/or Payment Stablecoin in the GENIUS Act expressly covers a
Digital Asset for which an issuer has an obligation to redeem funds
placed in a Share Account at a FICU? If so, how? For example, should
the NCUA expressly interpret Monetary Value to include a broader
conception of ``deposits'' not limited to the definition in section 3
of the Federal Deposit Insurance Act? Does the ubiquitous
convertibility of funds in Share Accounts and bank deposits in the U.S.
financial system bear on this question (e.g., is redemption in funds
placed in a Share Account at a FICU functionally equivalent to
redemption in bank deposits for purposes of the scope of a Payment
Stablecoin)? What are the practical or evasion risks of possible
interpretations? In practice, will FICU subsidiaries likely seek to
issue Payment Stablecoins that are redeemable only in funds in Share
Accounts, bank deposits, or both?
20. Money
Section 2(18) of the GENIUS Act defines ``Money'' to mean a medium
of exchange currently authorized or adopted by a domestic or foreign
government, including a monetary unit of account established by an
intergovernmental organization or by agreement between two or more
countries.\74\ This definition is relevant to the definition of
National Currency (discussed below) and certain Reserve Assets
described in section 4(a)(1)(A)(i) and (iv) of the GENIUS Act.\75\
Section 4(a)(1)(A)(i) refers to Money standing to the credit of an
account with a Federal Reserve Bank. Section 4(a)(1)(A)(iv) refers to
Money received under a repurchase agreement that meets certain
requirements. Although the statutory definition of Money clearly
includes Monetary Value, it may be unclear at any point in time whether
other mediums of exchange have been authorized or adopted by a domestic
or foreign government. Moreover, whether a medium of exchange meets
this definition may change based on actions of foreign governments or
intergovernmental organizations. While it may be relatively clear
whether an asset is Money standing to the credit of an account with a
Federal Reserve Bank, there could be ambiguity as to whether a
particular asset is Money received under a repurchase agreement.
Therefore, to promote clarity and uniformity for purposes of
determining whether certain assets would qualify as Money under
proposed part 706, the NCUA proposes that it would provide prior
confirmation publicly that a medium of exchange (other than those
defined as Monetary Value) meets the definition of ``Money'' under the
GENIUS Act. Specifically, the NCUA proposes to define ``Money'' for the
purposes of part 706 to mean Monetary Value and any other medium of
exchange that the NCUA has determined is currently authorized or
adopted by a domestic or foreign government, including a monetary unit
of account established by an intergovernmental organization or by
agreement between two or more countries.
---------------------------------------------------------------------------
\74\ 12 U.S.C. 5901(18).
\75\ 12 U.S.C. 5903(a)(1)(A)(i) and (iv).
---------------------------------------------------------------------------
21. National Currency
The NCUA is proposing to define the term ``National Currency'' as
provided in the GENIUS Act.\76\ Under the proposed rule, the term
``National Currency'' would mean (1) a Federal Reserve note (as the
term is used in the
[[Page 28964]]
first undesignated paragraph of section 16 of the Federal Reserve Act
(12 U.S.C. 411)); (2) Money standing to the credit of an account with a
Federal Reserve Bank; (3) Money issued by a foreign central bank; or
(4) Money issued by an intergovernmental organization pursuant to an
agreement by two or more governments.
---------------------------------------------------------------------------
\76\ 12 U.S.C. 5901(19).
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22. NCUA-Licensed Permitted Payment Stablecoin Issuer
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
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.
23. Nonpublic Personal Information
The NCUA is proposing to define the term ``Nonpublic Personal
Information'' to mean information (1) provided by a Customer to an
NCUA-Licensed PPSI to obtain a financial product or service, (2) about
a Customer resulting from any transaction involving a financial product
or service between the NCUA-Licensed PPSI and a Customer, or (3)
otherwise obtained by the NCUA-Licensed PPSI in connection with
providing a financial product or service to a Customer. The proposed
definition does not include publicly available information, unless such
publicly available information, when combined with other information,
would reveal the identity of a Customer or would enable access to the
Customer's account.
24. Officer
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
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.
25. Outstanding Issuance Value
The NCUA is proposing to define the term ``Outstanding Issuance
Value'' to mean the total consolidated par value of all of an NCUA-
Licensed PPSI's Payment Stablecoins. This would include the combined
total par value of different brands of Payment Stablecoin issued by the
NCUA-Licensed PPSI (e.g., under a white label arrangement) to the
extent that such an arrangement complies with proposed 12 CFR part 706.
The proposed definition includes the defined term ``Payment
Stablecoin'' and should be read consistent with that definition,
discussed below. For purposes of calculating the Outstanding Issuance
Value, the NCUA believes that a Digital Asset that is, or is designed
to be, used as a means of payment or settlement but for which there is
not yet an obligation to convert, redeem, or repurchase for a fixed
amount of Monetary Value should not be included in the calculation. A
Digital Asset minted (i.e., created on a blockchain) by an issuer to be
a Payment Stablecoin would not be included in the calculation of
Outstanding Issuance Value until the obligation to convert, redeem, or
repurchase the Digital Asset for a fixed amount of Monetary Value is
incurred.
Similarly, once an issuer permanently removes a Payment Stablecoin
from circulation (e.g., burns the Payment Stablecoin) the Digital Asset
would cease to be included in the calculation of Outstanding Issuance
Value. Payment Stablecoins for which holder access has been restricted
pursuant to applicable law, regulation, or court order would remain
Payment Stablecoins, as the issuer's obligation to convert, redeem, or
repurchase for a fixed amount of Monetary Value continues and the
associated reserves are maintained in segregated accounts pending
resolution of the restriction. Likewise, if an issuer repurchased a
Payment Stablecoin but did not burn the Payment Stablecoin, the
stablecoin in the NCUA-Licensed PPSI's inventory would not be part of
the issuer's Outstanding Issuance Value (but would become part of the
Outstanding Issuance Value if the NCUA-Licensed PPSI subsequently put
the Payment Stablecoin back into circulation). Therefore, the proposed
definition of ``Outstanding Issuance Value'' only includes Payment
Stablecoins for which the NCUA-Licensed PPSI is obligated to convert,
redeem, or repurchase for a fixed amount of Monetary Value (generally
the issued Payment Stablecoins in circulation).
The NCUA also considered whether the proposed ``Outstanding
Issuance Value'' definition should include only those Payment
Stablecoins issued by an NCUA-Licensed PPSI, or also the Payment
Stablecoins issued by the issuer's non-consolidated Affiliates.\77\ The
NCUA determined that it was appropriate to limit the proposed
definition to include only the Payment Stablecoins issued by an NCUA-
Licensed PPSI (and consolidated subsidiaries). The NCUA believes that
the proposed definition would scope in the appropriate NCUA-Licensed
PPSIs to the relevant provisions regarding Reserve Assets,\78\ the
frequency of examinations,\79\ required audits,\80\ and minimum capital
calculation \81\ without being overly expansive and that it best aligns
with the language in the statute. Notwithstanding the proposed
definition of ``Outstanding Issuance Value,'' non-consolidated
Affiliates of an issuer that issue Payment Stablecoins would separately
need to comply with the requirements of the GENIUS Act.
---------------------------------------------------------------------------
\77\ As noted above, the definition of ``Outstanding Issuance
Value'' includes the consolidated value of issued Payment
Stablecoins.
\78\ See proposed Sec. 706.202.
\79\ See proposed Sec. 706.205.
\80\ See id.
\81\ See proposed subpart D.
---------------------------------------------------------------------------
26. Parent Company
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
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.\82\ 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).\83\ Proposed Sec. 706.2
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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\82\ 12 U.S.C. 5904(b)-(c).
\83\ 12 U.S.C. 5904(c)(3).
---------------------------------------------------------------------------
Proposed Sec. 706.2 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
Insured Credit Union with the largest percentage of voting securities
in relation to all other Insured Credit Unions is considered the Parent
Company.'' Under
[[Page 28965]]
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.
27. Payment Stablecoin
The NCUA is proposing to define the term ``Payment Stablecoin''
consistent with the definition of the term in the GENIUS Act, 12 U.S.C.
5901(22), with certain technical changes. Under the proposal, the term
``Payment Stablecoin'' would mean a Digital Asset (i) that is, or is
designed to be, used as a means of payment or settlement; and (ii) the
issuer of which (A) is obligated to convert, redeem, or repurchase for
a fixed amount of Monetary Value, not including a Digital Asset
denominated in a fixed amount of Monetary Value; and (B) represents
that such issuer will maintain, or creates the reasonable expectation
that it will maintain, a stable value relative to the value of a fixed
amount of Monetary Value.\84\ For a Digital Asset to be a Payment
Stablecoin under proposed part 706, the issuer must be obligated to
convert, redeem, or repurchase the Digital Asset for a fixed amount of
Monetary Value.
---------------------------------------------------------------------------
\84\ The NCUA interprets the statutory language in 12 U.S.C.
5901(22) to mean that the PPSI would be obligated to meet redemption
requests at par.
---------------------------------------------------------------------------
The proposed definition also provides that a ``Payment Stablecoin''
does not include a Digital Asset that is a (i) National Currency; (ii)
deposit (as defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813)), including a deposit recorded using Distributed
Ledger technology; or (iii) security, as defined in section 2 of the
Securities Act of 1933 (15 U.S.C. 77b), section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c), or section 2 of the Investment
Company Act of 1940 (15 U.S.C. 80a-2).
The GENIUS Act's definition of ``Payment Stablecoin'' includes a
parenthetical with the term ``deposit'' in (B)(2) limiting the scope of
the term to a ``deposit'' as defined in section 3 of the FDI Act.
However, as discussed in this preamble's proposed definition of the
term ``Monetary Value,'' the Board believes that an overall reading of
the GENIUS Act makes clear the intention that, despite the use of
banking-specific terminology, Share Accounts at FICUs and deposits at
banks are to be given parallel treatment. Further, the GENIUS Act also
specifically states that ``[n]othing in this Act may be construed to
limit the authority of a Federal credit union [or] State credit union
to engage in activities permissible pursuant to applicable State and
Federal law, including--(1) accepting or receiving deposits or shares
(in the case of a credit union), and issuing digital assets that
represent those deposits or shares.'' \85\ The GENIUS Act clearly
contemplates shares (Share Accounts) represented by Digital Assets, but
does not intend to limit the ability of FICUs to directly accept,
receive, or issue Digital Assets that represent shares (Share
Accounts). Conversely, the GENIUS Act does prohibit FICUs from directly
issuing Payment Stablecoins. Given this clear delineation between Share
Accounts/deposits represented by digital assets and Payment
Stablecoins, the Board believes that in addition to excluding deposits
recorded using Distributed Ledger technology from the GENIUS Act's
definition of a Payment Stablecoin, shares (Share Accounts) recorded
using Distributed Ledger technology are also not covered by the GENIUS
Act's definition of a Payment Stablecoin.
---------------------------------------------------------------------------
\85\ See 12 U.S.C. 5915(a)(1).
---------------------------------------------------------------------------
The Board is specifically seeking comment as to whether the final
rule should modify the text drawn from the GENIUS Act's definition to
specifically exempt Share Accounts recorded using Distribution Ledger
technology from the GENIUS Act's definition of a Payment Stablecoin. If
so, how? Should the NCUA drop the parenthetical to the Federal Deposit
Insurance Act definition of the a ``deposit?'' Should the NCUA adopt a
definition of the term ``Deposit'' that drops the parenthetical to the
Federal Deposit Insurance Act definition of a ``deposit''? Should a
definition specifically include ``deposits'' as defined by the Federal
Deposit Insurance Act and ``accounts'' as defined by the FCU Act (and
defined as Share Accounts in this proposal)? Relatedly, the Board seeks
comment as to whether the NCUA should provide an explicit
interpretation in Part 706, the final rule's preamble, or other
guidance that the definition of Monetary Value and/or Payment
Stablecoin in the GENIUS Act expressly covers a Digital Asset for which
an issuer has an obligation to redeem funds placed in a Share Account
at a FICU? If so, how?
The GENIUS Act's definition of ``Payment Stablecoin'' also contains
language clarifying that ``no bond, note, evidence of indebtedness, or
investment contract that was issued by a permitted payment stablecoin
issuer shall qualify as a security solely [because the issuer
satisfies] the conditions in [paragraph (1) of the proposed ``payment
stablecoin'' definition], consistent with section 17 of the Act.'' The
GENIUS Act provides that this language was included ``for the avoidance
of doubt.'' The NCUA determined that it was not necessary to include
this language in the proposed ``Payment Stablecoin'' definition because
section 17 of the GENIUS Act includes amendments to the cited Federal
statutes that clarify that Payment Stablecoins are not securities.
28. Person
The NCUA is proposing to define the term ``Person'' as the term is
defined in the GENIUS Act, 12 U.S.C. 5901(24). As proposed, the term
``Person'' would mean an individual, partnership, company, corporation,
association, trust, estate, cooperative organization, or other business
entity, incorporated or unincorporated.
29. Principal Shareholder
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
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.\86\ One of these factors requires the NCUA to evaluate
the competency, experience, and integrity of the Officers and Directors
of the Applying Issuer's Principal Shareholders.\87\ Proposed Sec.
706.2 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. Proposed Sec.
706.2 would include the defined term of Principal Shareholder to
specify when a non-FICU's Officers and Directors should be evaluated as
part of
[[Page 28966]]
an Applying Issuer's licensure application. The proposed definition is
derived from the FDIC's change of control regulations.\88\ 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 Applying 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. 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. 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.
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\86\ 12 U.S.C. 5904(b)-(c).
\87\ 12 U.S.C. 5904(c)(3).
\88\ 12 CFR part 303, subpart E.
---------------------------------------------------------------------------
30. Private Key
The NCUA is proposing to define the term ``Private Key'' to mean
the unique alphanumeric string that allows an individual to transfer a
particular unit of a Digital Asset using a Distributed Ledger. This
definition is intended to include shards of a Private Key.\89\
---------------------------------------------------------------------------
\89\ Sharding refers to dividing a Private Key into distinct
pieces for enhanced security.
---------------------------------------------------------------------------
31. Publicly Available Information
The NCUA is proposing to define the term ``Publicly Available
Information'' to mean any information that a Person has a reasonable
basis to believe is lawfully made available to the general public from:
(1) Federal, State, or local government records; (2) widely distributed
media; (3) disclosures to the general public that are required to be
made by Federal, State, or local law; or (4) a Distributed Ledger.\90\
---------------------------------------------------------------------------
\90\ As noted above, the term ``Distributed Ledger'' is limited
to publicly available and accessible ledgers.
---------------------------------------------------------------------------
32. Registered Public Accounting Firm
The NCUA is proposing to define the term ``Registered Public
Accounting Firm'' as provided in the GENIUS Act.\91\ Under the
proposal, the term ``Registered Public Accounting Firm'' would mean a
registered public accounting firm set forth in section 2 of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201).
---------------------------------------------------------------------------
\91\ 12 U.S.C. 5901(26).
---------------------------------------------------------------------------
33. Related Interest
The NCUA is proposing to define the term ``Related Interest'' of a
Person to mean (1) a company that is controlled by that Person; or (2)
a political or campaign committee that is controlled by that Person or
the funds or services of which will benefit that Person. This term is
relevant to the risk management standards for Insider and Affiliate
transactions. It aligns with the OCC Proposal and is derived from the
definition in Regulation O.\92\
---------------------------------------------------------------------------
\92\ 12 CFR part 215.
---------------------------------------------------------------------------
34. Reserve Asset
The NCUA is proposing to define the term ``Reserve Asset'' to mean
an asset maintained by an NCUA-Licensed PPSI of a type enumerated in
Sec. 706.202(b). An NCUA-Licensed PPSI may maintain Reserve Assets as
a custodian.
35. Share Account
The NCUA is proposing to define the term ``Share Account'' to have
the same meaning as the term ``account'' in section 101 of the FCU Act
(12 U.S.C. 1752(5).
36. State
The NCUA is proposing to define the term ``State'' as provided in
the GENIUS Act, 12 U.S.C. 5901(28). Under the proposed rule, the term
``State'' would mean each of the several States of the United States,
the District of Columbia and each territory of the United States.
37. Subsidiary of an Insured Credit Union
As discussed at length in the NCUA's Licensing Proposal, proposed
Sec. 706.2 would define the definition of Subsidiary of an Insured
Credit Union, or FICU subsidiary, as defined in the GENIUS Act. This
definition 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.\93\
---------------------------------------------------------------------------
\93\ 12 U.S.C. 5901(33).
---------------------------------------------------------------------------
Each prong is a separate and distinct avenue to qualify as a FICU
subsidiary for purposes of being a PPSI.
38. Trading Volume
The NCUA is proposing to define the term ``Trading Volume'' to mean
the aggregate number of Payment Stablecoins issued by an NCUA-Licensed
PPSI that were purchased or sold on exchanges during a specified period
of time.
39. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 1: Are the definitions in the proposed rule appropriately
scoped? How should they be improved?
Question 2: Given the GENIUS Act's frequent use of banking-specific
terminology, has the proposed rule struck the appropriate balance of
maintaining consistency with the standards and terminology used in the
GENIUS Act and proposed by the other primary Federal payment stablecoin
regulators while also reflecting the nuances of the credit union
industry and its terminology? Has the proposed rule appropriately
clarified the best meaning for banking and credit union specific
terminology? Do the proposal's definitions of terms like ``Share
Account,'' ``Insured Credit Union,'' and ``Insured Depository
Institution'' enhance the clarity of Part 706? Are there ways that
these and other terms could be better defined or utilized to strike the
appropriate balance between consistency across regulatory regimes and
clarity for those subject to the NCUA's regulations?
Question 3: Is the definition of ``Control'' sufficiently clear? If
not, how should the NCUA further clarify the term?
Question 4: The term ``Customer'' is broadly defined to mean a
Person that purchases (through any consideration)
[[Page 28967]]
the products or services of another Person. Is the scope of this
definition too broad? With respect to Customers of NCUA-Licensed PPSIs,
should the definition expressly include only Persons with direct
interactions with an NCUA-Licensed PPSI? Alternatively, should the
definition include all downstream Payment Stablecoin holders (i.e., not
just Customers with direct interactions with the PPSI)? Please address
any significant impact or burden the proposed definition or
contemplated alternative definitions may have or add given other
requirements in the proposed rule, such as the Customer notification
requirements in proposed Sec. 706.204. Because the term is used in
several different contexts throughout the proposed rule, should the
definition of ``Customer'' be refined with respect to certain
requirements (e.g., Customer notification)?
Question 5: Are the terms ``deposit'' and ``Share Account''
sufficiently clear as used in the proposed rule? If not, how should
they be clarified? Is their intersection with the terms ``Monetary
Value,'' ``Money,'' and ``Payment Stablecoin'' sufficiently clear? If
not, what can the NCUA do to provide further clarity? Would commenters
prefer that the proposed rule specifically refer to both deposits and
Share Accounts in these terms and throughout the proposed rule or would
they prefer the NCUA adopt a defined term ``Deposit'' to cover both
deposits as defined by the FDI Act and Share Accounts?
Question 6: Is the scope of the term ``Digital Asset'' sufficiently
clear? If not, how should it be clarified?
Question 7: The proposed rule does not define the term ``digital
asset service provider.'' Is the scope of the term digital asset
service provider under the statute sufficiently clear? If not, how
should it be clarified? Are there specific activities that should be
expressly excluded from digital asset service provider activities,
consistent with the statutory definition? Should additional guidance on
the exclusions from the definition of ``digital asset service
provider'' or the meaning of ``engaging in the business'' of providing
digital asset service provider activities be clarified? If so, how
should the NCUA further clarify these terms? Should the NCUA clarify
that only the provision of financial services that directly relate to
Digital Asset issuance would result in an entity becoming a digital
asset service provider?
Question 8: Is the term ``Director'' sufficiently clear? How should
the NCUA further clarify the term?
Question 9: Is the term ``Distributed Ledger'' sufficiently clear?
Should the term ``public digital ledger'' be further clarified? What
additional clarifications would be helpful? Should certain permissioned
or semi-permissioned digital ledgers be considered ``public?'' If so,
how should the definition of ``public'' delineate between different
types of permissioned or semi-permissioned blockchains?
Question 10: Is the definition of ``Eligible Financial
Institution'' appropriately scoped? How could the term be further
refined? Are there particular elements of the definition that should be
excluded or should be addressed elsewhere in the proposed rule?
Question 11: Is the definition of ``Money'' appropriately scoped?
Should the NCUA use the exact language of the statute, instead of using
the proposed definition?
Question 12: Is the term ``Nonpublic Personal Information''
appropriately scoped? How could the term be further refined or
clarified?
Question 13: The term ``Outstanding Issuance Value'' refers to the
total consolidated par value of all of an issuer's Payment Stablecoins.
Should the definition also include the par value of non-consolidated
Affiliates? If so, what changes should be made to the Reserve Asset
requirements to ensure 1:1 backing across all Affiliated entities?
Question 14: Is the term ``Payment Stablecoin'' sufficiently clear?
If not, how should the definition be amended to provide additional
clarity as to whether a particular stablecoin is a ``Payment
Stablecoin''? Please describe the types of stablecoins that the NCUA
should clarify do not meet the definition of a ``Payment Stablecoin''
and therefore would be outside the scope of the proposed rule. Should
there be additional clarity around what it means that a Payment
Stablecoin is a Digital Asset ``that is, or is designed to be, used as
a means of payment or settlement?'' For example, are there certain
settlement scenarios that the NCUA should clarify are not ``designed to
be, used as a means of payment or settlement?''
Question 15: Is the exclusion of a Digital Asset that ``is a
deposit, including a deposit recorded using Distributed Ledger
technology'' from the definition of ``Payment Stablecoin'' sufficiently
clear? Should the NCUA explicitly state in Part 706 that Share Accounts
at FICUs, including Share Accounts recorded using Distributed Ledger
technology are excluded from the definition of ``Payment Stablecoin?''
Should the NCUA clarify which tokenized products this exclusion may
apply to?
Question 16: Is the term ``NCUA-Licensed Permitted Payment
Stablecoin Issuer'' sufficiently clear? How should the definition be
amended to provide additional clarity as to whether a particular entity
issues a Payment Stablecoin and is subject to the requirements of the
GENIUS Act? Should the more generic term ``Permitted Payment Stablecoin
Issuer'' be used instead? If so, why? If not, why not?
Question 17: Is the term ``Person'' sufficiently clear? Should the
NCUA further clarify the definition, including with respect to the
meaning of ``association'' or other components of the definition?
Question 18: Is the term ``Private Key'' sufficiently clear? How
could the term be further clarified? Should the NCUA define the term to
mean the unique alphanumeric sequence that allows an individual to
prove ownership of an account on a Distributed Ledger, including for
the purpose of transferring a particular unit of a Digital Asset?
Question 19: Should the definition of ``Principal Shareholder'' or
any other definitions explicitly incorporate governance instruments
other than securities providing voting rights with respect to the
activities of the issuer? In particular, are there governance
instruments that may not qualify as securities that the NCUA should
incorporate or instruments common to partnerships that the NCUA should
consider incorporating?
Question 20: Is the term ``senior management'' as used in proposed
part 706 sufficiently clear? Should the NCUA define the term, for
example, to include all or a select subset of Officers?
Question 21: The GENIUS Act does not define ``payment stablecoin
holder.'' Should the NCUA define the term? If so, should the NCUA
define the term to mean the Person that beneficially owns the Payment
Stablecoin? Should the NCUA instead define the term based on possession
via Digital Wallets or control of cryptographic keys? What
considerations relating to custody should the NCUA bear in mind if it
chooses to define the term? What interactions with other requirements
in the proposed rule should the NCUA consider if it chooses to define
the term?
Question 22: Should the NCUA refine the definition of Trading
Volume? Should the term be limited to trades that occur on exchanges?
Should it include transactions that occur outside of an exchange?
Should the NCUA define ``exchange'' for purposes of this definition? If
so, should the NCUA
[[Page 28968]]
define it to mean a Person engaged in the business of making a market
in Digital Assets (including Payment Stablecoins)? Should any
definition include decentralized exchanges? What impediments are there
to PPSIs collecting data concerning Trading Volume?
C. Sec. 706.2. Severability
Proposed Sec. 706.3 would provide that the provisions of this
proposed part 706 are separate and severable from one another. If any
provision is stayed or determined to be invalid, it is the NCUA's
intention that the remaining provisions shall continue in effect. If a
provision of the rule were found to be invalid, the NCUA anticipates
that it would evaluate whether any re-proposal of the rule is
appropriate. The NCUA is proposing to include the severability clause
to ensure that, in the event any particular provision of the proposed
rule is held to be invalid, the remainder of the rule would continue in
effect, providing clarity for market participants on how to comply with
the NCUA's regulations implementing the GENIUS Act pending any re-
proposal.
The NCUA generally intends all of its rulemakings to be severable
to the extent portions of the rule are determined to be invalid
regardless of the presence of a severability clause. The NCUA is
proposing to include an explicit severability clause to this rulemaking
given the novelty and scope of the GENIUS Act and the importance of
ensuring as much certainty as possible for the regulatory framework for
Payment Stablecoins.
D. Subpart B--NCUA-Licensed Permitted Payment Stablecoin Issuers
1. Sec. 706.201. Activities
a. Permitted Activities
Section 4(a)(7)(A) of the GENIUS Act sets forth the list of
activities in which a PPSI may engage.\94\ Additionally, section 16(b)
of the GENIUS Act outlines certain additional activities and
investments in which PPSIs may engage.\95\
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\94\ 12 U.S.C. 5903(a)(7)(A).
\95\ 12 U.S.C. 5915(b).
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Consistent with the statute, the NCUA is proposing to mirror the
permitted activities from section 4(a)(7)(A) of the GENIUS Act in
proposed Sec. 706.201(a)(1) through (4), which include: (1) issuing
Payment Stablecoins; (2) redeeming Payment Stablecoins; (3) managing
reserves related to the issuance or redemption of Payment Stablecoins,
including purchasing, selling, and holding Reserve Assets or providing
custodial services for reserve assets, consistent with applicable State
and Federal law; and (4) providing custodial or safekeeping services
for Payment Stablecoins, required reserves, or Private Keys of Payment
Stablecoins consistent with the GENIUS Act, as implemented in proposed
subpart C.\96\ Additionally, proposed Sec. 706.201(a)(8) provides that
an NCUA-Licensed PPSI may undertake any other activities that directly
support any of the activities in proposed Sec. 706.201(a)(1) through
(4), which is explicitly provided for in section 4(a)(7)(A)(v) of the
GENIUS Act.\97\ One such example of an activity that would qualify
under proposed Sec. 706.201(a)(8) because it directly supports both
issuance and redemption of Payment Stablecoins would be the NCUA-
Licensed PPSI's holding of non-Payment Stablecoin crypto-assets as
principal necessary for testing a Distributed Ledger, whether
internally developed or acquired from a third-party.\98\ Such an
activity may be necessary to ensure that the NCUA-Licensed PPSI may
operate safely and effectively on a Distributed Ledger. To the extent
that NCUA-Licensed PPSIs are unclear about whether an activity
qualifies as activity that directly supports the activities in proposed
Sec. 706.201 (a)(1) through (a)(4), the NCUA encourages issuers to ask
the NCUA directly whether an activity is permissible. The NCUA is
seeking comment on whether there should be a more formal process for
clarifications around permissibility, including whether the NCUA should
provide additional clarity to the public through long-established
channels such as Letters to Credit Unions, published frequently asked
questions, or other means.
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\96\ 12 U.S.C. 5903(a)(7)(A).
\97\ 12 U.S.C. 5903(a)(7)(A)(v).
\98\ Separate from NCUA-Licensed PPSIs conducting this activity
to support their permissible Payment Stablecoin activities, the NCUA
believes that the holding of crypto-assets as principal necessary to
support other permissible activities is a permissible activity for
FCUs. FISCUs must look to State law to determine the permissibility
of such activities.
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In addition to the activities outlined in section 4(a)(7) of the
GENIUS Act, for the sake of clarification, proposed Sec. 706.201(a)(5)
provides that NCUA-Licensed PPSIs may assess fees that are associated
with the purchasing or redeeming of Payment Stablecoins.\99\ This power
is inherent in the activities described above and is explicitly
recognized in section 4(a)(1)(B)(ii) of the Act.\100\
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\99\ 12 U.S.C. 5903(a)(7).
\100\ 12 U.S.C. 5903(a)(1)(B)(ii).
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The NCUA also proposes to include the permitted activities outlined
in section 16(b) of the GENIUS Act,\101\ namely acting as principal or
agent with respect to any Payment Stablecoin and paying fees to
facilitate customer transactions.\102\ The NCUA notes that the language
in section 16(b) of the Act is limited by the clause that provides that
entities regulated by the primary Federal payment stablecoin regulators
are ``authorized to engage in the payment stablecoin activities and
investments contemplated by this Act . . . .'' \103\ Accordingly,
``acting as principal or agent with respect to any Payment Stablecoin''
is permissible within the limited set of authorities otherwise
prescribed by the GENIUS Act rather than, for example, any activity
that may be conducted as principal or agent (i.e., any activity
involving a Payment Stablecoin). Therefore, proposed Sec.
706.201(a)(6) would allow NCUA-Licensed PPSIs to hold and transact in
Payment Stablecoins as principal or agent. Payment Stablecoins are not,
however, a permitted Reserve Asset in proposed Sec. 706.202.\104\ To
the extent an NCUA-Licensed PPSI is a ``digital asset service
provider,'' as defined section 2(7) of the GENIUS Act,\105\ the issuer
must also comply with the prohibition outlined in section 3(b)(2) of
the GENIUS Act,\106\ providing that it is unlawful for any digital
asset service provider to offer, sell, or otherwise make available in
the United States a Payment Stablecoin issued by a foreign payment
stablecoin issuer, unless certain conditions are met.
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\101\ 12 U.S.C. 5915(b).
\102\ Section 16(b) of the Act provides in part that ``Entities
regulated by the primary Federal payment stablecoin regulators are
authorized to engage in the payment stablecoin activities and
investments contemplated by this Act, including acting as a
principal or agent with respect to any payment stablecoin and
payment of fees to facilitate customer transactions.'' 12 U.S.C.
5915(b). The activities authorized under section 16(b) include, for
example, acting as an agent for a Customer with respect to the
redemption of a Payment Stablecoin issued by a third party.
\103\ 12 U.S.C. 5915(b).
\104\ See 12 U.S.C. 5903(a)(1) (setting forth permissible
Reserve Assets).
\105\ 12 U.S.C. 5901(7).
\106\ 12 U.S.C. 5902(b)(2).
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Consistent with section 16(b) of the GENIUS Act, proposed Sec.
706.201(a)(7) would allow NCUA-Licensed PPSIs to pay fees to facilitate
Customer transactions (e.g., network or ``gas'' fees). If an issuer's
Payment Stablecoin operates on a blockchain that assesses transaction
fees, then the issuer may choose to pay transaction fees on behalf of
the Customer. The NCUA recognizes that, if an issuer is paying
transaction
[[Page 28969]]
fees on certain Distributed Ledgers, the issuer may have to hold non-
Payment Stablecoin crypto-assets to facilitate the payment of these
transaction fees. Consistent with the GENIUS Act, such crypto-assets
are not permitted Reserve Assets in proposed Sec. 706.202.
Proposed Sec. 706.201(b) incorporates language from section 16(a)
of the GENIUS Act and emphasizes that nothing in proposed Sec.
706.201(a) may be construed to limit the authority of an Insured Credit
Union to engage in activities permissible pursuant to applicable State
and Federal law.\107\
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\107\ 12 U.S.C. 5915(a)
---------------------------------------------------------------------------
Beyond the core activities and those that directly support those
activities, section 4(a)(7)(B) of the GENIUS Act provides a rule of
construction such that none of a PPSI's activities discussed above
(i.e., issuance, redemption, managing reserve assets, limited custody,
etc.) are to be construed as a limitation on certain incidental
activities or Digital Asset service provider activities if the
activities are authorized by the NCUA.\108\ Digital Asset service
provider activities encompass: (1) exchanging Digital Assets for
Monetary Value; (2) exchanging Digital Assets for other Digital Assets;
(3) transferring Digital Assets to a third party; (4) acting as a
Digital Asset custodian; and (5) participating in financial services
relating to Digital Asset issuance.\109\ The NCUA is intending to
adhere to the GENIUS Act's rule of construction and would authorize
additional activities as appropriate.
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\108\ 12 U.S.C. 5903(a)(7)(B).
\109\ 12 U.S.C. 5901(7)(A).
---------------------------------------------------------------------------
The NCUA's authority to approve these activities is limited to
those activities specified by the GENIUS Act that are consistent with
all other Federal and State laws, and provided that in any insolvency
proceedings described under section 11 of the GENIUS Act,\110\ the
activities would not jeopardize the claims of Payment Stablecoin
holders, which would rank senior to claims of non-Payment Stablecoin
creditors.\111\ The NCUA seeks comment on how to implement section
4(a)(7)(B) of the GENIUS Act and whether it should serve as an
independent grant of authority or whether it must be consistent with a
grant of authority provided from another Federal or State law.\112\
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\110\ 12 U.S.C. 5911.
\111\ See 12 U.S.C. 5903(a)(7)(B).
\112\ Id.
---------------------------------------------------------------------------
b. Prohibited Activities
The GENIUS Act also provides for certain prohibitions for PPSIs,
including the prohibition on rehypothecation in section 4(a)(2),\113\
the prohibition on the use of deceptive names in section 4(a)(9),\114\
the prohibition against misrepresenting insured status in section
4(e),\115\ and the prohibition on paying interest or yield in section
4(a)(11).\116\
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\113\ 12 U.S.C. 5903(a)(2).
\114\ 12 U.S.C. 5903(a)(9).
\115\ 12 U.S.C. 5903(e).
\116\ 12 U.S.C. 5903(a)(11).
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In proposed Sec. 706.201(c)(1), the NCUA imports the prohibition
on the use of a deceptive name from section 4(a)(9) of the GENIUS
Act.\117\ This provision prohibits an NCUA-Licensed PPSI from using any
combination of terms relating to the United States Government,
including ``United States,'' ``United States Government,'' and ``USG,''
in the name of the Payment Stablecoin. This prohibition does not apply
to abbreviations relating directly to the currency to which the Payment
Stablecoin is pegged, such as ``USD.''
---------------------------------------------------------------------------
\117\ 12 U.S.C. 5903(a)(9).
---------------------------------------------------------------------------
Consistent with section 4(a)(9) of the GENIUS Act,\118\ proposed
Sec. 706.201(c)(2) would prohibit NCUA-Licensed PPSIs from marketing a
Payment Stablecoin in such a way that a reasonable person would
perceive the Payment Stablecoin to be legal tender as described in 31
U.S.C. 5103, issued by the United States, or guaranteed or approved by
the Government of the United States. The NCUA recognizes that NCUA-
Licensed PPSIs may want to market themselves as PPSIs under the GENIUS
Act. There is no prohibition against issuers marketing themselves in
this manner, so long as they do not run afoul of the prohibitions
outlined in proposed Sec. 706.201(c)(1) and (2), including the
prohibition against marketing a Payment Stablecoin in such a way that a
reasonable person would perceive the Payment Stablecoin to be
guaranteed, issued, or approved by the United States. The NCUA notes
that misrepresentations by an NCUA-Licensed PPSI cannot be cured by a
general disclaimer and that representations and disclosures should be
clear to permitted Payment Stablecoin holders and Customers. Consistent
with section 4(e) of the GENIUS Act,\119\ proposed Sec. 706.201(c)(3)
would provide that an NCUA-Licensed PPSI may not directly or through
implication represent that Payment Stablecoins are backed by the full
faith and credit of the United States, guaranteed by the United States
Government, or subject to Federal deposit insurance or Federal share
insurance.
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\118\ 12 U.S.C. 5903(a)(9).
\119\ 12 U.S.C. 5903(e).
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Consistent with section 4(a)(11) of the GENIUS Act,\120\ proposed
Sec. 706.201(c)(4) provides that NCUA-Licensed PPSIs must not pay the
holder of any Payment Stablecoin any form of interest or yield (whether
in cash, tokens, or other consideration) solely in connection with the
holding, use, or retention of such Payment Stablecoin. The NCUA
understands that issuers could attempt to make prohibited payments of
interest or yield to Payment Stablecoins holders through arrangements
with third parties. Moreover, there likely will be a large and changing
variety of arrangements with third parties in which issuers could
achieve the payment of yield to Payment Stablecoin holders. It would
not be possible to identify in detail all, or even most, of the
potential arrangements between NCUA-Licensed PPSIs and third parties
that the NCUA may prohibit under section 4(a)(11) of the GENIUS Act and
the NCUA's rulemaking authority under section 4(h) of the GENIUS
Act,\121\ particularly as such arrangements may evolve over time. On
the other hand, a rule with only a general prohibition on the payment
of yield could create uncertainty within the Payment Stablecoin market.
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\120\ 12 U.S.C. 5903(a)(11).
\121\ Section 4(h) of the GENIUS Act provides that the NCUA and
other stablecoin regulators may issue regulations to ``carry out the
requirements of this section, including to establish conditions, and
to prevent evasion thereof.''12 U.S.C. 5903(h) (emphasis added).
---------------------------------------------------------------------------
To balance these interests, the NCUA is proposing to include a
presumption in paragraph (c)(4)(i) that certain types of arrangements
with certain types of Persons would be prohibited payments of yield or
interest by the issuer. Specifically, the NCUA would presume that an
NCUA-Licensed PPSI is paying the holder of any Payment Stablecoin any
form of interest or yield (whether in cash, tokens, or other
consideration) solely in connection with the holding, use, or retention
of such Payment Stablecoin if: (A) the NCUA-Licensed PPSI has a
contract, agreement, or other arrangement with an Affiliate or a
related third party to pay interest or yield to the Affiliate or
related third party; and (B) the Affiliate \122\ or related third party
(or Affiliate of such related third party) has a contract, agreement,
or
[[Page 28970]]
other arrangement to pay interest or yield (whether in cash, tokens, or
other consideration) to a holder of any Payment Stablecoin issued by
the NCUA-Licensed PPSI solely in connection with the holding, use, or
retention of such Payment Stablecoin. To the extent that the Person, or
an Affiliate of the Person with whom the NCUA-Licensed PPSI has a
contract, agreement, or other arrangement to pay interest or yield is a
related third party of the NCUA-Licensed PPSI because the NCUA-Licensed
PPSI issues Payment Stablecoins on the related third party's behalf or
under the related third party's branding, the arrangement between the
related third party and the holder of the Payment Stablecoin would
consider the holder of the Payment Stablecoin to be the holder of the
Payment Stablecoin issued by the NCUA-Licensed PPSI on the related
third party's behalf or under the related third party's branding. That
is to say, with respect to a white-label relationship, the presumption
would be triggered only to the extent the Payment Stablecoin holder is
a holder of the related third party's white-labeled stablecoin (as
opposed to other Payment Stablecoins issued by the NCUA-Licensed PPSI).
---------------------------------------------------------------------------
\122\ A Person would not be included within this second prong
solely because the Person is an Affiliate of an Affiliate of the
issuer.
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Related third parties would be defined to include any Person paying
interest or yield to Payment Stablecoin holders as a service (i.e., on
behalf of the NCUA-Licensed PPSI) and any Person that the issuer issues
Payment Stablecoins on behalf or under the branding of (i.e., persons
that have entered white-label relationship with the issuer). The NCUA
believes that the close nexus to the issuer's payments and payments to
the Payment Stablecoin holder as well as the close contractual or
control relationship between the issuer and the other party would make
it highly likely that the issuer's payments of yield or interest would
be made to the holder through an intermediary or an attempt the evade
the GENIUS Act's prohibition on interest and yield payments.
Nonetheless, the NCUA would permit the issuer to rebut the presumption
given the issuer provides sufficient evidence to the contrary.
Specifically, an NCUA-Licensed PPSI may rebut the presumption by
submitting written materials that, in the NCUA's judgment, demonstrate
that the contract, agreement, or other arrangement is not prohibited
under paragraph (c)(4) and is not an attempt to evade the prohibition.
Other arrangements that are not captured by the presumption may
also violate the statutory prohibition or constitute an evasion
thereof. The NCUA would assess those arrangements on a case-by-case
basis but does not believe that it is necessary to include other
arrangements within the rebuttable presumption at this time. The
prohibition is not intended to prevent a merchant from independently
offering a discount to a Payment Stablecoin holder for using Payment
Stablecoins. The prohibition is also not intended to prevent an NCUA-
Licensed PPSI from sharing in the profits derived from the Payment
Stablecoin with a non-Affiliate partner in a white-label arrangement.
In proposed Sec. 706.201(c)(5), the NCUA proposes to include the
language from section 4(a)(2) of the GENIUS Act \123\ that prohibits
PPSIs from pledging, rehypothecating, or reusing any Reserve Assets
required under section 4(a)(1),\124\ except for the purposes listed in
section 4(a)(2). Thus, consistent with the statute, an NCUA-Licensed
PPSI may not pledge, rehypothecate, or re-use any Reserve Assets,
either directly or indirectly (e.g., through a third-party custodian of
the Reserve Assets), except for the purpose of: (i) satisfying margin
obligations in connection with investments in permitted reserves under
proposed Sec. 706.202(b)(4) or (5); (ii) satisfying obligations
associated with the use, receipt, or provision of standard custodial
services; \125\ or (iii) creating liquidity to meet reasonable
expectations of requests to redeem Payment Stablecoins, such that
reserves in the form of Treasury bills with a maturity of 93 days or
less may be sold as purchased securities in repurchase agreements,\126\
provided that either: (A) the repurchase agreements are cleared by a
clearing agency registered with the Securities and Exchange Commission;
or (B) the NCUA-Licensed PPSI receives prior approval from the NCUA. By
including the phrase ``directly or indirectly'' in the prohibition, it
is clear that Congress intended that a custodian that holds the
reserves on behalf of a PPSI also may not pledge, rehypothecate or
reuse any of the Reserve Assets, other than with respect to the limited
exceptions discussed in proposed Sec. 706.201(c)(5). To the extent
that a custodian holding the Payment Stablecoin reserves were allowed
to bypass this prohibition, it would undermine the relatively safe
nature of the Reserve Assets and the confidence that Payment Stablecoin
holders have that the Payment Stablecoin will hold its peg.
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\123\ 12 U.S.C. 5903(a)(2).
\124\ 12 U.S.C. 5903(a)(1).
\125\ The NCUA interprets this exception, codified in 12 U.S.C.
5903(a)(2)(B), as being related solely to the purposes specified in
12 U.S.C. 5909(c)(2)(B).
\126\ Section 4(a)(2)(C) of the Act (12 U.S.C. 5903(a)(2)(C))
states that reserves in the form of Treasury bills may be sold as
purchased securities for repurchase agreements with a maturity of 93
days or less if certain conditions are met. The NCUA proposes to
clarify, consistent with section 4(a)(1)(iv) of the Act (12 U.S.C.
5903(a)(1)(iv)), that the Treasury bills sold under the repurchase
agreement must have a maturity of 93 days or less. Consistent with
this clarification and the NCUA's proposed approval of repurchase
agreements under section 4(a)(2)(C) of the Act, discussed below, the
maturity of the repurchase agreement would be overnight.
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The NCUA will deem any repurchase agreement approved under this
section and section 4(a)(2)(C) of the GENIUS Act, provided that the
Treasury bills sold as purchased securities have a maturity of 93 days
or less, consistent with the requirement that Treasury bills held as
Reserve Assets must have a maturity of 93 days or less, and the
liquidity obtained through repurchase borrowings is not being obtained
solely for purposes other than meeting redemption requests or
compliance with the requirements of this proposed rule. The NCUA
believes that providing this prior approval by rule will enhance the
ability of NCUA-Licensed PPSIs to obtain liquidity quickly (through
outright sales or repurchase agreements) and thereby facilitate the
timely redemption of Payment Stablecoins. It is clear from section
4(a)(1)(A) of the Act that PPSIs may maintain identifiable reserves
comprising of Money received under certain repurchase agreements.\127\
It would frustrate section 4(a)(1)(A)(iv)'s clear permission to
maintain such Reserve Assets if PPSIs could only engage in repurchase
borrowing transactions upon the completion of cumbersome procedures and
one-off supervisory approvals. The ability to obtain immediate
liquidity through repurchase borrowings is useful and supplements a
PPSI's ability to access immediate liquidity via other means (for
example, the maintenance of deposits and Share Accounts at IDIs or
actual sales of securities). The prohibition on rehypothecation in
proposed Sec. 706.201(c)(5) would, consistent with section 4(a)(2)(C)
of the GENIUS Act, prohibit rehypothecation except for the purpose of
creating liquidity to meet reasonable expectations of requests for
redemption. However, given the fungibility of Money, the NCUA will not
scrutinize the exact uses to which repurchase borrowing proceeds are
put. The limited circumstances in which the NCUA would not consider
rehypothecation permissible would be if repurchase borrowings are
obtained solely for some purpose other than obtaining liquidity to meet
redemption requests or compliance with the rule--
[[Page 28971]]
for example, if repurchase proceeds are to be used solely for paying
dividends to a PPSI (i.e., removing excess Reserve Assets above the
required minimum).
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\127\ 12 U.S.C. 5903(a)(1)(A).
---------------------------------------------------------------------------
Section 4(h)(1) of the GENIUS Act provides that the NCUA may issue
regulations to ``carry out the requirements of this section . . . and
to prevent evasion thereof .'' \128\ In proposed Sec. 706.201(c)(6),
consistent with this statutory authority, the NCUA proposes language
that provides that an NCUA-Licensed PPSI must not engage in any
activity that the NCUA determines is an evasion of the requirements of
section 4 of the GENIUS Act \129\ or Part 706.
---------------------------------------------------------------------------
\128\ 12 U.S.C. 5903(h)(1).
\129\ 12 U.S.C. 5903.
---------------------------------------------------------------------------
In proposed Sec. 706.201(b)(7), the NCUA is proposing to prohibit
an NCUA-Licensed PPSI from providing credit to its Customers to
purchase Payment Stablecoins. The NCUA interprets the GENIUS Act's
requirements that a PPSI maintain Reserve Assets consisting of a narrow
set of highly liquid assets and that a PPSI engage in a narrow set of
activities to be crucial in ensuring a PPSI is able to satisfy
redemption requests. If a PPSI lends funds to Customers to enable
Customers to purchase Payment Stablecoins, or were to otherwise issue
Payment Stablecoins to Customers on credit extended by the PPSI, the
PPSI would then, in effect, need to access separate funding to acquire
and maintain identifiable Reserve Assets to back the Payment
Stablecoins issued on credit. This could result in a highly leveraged
balance in which the Reserve Assets do not provide the intended
resiliency. The NCUA seeks comment on whether this is an appropriate
prohibition, and whether other alternatives would better achieve the
statute's objectives.
The NCUA has considered and is requesting comment on whether to
prohibit an NCUA-Licensed PPSI from issuing more than one brand of
Payment Stablecoin (i.e., more than one set of Payment Stablecoins
marketed under the same name). The NCUA recognizes that there are
advantages and disadvantages associated with permitting an NCUA-
Licensed PPSI to issue multiple brands of Payment Stablecoins that may
be co-branded with a named partner in a white-label arrangement. These
arrangements can allow parties to leverage the experience and expertise
of an NCUA-Licensed PPSI and facilitate a broader range of Payment
Stablecoins in the market. However, they may also foster uncertainty
about Reserve Assets and encourage contagion and run risk among brands
of Payment Stablecoins, including but not limited to brands issued by
one issuer. One possibility that the NCUA has considered and is
requesting comment on is to restrict each NCUA-Licensed PPSI to issuing
only one brand of Payment Stablecoin but to streamline the process for
approving applications to become an NCUA-Licensed PPSI if an Affiliate
has already been approved. Under this approach, multiple NCUA-Licensed
PPSIs could share certain services and back-office functions with each
other and might operate under a common risk management framework, but
each issuer would be legally separate. This approach would allow an
entity to leverage its experience and expertise but may provide more
certainty with respect to the rights of Payment Stablecoin holders in
the event that an NCUA-Licensed PPSI becomes insolvent.
The NCUA has also considered and is requesting comment on whether
to include a provision explicitly prohibiting an NCUA-Licensed PPSI
from engaging in unsafe or unsound practices. Pursuant to section
6(a)(3) of the GENIUS Act,\130\ the NCUA has the ability to examine
NCUA-Licensed PPSIs for risks that may pose a threat to safety and
soundness. Further, section 5(a)(1)(B) of the GENIUS Act requires the
NCUA to ``establish a process and framework for the licensing,
regulation, examination, and supervision of [PPSIs] that prioritizes
the safety and soundness of such entities.'' \131\ It follows that
NCUA-Licensed PPSIs should not be allowed to engage in practices that
are unsafe or unsound. Explicitly prohibiting such activities may help
the NCUA to address practices that could undermine public confidence in
PPSIs and the financial system more generally.
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\130\ 12 U.S.C. 5905(a)(3).
\131\ 12 U.S.C. 5904(a)(1)(B).
---------------------------------------------------------------------------
c. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 23: Are there activities not contemplated in proposed
Sec. 706.201 that PPSIs must be able to engage in for purposes of the
GENIUS Act? If so, please describe them and any appropriate limits for
these additional activities.
Question 24: Should the NCUA clarify that a PPSI may retain an
asset manager under a separately managed account under proposed Sec.
706.201(a)(8)?
Question 25: Are there other limits or conditions the NCUA should
consider with respect to PPSIs acting as principal or agent with
respect to any Payment Stablecoin? Should the NCUA specify the
activities contemplated under the GENIUS Act for which a PPSI may act
as principal or agent in Payment Stablecoins under section 16(b) of the
Act? \132\
---------------------------------------------------------------------------
\132\ 12 U.S.C. 5915(b).
---------------------------------------------------------------------------
Question 26: Do PPSIs need to hold crypto-assets other than Payment
Stablecoins for other purposes beyond paying transaction fees or
testing a Distributed Ledger? If so, under what circumstances would a
PPSI need to hold such assets?
Question 27: Should the final rule include specific provisions
addressing an issuer's holding of non-Payment Stablecoin crypto-assets
to pay transaction fees, such as limitations on the amount of non-
Payment Stablecoin crypto-assets that a PPSI may hold at any time? If
so, how should those limits be calibrated? Should any limit be based on
anticipated fees, a percentage of assets, or be set at a certain value
threshold?
Question 28: Should there be any limit on what methods of payment a
PPSI can accept when assessing fees, including fees associated with the
purchasing or redeeming of Payment Stablecoins? Should the final rule
include provisions addressing a PPSI's potential assessment of fees in
crypto-assets other than Payment Stablecoins and how long issuers can
hold onto such crypto-assets? Are there specific forms of payment
outside of fiat and Payment Stablecoin that PPSIs will need to accept
that the NCUA should provide additional clarity on?
Question 29: Should the NCUA include an approval process for the
activities listed in the Section 4(a)(7)(B) of the GENIUS Act,
including Digital Asset service provider activities and activities
incidental to Payment Stablecoin activities or Digital Asset service
provider activities? \133\
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\133\ 12 U.S.C. 5903(a)(7)(B).
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Question 30: Should the NCUA clarify proposed Sec. 706.201(a)(8)
by providing specific examples of activities that directly support the
activities in proposed Sec. 706.201(a)(1) through (4)? Are there
specific examples of activities that directly support the activities in
proposed Sec. 706.201(a)(1) through (4) that should be clarified?
Should the NCUA distinguish between what it means for an activity to
directly support the activities in proposed Sec. 706.201(a)(1) through
(4), and therefore, satisfy the test in proposed Sec. 706.201(a)(8) as
opposed to what it means for an activity to be incidental to the
activities in proposed Sec. 706.201(a)(1) through (7) provided in
[[Page 28972]]
section 4(a)(7)(B) of the GENIUS Act? Should the NCUA provide an
approval process related to Digital Asset service provider activities
and/or incidental activities?
Question 31: The proposed rule would permit a PPSI to hold non-
Payment Stablecoin crypto-assets to pay certain fees (e.g., network
fees). Should the rule include an express limitation on the amount of
such crypto-assets that the PPSI may hold? For example, the rule could
provide that the amount of such crypto-assets may not exceed reasonably
expected near-term demand.
Question 32: Could the prohibition against paying interest or yield
solely in connection with the holding or use of a permitted Payment
Stablecoin be clarified? If so, how? Would it be helpful to include a
de minimis exception to the prohibition to provide certainty with
respect to arrangements that are not designed to violate the
prohibition and that do not have a meaningful economic impact? If so,
is there any specific guidance the NCUA should provide on what de
minimis means?
Question 33: Does the presumption with respect to the prohibition
against paying interest or yield solely in connection with the holding,
use, or retention of a permitted Payment Stablecoin appropriately
address concerns relating to evasion? Is the presumption with respect
to the prohibition against paying interest or yield solely in
connection with the holding, use, or retention of a permitted Payment
Stablecoin appropriately scoped? Is the presumption sufficiently clear?
How could the presumption be clarified? Should the NCUA clarify the
standard of review under which it would consider written materials to
rebut the presumption related to interest or yield and specify whether
the NCUA's determination is appealable? Should the NCUA propose any
safe harbor for arrangements that the NCUA believes do not violate the
statutory prohibition?
Question 34: Should the prohibition on interest and yield in
proposed Sec. 706.201(c)(4) be broader to prevent issuers from
directly or indirectly paying interest or yield to Payment Stablecoin
holders (rather than presuming that certain arrangements with
Affiliates or related third parties violate the prohibition)? Are there
examples of potentially evasive behavior that the NCUA should expressly
include in a prohibition? If the NCUA were to expand the prohibition,
are there activities that should be expressly carved out of such an
expansion?
Question 35: Should the prohibition on interest and yield in
proposed Sec. 706.201(c)(4) clarify the terms ``pay,'' ``interest,''
``yield,'' ``solely,'' or any other terms? If so, what clarifications
would be helpful? What types of rewards, if any, should be subject to
the prohibition?
Question 36: What would the economic impact of a narrow prohibition
on paying interest or yield solely in connection with the holding, use
or retention of a Payment Stablecoin be relative to a broader
prohibition (i.e., one that includes relationships with Affiliates or
third parties)? What impact would either prohibition have on deposits
and funds placed in Share Accounts?
Question 37: Is the scope of the prohibition against pledging,
rehypothecating, or reusing Reserve Assets sufficiently clear? Are
there specific types of transactions, relationships, or structures for
which it would be helpful to clarify whether the prohibition applies?
For example, should the NCUA clarify whether the prohibition would
prevent establishing a collateral trustee that would hold a security
interest in Reserve Assets for the benefit of Payment Stablecoin
holders? What arguments weigh for and against finding that the
prohibition would prohibit these arrangements? If a PPSI sets up a
collateral trustee arrangement where the issuer grants a security
interest in the Reserve Assets, does this arrangement sufficiently
protect the Reserve Assets in the event of insolvency or bankruptcy?
Should a PPSI be required to make particular disclosures if it uses
such an arrangement? What should those disclosures include?
Question 38: Should the NCUA specify what ``creating liquidity to
meet reasonable expectations of requests to redeem Payment
Stablecoins'' means under proposed Sec. 706.201(c)(5)(iii)? Should the
NCUA pre-approve repurchase agreements by rule as proposed in Sec.
706.205(c)(5)(iii)(B)? Alternatively, should the NCUA allow for broad
and open-ended approvals of the sale of reserves as purchased
securities in repurchase agreements or should approvals be limited to
specific types of transactions? What factors should the NCUA consider
prior to granting approval of the sale of reserves as purchased
securities in repurchase agreements under proposed Sec.
706.201(c)(5)(iii)(B)?
Question 39: Should PPSIs be required to provide disclosures
stating that Payment Stablecoins are not legal tender, issued by the
United States, or guaranteed or approved by the United States? If so,
should the NCUA impose any requirements on the manner in which
disclosures are made? For example, should the NCUA require that
disclosures be made on the PPSI's website, at point of direct sale by
the issuer, alongside other types of disclosures, or in some other
manner?
Question 40: Is any further clarity needed regarding the
prohibition on the use of deceptive names, marketing, and
representations in proposed Sec. 706.201(c)(1) through (3)? For
example, should the NCUA specify what kind of images or branding are
likely to violate the prohibition? Should the NCUA require PPSIs to
affirmatively state that Payment Stablecoins are not legal tender,
issued by the United State, or guaranteed or approved by the Government
of the United States? Should the NCUA explicitly require PPSIs to
disclose that Payment Stablecoins are not subject to deposit or share
insurance?
Question 41: Is the proposed prohibition on providing credit to
Customers to purchase Payment Stablecoins appropriate? If so, should
the prohibition be modified in any way? Should it be narrower or
broader? If not, are there alternatives to achieve the intended
objective or ensuring Reserve Assets achieve the intended resiliency?
Are there any other activities that the NCUA should expressly prohibit
as not being permissible and not in direct support of issuance,
redemption, managing reserves, and providing certain safekeeping and
custody services?
2. Sec. 706.202. Reserve Assets
a. Proposed Sec. 706.202
Proposed Sec. 706.202 contains requirements applicable to Reserve
Assets. Section 4(a)(1)(A) of the Act provides that a PPSI must
maintain identifiable reserves backing the outstanding Payment
Stablecoins of the PPSI on an at least one-to-one basis and specifies
the eight permissible Reserve Asset types.\134\ The one-to-one backing
requirement applies at the PPSI level. A PPSI would not comply with
this requirement if it did not maintain Reserve Assets sufficient to
meet the one-to-one backing requirement. A PPSI may maintain Reserve
Assets through a custodian, including an Affiliate acting as a
custodian, as long as the custodian qualifies as an Eligible Financial
Institution.
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\134\ 12 U.S.C. 5903(a)(1)(A).
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Proposed Sec. 706.202(a)(1) would require that an NCUA-Licensed
PPSI maintain Reserve Assets that: (i) are
[[Page 28973]]
identifiable; (ii) are segregated from and not commingled with other
assets owned or held by the NCUA-Licensed PPSI; (iii) at all times have
a total Fair Value that equals or exceeds the Outstanding Issuance
Value of the NCUA-Licensed PPSI; and (iv) are either held directly by
the NCUA-Licensed PPSI or within the custody of an Eligible Financial
Institution. In order to maintain Reserve Assets that are
``identifiable'' and comply with proposed Sec. 706.202(a)(1)(i), NCUA-
Licensed PPSIs must maintain appropriate records to ensure documented
ownership and legal entitlement to individual Reserve Assets.
Similarly, any ownership arrangements, including ownership via
custodians, must comply with applicable laws and regulations, for
example, requirements applicable to Customer securities owned through
the Fedwire Securities Service. The NCUA generally anticipates that
Reserve Assets will be recorded on the NCUA-Licensed PPSI's balance
sheet under GAAP and be included in the quarterly reports required
under proposed Sec. 706.205(i). An NCUA-Licensed PPSI must maintain
the appropriate operational capabilities, internal controls, policies,
and safeguards to ensure that Payment Stablecoins are always backed by
reserves on an at least a one-to-one basis. Among other things,
safeguards may include mechanisms to prevent the issuance of abnormally
large amounts of new Payment Stablecoins without additional
approvals.\135\
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\135\ C.f., Dylan Butts, ``PayPal's crypto partner mints a
whopping $300 trillion worth of stablecoins in `technical error,'''
CNBC (Oct. 16, 2025), <a href="https://www.cnbc.com/2025/10/16/paypals-crypto-partner-mints-300-trillion-stablecoins-in-technical-error.html">https://www.cnbc.com/2025/10/16/paypals-crypto-partner-mints-300-trillion-stablecoins-in-technical-error.html</a> (describing a technical error leading to the minting of a
large amount of new stablecoins).
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To comply with the requirement in proposed Sec.
706.202(a)(1)(iii), an NCUA-Licensed PPSI must ensure that the Fair
Value of Reserve Assets equal or exceed the Outstanding Issuance Value
of the outstanding Payment Stablecoins issued by the NCUA-Licensed PPSI
at all times. Valuing Reserve Assets at Fair Value (i.e., market
value), rather than another measure, such as amortized cost, will help
ensure that the Reserve Assets maintained by the NCUA-Licensed PPSI
reflect current prices and will be monetizable at a value sufficient to
meet any redemption requests at par value. Notably, the Outstanding
Issuance Value is based on the total consolidated par value of all of
an NCUA-Licensed PPSI's Payment Stablecoins rather than on the Fair
Value of the outstanding issued Payment Stablecoin. Thus, if the Fair
Value of the Payment Stablecoin decreased (i.e., if the Payment
Stablecoin de-pegged in the secondary market), the NCUA-Licensed PPSI
would nevertheless be obligated to retain a stock of Reserve Assets,
the Fair Value of which equals or exceeds the par value of outstanding
Payment Stablecoins. This approach is intended to ensure that the NCUA-
Licensed PPSI is able to credibly meet redemption requests, including
in adverse circumstances. To take a contrary approach (e.g., basing the
Outstanding Issuance Value on the Fair Value of Payment Stablecoins)
could allow NCUA-Licensed PPSIs to inappropriately remove assets from
the required stock of Reserve Assets when stablecoins de-peg (as
Reserve Asset requirements decline, along the with the secondary market
price of the Payment Stablecoin), rather than maintaining the Reserve
Assets on behalf of Payment Stablecoin holders, which may in turn
exacerbate run risk for an NCUA-Licensed PPSI.
Proposed Sec. 706.202(a)(1)(iv) provides that the Reserve Assets
must either be held directly by the NCUA-Licensed PPSI or within the
custody of an Eligible Financial Institution, which is defined in
proposed Sec. 706.2.
Proposed Sec. 706.202(a)(2) would require that an NCUA-Licensed
PPSI demonstrate the operational capability to access and monetize the
identifiable Reserve Assets, commensurate with the NCUA-Licensed PPSI's
risk profile and business model. The NCUA-Licensed PPSI must be able to
monetize the Reserve Assets, potentially quickly and at short notice,
in order to meet redemption requests. The inability to quickly monetize
Reserve Assets would undermine the ability of a PPSI to maintain the
stable value of its Payment Stablecoin.
To comply with proposed Sec. 706.202(a)(2), an NCUA-Licensed PPSI
must be able to demonstrate the ability to monetize all types of
Reserve Assets it maintains. Depending on an NCUA-Licensed PPSI's size,
risk profile, business model, activities, and operations, a PPSI may be
able to demonstrate monetization in different ways. For example, it may
be sufficient for some NCUA-Licensed PPSIs to demonstrate the ability
to monetize Treasury bills they hold as Reserve Assets by establishing
that they maintain appropriate repurchase arrangements through which
they can quickly sell Treasury bills and receive liquid funds with
which they can satisfy redemption requests. For other NCUA-Licensed
PPSIs, for example, larger issuers or those with more complicated
operations, additional measures may be appropriate to demonstrate the
operational capability to monetize. It may be appropriate for such
NCUA-Licensed PPSIs to maintain multiple alternative methods of
monetization (for example, multiple repurchase agreement lines or
repurchase agreement lines plus arrangements allowing outright sales of
Treasury securities) in order to satisfactorily demonstrate the ability
to monetize their Reserve Assets. Such redundant arrangements may be
necessary if an NCUA-Licensed PPSI maintains a sufficiently large
Treasury position that it could be difficult to monetize the entire
position through transactions with a single repo counterparty or if an
issuer maintains concentrated positions in particular types of Reserve
Assets. The availability of multiple monetization channels helps ensure
that an NCUA-Licensed PPSI is not required to monetize assets at
reduced or ``fire sale'' prices. Having alternative monetization
channels reduces the risk that an issuer would be obliged to accept
unfavorable pricing when monetizing Reserve Assets under stress.
For certain NCUA-Licensed PPSIs, it may be necessary to
periodically conduct actual monetization transactions (that is, actual
outright sales or repurchase transactions) in order to demonstrate the
ability to monetize. Actual transactions can more fully confirm that
monetization capabilities exist. In the absence of actual test
transactions, potential barriers to monetization may still exist. NCUA-
Licensed PPSIs may lack the procedures and systems to monetize assets
at any time in accordance with standard settlement periods and
processes. For example, borrowing agreements may name authorizing
officials that are unavailable or inappropriate. Actual monetization
transactions may be necessary, for example, for issuers with unusually
complicated operations or organizational structures, or for issuers
that are particularly dependent on certain monetization channels or the
ability to monetize particular assets. Periodic actual monetization
transactions can minimize the risk of negative signaling during
financial stress. If an NCUA-Licensed PPSI begins using a monetization
channel that it has not regularly used in the past, that may spark
concerns about the financial health of the issuer. For example, if an
NCUA-Licensed PPSI has pre-established a repurchase agreement with a
bilateral counterparty but never utilized it, sudden utilization of the
repurchase agreement may generate
[[Page 28974]]
concerns that the issuer is experiencing a run on its Payment
Stablecoins. Periodic test transactions using multiple monetization
channels can mitigate such concerns. NCUA-Licensed PPSIs may be able to
demonstrate the ability to execute actual monetization transactions in
the ordinary course of their business (for example, redeeming Payment
Stablecoins) and would not necessarily be required to engage in
additional test transactions.
Proposed Sec. 706.202(a)(3) would include requirements for when
NCUA-Licensed PPSIs could withdraw Reserve Assets in excess of
Outstanding Issuance Value. In order to ensure that sufficient Reserve
Assets are maintained to back outstanding Payment Stablecoin issuance,
NCUA-Licensed PPSIs would be able to withdraw excess Reserve Assets
only after the monthly examination and certification required by
section 4(a)(3) of the GENIUS Act \136\ and provided for in proposed
Sec. 706.202(e) and (f). Specifically, NCUA-Licensed PPSIs would be
able to withdraw any surplus Reserve Assets in excess of Outstanding
Issuance Value, calculated and reported as of the last day of the
previous month, only upon the publication of that month's public
disclosure, due at the end of the subsequent month. Only permitting an
issuer to withdraw surplus Reserve Assets after examination and
certification will promote public confidence about the integrity of the
handling of Reserve Assets. Permitting withdrawal of excess Reserve
Assets at other intervals would significantly undermine the purpose of
examination and certification. If NCUA-Licensed PPSIs were able to
withdraw excess Reserve Assets at any time, based only upon their own
internal calculations, that could undermine confidence and even create
concerns about misconduct, for example if an issuer might make its own
bad faith and un-validated determination that an excess existed in
order to justify a withdrawal. Proposed Sec. 706.202(a)(3) would also
require that, while withdrawals would be based on calculations as of
the end of the previous month, an NCUA-Licensed PPSI could only make
withdrawals if the remaining Reserve Assets remained at least equal to
the current Outstanding Issuance Value, calculated as of the day of
withdrawal.
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\136\ 12 U.S.C. 5903(a)(3).
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Under proposed Sec. 706.202(b), reserve assets must only comprise:
(1) United States coins and currency (including Federal Reserve notes)
or Money standing to the credit of an account with a Federal Reserve
Bank; (2) funds held as deposits or in Share Accounts \137\ that are
payable upon demand at an IDI (including any foreign branches or
agents, including correspondent banks, of an IDI), subject to any
limitation established by the FDIC and the NCUA, as applicable,
pursuant to section 4(a)(1)(A)(ii) of the GENIUS Act to address safety
and soundness risks of such IDI; \138\ (3) Treasury bills, Treasury
notes, or Treasury bonds with a remaining maturity of 93 days or less;
\139\ (4) Money received under repurchase agreements, with the NCUA-
Licensed PPSI acting as a seller of securities and with a no longer
than overnight maturity, that are backed by Treasury bills with a
maturity of 93 days or less; \140\ (5) reverse repurchase agreements,
with the NCUA-Licensed PPSI acting as a purchaser of securities and
with a no longer than overnight maturity, that are collateralized by
Treasury bills, Treasury notes, or Treasury bonds on a no longer than
overnight basis, subject to overcollateralization in line with standard
market terms, that are: (i) tri-party; (ii) centrally cleared through a
clearing agency registered with the Securities and Exchange Commission;
or (iii) bilateral with a counterparty that the issuer has determined
to be adequately creditworthy even in the event of severe market
stress; (6) securities issued by an investment company registered under
section 8(a) of the Investment Company Act of 1940,\141\ or other
registered Government money market fund, and that are invested solely
in underlying assets described in proposed Sec. 706.202(b)(1) through
(5); \142\ (7) any other similarly liquid Federal Government-issued
asset approved by the NCUA; or (8) any reserve described in proposed
Sec. 706.202(b)(1) through (3), (6), or (7), in tokenized form,
provided that such reserves comply with all applicable laws and
regulations.
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\137\ Section 4(a)(1)(A)(ii) of the GENIUS Act refers to
reserves comprising ``funds held as demand deposits (or other
deposits that may be withdrawn upon request at any time) or insured
shares at an insured depository institution. . . .'' For the reasons
expressed in the sections (section IV.B) of this preamble proposing
the defined terms ``Monetary Value'' and ``Share Account), the NCUA
is proposing to use the defined term ``Share Account.'' The NCUA
believes this approach is clearer than utilizing the undefined term
``insured shares'' from the Act. The proposed rule would also
simplify and clarify the GENIUS Act's text by limiting deposits and
funds in Share Accounts than can be reserves to those that are
``payable upon demand'' at an IDI. The GENIUS Act refers to ``demand
deposits (or other deposits that may be withdrawn upon request at
any time). . . .'' The NCUA believes this construction can be more
simply stated as proposed without any substantive change.
\138\ 12 U.S.C. 5903(a)(1)(A)(ii).
\139\ The GENIUS Act permits the inclusion of Treasury bills,
notes, or bonds ``(I) with a remaining maturity of 93 days or less;
or (II) issued with a maturity of 93 days or less.'' The proposed
rule would combine these categories since the former category
includes the latter, at least for purposes of complying with the
requirements of proposed Sec. 706.202. NCUA-Licensed PPSIs may
choose to categorize these assets separately for other reasons, for
example, accounting or risk management purposes.
\140\ The proposed rule would clarify that a repurchase
agreement or reverse repurchase agreement with an intraday maturity
could qualify as a permitted reserve asset. Section 4(a)(1)(A)(iv)
and (v) of the Act (12 U.S.C. 5903(a)(1)(A(iv) and (v)))
specifically refers to repurchase agreements and reverse repurchase
agreements with an overnight maturity. The NCUA believes that this
provision is intended to permit repurchase agreements and reverse
repurchase agreements with a maturity no longer than overnight.
Thus, the proposed rule would explicitly permit the use of intraday
repurchase agreements and reverse repurchase agreements.
\141\ 15 U.S.C. 80a-8(a).
\142\ A money market fund that invests in any other assets,
including in Treasury securities with a remaining maturity longer
than 93 days, would not be eligible to be held as a Reserve Asset.
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The NCUA encourages any NCUA-Licensed PPSI that seeks clarity on
whether a specific tokenized asset qualifies as a permissible Reserve
Asset under proposed Sec. 706.202(b)(8) to discuss with the NCUA
whether the asset qualifies. To the extent feasible, the NCUA is
considering publishing a list of, or otherwise making public, the
acceptable tokenized Reserve Assets for the sake of transparency. In
determining whether a potential Reserve Asset qualifies as ``any other
similarly liquid Federal Government-issued asset,'' under proposed
Sec. 706.202(b)(7) the NCUA will consider, among other relevant
factors, whether: (i) the asset has liquidity characteristics,
including during times of stress, comparable to the other Reserve
Assets allowed under proposed Sec. 706.202(b); (ii) NCUA-Licensed
PPSIs will be operationally capable of monetizing the asset to meet
redemption requests, including sudden and high-volume requests; (iii)
the asset poses levels of risk comparable to the assets allowed under
proposed Sec. 706.202(b), including interest rate risk and
counterparty credit risk; and (iv) whether the asset introduces
additional risks that may be difficult for NCUA-Licensed PPSIs to
manage.
Section 4(a)(4)(A)(iii) of the GENIUS Act requires the NCUA to
issue regulations implementing Reserve Asset diversification, including
deposit concentration at banking institutions and interest rate risk
management standards that (1) are tailored to the business model and
risk profile of PPSIs and (2) do not exceed standards that are
sufficient to ensure the ongoing operations of PPSIs.\143\ As discussed
[[Page 28975]]
throughout this preamble, the GENIUS Act regularly uses banking-
specific terminology. The NCUA interprets ``deposit concentration at
banking institutions'' to include deposits and funds in Share Accounts
at all IDIs.
---------------------------------------------------------------------------
\143\ 12 U.S.C. 5903(a)(4)(A)(iii).
---------------------------------------------------------------------------
In proposing regulations to implement the Reserve Asset
diversification requirement, the proposed rule includes two alternative
options in proposed Sec. 706.202(c), only one of which would be
selected in the final rule. ``Option A'' would include a principles-
based general requirement with an optional safe harbor containing
quantitative requirements. ``Option B'' would make the quantitative
requirements mandatory for all NCUA-Licensed PPSIs. Option A's
principle-based general requirement would require an NCUA-Licensed PPSI
to maintain Reserve Assets that are sufficiently diverse to manage
potential credit, liquidity, interest rate, and price risks. In
addition, the principles-based requirement in Option A in proposed
Sec. 706.202(c) would require an NCUA-Licensed PPSI to measure and
manage the risk that concentrating Reserve Assets at one Eligible
Financial Institution or a small number of Eligible Financial
Institutions may impair the ability of an NCUA-Licensed PPSI to satisfy
redemption demands if individual Eligible Financial Institutions are
unable to return, or if there is a delay in returning, Reserve Assets
placed by an NCUA-Licensed PPSI.\144\ The proposed rule's
diversification and concentration requirements would apply to custodial
relationships, including sub-custodial arrangements. NCUA-Licensed
PPSIs would be expected to ``look through'' any sub-custodial
relationships to ensure that Reserve Assets are custodied at the
sufficiently diverse number of Eligible Financial Institutions needed
to comply with the proposed rule's requirements. Without this
requirement, a PPSI might supposedly have its stock of Treasury
securities custodied at multiple Eligible Financial Institutions, but
sub-custodial relationships could result in the entire stock being
custodied at only a single Eligible Financial Institution.
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\144\ Eligible Financial Institutions that hold Reserve Assets
in custody or safekeeping must be subject to supervision and comply
with the requirements set forth in section 10 of the GENIUS Act (12
U.S.C. 5909). Institutions subject to NCUA supervision would need to
comply with the requirements set forth in proposed subpart C of part
706.
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NCUA-Licensed PPSIs with less complex business models and lower
risk profiles may be able to maintain a less diverse stock of Reserve
Assets than NCUA-Licensed PPSIs with more complex business models or
higher risk profiles. However, the NCUA interprets section
4(a)(4)(A)(iii) of the GENIUS Act as mandating some Reserve Asset
diversification for all PPSIs,\145\ both in types of Reserve Assets
maintained and in the number of Eligible Financial Institutions holding
a PPSI's Reserve Assets.\146\ The NCUA expects that it would be
unlikely, for example, that an NCUA-Licensed PPSI, even one with a
simple business model and low risk profile, could satisfy the
requirements in proposed Sec. 706.202(c) by placing all its Reserve
Assets at a single Eligible Financial Institution. Such a reliance on a
single third-party location of Reserve Assets could expose the NCUA-
Licensed PPSI to the unnecessary risk that its Reserve Assets, or some
portion of them, could be unavailable to meet redemption requests.
Similarly, the NCUA expects that all NCUA-Licensed PPSIs will need to
maintain multiple Reserve Asset types, if only to serve as a back-up to
what is otherwise a PPSI's primary Reserve Asset. Some NCUA-Licensed
PPSIs may need to maintain more robustly diverse stocks of Reserve
Assets to satisfy proposed Sec. 706.202(c), depending on their
business model, risk profile, and other relevant factors. For example,
a large NCUA-Licensed PPSI with complex operations may need to maintain
deposits and/or Share Accounts) with multiple Eligible Financial
Institutions, as well as a stock of Treasury bills, potentially
custodied with more than one Eligible Financial Institution in order to
ensure they are capable of being monetized during periods of financial
stress. Factors such as the number of parties that redeem directly with
the NCUA-Licensed PPSI, the volume of redemptions (and volatility with
respect to such volume), and the number and nature of the blockchains
on which a Payment Stablecoin is traded could all increase the
complexity of the PPSI's operations and weigh in favor of maintaining
multiple different pools of Reserve Assets. NCUA-Licensed PPSIs may be
able to comply with this requirement by maintaining multiple deposit
accounts and/or Share Accounts, or through deposit or share placement
services, as they can comply with the requirement in proposed Sec.
706.202(a)(2) to demonstrate the operational capability to access and
monetize the Reserve Assets.
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\145\ 12 U.S.C. 5903(a)(4)(A)(iii).
\146\ An NCUA-Licensed PPSI that maintains ownership and control
of all of its own Reserve Assets, rather than relying on separate
Eligible Financial Institutions, may be able to satisfy the
principles-based general diversification and concentration
requirement in Option A, depending on the PPSI's particular
circumstances. While explicitly requiring all NCUA-Licensed PPSIs to
maintain some Reserve Assets at a third-party Eligible Financial
Institution may help promote confidence that an issuer's Reserve
Assets are diversified across multiple Eligible Financial
Institutions, such a requirement may be unnecessary if the PPSI is
able to establish its own secure control over the Reserve Assets.
Any NCUA-Licensed PPSI maintaining direct ownership and control of
Reserve Assets would still be subject to all requirements in
proposed Sec. 706.202, notably the requirement in proposed Sec.
706.202(a)(2) under which the PPSI must demonstrate the operational
capability to access and monetize Reserve Assets. An NCUA-Licensed
PPSI that maintains ownership and control of its own assets may fail
to satisfy this requirement, or the diversification and
concentration requirements in proposed Sec. 706.202(c), if the
PPSI, for example, relies exclusively on arrangements with a single
Eligible Financial Institution to monetize its Reserve Assets.
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Option A contains a safe harbor under which an NCUA-Licensed PPSI
would be deemed to satisfy proposed Sec. 706.202(c) if the PPSI
maintains on each business day: (i) at least 10 percent of its required
Reserve Assets as deposits and/or funds in Share Accounts payable upon
demand at IDIs or Money standing to the credit of an account with a
Federal Reserve Bank; (ii) at least 30 percent of its Reserve Assets as
deposits and/or funds in Share Accounts payable upon demand at IDIs,
Money standing to the credit of an account with a Federal Reserve Bank,
or amounts receivable and due unconditionally within five business days
on pending sales of Reserve Assets, maturing Reserve Assets, or other
maturing transactions (e.g., reverse repurchase agreements); (iii) no
more than 40 percent of its Reserve Assets at any one Eligible
Financial Institution, whether as deposits and/or funds in Share
Accounts payable upon demand at any one IDI, securities custodied at
any one Eligible Financial Institution, bilateral reverse repurchase
agreements with any counterparty, or through other exposures; (iv) no
more than 50 percent of the amount provided in proposed Sec.
706.202(c)(2)(i) at any one Eligible Financial Institution; and (v)
Reserve Assets with a weighted average maturity of no more than 20
days.
Weighted average maturity is computed as the sum of the product of
each Reserve Asset's (1) remaining maturity and (2) percentage of the
total pool of Reserve Assets (based on principal value). Deposits or
Share Accounts payable upon demand would have a weighted average
maturity of zero. The NCUA invites comments on whether the proposed
rule should include an express definition of weighted average maturity,
particularly whether the NCUA should adopt the same definition used in
SEC Rule 2a-7 (17 CFR 270.2a-7). Paragraph (i) of SEC
[[Page 28976]]
Rule 2a-7 provides that, for certain securities and transactions,
maturity should not necessarily be the time remaining until ultimate
repayment of principal but instead should be based on other
characteristics (for example, the time until an interest rate reset or
until demand repayment options can be exercised). The NCUA invites
comment on whether this proposed rule should include these same
maturity assumptions for certain Reserve Assets. The proposed rule does
not include these maturity assumptions since they should not be
relevant for most or all permissible Reserve Assets. Even if the
maturity assumptions are relevant for certain Reserve Assets that might
be permissible (for example, Floating Rate Treasury Notes), the NCUA
expects that the limited maturity of Reserve Assets (93 days or less)
will diminish the value of applying maturity assumptions. Accordingly,
under the proposed rule, the NCUA expects that the maturity of all
Reserve Assets, for purposes of calculating weighted average maturity,
will be the time remaining until the repayment of principal.
This safe harbor would give NCUA-Licensed PPSIs a transparent and
standardized target for achieving compliance with Reserve Asset
diversification requirements.\147\ However, under Option A, meeting the
safe harbor is not the only means to comply with proposed Sec.
706.202(c). Some issuers, particularly smaller and less complex
issuers, may be able to comply with Sec. 706.202(c) without meeting
the minimum levels in the safe harbor. For example, if a smaller NCUA-
Licensed PPSI with a comparatively simple business model and lower risk
profile finds it commercially useful to maintain more of its Reserve
Assets as deposits and/or funds in Share Accounts payable upon demand,
the PPSI may be able to satisfy proposed Sec. 706.202(c) even if the
PPSI maintains more than 10 percent of its Reserve Assets as Deposits
and/or funds in Share Accounts at one Eligible Financial Institution,
depending on particular facts and circumstances. This flexibility is
consistent with the GENIUS Act's requirements that the proposed asset
diversification requirements be ``tailored to the business model and
risk profile of permitted payment stablecoin issuers.'' \148\
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\147\ The NCUA recognizes that, as an NCUA-Licensed PPSI sells
more liquid assets to meet redemption requests in times of stress,
it may temporarily fail to satisfy the terms of the proposed safe
harbor. An NCUA-Licensed PPSI should appropriately diversify its
Reserve Assets as soon as practicable following such an event.
However, at no point, can an NCUA-Licensed PPSI's Reserve Assets be
less than the Fair Value of the Outstanding Issuance Value of the
PPSI as required in proposed Sec. 706.202(a)(1)(iii).
\148\ 12 U.S.C. 5903(a)(4)(A)(iii)(I).
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The safe harbor's requirement that an NCUA-Licensed PPSI maintain
at least 10 percent of its Reserve Assets as ``daily liquidity'':
deposits and/or funds in Share Accounts payable upon demand or Money
standing to the credit of an account with a Federal Reserve Bank would
help ensure that a PPSI has readily available funds necessary to meet
redemption requests. While all of the proposed Reserve Assets should be
liquid and easily monetizable, the requirement to have some minimum
level of immediately liquid funds is additional protection against the
risk that a PPSI would be unable to meet redemption requests in a
timely manner, which is critical to avoid in order to maintain
confidence in the PPSI and the Payment Stablecoin industry as a whole.
A minimum requirement of 10 percent would be in line with the largest
1-day redemption events experienced by stablecoin issuers.\149\ The
NCUA invites comment on whether an alternate minimum is appropriate.
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\149\ Although the NCUA referenced SEC Rule 2a-7 when drafting
these requirements due to certain similarities between money market
funds and PPSIs, the proposed requirements diverge in certain
respects based on inherent differences between the two (e.g.,
Reserve Asset composition).
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Including a baseline requirement to maintain a minimum percentage
of liquidity that is immediately available (without the need to sell
any assets, even highly liquid assets like Treasury securities) will
help ensure an NCUA-Licensed PPSI's ability to meet redemption
requests. The NCUA invites comments on these and other considerations,
particularly on whether conservative liquidity requirements are
necessary. The proposed rule includes robust liquidity requirements but
does not include capital-based overcollateralization or Reserve Asset
buffer requirements. An alternative possibility would be to remove some
of the proposed liquidity requirements, though this may warrant
increased capital or buffer requirements.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain at least 30 percent of its Reserve Assets as deposits and/or
funds in Share Accounts payable upon demand, Money standing to the
credit of an account with a Federal Reserve Bank, or amounts receivable
and due unconditionally within five business days on pending sales of
Reserve Assets, maturing Reserve Assets, or other maturing
transactions. This ``weekly'' liquidity would help ensure that an NCUA-
Licensed PPSI is able to meet a series of redemption requests that
takes place over multiple days. It will also help prevent issuers from
meeting the ``daily'' liquidity requirement but otherwise maintaining a
stock of assets that are less readily monetizable. A minimum
requirement of 30 percent ``weekly'' liquidity would protect issuers
against redemption runs that take place over multiple days, a
phenomenon experienced by stablecoin issuers in the past, and a 30
percent minimum requirement would exceed the redemption volumes seen
during these redemption runs. In the absence of a minimum ``weekly''
(or other multi-day) requirement, an issuer might only have its stock
of 10 percent immediately available liquidity plus owned securities
that it would have to actually sell in order to monetize and meet
redemption requests. While NCUA-Licensed PPSIs must be prepared to
monetize any such securities, it would be safer to have a stock of
liquid funds that will automatically become available over the next
several days as a first line of defense against multi-day redemption
runs.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain no more than 40 percent of its Reserve Assets at any one
Eligible Financial Institution, whether as Deposits and/or funds in
Share Accounts payable upon demand at any one IDI, securities custodied
at any one Eligible Financial Institution, bilateral reverse repurchase
agreements with any counterparty, or through other exposures. This
requirement would prevent an issuer from being overly exposed to any
One Eligible Financial Institution. While this requirement would not
eliminate the chance of losing Reserve Assets because of distress at an
Eligible Financial Institution holding Reserve Assets--or temporarily
losing access to Reserve Assets--this requirement would ensure that
NCUA-Licensed PPSIs have other stocks of Reserve Assets available to
satisfy redemption requests. This requirement is meant to capture all
potential exposures to a counterparty. An NCUA-Licensed PPSI could
maintain deposits and/or funds in Share Accounts payable upon demand at
an IDI while at the same have an Affiliate of that IDI maintain custody
of the issuer's securities or serve as a counterparty in repurchase or
reverse repurchase transactions. All of these transactions could expose
an NCUA-Licensed PPSI's Reserve Assets to the health of a single
Eligible Financial Institution. Accordingly, this requirement would
aggregate exposures to prevent excessive exposure to any
[[Page 28977]]
one Eligible Financial Institution. The phrase ``or other exposures''
is meant to capture any other exposure that creates a similar risk. The
NCUA invites comments on alternate minimums besides 40 percent; the 40
percent measure would ensure that no one Eligible Financial Institution
would have a majority of an NCUA-Licensed PPSI's Reserve Assets and
that issuers spread relationships and operational capabilities across
multiple Eligible Financial Institutions in a way that prevents a PPSI
coming to rely excessively on one Eligible Financial Institution.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain no more than 50 percent of the required daily liquidity
specified under proposed paragraph (c)(2)(i) at any one Eligible
Financial Institution. This requirement would guard against the risk
that problems at one Eligible Financial Institution prevent a PPSI from
accessing its Reserve Assets. If an NCUA-Licensed PPSI is dependent on
one Eligible Financial Institution to maintain all or a large portion
of its Reserve Assets, the PPSI may be excessively exposed to, for
example, operational concerns at that Eligible Financial Institution or
even the risk of the institution's failure.
Proposed Sec. 706.202(c)(2)(i) is designed to ensure that NCUA-
Licensed PPSIs have a sufficient minimum amount of readily available
funds to meet redemption requests. However, if that entire amount
consists of deposits and/or funds in Share Accounts at one IDI, the
PPSI is exposed to the risk that problems at that IDI could wholly
prevent the PPSI from accessing its readily available funds. Having at
least one other stock of readily available funds as part of a PPSI's
Reserve Assets would help ensure that some readily available funds are
accessible in order to meet redemption requests. Placing deposits and/
or funds in Share Accounts payable upon demand at multiple IDIs,
whether directly or through deposit/share placement services, would
mitigate the risk of over-exposure to one particular IDI.
Proposed Sec. 706.202(c)(2)(v) would also require, to qualify for
the safe harbor, that an NCUA-Licensed PPSI's Reserve Assets have a
weighted average maturity of no more than 20 days. This would serve as
a backstop against potential losses due to interest rate increases.
While PPSIs may permissibly hold Reserve Assets with a maturity of up
to 93 days, holding a portfolio of Reserve Assets concentrated at the
outer end of that maturity limit exposes the issuer's Reserve Assets to
losses due to interest rate increases.\150\ Even small losses could
undermine confidence in a Payment Stablecoin given the importance of
maintaining par and ensuring a stable value. A limit on weighted
average maturity imposed across the entire portfolio of an NCUA-
Licensed PPSI's Reserve Assets would allow the issuer to hold the
entire range of permissible assets while ensuring that the portfolio in
aggregate does not have excess exposure to interest rate risk. A limit
of 20 days would still allow NCUA-Licensed PPSIs the full range of
permissible Reserve Assets (for example, newly issued 3-month Treasury
bills) while ensuring that Reserve Assets are not overly concentrated
in longer-dated issuances. The NCUA invites comment on whether a
weighted average maturity limit of 20 days is appropriate, including
whether it would represent a binding constraint for current stablecoin
issuers and the desirability of higher or lower limits. The NCUA
additionally invites comment on whether the weighted average maturity
requirement for a large issuer should differ from that for a smaller
issuer (e.g., by allowing smaller issuers to have a longer weighted
average maturity such as 30 or 40 days).
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\150\ During the rapid increases in interest rates in the early
1980s, 3-month Treasury Bill secondary market rates increased from
12.05 percent to 15.37 percent over the period of a month. See Fed.
Reserve Econ. Data, ``Table Data--3-Month Treasury Bill Secondary
Market Rate, Discount Basis,'' <a href="https://fred.stlouisfed.org/data/WTB3MS">https://fred.stlouisfed.org/data/WTB3MS</a> (including Treasury Bill secondary market rates for February
8, 1980, and March 7, 1980). A change of this magnitude would result
in a 90-day security losing approximately 0.79 percent of its value.
---------------------------------------------------------------------------
As an example, an NCUA-Licensed PPSI with $20 billion of
Outstanding Issuance Value could meet the safe harbor by depositing at
least $1 billion each at two IDIs. This would meet the requirement in
proposed Sec. 706.202(c)(2)(i) that the NCUA-Licensed PPSI maintain at
least 10 percent ($2 billion in this example) of its required Reserve
Assets as readily available funds as well as the requirement in
proposed Sec. 706.202(c)(2)(iv) that the NCUA-Licensed PPSI maintain
no more than 50 percent of its readily available funds at any one
Eligible Financial Institution ($1 billion in this example). In order
to qualify for the safe harbor, the NCUA-Licensed PPSI would still need
to satisfy proposed Sec. 706.202(c)(2)(iii), under which an issuer
could not maintain more than 40 percent of its Reserve Assets at any
one Eligible Financial Institution and proposed Sec.
706.202(c)(2)(ii), under which an NCUA-Licensed PPSI must maintain at
least 30 percent of its Reserve Assets as deposits and/or funds in
Share Accounts payable upon demand at IDIs, Money standing to the
credit of an account with a Federal Reserve Bank, or amounts receivable
and due conditionally within five business days on pending sales of
Reserve Assts, maturing Reserve Assets, or other maturing transactions.
In this example, the NCUA-Licensed PPSI could not keep more than $8
billion in Reserve Assets at any one institution (for instance,
invested in a single investment fund) and would also need to maintain
at least $6 billion as deposits and/or funds in Share Accounts payable
upon demand at IDIs, Money standing to the credit of an account with a
Federal Reserve Bank, or amounts receivable and due unconditionally
within five business days on pending sales of Reserve Assets or other
maturing transactions. The issuer would also need to ensure that its
entire stock of Reserve Assets ($20 billion) complied with the
requirement to have a weighted average maturity of no more than 20
days. While compliance with the diversification safe harbor would
establish compliance with proposed Sec. 706.202(c), it would not
relieve an NCUA-Licensed PPSI of its obligations under proposed Sec.
706.202(a). Notably, an NCUA-Licensed PPSI would still be required to
maintain and demonstrate the operational capability to monetize its
Reserve Assets.
Option B would impose the same quantitative standards as mandatory
requirements, rather than an optional safe harbor. Option B would not
include the baseline principles-based requirement. While Option B would
remove flexibility, it would create a more transparent and readily
comprehensible set of requirements. NCUA-Licensed PPSIs, Payment
Stablecoin holders, and other parties would be able to discern what
requirements NCUA-Licensed PPSIs must adhere to with respect to the
Reserve Assets.
Proposed Sec. 706.202(d) would require an NCUA-Licensed PPSI with
an Outstanding Issuance Value of $25 billion or more to, on each
business day, maintain at least 0.5 percent of its Reserve Assets in
the form of deposits and/or funds in Share Accounts at IDIs in amounts
that are fully insured by the FDIC and/or NCUA, up to a cap of $500
million. While it may not be practicable to maintain all deposits and/
or funds in Share Accounts so that they are fully insured by the FDIC
and/or NCUA, having some minimum amount of fully insured deposits and/
or funds in Share Accounts will provide an additional measure of
security for Reserve Assets
[[Page 28978]]
and can promote market and holder confidence about the integrity of
Reserve Assets. Though the required minimum amount is not a large
percentage, it would ensure that large NCUA-Licensed PPSIs have some
stock of extremely safe and liquid assets: deposits and/or funds in
Share Accounts that are fully insured and can be withdrawn freely and
that are not exposed to risks like interest rate risk. Having Reserve
Assets diffused through the banking system (including the credit union
system) may promote confidence by virtue of having at least some
Reserve Assets held in traditional IDIs with which holders are already
familiar (for example, nearby community banks and FICUs). Payment
Stablecoin holders may be reassured by knowing that a minimum portion
of Reserve Assets is maintained as deposits and/or funds in Share
Accounts that are fully insured, and the diffusion of Reserve Assets
may mitigate fears or contagion risks associated with rumors about the
health of particular IDIs.
In theory, it would be ideal from the perspective of the safety and
soundness of the NCUA-Licensed PPSI if PPSIs would be able to place all
deposits and/or funds in Share Accounts, so they are covered by
applicable deposit/share insurance limits. However, current deposit/
share insurance requirements may make this impossible for larger PPSIs.
While NCUA-Licensed PPSIs may use services, such as deposit/share
brokers, to distribute deposits and/or funds in Share Accounts across
Eligible Financial Institutions--as long as NCUA-Licensed PPSIs are
able to maintain the operational capability to access and monetize
these deposits and/or funds in Share Accounts--the finite number of
Eligible Financial Institutions plus deposit/share insurance limits may
render it impossible for larger PPSIs to insure more than a portion of
their deposits and/or funds in Share Accounts. The NCUA may revisit
this issue if deposit/share insurance requirements change, and the NCUA
invites comments about alternative ways to address deposit/share
insurance of Reserve Assets held as deposits and/or funds in Share
Accounts. The NCUA recognizes the additional security that deposit/
share insurance would provide for Payment Stablecoin holders and also
recognizes the value of spreading deposits and/or funds in Share
Accounts around a broad range of IDIs, rather than potentially having
PPSI deposits and/or funds in Share Accounts concentrated at a small
number of IDIs. Holding reserves at a very large number of
institutions, could, however, introduce additional operational risk
that a PPSI would need to manage. The thresholds in proposed Sec.
706.202(d) balance the value and security of spreading Reserve Assets
across multiple Eligible Financial Institutions, the capacity of the
banking system (and the credit union system) to hold deposits and/or
funds in Share Accounts) from any one single depositor, and the
operational complexity numerous depository relationships would entail.
Proposed Sec. 706.202(e) would require the NCUA-Licensed PPSI to
publish on its website by noon on the last day of each month the
composition of the issuer's reserves held pursuant to the GENIUS Act as
of the last day of the prior month, using a format substantially
similar to the template provided in table 1 to proposed Sec.
706.202(e). The report must contain the total number of outstanding
Payment Stablecoins issued by the issuer and the amount (Fair Value)
and composition of the reserves, including the average tenor and
geographic location of custody of each category of reserve instruments.
The information in the report, including the value of Reserve Assets,
should be as of the end of the previous month. This implements the
requirement in section 4(a)(1)(C) of the GENIUS Act.\151\ To satisfy
the geographic location requirement, the NCUA expects that it will
generally be sufficient for NCUA-Licensed PPSIs to disclose the
jurisdiction where Reserve Assets are custodied or located.
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\151\ 12 U.S.C. 5903(a)(1)(C).
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Proposed Sec. 706.202(f) implements the applicable requirements of
section 4(a)(3) of the GENIUS Act.\152\ This provision requires PPSIs
to, each month, have the information disclosed in the previous month-
end report examined by a Registered Public Accounting Firm. Proposed
Sec. 706.202(f)(1) would require the examination of the previous
month-end report to occur by noon on the last day of each month and
would require the report to be published on the NCUA-Licensed PPSI's
website at the same time as the monthly report required under proposed
Sec. 706.202(e). Consistent with the GENIUS Act, proposed Sec.
706.202(f)(2) would require the Chief Executive Officer and Chief
Financial Officer (or the Persons performing the equivalent functions)
of the NCUA-Licensed PPSI to submit a certification as to the accuracy
of the monthly report to the NCUA. Under section 4(a)(3)(C) of the
Act,\153\ any Person who submits this required certification knowing
that such certification is false shall be subject to the same criminal
penalties as those set forth under 18 U.S.C. 1350(c).
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\152\ 12 U.S.C. 5903(a)(3).
\153\ 12 U.S.C. 5903(a)(3)(C).
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Proposed Sec. 706.202(g) provides for the consequences and
remedial measures if an NCUA-Licensed PPSI does not comply with the
requirements of Sec. 706.202. Proposed Sec. 706.202(g)(1) would
provide that an NCUA-Licensed PPSI must notify the NCUA on any day in
which its Reserve Asset amount has fallen below the required minimum in
proposed Sec. 706.202(a). Proposed Sec. 706.202(g)(2) would provide
that an NCUA-Licensed PPSI falling below the required minimum would be
barred from issuing new Payment Stablecoins until it had remediated the
shortfall except as necessary to facilitate a transfer of Payment
Stablecoins from one Distributed Ledger to another and provided that
the net Outstanding Issuance Value does not increase. Proposed Sec.
706.202(g)(3) would provide that, if an NCUA-Licensed PPSI fails to
meet its Reserve Asset requirement for 15 consecutive business days, it
must begin liquidation of Reserve Assets and redemption of outstanding
Payment Stablecoins consistent with Sec. 706.203 and may not charge
Customers a fee to redeem their Payment Stablecoins at any time during
the liquidation. The NCUA may extend the time period under proposed
Sec. 706.202(g)(3) in its sole discretion. Because of the importance
of maintaining minimum Reserve Asset levels, the proposed rule would
include automatic consequences for any non-compliance intended to
prevent any concerns from developing further. This provision is
intended to prevent chronic non-compliance with minimum Reserve Asset
requirements. The NCUA expects to ensure compliance with other
requirements in the proposed rule using traditional supervisory
methods, namely having examiners identify concerns that can be
escalated into enforcement actions, if necessary. Accordingly, proposed
Sec. 706.202(g)(4) provides that if at any point the NCUA determines
that an NCUA-Licensed PPSI has not demonstrated that it meets the
Reserve Asset requirements in proposed Sec. 706.202(a), (b), (c), or
(d), the NCUA may require the issuer to submit a plan describing how
the PPSI will attain compliance and the timeline for the plan. If the
NCUA determines, either before or after the submission of a plan, that
an NCUA-Licensed PPSI faces a significant risk of being unable to
attain compliance with the reserve requirements in proposed Sec.
706.202(a), (b), (c), or (d) within a reasonable period, the NCUA may
order the issuer
[[Page 28979]]
to initiate redemption of all outstanding Payment Stablecoins. Proposed
Sec. 706.202(g)(4) also states that the NCUA's authority to require a
compliance plan or order redemption does not limit the NCUA's authority
to pursue other measures, including enforcement actions, if
appropriate.
b. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 42: Section 4(a)(1)(A)(vi) of the GENIUS Act includes
``securities issued by an investment company registered under section
8(a) of the Investment Company Act of 1940,\154\ or other registered
Government money market fund, and that are invested solely in
underlying assets described in clauses (i) through (v)'' as eligible
Reserve Assets for Payment Stablecoins issued by PPSIs. However, many
or all Government money market funds are investment companies
registered under section 8(a) of the Investment Company Act of 1940.
Should the provision relating to securities issued by investment
companies registered under section 8(a) of the Investment Company Act,
or other registered Government money market funds, be clarified? Does
section 4(a)(1)(A)(vi) permit securities issued by investment companies
registered under section 8(a) of the Investment Company Act of 1940
that are not Government money market funds to be Reserve Assets for
Payment Stablecoins issued by PPSIs? Are there any registered
Government money market funds that are not investment companies
registered under section 8(a) of the Investment Company Act? Does
section 4(a)(1)(A)(vi) permit securities issued by registered
Government money market funds that are not registered under section
8(a) of the Investment Company Act to be Reserve Assets for Payment
Stablecoins issued by PPSIs?
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\154\ 15 U.S.C. 80a-8(a).
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Question 43: Should the provisions relating to repurchase
agreements and reverse repurchase agreements be clarified? For example,
should the NCUA provide that deposits and funds in Share Accounts can
serve as collateral for repurchase agreements? If so, what limitations,
if any, should the NCUA include with respect to the use of deposits and
funds in Share Accounts as collateral?
Question 44: Should the proposed rule require a buffer or impose
haircuts on certain Reserve Assets to ensure that Reserve Asset values
do not fall below Outstanding Issuance Values? The GENIUS Act requires
PPSIs to maintain identifiable reserves ``on an at least 1 to 1
basis.'' What measures should the proposed rule include to ensure that
issuers are able to maintain this minimum? Without a buffer or other
measures, the Fair Value of a PPSI's Reserve Assets could fall below
the required minimum if there are, for example, sudden increases in
interest rates. While proposed Sec. 706.204(a)(3)(i) would include a
requirement to manage interest rate risk, should there be a more
express requirement for a buffer (for example, 1% of Reserve Assets)?
For example, the proposed rule could require PPSIs to maintain an
amount of Reserve Assets sufficient to stay above the Outstanding
Issuance Value in light of risks facing the PPSI, including interest
rate risk and risks associated with the capability to access and
monetize Reserve Assets. Are there other considerations the NCUA should
take into account if it chose to calibrate such a buffer? As an
alternative to requiring such a buffer, should the NCUA provide
guidance on what level of buffer is generally appropriate as a matter
of prudent risk management?
Question 45: Should the NCUA expressly require that a certain
percentage of Reserve Assets be held in custody either at an Affiliate
or at a third party? What are the potential costs and benefits of this
approach, including with respect to operational risk?
Question 46: Is the term ``deposits and/or funds in Share Accounts
payable upon demand'' sufficiently clear? If not, how should the NCUA
clarify the term (i.e., what types of accounts should expressly be
included within the term)?
Question 47: Should the proposed rule define ``reserve in tokenized
form'', to enhance clarity regarding proposed Sec. 706.202(b)(8)? If
so, should the NCUA define ``reserve in tokenized form'' to refer to a
Digital Asset, as defined in proposed Sec. 706.2, that represents
another asset and provides full legal rights to that underlying asset?
What modifications to this definition or the rule's related terminology
would enhance clarity?
Question 48: In the provision in proposed Sec. 706.202(b)(5)
regarding reverse repurchase agreements, is the proposed rule
sufficiently clear in its reference to ``overcollateralization in line
with standard market terms?'' If not, what clarifications would be
appropriate?
Question 49: Should the NCUA provide additional detail on what
securities could be in scope for ``any other similarly liquid Federal
Government-issued asset'' under Sec. 706.202(b)(7)? For example,
should Treasury securities with remaining maturity of two years or less
be permitted under Sec. 706.202(b)(7)? What would be the implications
for liquidity or interest rate risk of allowing these types of
securities to be held as Reserve Assets? If the NCUA were to permit
two-year Treasury securities to be used as Reserve Assets, should the
NCUA impose any additional requirements, such as requiring the weighted
average maturity of Treasury securities held as reserves to be no more
than 93 days (or some shorter timeframe) or requiring additional
Reserve Asset diversification requirements (e.g., minimum amount of
Reserve Assets held as deposits and/or funds in Share Accounts or
minimum number of Eligible Financial Institutions holding the PPSI's
Reserve Assets) for PPSIs that hold Treasury securities with a
remaining maturity between 94 days and two years?
Question 50: Should the proposed rule clarify that Treasury
Floating Rate Notes (FRNs) and Treasury Inflation-Protected Securities
(TIPs) be included as permissible Reserve Assets, assuming they
otherwise meet the requirements of the proposed rule, including
maturity requirements? Is there any reason these securities should be
excluded? Should Treasury Separate Trading of Registered Interest and
Principal of Securities (STRIPS) be included? Are there other
instruments that should be considered as included within the GENIUS
Act's phrase ``Treasury bills, notes, or bonds''? If these securities
are included, should there be additional requirements--for example,
both weighted average life and weighted average maturity limits to
accommodate interest rate resets in FRNs?
Question 51: Should the proposed rule's requirements for Reserve
Assets incorporate requirements to reflect potential interactions with
the larger market for Treasury securities? For example, should the
proposed rule include requirements to prevent any disruptive or
negative effects that the management or liquidation of Treasury Reserve
Assets might have on markets?
Question 52: The proposed rule would, consistent with the GENIUS
Act, allow as Reserve Assets funds held as deposits and/or in Share
Accounts) that are payable upon demand at an IDI (including any foreign
branches or agents, including correspondent banks). Should the proposed
rule add definitions for these terms to make them clearer or impose
restrictions on the use of foreign branches or agents and correspondent
banks? For example, should the proposed rule require that Payment
Stablecoins denominated in United States dollars only be backed by
deposits and/or funds in Share Accounts that are payable upon demand
[[Page 28980]]
at U.S.-based IDIs (i.e., Reserve Assets could not include Eurodollar
deposits)? Should the NCUA include any additional requirements with
respect to Reserve Assets held abroad, such as applying a haircut to
the reserve assets, imposing a capital charge, or including additional
policies and procedures to manage the risks associated with holding
Reserve Assets abroad?
Question 53: Should the NCUA develop a formal process to consider
and approve securities under Sec. 706.202(b)(7)? Should the NCUA allow
PPSIs or other parties to request that the NCUA consider a specific
type of security? Should any determinations on additional securities
approved under this authority be made public?
Question 54: The proposed rule would require a PPSI to maintain
Reserve Assets, the Fair Value of which must equal or exceed the
Outstanding Issuance Value at all times. Should the NCUA impose a
different standard, such as requiring the Fair Value of Reserve Assets
to equal or exceed the Outstanding Issuance Value at the end of each
day or at the end of each business day?
Question 55: The proposed rule's requirements for Reserve Asset
diversification and concentration include two options: (1) a flexible,
principles-based baseline requirement plus a quantitative safe harbor
or (2) quantitative requirements applicable to all PPSIs. Which option
is more appropriate? How should either option, including the
quantitative limits included in each option, be modified? For example,
should the requirement or safe harbor's provision regarding holding
Reserve Assets as deposits and/or funds in Share Accounts payable upon
demand or Money standing to the credit of an account with a Federal
Reserve Bank be set at five percent, 10 percent, 15 percent or 20
percent? Should this requirement be set at a different percentage
(e.g., 10 percent) for small issuers and a larger percentage (e.g., 15
percent) for larger issuers? Should the requirement or safe harbor's
provision regarding maintaining Reserve Assets as deposits and/or funds
in Share Accounts payable upon demand, Money standing to the credit of
an account with a Federal Reserve Bank, or amounts receiv
[…truncated; see source link]Indexed from Federal Register on May 18, 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.