Proposed Rule2026-19860
Implementing the Federal Reserve Board's Responsibilities Under the GENIUS Act
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Published
September 29, 2026
Issuing agencies
Federal Reserve System
Abstract
The Board of Governors of the Federal Reserve System (Board) proposes to issue regulations to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) with respect to Board-supervised permitted payment stablecoin issuers (PPSIs) and certain other entities that are subject to the Board's jurisdiction. In addition, the Board proposes to issue regulations to implement the prohibition on tying in section 4(a)(8) of the GENIUS Act, which is applicable generally to all PPSIs.
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<title>Federal Register, Volume 91 Issue 187 (Tuesday, September 29, 2026)</title>
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[Federal Register Volume 91, Number 187 (Tuesday, September 29, 2026)]
[Proposed Rules]
[Pages 61580-61683]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19860]
[[Page 61579]]
Vol. 91
Tuesday,
No. 187
September 29, 2026
Part III
Federal Reserve System
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12 CFR Parts 208, 211, 217, 225, et al.
Implementing the Federal Reserve Board's Responsibilities Under the
GENIUS Act; Proposed Rule
Federal Register / Vol. 91 , No. 187 / Tuesday, September 29, 2026 /
Proposed Rules
[[Page 61580]]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211, 217, 225, 247 and 263
[Docket No. R-1899]
RIN 7100-AH29
Implementing the Federal Reserve Board's Responsibilities Under
the GENIUS Act
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
proposes to issue regulations to implement the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act) with respect
to Board-supervised permitted payment stablecoin issuers (PPSIs) and
certain other entities that are subject to the Board's jurisdiction. In
addition, the Board proposes to issue regulations to implement the
prohibition on tying in section 4(a)(8) of the GENIUS Act, which is
applicable generally to all PPSIs.
DATES: Comments must be received by November 30, 2026.
ADDRESSES: You may submit comments, identified by Docket No. R-1899 and
RIN 7100-AH29, by any of the following methods:
<bullet> Agency Website: <a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a>. Follow the instructions for submitting comments, including
attachments. Preferred Method.
<bullet> Mail: Benjamin W. McDonough, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
<bullet> Hand Delivery/Courier: Same as mailing address.
<bullet> Other Means: <a href="/cdn-cgi/l/email-protection#cdbdb8afa1a4aeaea2a0a0a8a3b9be8dabbfafe3aaa2bb"><span class="__cf_email__" data-cfemail="09797c6b65606a6a6664646c677d7a496f7b6b276e667f">[email protected]</span></a>. You must include the
docket number in the subject line of the message.
Comments received are subject to public disclosure. In general,
comments received will be made available on the Board's website at
<a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a> without change and will
not be modified to remove personal or business information including
confidential, contact, or other identifying information. Comments
should not include any information such as confidential information
that would not be appropriate for public disclosure. Public comments
may also be viewed electronically or in person in Room M-4365A, 2001 C
St. NW, Washington, DC 20551, between 9 a.m. and 5 p.m. during Federal
business weekdays.
FOR FURTHER INFORMATION CONTACT: Juan Climent, Deputy Associate
Director, (202) 460-2180, Jeff Ernst, Manager, (202) 369-9439,
Christopher Anderson, Principal Economist, (202) 821-7114, Nadya
Zeltzer, Lead Financial Institution Policy Analyst, (202) 452-3164,
Christopher Powell, Lead Financial Institution Policy Analyst, (202)
507-2831, and Francis Kuo, Lead Financial Institution Policy Analyst
(202) 339-7041, Division of Supervision and Regulation; Asad Kudiya,
Associate General Counsel, (202) 475-6358, Kelley O'Mara, Assistant
General Counsel, (202) 430-0911, Isabel Echarte, Senior Attorney, (202)
945-2412, Vivien Lee, Attorney, (240) 814-3594, and Jeremy Lin,
Attorney, (240) 374-7669, Legal Division. For users of TTY-TRS, please
call 711 from any telephone, anywhere in the United States or (202)
263-4869.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Request for Comments
B. Self-Executing Provisions
II. Description of the Proposed Rule
A. Subpart A--Purpose, Scope, Definitions, and Severability
1. Authority, Purpose, and Scope (Proposed Sec. 247.1)
2. Definitions (Proposed Sec. 247.2)
3. Severability (Proposed Sec. 247.3)
B. Subpart B--Rules Applicable to Board-Supervised Permitted
Payment Stablecoin Issuers
1. Permissible and Prohibited Activities (Proposed Sec. 247.10)
2. Reserve Assets (Proposed Sec. 247.11)
3. Redemption and Fees (Proposed Sec. 247.12)
4. Risk Management Standards (Proposed Sec. 247.13)
5. Audits, Reports, and Supervision (Proposed Sec. 247.14)
6. Capital (Proposed Sec. Sec. 247.15-18)
7. Indexing of Thresholds by Nominal GDP Growth
C. Subpart C--Rules Applicable to Board-Supervised Custodians
1. Definitions (Proposed Sec. 247.20)
2. Covered Asset Custodial Property Requirements (Proposed Sec.
247.21)
3. Segregation Requirement and Use of Omnibus Accounts (Proposed
Sec. 247.22)
4. Reporting
5. Self-Custody Hardware and Software Exclusion (Proposed Sec.
247.23)
D. Subpart E--Rules Applicable to All Permitted Payment
Stablecoin Issuers
1. Tying Prohibition (Proposed Sec. 247.40)
2. Tying Exceptions (Proposed Sec. 247.41)
E. Subpart F--Rules Applicable to State-Qualified Permitted
Payment Stablecoin Issuers
1. Unusual and Exigent Circumstances Enforcement Authority
(Proposed Sec. 247.50)
2. Transition and Waiver Process for Uninsured State-Chartered
Depository Institutions (Proposed Sec. 247.51)
F. Proposed Amendments to Part 217
G. Proposed Amendments to Parts 208, 211, 225
1. Proposed Amendment to Part 208
2. Proposed Amendment to Part 211
3. Proposed Amendment to Part 225
H. Proposed Amendments to Part 263
I. Additional Request for Comment
III. Economic Analysis
A. Introduction
B. Broad Economic Considerations
C. Baseline
D. Proposal
E. Reasonable Alternatives
F. Benefits of the Proposal
G. Costs of the Proposal
H. Conclusion
IV. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Riegle Community Development and Regulatory Improvement Act
of 1994
D. Providing Accountability Through Transparency Act of 2023
E. Solicitation of Comments and Use of Plain Language
I. Background
The Guiding and Establishing National Innovation for U.S.
Stablecoins Act (12 U.S.C. 5901 et seq.) (GENIUS Act or the Act) was
enacted on July 18, 2025. The Act establishes a regulatory framework
for issuers of ``payment stablecoins.'' Under section 2(22) of the Act
(12 U.S.C. 5901(22)), ``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[.]'' The term
does not include a digital asset that is (i) a national currency; \1\
(ii) a deposit (as defined in 12 U.S.C. 1813), including a deposit
recorded using distributed ledger technology; or (iii) a security, as
defined in 15 U.S.C. 77b, 78c, or 80a-2.\2\
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\1\ National currency has the same meaning as in section 2(19)
of the GENIUS Act (12 U.S.C. 5901(19)).
\2\ The Act provides that, for the avoidance of doubt, no bond,
note, evidence of indebtedness, or investment contract that was
issued by a PPSI 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
[[Page 61581]]
issuing a payment stablecoin in the United States.\3\ It further
prohibits digital asset service providers \4\ from offering or selling
a payment stablecoin to a person in the United States unless the issuer
is a PPSI or a foreign payment stablecoin issuer that meets certain
requirements.\5\ The Act sets forth various regulatory and licensing
requirements for PPSIs and foreign payment stablecoin issuers. In many
instances, the Act states that the specific requirements applicable to
these entities (e.g., those related to capital, reserve asset
diversification, 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.\6\ This
notice of proposed rulemaking (proposed rule) represents one piece of
the GENIUS Act's implementing regulations.\7\ The Board of Governors of
the Federal Reserve System (Board) is concurrently issuing a notice of
proposed rulemaking seeking comment on its applications procedures
applicable to insured State member banks seeking approval for a
subsidiary to issue payment stablecoins.
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\3\ 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 prohibitions in section 3 of the Act).
\4\ ``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:
(i) exchanging digital assets for monetary value; (ii) exchanging
digital assets for other digital assets; (iii) transferring digital
assets to a third party; (iv) acting as a digital asset custodian;
or (v) 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 (a) a distributed ledger protocol; (b)
an immutable and self-custodial software interface; or (c) a person
solely by virtue of their (1) developing, operating, or engaging in
the business of developing distributed ledger protocols or self-
custodial software interfaces; (2) developing, operating, or
engaging in the business of validating transactions or operating a
distributed ledger; or (3) participating in a liquidity pool or
other similar mechanism for the provisioning of liquidity for peer-
to-peer transactions. Id.
\5\ 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 issued by foreign payment stablecoin issuers
unless they 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 a PPSI to the extent that the PPSI is a digital asset
service provider.
\6\ See, e.g., 12 U.S.C. 5903(a)(4), (h); 5913.
\7\ See, e.g., 90 FR 59409 (December 19, 2025) (Federal Deposit
Insurance Corporation (FDIC)); 91 FR 6531 (February 12, 2026)
(National Credit Union Administration (NCUA)); 91 FR 10202 (March 2,
2026) (Office of the Comptroller of the Currency (OCC)); 91 FR 16844
(April 3, 2026) (U.S. Department of the Treasury (Treasury)); 91 FR
18582 (April 10, 2026) (Office of Foreign Asset Control (OFAC) and
Financial Crimes Enforcement Network (FinCEN)); 91 FR 18534 (April
10, 2026) (FDIC); 91 FR 28956 (May 18, 2026) (NCUA); 91 FR 37234
(June 22, 2026) (FinCEN, OCC, Board, FDIC, and NCUA); 91 FR 37840
(June 24, 2026) (OCC); 91 FR 53368 (August 18, 2026) (Treasury).
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The Board has regulatory, supervisory, or enforcement authority
over certain PPSIs, including subsidiaries of State member banks, and
State-qualified payment stablecoin issuers subject to the Board's
regulatory, supervisory, or enforcement authority under section 4 or 7
of the GENIUS Act (12 U.S.C. 5903 and 5906). The Board also has
authority to issue regulations to implement the prohibition on tying in
section 4(a)(8) of the GENIUS Act (12 U.S.C. 5903(a)(8)), which would
apply to all PPSIs regardless of their primary Federal or State
regulator. The proposed rule generally sets forth, and seeks comment
on, proposed regulations to implement the GENIUS Act that would apply
to Board-supervised PPSIs, other PPSIs, and other Board-supervised
entities.
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 any final regulations
implementing the Act. The Board 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 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. For example, the Board is considering
whether certain regulations that impose different requirements at
different asset thresholds should be amended to exclude stablecoin
reserves from the asset calculation.
A. Request for Comments
The Board requests feedback on all aspects of the proposed rule and
has set out specific questions for commenters to consider in each
section of this SUPPLEMENTARY INFORMATION. Commenters should clearly
identify the question number assigned by the Board when providing
responses in comment letters.
The Board notes that many aspects of the proposed rule are similar
to the notices of proposed rulemaking that the OCC,\8\ FDIC,\9\ and
NCUA \10\ released to implement their responsibilities under the GENIUS
Act. For the convenience of commenters, the Board has generally tagged
questions throughout the SUPPLEMENTARY INFORMATION that are similar to
those posed by the OCC, including by identifying the numbering for the
relevant similar questions in the OCC's notice of proposed rulemaking.
Commenters are also generally invited to provide feedback on
differences between the proposed rule and the OCC's, FDIC's, or NCUA's
approaches, where the regulatory frameworks would differ if implemented
as proposed.
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\8\ 91 FR 10202 (March 2, 2026) (OCC).
\9\ 91 FR 18534 (April 10, 2026) (FDIC).
\10\ 91 FR 28956 (May 18, 2026) (NCUA).
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B. Self-Executing Provisions
The GENIUS Act includes a number of self-executing provisions that
are not addressed in this rulemaking.
<bullet> Section 4(a)(6)(B) of the GENIUS Act (12 U.S.C.
5903(a)(6)(B)) provides that a PPSI can only issue payment stablecoins
if the issuer has the technological capability to comply, and will
comply, with the terms of any lawful order.
<bullet> Section 4(g) of the GENIUS Act (12 U.S.C. 5903(g))
provides that a Federal savings association established under the Home
Owners' Loan Act (HOLA) (12 U.S.C. 1461 et seq.) that holds a reserve
that satisfies the requirements of section 4(a)(1) of the GENIUS Act
shall not be required to satisfy the qualified thrift lender test under
section 10(m) of HOLA (12 U.S.C. 1467a(m)) \11\ with respect to such
reserve assets.
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\11\ A Federal savings association's status as a qualified
thrift lender may be relevant to its parent savings and loan holding
company's status under section 10 of HOLA, which is administered by
the Board. See 12 U.S.C. 1467a.
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<bullet> Section 5(h) of the GENIUS Act (12 U.S.C. 5904(h))
expressly preempts ``any State requirement for a charter, license, or
other authorization to do business with respect to a'' subsidiary of a
State member bank that is a Board-supervised PPSI. As a result, these
entities are only required to obtain authorization to do business from
the Board, 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.
<bullet> Section 7(f)(4) of the GENIUS Act (12 U.S.C. 5906(f)(4))
provides that nothing in the GENIUS Act preempts State consumer
protection laws, including with respect to Board-supervised PPSIs.
<bullet> Section 16(d) of the GENIUS Act (12 U.S.C. 5915(d))
provides that a State-chartered depository institution with a PPSI
subsidiary ``may engage in the business of money transmission or
provide custodial services through the [PPSI] in any State if such
State-chartered depository institution is . . . required by the laws or
regulations of the home state to establish and maintain'' adequate
capital and
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liquidity, and such capital and liquidity are ``regularly reassessed by
the home State banking supervisor to take into account any changes in
the financial condition and risk profile of the institution, including
any uninsured deposits maintained by such institution.'' Under the
GENIUS Act, an insured State member bank may apply to the Board to seek
permission to form a PPSI subsidiary. Because insured State member
banks are State-chartered depository institutions, this provision would
apply to the extent the laws or regulations of the State member bank's
home state meet the criteria with respect to capital and liquidity.
Because these GENIUS Act provisions are self-executing, the Board
is not proposing regulatory text to implement them. However, the Board
invites public comment on all aspects of this framework, including
whether the self-executing provisions of the Act should be codified in
the Board's regulations for convenience.
II. Description of the Proposed Rule
A. Subpart A--Purpose, Scope, Definitions, and Severability
Subpart A of the proposed rules provides the purpose and scope and
defines terms used throughout the proposed rule.
1. Authority, Purpose, and Scope (Proposed Sec. 247.1)
Proposed Sec. 247.1 sets forth the authority, purpose, and scope
of the Board's proposed stablecoin-related regulations. Paragraph (a)
cites the GENIUS Act (12 U.S.C. 5901 et seq.) as the authority for the
proposed rule and describes the purpose of the proposed rule as
implementing the Board's regulatory responsibilities under the Act.
Paragraph (b) would state the scope and affected entities of each
subpart of the proposed rule as follows: (1) subpart B implements
certain provisions in section 4 of the GENIUS Act (12 U.S.C. 5903),
which requires the Board to issue regulations applicable to Board-
supervised PPSIs; (2) subpart C implements section 10 of the GENIUS Act
(12 U.S.C. 5909), which imposes requirements on Board-supervised
persons seeking to provide custodial or safekeeping services for
payment stablecoin reserves, payment stablecoins used as collateral, or
the private keys used to issue payment stablecoins; (3) subpart D
implements section 5 of the GENIUS Act (12 U.S.C. 5904), which requires
the Board to establish applications procedures applicable to insured
State member banks seeking approval for a subsidiary to issue payment
stablecoins; \12\ (4) subpart E implements section 4(a)(8) of the
GENIUS Act (12 U.S.C. 5903(a)(8)), which imposes a tying prohibition on
all PPSIs, and applies that tying prohibition in a manner consistent
with section 4(a)(12)(B)(i)(III) of the Act (12 U.S.C.
5903(a)(12)(B)(i)(III)) to certain companies unanimously approved by
the Stablecoin Certification Review Committee under section 4(a)(12) of
the Act (12 U.S.C. 5903(a)(12)); and (5) subpart F implements rules
pertaining to State-qualified payment stablecoin issuers--specifically,
the Board's backup-enforcement authority during unusual and exigent
circumstances under section 7(e) of the GENIUS Act (12 U.S.C. 5906(e))
and the transition and waiver process for uninsured State-chartered
depository institutions under section 4(d) of the GENIUS Act (12 U.S.C.
5903(d)). These subparts are described in greater detail below.
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\12\ The Board is concurrently proposing regulations to
implement applications procedures for insured State member banks
seeking approval for a subsidiary to issue payment stablecoins.
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2. Definitions (proposed Sec. 247.2)
Proposed Sec. 247.2 contains the following definitions of terms
used throughout proposed part 247, many of which are included in or
based on the definitions in the GENIUS Act (12 U.S.C. 5901 et
seq.).\13\ Certain of these definitions are also proposed in
substantially the same form in the Board's concurrent notice of
proposed rulemaking regarding applications procedures for Board-
supervised insured depository institutions seeking approval for a
subsidiary to issue payment stablecoins.
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\13\ The definitions in proposed Sec. 247.2 describe only terms
used in proposed part 247. 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)).
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Affiliate. The Board is proposing to define the term ``affiliate''
consistent with the definition in the Bank Holding Company Act (BHC
Act), 12 U.S.C. 1841(k), and the Board's Regulation Y, 12 CFR 225.2(a),
but modified to use the defined term ``person'' in place of the term
``company.'' 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 Board believes the proposed definition of
affiliate would include the appropriate individuals and entities that
could be involved in payment stablecoin issuance.
Bank Secrecy Act. The Board is proposing to define the term ``Bank
Secrecy Act'' consistent with the definition provided in the GENIUS Act
(12 U.S.C. 5901(2)), with certain technical edits. Under the proposed
rule, 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 proposed rule would add the phrase ``and
notes thereto'' as a clarification.
Board. Under the proposed rule, ``Board'' would mean the Board of
Governors of the Federal Reserve System. This accords with the
definition of Board provided in the GENIUS Act (12 U.S.C. 5901(3)).
Board of directors. Under the proposed rule, ``board of directors''
would mean an entity's board of directors or the group of individuals
that serve the nearest equivalent function of acting as the governing
body of the entity. The proposed definition captures the persons
responsible for certain requirements under proposed part 247, including
for entities that do not have a board of directors as that term is
commonly understood. This definition is similar to the definition of
this term in 12 CFR 225.31(e)(1).
Board-supervised PPSI. Under the proposed rule, ``Board-supervised
PPSI'' would mean a PPSI supervised and regulated by the Board pursuant
to the GENIUS Act (12 U.S.C. 5901 et seq.). This term includes (i)
subsidiaries of insured State member banks that have been approved by
the Board to issue payment stablecoins and (ii) State-qualified PPSIs
that are uninsured State-chartered depository institutions that have
transitioned to the Board's regulatory framework under section 4(d) of
the GENIUS Act (12 U.S.C. 5903(d)) and proposed Sec. 247.51. This term
does not include PPSIs for which the Board has only enforcement
authority in unusual and exigent circumstances under section 7(e)(1) of
the Act (12 U.S.C. 5906(e)(1)) and proposed Sec. 247.50, or PPSIs
subject only to the Board's regulations implementing the tying
prohibition in section 4(a)(8) of the Act (12 U.S.C. 5903(a)(8)) and
subpart E of the proposed rule.
Control. The Board 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
[[Page 61583]]
Board 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 similar to the
definition in the BHC Act.
This approach is consistent with the statutory definitions in the
GENIUS Act. The GENIUS Act and Sec. 247.2 of the proposed rule define
the term ``subsidiary'' by reference to the definition of
``subsidiary'' in the Federal Deposit Insurance Act, which states that
a subsidiary includes any company which is owned or controlled directly
or indirectly by another company.\14\ In the Federal Deposit Insurance
Act, the term ``control'' is defined by reference to the BHC Act.\15\
The Board's Regulation Y sets out the Board's presumptions of control
and noncontrol under the controlling influence prong of the BHC Act
definition of ``control.'' \16\ The Board would interpret the term
``control'' in a manner that is consistent with the definition in the
Board's Regulation Y, 12 CFR 225.2(e).
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\14\ See 12 U.S.C. 5901(32) (``The term `subsidiary' has the
meaning given that term in [12 U.S.C. 1813].''); see also 12 U.S.C.
1813(w)(4).
\15\ 12 U.S.C. 1813(w)(5).
\16\ See 12 CFR part 225, subpart D.
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Covered shareholder. The Board is proposing to define the term
``covered shareholder'' to mean a person (i) who directly or indirectly
or acting in concert with one or more persons, or together with members
of their immediate family, will own, control, or hold the power to vote
25 percent or more of any class of voting securities of an entity; (ii)
who controls in any manner the election of a majority of the entity's
board of directors; or (iii) that the Board determines has the power,
directly or indirectly, to exercise a controlling influence over the
management or policies of an entity. A person is presumed to exercise a
controlling influence over the management or policies of an entity if
such person, directly or indirectly or acting in concert with one or
more persons, 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 of an entity. This definition is relevant to the
insider and affiliate transaction risk management standards. This
definition is derived from the definition of ``controlling
shareholder'' in the Board's Regulation Y, 12 CFR 225.2(n)(1), but
includes certain additional changes and a rebuttable presumption to
align with the definition of ``principal shareholder'' in Regulation O
(12 CFR part 215).
Customer. The Board 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 Board 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, any definition of ``United
States customer'' under the Act, or any requirement on foreign payment
stablecoin issuers under section 18(a)(3) of the Act.
Deposit. The Board is proposing to define the term ``deposit'' to
have the same meaning as deposit in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(l)).
Deposit liability. The Board is proposing to define the term
``deposit liability'' to mean the liability issued by an insured
depository institution (including an insured credit union) to a
depositor (or member) in respect of any amount standing to the credit
of a deposit account (or share account), which is a liability to a
depositor (or member) from the perspective of the insured depository
institution.
Depository institution. The Board is proposing to define the term
``depository institution'' to mean (1) any depository institution, as
that term is defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813(c)(1)) or (2) any credit union. The Board is proposing
this definition to improve clarity because, although the GENIUS Act
uses the term ``depository institution,'' it is not defined in section
2 of the Act (12 U.S.C. 5901). Section 11(g) of the Act (12 U.S.C.
5911(g)) does, however, refer to the Federal Deposit Insurance Act's
definition.\17\ The Board believes that incorporating this definition
will promote clarity and consistency. Under the Federal Deposit
Insurance Act, the term ``depository institution'' means any bank or
savings association, which are both defined terms under that statute,
and would be incorporated herein to determine whether an institution is
a depository institution for purposes of proposed part 247. The Board
is proposing to include a reference to credit unions consistent with
the approach that the GENIUS Act took with respect to the definition of
``insured depository institution,'' defined below, and which explicitly
includes insured credit unions.
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\17\ The proposed definition of ``depository institution'' for
purposes of part 247 would not affect the meaning of the term under
section 11(g) of the GENIUS Act (12 U.S.C. 5911(g)).
---------------------------------------------------------------------------
Digital asset. The Board is proposing to define the term ``digital
asset'' as provided in section 2(6) of the GENIUS Act (12 U.S.C.
5901(6)). Under the proposed rule, the term ``digital asset'' would
mean any digital representation of value that is recorded on a
cryptographically secured distributed ledger.
Director. The Board is proposing to define the term ``director''
for purposes of this proposed part to mean an individual who serves on
the board of directors of an entity, except an advisory director who
(1) is not elected by the shareholders of the entity, (2) does not have
the authority to vote on matters before the board of directors or any
committee of the board of directors, and (3) provides solely general
policy advice to the board of directors or any committee. This
definition largely aligns with that in 12 CFR 215.2(d). As described
above, to address the various organizational forms used by entities,
including those that do not have a traditional board of directors, the
Board is proposing to define the term ``board of directors'' in this
proposed part to include a group of individuals that serve the nearest
equivalent function of acting as the governing body of the entity.
Distributed ledger. The Board is proposing to define the term
``distributed ledger'' as provided in section 2(8) of the GENIUS Act
(12 U.S.C. 5901(8)), with certain technical edits. 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.
Eligible deposit claim. The Board is proposing to define the term
``eligible deposit claim'' to mean:
(1) the insured or uninsured claim of a PPSI against an insured
depository institution (including any foreign branches or agents,
including correspondent banks, of an insured depository institution)
other than an insured credit union in respect of any amount standing to
the credit of a deposit account and payable on demand, which is an
asset from the
[[Page 61584]]
perspective of the depositor, including a Board-supervised PPSI; and
(2) the insured claim of a PPSI against an insured credit union in
respect of any amount standing to the credit of a share account, which
is an asset from the perspective of the accountholder, including a
Board-supervised PPSI.
Fair value. The Board 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.\18\ Fair value is
used in proposed Sec. 247.11 in describing proposed reserve
requirements.
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\18\ See discussion of the definition of ``GAAP,'' infra.
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FDIC. The Board 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 (12 U.S.C. 5901(5)).
The Board 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.
GAAP. The Board 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
subpart B. The proposed definition of ``GAAP'' is the same as that in
12 CFR part 217.
GDP growth adjustment. The Board is proposing to define the term
``GDP growth adjustment'' to mean the most recent annual scalar
published by the Board equal to the greater of (1) the ratio of (i) the
average of nominal U.S. gross domestic product (GDP) in the three
calendar years prior to the publication of the scalar, as reflected by
the most current estimates published by the Bureau of Economic Analysis
on or before September 30th of the year of the publication of the
scalar, or a comparable value; to (ii) the average of nominal U.S. GDP
in the three calendar years prior to the effective date of a final
rule, as reflected by the most current estimates published by the
Bureau of Economic Analysis; or (2) the GDP growth adjustment published
by the Board the prior calendar year.
Immediate family. The Board 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 and is consistent with the definition in
Regulation O (12 CFR part 215).
Insider. The Board is proposing to define the term ``insider'' to
mean a covered shareholder, an executive officer, a director, or a
related interest of or the immediate family member of any of these
persons. This term is relevant to the risk management standards
concerning insider and affiliate transactions and is adapted from the
definition in Regulation O (12 CFR part 215). It has been adapted to
make direct reference to the immediate family of a covered shareholder,
executive officer, or director to mitigate the risk of an insider
engaging in inappropriate transactions to benefit immediate family
members.
Institution-affiliated party. The Board is proposing to define
``institution-affiliated party'' as provided in section 2(13) of the
GENIUS Act (12 U.S.C. 5901(13)). Thus, with respect to a PPSI, the term
``institution-affiliated party'' means any director, officer, employee,
or controlling stockholder of the PPSI. This definition is relevant to
the Board's enforcement actions pursuant to the GENIUS Act, including
but not limited to the Board's back-up enforcement authority over
State-qualified PPSIs in unusual and exigent circumstances, as proposed
in Sec. 247.50.
Insured depository institution. The Board is proposing to define
the term ``insured depository institution'' consistent with the
definition of the term in section 2(15) of the GENIUS Act (12 U.S.C.
5901(15)), with certain technical edits that combine the definition of
``insured depository institution'' with the definition of ``insured
credit union'' in section 2(14) of the GENIUS Act (12 U.S.C. 5901(14)).
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, as
defined in section 101 of the Federal Credit Union Act (12 U.S.C.
1752).
Insured State member bank. The Board is proposing to define the
term ``insured State member bank'' to mean a State member bank, the
deposits of which are insured by the FDIC.
Monetary value. The Board is proposing to define the term
``monetary value'' as provided in section 2(17) of the GENIUS Act (12
U.S.C. 5901(17)). The proposal would define ``monetary value'' to mean
a national currency or deposit (which, as discussed above, would have
the same meaning as in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813(l))) denominated in a national currency.
Money. Section 2(18) of the GENIUS Act (12 U.S.C. 5901(18)),
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. 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 Act
(12 U.S.C. 5903(a)(1)(A)(i) and (iv)). Section 4(a)(1)(A)(i) of the Act
(12 U.S.C. 5903(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) of the
Act (12 U.S.C. 5903(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 247, the Board 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 with respect to Board-supervised PPSIs.
Specifically, the Board proposes to define money for purposes of part
247 to mean monetary value and any other medium of exchange that the
Board 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. The Board expects that it would issue such public
determinations, to the extent appropriate, on its own volition or at
the request of an interested party.
Nonpublic personal information. The Board is proposing to define
the term
[[Page 61585]]
``nonpublic personal information'' to mean information (i) provided by
a customer to a Board-supervised PPSI to obtain a financial product or
service, (ii) about a customer resulting from any transaction involving
a financial product or service between the Board-supervised PPSI and a
customer, or (iii) otherwise obtained by the Board-supervised 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.
OCC. The Board is proposing to substitute the term ``OCC'' for the
term ``Comptroller'' as defined in section 2(4) of the GENIUS Act (12
U.S.C. 5901(4)). Under the proposed rule, the term ``OCC'' would be
defined to mean the Office of the Comptroller of the Currency.
Officer. The Board is proposing to define ``officer'' to mean the
president, chairman, chief executive officer, chief operating officer,
chief financial officer, chief investment officer, chief risk officer,
chief technology officer, and Bank Secrecy Act officer. The term would
include any individual serving in the functional capacity of the listed
titles or their equivalent, without regard to title, salary, or
compensation. The term ``officer'' also includes any other person
identified by the Board or appropriate Federal Reserve Bank, whether or
not hired as an employee, with significant influence over, or who
participates in, major policymaking decisions of the entity. This
definition is generally consistent with the definition of senior
executive officer in 12 CFR 225.71(c).
Outstanding issuance value. The Board is proposing to define the
term ``outstanding issuance value'' to mean the total consolidated par
value of all of a PPSI's outstanding payment stablecoins. This would
include the combined total par value of different brands of payment
stablecoins issued by the PPSI (e.g., under a white label arrangement)
to the extent that such an arrangement complies with proposed 12 CFR
part 247. 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 Board 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 a PPSI 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 a PPSI 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 remain payment stablecoins because the PPSI'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 a PPSI
repurchased a payment stablecoin but did not burn the payment
stablecoin, the stablecoin in the PPSI's inventory would not be part of
the PPSI's outstanding issuance value (but would become part of the
outstanding issuance value if the PPSI subsequently put the payment
stablecoin back into circulation). Therefore, the proposed definition
of ``outstanding issuance value'' only includes payment stablecoins for
which the PPSI is obligated to convert, redeem, or repurchase for a
fixed amount of monetary value (generally the issued payment
stablecoins in circulation).
The Board also considered whether the proposed ``outstanding
issuance value'' definition should include only those payment
stablecoins issued by a PPSI, or also the payment stablecoins issued by
the PPSI's non-consolidated affiliates.\19\ The Board determined that
it was appropriate to limit the proposed definition to include only the
payment stablecoins issued by a PPSI (and consolidated subsidiaries).
The Board believes that the proposed definition would scope in the
appropriate PPSIs to the relevant provisions regarding reserve
assets,\20\ the frequency of examinations,\21\ required audits,\22\
transition to the Federal regulatory framework,\23\ and minimum capital
requirements \24\ 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 a PPSI that issue payment stablecoins would separately
need to comply with the requirements of the Act.
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\19\ As noted above, the definition of ``outstanding issuance
value'' includes the consolidated value of issued payment
stablecoins.
\20\ See proposed Sec. 247.11.
\21\ See proposed Sec. 247.14.
\22\ See id.
\23\ See proposed Sec. 247.51(b)
\24\ See proposed Sec. Sec. 247.15-18.
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Payment stablecoin. The Board is proposing to define the term
``payment stablecoin'' consistent with the definition of the term in
section 2(22) of the GENIUS Act (12 U.S.C. 5901(22)). 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.\25\ For a
digital asset to be a payment stablecoin under proposed part 247, the
PPSI must be obligated to convert, redeem, or repurchase the digital
asset for a fixed amount of monetary value.
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\25\ The Board 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.
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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), except that, for the avoidance
of doubt, ``no bond, note, evidence of indebtedness, or investment
contract that was issued by a [PPSI] 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.''
Permitted payment stablecoin issuer or PPSI. The Board is proposing
to define the term ``permitted payment stablecoin issuer'' or ``PPSI''
as having the meaning set forth in section 2 of the GENIUS Act (12
U.S.C. 5901(23)). This term is used to refer to all PPSIs, not only
those supervised by the Board. This broader set of PPSIs is
particularly relevant to subpart E, which applies to
[[Page 61586]]
all PPSIs, but is also relevant to subpart C of part 247 and amendments
to the Board's Regulation Q (12 CFR part 217) and Regulation Y (12 CFR
part 225), discussed in sections II.F and II.G.3 of this SUPPLEMENTARY
INFORMATION, respectively. Defining this term by cross reference to the
GENIUS Act would ensure ongoing alignment between the regulatory and
statutory definitions.
Person. The Board is proposing to define the term ``person'' as the
term is defined in section 2(24) of 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.
Primary Federal payment stablecoin regulator. The Board is
proposing to define the term ``primary Federal payment stablecoin
regulator'' as that term is defined in section 2(25) of the GENIUS Act
(12 U.S.C. 5901(25)).
Principal shareholder. The Board is proposing to define the term
``principal shareholder'' to mean a person (i) who directly or
indirectly or acting in concert with one or more persons, 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 of
an entity; or (ii) any person that the Board determines has the power,
directly or indirectly, to exercise a controlling influence over the
management or policies of an entity. This definition is used in the
applications provisions in subpart D of the proposed rule, which the
Board is concurrently proposing. This definition is substantially
similar to the definition in the Interagency Biographical and Financial
Report--FR 2081c instructions and the Board's Regulation Y (12 CFR
225.2(n)(2)).
Private key. The Board is proposing to define the term ``private
key'' to mean the unique alphanumeric sequence 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.\26\
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\26\ Sharding refers to dividing a private key into distinct
pieces for enhanced security.
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Publicly available information. The Board 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.\27\
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\27\ As noted above, the term ``distributed ledger'' is limited
to publicly available and accessible ledgers.
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Registered public accounting firm. The Board is proposing to mirror
the definition of ``registered public accounting firm'' as provided in
section 2(26) of the GENIUS Act (12 U.S.C. 5901(26)). 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(12)).
Related interest. The term ``related interest'' is defined in
cross-reference to 12 CFR 215.2(n). At present, that term means (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.
Reserve asset. The Board is proposing to define the term ``reserve
asset'' to mean an asset maintained by a PPSI of a type enumerated in
proposed Sec. 247.11(b). A PPSI may maintain reserve assets as a
custodian.
Stablecoin Certification Review Committee. The Board is proposing
to define the term ``Stablecoin Certification Review Committee'' as
that term is defined in section 2(27) of the GENIUS Act (12 U.S.C.
5901(27)).
State. The Board is proposing to define the term ``State'' as
provided in section 2(28) of the GENIUS Act (12 U.S.C. 5901(28)).\28\
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\28\ United States territories are also referenced in the
proposed definition of ``foreign payment stablecoin issuers.'' The
GENIUS Act and this proposed part address the potential overlap
created by inclusion of territories in both definitions by defining
``foreign payment stablecoin issuers'' to exclude ``permitted
payment stablecoin issuers.'' Therefore, if a payment stablecoin
issuer is a ``permitted payment stablecoin issuer'' because it is a
``State-qualified payment stablecoin issuer'' that is legally
established under the laws of a territory of the United States then
by definition it cannot be a ``foreign payment stablecoin issuer.''
---------------------------------------------------------------------------
State-chartered depository institution. The Board is proposing to
define the term ``State-chartered depository institution'' as provided
in section 2(29) of the GENIUS Act (12 U.S.C. 5901(29)). Specifically,
the proposed rule would define the term ``State-chartered depository
institution'' as having the meaning as set forth for ``State depository
institution'' in section 3(c) of the Federal Deposit Insurance Act (12
U.S.C. 1813(c)(5)). This term is particularly relevant with respect to
the Board's jurisdiction over State-chartered depository institutions
that are PPSIs under sections 2(25)(C) and 4(d) of the Act (12 U.S.C
5901(25)(C) and 5903(d)).
State member bank. The Board is proposing to define the term
``State member bank'' to mean a State-chartered bank, as the term
``bank'' is defined in 12 U.S.C. 221, that has been approved for
membership in the Federal Reserve System. This term is similar to the
definition of ``State member bank'' as set forth in section 3(d) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(d)(2)).
State payment stablecoin regulator. The Board is proposing to
define the term ``State payment stablecoin regulator'' as provided in
section 2(30) of the GENIUS Act (12 U.S.C. 5901(30)). As such, the
Board is proposing to define ``State payment stablecoin regulator'' to
mean a State agency that has primary regulatory and supervisory
authority in such State over entities that issue payment stablecoins.
State-qualified payment stablecoin issuer or State-qualified PPSI.
The Board is proposing to define the term ``State-qualified payment
stablecoin issuer'' or ``State-qualified PPSI'' consistent with the
definition of that term in section 2(31) of the GENIUS Act (12 U.S.C.
5901(31)).
Subsidiary. The Board is proposing to define the term
``subsidiary'' as provided in section 2(32) of the GENIUS Act (12
U.S.C. 5901(32)). Specifically, the proposed rule would define the term
``subsidiary'' as having the meaning set forth in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)). Because the term
in section 3 of that Federal Deposit Insurance Act relies on the
definitions of ``control'' in section 2 of the BHC Act, the Board also
proposes to incorporate that definition in proposed part 247, as
discussed above.
Trading volume. The Board is proposing to define the term ``trading
volume'' to mean the aggregate number of payment stablecoins issued by
a PPSI that were purchased or sold on exchanges during a specified
period of time.
Voting securities. The Board is proposing to define the term
``voting securities'' by adopting by reference the definition provided
in 12 CFR 225.2.
Question 1: Are the definitions in the proposed rule appropriately
scoped? How should they be improved? [similar to OCC Question 1]
Question 2: Should the Board define ``acting in concert'' to
clarify the term ``principal shareholder'' and ``covered shareholder''?
For example, the Board could define the term ``acting in concert'' to
mean (i) knowing participation in a joint activity or
[[Page 61587]]
parallel action towards a common goal of acquiring control of an entity
whether or not pursuant to an express agreement; or (ii) when persons
are parties to any agreement, contract, understanding, relationship,
agreement, or other arrangement, whether written or otherwise,
regarding the acquisition, voting, or transfer of control of voting
securities of an entity, other than through a revocable proxy as
described in 12 CFR 225.42(a)(5). If the Board should define the term,
should the Board incorporate any of the presumptions for acting in
concert detailed in 12 CFR 225.41(d) and 238.31(d)? [similar to OCC
Question 2]
Question 3: The Board's Regulation Y provides a regulatory
framework for implementing the statutory definition of ``control.''
What, if any, clarifications to Board's control framework would be
appropriate to address issues specific to PPSIs and, in particular,
insured State member banks that seek approval for a subsidiary to issue
payment stablecoins? [similar to OCC Question 3]
Question 4: The term ``customer'' is broadly defined to mean a
person that purchases (through any consideration) the products or
services of another person. Is the scope of this definition too broad?
With respect to customers of Board-supervised PPSIs, should the
definition expressly include only persons with direct interactions with
a Board-supervised PPSI? Alternatively, should the definition include
all downstream payment stablecoin holders (i.e., not just customers
with direct interactions with the Board-supervised 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 nonpublic personal
information risk management standards in proposed Sec. 247.13(b)(5).
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? [similar to OCC Question 4]
Question 5: Section 2 of the GENIUS Act (12 U.S.C. 5901) does not
define ``depository institution.'' However section 2(15) of the Act
defines ``insured depository institution'' to include insured credit
unions (12 U.S.C. 5901(15)), and section 2(29) of the Act defines
``State-chartered depository institutions'' to exclude credit unions
(12 U.S.C. 5901(29)). Is the definition of ``depository institution''
in the proposed rule, which would include credit unions, sufficiently
clear? Are there particular types of institutions for which it would be
unclear whether the type of institution is a depository institution and
which agency is the primary Federal payment stablecoin regulator for
the type of institution? What additional clarifications would be
helpful? For purposes of the Board's authority under section 4(d) of
the GENIUS Act (12 U.S.C. 5903(d)) (proposed to be implemented in
proposed Sec. 247.51), should the Board consider such provisions to
apply to only State-chartered depository institutions that meet the
definition of ``State-chartered depository institution'' under the
GENIUS Act and proposed part 247? Alternatively, should the Board
consider such provisions to apply to any State-chartered institution
that is a ``depository institution'' under the proposed definition in
part 247, which would capture State-chartered credit unions that are
not federally insured? [similar to OCC Question 5]
Question 6: Is the scope of the term ``digital asset'' sufficiently
clear? If not, how should it be clarified? [similar to OCC Question 6]
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 Board further clarify these terms? Should the Board 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? [similar to OCC Question 7]
Question 8: Is the term ``director'' sufficiently clear? Is it
clear which types of persons may be excepted from the definition as
``advisory directors?'' How should the Board further clarify the term?
[similar to OCC Question 8]
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? [similar to OCC
Question 9]
Question 10: Is scope of the term ``immediate family'' sufficiently
clear? If not, how should it be clarified? What are the advantages or
disadvantages of referring to children (including adults) ``having
their domicile in'' the individual's home in addition to or instead of
referring to, as currently proposed, such persons ``residing in'' the
individual's home? What are the advantages or disadvantages of removing
this phrase entirely, and including in the term an individual's adult
children, regardless of their residence or domicile?
Question 11: Is the proposed definition of ``institution-affiliated
party,'' which restates the definition in section 2(13) of the GENIUS
Act (12 U.S.C. 5901(13)), sufficiently clear? Should the Board provide
additional clarification regarding the definition for purposes of its
enforcement authorities?
Question 12: Is the definition of ``money'' appropriately scoped?
Should the Board use the exact language of the statute, instead of
using the proposed definition? What indicators should the Board
consider when assessing whether instruments that are not ``monetary
value,'' as defined in proposed part 247, are ``money?'' [similar to
OCC Question 11]
Question 13: Is the term ``nonpublic personal information''
appropriately scoped? How could the term be further refined or
clarified? Should the term be defined to be more consistent with the
definition of ``nonpublic personal information'' in the Gramm-Leach-
Bliley Act (15 U.S.C. 6809(4)(A))? Should the term ``nonpublic personal
information'' be broadened to include any information provided by a
customer to a Board-supervised PPSI? [similar to OCC Question 12]
Question 14: The term ``outstanding issuance value'' refers to the
total consolidated par value of all of a PPSI's outstanding 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 the one-to-one requirement is met
across all affiliated entities? [similar to OCC Question 13]
Question 15: 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'' under the Act? Please describe the types of stablecoins
that the Board should clarify do not meet the definition of a ``payment
stablecoin'' under the Act and therefore would be outside the scope of
the Act's coverage. Should there be additional clarity around what it
means that a payment stablecoin is a digital asset
[[Page 61588]]
``that is, or is designed to be, used as a means of payment or
settlement?'' For example, are there certain settlement scenarios that
the Board should clarify are not ``designed to be, used as a means of
payment or settlement?'' [similar to OCC Question 14]
Question 16: Is the exclusion of a digital asset that ``is a
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'' from the definition of ``payment stablecoin''
sufficiently clear? Should the Board clarify which tokenized products
this exclusion may apply to? [similar to OCC Question 15]
Question 17: Section 2 of the GENIUS Act (12 U.S.C. 5901) does not
exclude insured shares from the definition of ``payment stablecoin.''
Should insured shares be excluded in the implementing regulations?
[similar to OCC Question 16]
Question 18: Are the terms ``Board-supervised PPSI'' and ``PPSI''
sufficiently clear, including the distinction between the terms? How
should either definition be amended to provide additional clarity
regarding the application of proposed part 247? [similar to OCC
Question 17]
Question 19: Is the term ``person'' sufficiently clear? Should the
Board further clarify the definition, including with respect to the
meaning of ``association'' or other components of the definition?
[similar to OCC Question 18]
Question 20: Is the term ``private key'' sufficiently clear? How
could the term be further clarified? Should the Board 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?
[similar to OCC Question 19]
Question 21: Should the definition of ``principal shareholder,''
``covered 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 Board should incorporate or instruments common to
partnerships that the Board should consider incorporating? [similar to
OCC Question 20]
Question 22: Is the term ``senior management'' as used in proposed
part 247 sufficiently clear? Should the Board define the term, for
example, to include all or a select subset of officers? [similar to OCC
Question 21]
Question 23: The GENIUS Act does not define ``payment stablecoin
holder.'' Should the Board define the term? If so, should the Board
define the term to mean the person that beneficially owns the payment
stablecoin? Should the Board instead define the term based on
possession via digital wallets or control of cryptographic keys? What
considerations relating to custody should the Board bear in mind if it
chooses to define the term? What interactions with other requirements
in the proposed rule should the Board consider if it chooses to define
the term? [similar to OCC Question 22]
Question 24: Should the Board 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 Board define ``exchange'' for purposes of this definition?
If so, should the Board 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? [similar to OCC Question 23]
Question 25: Should the Board define ``United States customer'' to
mean a customer that resides in the United States, as proposed, or use
a different definition? For example, should the definition be limited
to United States citizens, regardless of where they reside? Should it
be revised to include both citizens and residents of the United States?
Should the definition be limited to permanent residents of the United
States? Should the Board consider other regulatory definitions, like
the definitions of ``U.S. person'' under the SEC's Regulation S (17 CFR
230.902(k)) or CFTC's cross-border rules (17 CFR 23.23(a)(23))?
[similar to OCC Question 24]
3. Severability (Proposed Sec. 247.3)
Proposed Sec. 247.3 would provide that the provisions of this
proposed part 247 are separate and severable from one another. If any
provision is stayed or determined to be invalid, it is the Board's
intention that the remaining provisions shall continue in effect. If a
provision of the rule were found to be invalid, the Board anticipates
that it would evaluate whether any re-proposal of the rule is
appropriate. The Board 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 Board's regulations implementing the GENIUS Act pending any re-
proposal.
The Board 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 Board 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.
B. Subpart B--Rules Applicable to Board-Supervised Permitted Payment
Stablecoin Issuers
1. Permissible and Prohibited Activities (proposed Sec. 247.10)
a. Permissible Activities
Permitted Activities. Section 4(a)(7) of the GENIUS Act (12 U.S.C.
5903(a)(7)) sets forth the list of activities in which a PPSI may
engage. Additionally, section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)) outlines certain additional activities and investments in
which entities regulated by the Board, including Board-supervised
PPSIs, may engage.
Consistent with the statute, the Board is proposing to mirror the
permitted activities from section 4(a)(7)(A) of the GENIUS Act (12
U.S.C. 5903(a)(7)(A)) in proposed Sec. 247.10(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; \29\ and (4)
providing custodial or safekeeping services for payment stablecoins,
required reserves, or private keys of stablecoins consistent with the
GENIUS Act, as implemented in proposed subpart C. The permitted
activities would not include lending or issuing
[[Page 61589]]
payment stablecoins as the proceeds of a loan.
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\29\ For the avoidance of doubt, it is permissible for Board-
supervised PPSIs (i) to retain an asset manager in connection with
the activities specified in proposed Sec. 247.10(a)(3), and (ii) to
place funds in exchange for eligible deposit claims against an
insured depository institution, as that term is defined in proposed
Sec. 247.2. These activities are inherent in the activities
described in section 4(a)(7)(A) of the GENIUS Act (12 U.S.C.
5903(a)(7)(A)) and proposed Sec. 247.10(a)(3). See also 12 U.S.C.
5903(a)(7)(A)(v) and proposed Sec. 247.10(a)(7). Such activity is
also explicitly recognized in section 4(a)(1)(A)(ii) of the GENIUS
Act (12 U.S.C. 5903(a)(1)(A)(ii)).
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In addition to the activities outlined in section 4(a)(7) of the
GENIUS Act (12 U.S.C. 5903(a)(7)), for the sake of clarity, proposed
Sec. 247.10(a)(5) provides that Board-supervised PPSIs may assess fees
that are associated with purchasing or redeeming payment stablecoins.
This power is inherent in the activities described above and is
explicitly recognized in section 4(a)(1)(B)(ii) of the Act (12 U.S.C.
5903(a)(1)(B)(ii)).
The Board also proposes to include the permitted activities
identified in section 16(b) of the GENIUS Act (12 U.S.C. 5915(b)),
namely ``acting as principal or agent with respect to any payment
stablecoin and pay[ing] fees to facilitate customer transactions'' in
payment stablecoins.\30\ The Board notes that the scope of section
16(b) of the Act (12 U.S.C. 5915(b)) 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 . . .
.'' Accordingly, for Board-supervised PPSIs, ``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),
such as lending or issuing payment stablecoins as the proceeds of a
loan. Therefore, proposed Sec. 247.10(a)(6)(i) would implement this
statutory provision by stating that Board-supervised PPSIs may, in
connection with payment stablecoin activities and investments
contemplated by the GENIUS Act, act as principal or agent with respect
to any payment stablecoin. Under this provision, Board-supervised PPSIs
may hold and transact in payment stablecoins as principal or agent in
connection with permissible activities. Payment stablecoins are not,
however, a permitted reserve asset in proposed Sec. 247.11.\31\ To the
extent an entity, including a Board-supervised PPSI, is a ``digital
asset service provider,'' as defined in section 2(7) of the GENIUS Act
(12 U.S.C. 5901(7)), such entity must also comply with the prohibitions
outlined in section 3(b) of the GENIUS Act (12 U.S.C. 5902(b)), and any
regulations issued thereunder by the Department of the Treasury. For
avoidance of doubt, acting as a custodian is permissible as an agency
activity.
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\30\ Section 16(b) of the Act provides, ``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. The activities
authorized under section 16(b), as described in this section II.1.a
of the SUPPLEMENTARY INFORMATION, are also permissible for other
entities regulated by the Board, including State member banks,
uninsured State branches and State agencies of foreign banks, Edge
and agreement corporations, and depository institution holding
companies, as discussed in greater detail in section II.G of this
SUPPLEMENTARY INFORMATION.
\31\ See 12 U.S.C. 5903(a)(1) (setting forth permissible reserve
assets).
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Consistent with section 16(b) of the GENIUS Act (12 U.S.C.
5915(b)), proposed Sec. 247.10(a)(6)(ii) would allow Board-supervised
PPSIs to pay fees to facilitate customer transactions (e.g., network or
``gas'' fees). The Board recognizes that if a Board-supervised PPSI is
paying fees on certain distributed ledgers, the Board-supervised PPSI
may have to hold non-payment stablecoin digital assets to facilitate
the payment of these fees.\32\ If a Board-supervised PPSI's payment
stablecoin operates on a blockchain that assesses such fees, then the
Board-supervised PPSI may (i) pay fees to facilitate customer
transactions, and (ii) hold as principal non-payment stablecoin digital
assets necessary to pay such fees, provided that such principal
holdings shall not exceed quantities that are reasonably expected to
meet near-term demand for the payment of fees.
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\32\ Cf. OCC Interpretive Letter 1186 (November 18, 2025).
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Further, and consistent with section 16(b) of the GENIUS Act (12
U.S.C. 5915(b)), proposed Sec. 247.10(a)(6)(iii) would clarify the
authority of Board-supervised PPSIs to hold non-payment stablecoin
digital assets as principal necessary for testing a distributed
ledger.\33\ Proposed Sec. 247.10(a)(6)(iii) would provide that Board-
supervised PPSIs may, in connection with payment stablecoin activities
and investments contemplated by the GENIUS Act, (i) pay fees and
undertake other activities as necessary to conduct testing on
distributed ledger-based platforms and (ii) hold as principal non-
payment stablecoin digital assets necessary to pay such fees, provided
that such principal holdings shall not exceed quantities reasonably
expected to be necessary for near-term testing of a distributed ledger-
based platform. Consistent with the Act, such digital assets are not
permitted reserve assets in proposed Sec. 247.11.
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\33\ The holding of digital assets as principal to the extent
necessary to conduct testing of digital asset-related platforms is a
permissible activity for national banks, see OCC Interpretive Letter
1186 (November 18, 2025), and therefore also for State member banks,
provided it is permitted under applicable State law. 12 U.S.C. 330,
1831a. For the avoidance of doubt, the Board believes that Board-
supervised PPSIs also may hold non-payment stablecoin digital assets
as principal as an activity under the proposed Sec. 247.10(a)(7),
as an activity which directly supports any of the activities in
proposed Sec. 247.10(a)(1) through (4). Such an activity may be
necessary to ensure that the Board-supervised PPSI may operate
safely and effectively on a distributed ledger.
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Additionally, proposed Sec. 247.10(a)(7) provides that a Board-
supervised PPSI may undertake any other activities that directly
support any of the activities in proposed Sec. 247.10(a)(1) through
(4), which is explicitly provided for in section 4(a)(7)(A)(v) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(A)(v)). To the extent that Board-
supervised PPSIs are unclear about whether an activity qualifies as
activity that directly supports the activities in proposed Sec.
247.10(a)(1) through (a)(4), the Board encourages issuers to ask the
Board directly whether an activity is permissible.
Rule of Construction. Section 4(a)(7)(B) of the GENIUS Act (12
U.S.C. 5903(a)(7)(B)) contains a ``rule of construction'' stating that
``nothing in'' section 4(a) of the GENIUS Act (12 U.S.C. 5903(a)(7)(A))
``shall limit a [PPSI] from engaging in payment stablecoin activities
or digital asset service provider activities specified by [the GENIUS
Act], and activities incidental thereto, that are authorized by the
primary Federal payment stablecoin regulator or the State payment
stablecoin regulator, as applicable, consistent with all other Federal
and State laws, provided that the claims of payment stablecoin holders
rank senior to any potential claims of non-stablecoin creditors with
respect to the reserve assets, consistent with section 11 [of the
GENIUS Act].''
Section 4(a)(7)(B) of the Act (12 U.S.C. 5903(a)(7)(B)) states that
regulators may only approve additional activities to the extent
``consistent with all other Federal and State laws,'' without amending
such laws. For the avoidance of doubt, the Board interprets the phrase
``consistent with all other Federal or State laws'' in section
4(a)(7)(B) of the GENIUS Act to limit PPSIs to engaging under this
authority only in those payment stablecoin, digital asset service
provider, or incidental activities that are otherwise permitted under
the Federal and State laws applicable to the PPSI, including on the
basis of its charter or
[[Page 61590]]
affiliations.\34\ In contrast to section 4(a)(7)(A) of the Act (12
U.S.C. 5903(a)(7)(A)), which affirmatively lists permissible
activities, section 4(a)(7)(B) (12 U.S.C. 5903(a)(7)(B)) begins with
``nothing in subparagraph (A) shall limit . . . ,'' which indicates
that section 4(a)(7)(B) is being utilized to clarify or prevent
misinterpretation, rather than to grant new authority to conduct
activities.
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\34\ As a result of this interpretation, PPSIs that are part of
a bank holding company or a savings and loan holding company will,
regardless of their primary Federal or State payment stablecoin
regulator, generally be limited to conducting only those activities
permitted under the BHC Act or HOLA, as applicable.
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The Board interprets the reference to ``payment stablecoin
activities . . . specified by this Act'' in section 4(a)(7)(B) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(B)) to refer only to the activities
listed in the preceding paragraph, section 4(a)(7)(A) of the Act (12
U.S.C. 5903(a)(7)(A)). The Board interprets ``digital asset service
provider activities specified by this Act'' to refer only to the
activities listed in the definition of digital asset service provider
in section 2(7)(A) of the Act (12 U.S.C. 5901(7)(A)). Under section
4(a)(7)(B) of the Act (12 U.S.C. 5903(a)(7)(B)), permissibly authorized
activities may also include activities that are ``incidental'' to
payment stablecoin and digital asset service provider activities. Under
the GENIUS Act, PPSIs may not engage in activities that are
``incidental'' to any activities not listed in sections 2(7)(A) and
4(a)(7)(A) of the GENIUS Act (12 U.S.C. 5901(7)(A), 5903(a)(7)(A)). For
the avoidance of doubt, a Board-supervised PPSI may not engage in
activities incidental to those described in section 16(b) of the GENIUS
Act (12 U.S.C. 5915(b)) or proposed Sec. 247.10(a)(5) through (6).
Accordingly, pursuant to proposed Sec. 247.10(b), a Board-
supervised PPSI may conduct an activity that is outside the activities
listed in proposed Sec. 247.10(a) only if (i) the proposed activity is
(A) incidental to the activities specified in proposed Sec.
247.10(a)(1) through (4) and Sec. 247.10(a)(7), or (B) is a digital
asset service provider activity specified in section 2(7)(A) of the Act
(12 U.S.C. 5901(7)(A)) or activities incidental thereto; (ii) the
activity is permissible under applicable State and Federal laws; (iii)
the activity is expressly authorized by the Board; and (iv) the claims
of payment stablecoin holders rank senior to any potential claims of
non-stablecoin creditors with respect to the reserve assets, consistent
with section 11 of the GENIUS Act.\35\ As a result of prong (ii), a
Board-supervised PPSI that is a subsidiary of a insured State member
bank would only be authorized by the Board to conduct activities under
section 4(a)(7)(B) of the GENIUS Act (12 U.S.C. 5903(a)(7)(B)) if the
activity is permissible for a subsidiary of an insured State member
bank under (i) applicable State law and (ii) applicable Federal law,
including under section 24 of the Federal Deposit Insurance Act (12
U.S.C. 1831a).
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\35\ In evaluating whether to authorize activities under
proposed Sec. 247.10(b), the Board may consider, for example, the
extent to which claims of creditors that are not stablecoin holders
are subordinated to stablecoin holders' claims on stablecoin reserve
assets and other assets of the Board-supervised PPSI.
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In general, the Board expects that Board-supervised PPSIs will not
incur material liabilities other than payment stablecoin liabilities or
maintain significant assets other than those listed in proposed Sec.
247.11(b) without the Board's express, written permission. While Board-
supervised PPSIs are permitted to own other assets pursuant to proposed
Sec. 247.10(a)(6)(iv), and potentially also under proposed Sec.
247.10(a)(7) and (b), the Board generally expects these assets to be
limited in quantity relative to assets permitted under proposed Sec.
247.11(b). Under proposed subpart D of part 247, the Board will review
the business plan of a proposed Board-supervised PPSI, including its
projected assets and liabilities, prior to deciding on an application
from an insured State member bank for its subsidiary to issue payment
stablecoins. The Board expects to include a condition in any such
approval that the Board-supervised PPSI may not, without the prior
written approval of the Board, cause or permit any change in the
general character of its business following its approval under proposed
subpart D of part 247. A change in the general character of a Board-
supervised PPSI could include, for example, incurring any material
liabilities other than payment stablecoin liabilities, or significant
assets other than those listed in proposed Sec. 247.11(b) that were
not approved as part of the initial business plan.
Question 26: Are there activities not contemplated in the proposed
Sec. 247.10 that Board-supervised 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. [similar to OCC
Question 25]
Question 27: The SUPPLEMENTARY INFORMATION clarifies that it is
permissible for Board-supervised PPSIs to retain an asset manager in
connection with the activities specified in Sec. 247.10(a)(3). What
additional clarification, if any, would be necessary or beneficial
regarding the permissibility of such an arrangement? [similar to OCC
Question 26]
Question 28: Are there other limits or conditions the Board should
consider with respect to Board-supervised PPSIs acting as principal or
agent with respect to any payment stablecoin? Should the Board specify
the activities contemplated under the GENIUS Act for which a Board-
supervised PPSI may act as principal or agent in payment stablecoins
under section 16(b) of the Act (12 U.S.C. 5915(b))? [similar to OCC
Question 27]
Question 29: Do Board-supervised PPSIs need to hold digital assets
other than payment stablecoins for other purposes beyond paying fees or
testing a distributed ledger? If so, under what circumstances would a
Board-supervised PPSI need to hold such assets? [similar to OCC
Question 28]
Question 30: The proposed rule provides that a Board-supervised
PPSI may not hold non-payment stablecoin digital assets in a quantity
that exceeds what is reasonably expected to be necessary to meet near
term demand for the payment of fees or near-term testing of a
distributed ledger-based platform. What are the benefits and drawbacks
of codifying this limitation? Should the Board calibrate the limitation
differently, including by capping it to a percentage of assets or a
certain value threshold? [similar to OCC Questions 29 and 33]
Question 31: Should there be any limit on what methods of payment a
Board-supervised PPSI can accept when assessing fees, including fees
associated with the purchasing or redeeming of stablecoins? Should the
final rule include provisions addressing a Board-supervised PPSI's
potential assessment of fees in digital assets other than payment
stablecoins and how long Board-supervised PPSIs can hold onto such
digital assets? Are there specific forms of payment outside of fiat and
payment stablecoin that a Board-supervised PPSI will need to accept and
that the Board should provide additional clarity on? [similar to OCC
Question 30]
Question 32: Proposed Sec. 247.10(b) provides the Board's
interpretation of the rule of construction in section 4(a)(7)(B) of the
GENIUS Act (12 U.S.C. 5903(a)(7)(B)). Should the Board include an
approval process for such activities? Should the Board interpret the
phrase ``digital asset service provider activities specified by this
Act'' to include the
[[Page 61591]]
activities in section 2(7)(B) of the Act? What are the benefits and
drawbacks of such an interpretation? [similar to OCC Question 31]
Question 33: Should the Board clarify proposed Sec. 247.10(a)(7)
by providing further examples of activities that directly support the
activities in proposed Sec. 247.10(a)(1) through (4)? Are there
specific examples of activities that directly support the activities
listed in proposed Sec. 247.10(a)(1) through (4) that should be
clarified? Should the Board distinguish between what it means for an
activity to directly support the activities in proposed Sec.
247.10(a)(1) through (4), and therefore, satisfy the test in proposed
Sec. 247.10(a)(7), as opposed to what it means for an activity to be
incidental to payment stablecoin activities provided in Section
4(a)(7)(B) of the GENIUS Act (12 U.S.C. 5903(a)(7)(B))? [similar to OCC
Question 32]
Question 34: Should the Board explicitly provide that managing
foreign exchange risk is a permissible activity for any Board-
supervised PPSI that issues payment stablecoins that are denominated in
a national currency other than the U.S. dollar? If so, should the Board
include limitations on the activity (e.g., that the Board-supervised
PPSI may not over-hedge its position and may not use foreign exchange
risk management as a pretext to engage in speculation)? If the Board
permits this activity, what requirements should the Board impose to
mitigate risks? For example, should there be a capital add-on for
foreign exchange risk? [similar to OCC Question 34]
Question 35: Should the Board explicitly prohibit Board-supervised
PPSIs from incurring material liabilities other than stablecoin
liabilities, or maintaining significant assets other than assets
permitted under proposed Sec. 247.11(b)? Under what circumstances
might a Board-supervised PPSI incur material liabilities other than
stablecoin liabilities? Under what circumstances might a Board-
supervised PPSI maintain significant assets other than assets permitted
under proposed Sec. 247.11(b)? Should the Board require any Board-
supervised PPSI with material liabilities other than stablecoin
liabilities, or significant assets other than assets permitted under
proposed Sec. 247.11(b) to keep all of its reserve assets in a wholly
owned subsidiary with no liabilities of its own, the assets of which
secure stablecoin liabilities of the Board-supervised PPSI, as
discussed in section II.B.2.a of this SUPPLEMENTARY INFORMATION?
b. Prohibited Activities
The GENIUS Act also prohibits PPSIs from engaging in certain
activities under the prohibition on rehypothecation in section 4(a)(2)
(12 U.S.C. 5903(a)(2)), the prohibition on the use of deceptive names
in section 4(a)(9) (12 U.S.C. 5903(a)(9)), the prohibition against
misrepresenting insured status in section 4(e) (12 U.S.C. 5903(e)), and
the prohibition on paying remuneration in section 4(a)(11) (12 U.S.C.
5903(a)(11)).
Prohibition on the Use of Deceptive Names. In proposed Sec.
247.10(c)(1), the Board mirrors the prohibition on the use of a
deceptive name in section 4(a)(9) of the GENIUS Act (12 U.S.C.
5903(a)(9)). This provision prohibits a Board-supervised PPSI from
using any combination of terms relating to the U.S. 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.''
Prohibition on Deceptive Marketing of Payment Stablecoins.
Consistent with section 4(a)(9) of the GENIUS Act (12 U.S.C.
5903(a)(9)), proposed Sec. 247.10(c)(2) would prohibit Board-
supervised 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,
including the FDIC or NCUA. The Board recognizes that Board-supervised
PPSIs may want to market themselves as PPSIs regulated under the GENIUS
Act. Neither section 4(a)(9) of the Act nor proposed Sec. 247.10(c)(2)
would prohibit Board-supervised PPSIs marketing themselves in this
manner in connection with marketing their payment stablecoins or
stressing that their stablecoin liabilities are 100 percent or more
backed by reserve assets permitted by the GENIUS Act including very
short-term U.S. Government securities, if true. However, Board-
supervised PPSIs must ensure that they do not run afoul of the
prohibitions outlined in proposed Sec. 247.10(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, including the
FDIC or NCUA.\36\
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\36\ While proposed Sec. 247.10(c) only expressly addresses the
prohibitions set out in sections 4(a)(9) and 4(e)(2) of the GENIUS
Act, to the extent a Board-supervised PPSI markets any products
other than payment stablecoins, it shall also be subject to the
prohibition in section 4(e)(3) of the GENIUS Act, which provides
that it shall be unlawful to market a product in the United States
as a payment stablecoin unless it is issued pursuant to the GENIUS
Act.
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Prohibition on Deceptive Representations. Consistent with section
4(e) of the GENIUS Act (12 U.S.C. 5903(e)), proposed Sec. 247.10(c)(3)
would provide that a Board-supervised PPSI must not directly or through
implication represent that payment stablecoins are backed by the full
faith and credit of the United States, guaranteed by the U.S.
Government, or subject to Federal deposit insurance or Federal share
insurance. As stated above, Board-supervised PPSIs are, however,
permitted to represent that their payment stablecoins are 100 percent
or more backed by permissible reserve assets including very short-term
U.S. Government securities, if true.
With respect to all of the prohibitions discussed in proposed Sec.
247.10(c)(1)-(3), the Board notes that misrepresentations by a Board-
supervised PPSI cannot be cured by a general disclaimer and that
representations and disclosures should be clear to payment stablecoin
holders and customers.
Prohibition on Remuneration. Consistent with section 4(a)(11) of
the GENIUS Act (12 U.S.C. 5903(a)(11)), proposed Sec. 247.10(c)(4)
provides that Board-supervised 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 Board understands
that Board-supervised PPSIs 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 PPSIs
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 Board-supervised PPSIs and third parties
that the Board may prohibit under section 4(a)(11) of the GENIUS Act
and the Board's rulemaking authority under section 4(h) of the GENIUS
Act (12 U.S.C. 5903(h)),\37\ particularly as such arrangements may
evolve over time. On the other hand, a rule with only a
[[Page 61592]]
general prohibition on the payment of yield could create uncertainty
within the payment stablecoin market.
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\37\ Section 4(h) of the GENIUS Act (12 U.S.C. 5903(h)) provides
that the Board and other stablecoin regulators may issue regulations
to ``carry out the requirements of this section, including to
establish conditions, and to prevent evasion thereof'' (emphasis
added).
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To balance these interests, the Board is proposing to follow the
approach proposed by the OCC in its notice of proposed rulemaking on
implementing its responsibilities under the GENIUS Act \38\ and include
a presumption in proposed Sec. 247.10(c)(4)(i) that certain types of
arrangements with certain types of persons would be presumed to be
prohibited payments of yield or interest by the issuer. Specifically,
the Board would presume that a Board-supervised PPSI is paying interest
or yield (whether in cash, tokens, or other consideration) to the
holder of a payment stablecoin solely in connection with the holding,
use, or retention of such payment stablecoin if: (A) the Board-
supervised PPSI has a contract, agreement, or other arrangement with an
affiliate of the Board-supervised PPSI or a related third party to pay
interest or yield to the affiliate or related third party; and (B) the
affiliate \39\ or related third party (or affiliate of such related
third party) has a contract, agreement, or other arrangement to pay
interest or yield (whether in cash, tokens, or other consideration) to
a holder of any payment stablecoin issued by the Board-supervised 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 Board-supervised PPSI has a contract,
agreement, or other arrangement to pay interest or yield is a related
third party of the Board-supervised PPSI because the Board-supervised
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 Board-supervised 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 Board-supervised
PPSI).
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\38\ 91 FR 10202, 10212 (March 2, 2026).
\39\ A person would not be included within this second prong
solely because the person is an affiliate of an affiliate of the
Board-supervised PPSI.
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Related third parties would be defined to include a person offering
to pay interest or yield to payment stablecoin holders as a service
(i.e., on behalf of the Board-supervised PPSI) and any person that the
Board-supervised PPSI issues payment stablecoins on behalf or under the
branding of (i.e., persons that have entered white-label relationship
with the issuer). The Board believes that the close nexus to the Board-
supervised PPSI's payments and payments to the payment stablecoin
holder as well as the close contractual or control relationship between
the Board-supervised PPSI and the other party would make it highly
likely that the Board-supervised PPSI'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 Board would allow the Board-supervised PPSI to
rebut the presumption given the Board-supervised PPSI provides
sufficient evidence to the contrary. Specifically, a Board-supervised
PPSI may rebut the presumption by submitting written materials that, in
the Board's judgment, demonstrate that the contract, agreement, or
other arrangement is not prohibited under proposed Sec. 247.10(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 Board 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 a Board-
supervised PPSI from sharing in the profits derived from the payment
stablecoin with a non-affiliate partner in a white-label arrangement.
Prohibition on rehypothecation. In proposed Sec. 247.10(c)(5), the
Board proposes to include the language from section 4(a)(2) of the
GENIUS Act (12 U.S.C. 5903(a)(2)) that prohibits Board-supervised PPSIs
from pledging, rehypothecating, or reusing any reserve assets required
under section 4(a)(1) of the Act (12 U.S.C. 5903(a)(1)), except for the
purposes listed in section 4(a)(2) of the Act (12 U.S.C. 5903(a)(2)).
Thus, consistent with the statute, a Board-supervised PPSI may not
pledge, rehypothecate or reuse any assets held as reserves under
proposed Sec. 247.11(a)(1), 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. 247.11(b)(4) or
(5); (ii) satisfying obligations associated with the use, receipt, or
provision of standard custodial services; \40\ or (iii) creating
liquidity to meet reasonable expectations of requests to redeem payment
stablecoins, such that reserves in the form of Treasury bills may be
sold as purchased securities in repurchase agreements with a maturity
of 93 days or less, provided that either: (A) the repurchase agreements
are cleared by a clearing agency registered with the SEC; or (B) the
Board-supervised PPSI receives prior approval from the Board.
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\40\ The Board 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).
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By including the phrase ``directly or indirectly'' in the
prohibition, it is clear that Congress intended that a PPSI would be
prohibited from consenting to a custodian holding the reserves on
behalf of a PPSI to pledge, rehypothecate or reuse any of the reserve
assets, other than with respect to the limited exceptions discussed in
proposed Sec. 247.10(c)(5). To the extent that a PPSI consented to a
custodian holding the payment stablecoin reserves on behalf of the PPSI
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.
For the avoidance of doubt, the Board believes that the general
prohibition on rehypothecation in section 4(a)(2) of the Act (12 U.S.C.
5903(a)(2)) does not apply to reserve assets that are specifically
permitted under section 4(a)(1)(A)(iv)-(v) of the GENIUS Act (12 U.S.C.
5903(a)(1)(A)(iv)-(v)). Therefore, proposed Sec. 247.10(c)(5) does not
in any way constrain Board-supervised PPSIs from including as reserve
assets (i) money received from repurchase transactions described in
proposed Sec. 247.11(b)(4), or (ii) reverse repurchase agreements
described in proposed Sec. 247.11(b)(5).
Prohibition on evasive activity. Section 4(h)(1) of the GENIUS Act
(12 U.S.C. 5903(h)(1)) provides that the Board may issue regulations
``to carry out the requirements of this section . . . and to prevent
evasion thereof.'' In proposed Sec. 247.10(c)(6), consistent with this
statutory authority, the Board proposes language that provides that a
Board-supervised PPSI must not engage in any activity that the Board
determines is an evasion of the requirements of section 4 of the GENIUS
[[Page 61593]]
Act (12 U.S.C. 5903) or its implementing regulations.
Other prohibitions under consideration. The Board has considered
and is requesting comment on whether to prohibit a Board-supervised
PPSI from issuing more than one brand or series of payment stablecoin.
The Board recognizes that there are advantages and disadvantages
associated with permitting a Board-supervised 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 a PPSI and
facilitate a broader range of 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 Board has considered and is requesting comment on is to restrict
each Board-supervised PPSI to issuing only one brand of payment
stablecoin but to streamline the process for approving applications
from insured State member banks seeking approval for an additional
subsidiary to issue payment stablecoins, if it has previously received
approval from the Board for a different subsidiary to issue payment
stablecoins. Under this approach, multiple Board-supervised 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 a Board-supervised PPSI becomes insolvent.
Another alternative, as discussed in further in section II.B.2.a of
this SUPPLEMENTARY INFORMATION, would be to require each Board-
supervised PPSI that issues more than one brand of payment stablecoin
to hold the reserve assets backing each payment stablecoin in separate,
wholly owned subsidiaries, with the assets of each subsidiary securing
the issuance of the corresponding payment stablecoin. Under this
approach, each subsidiary would be prohibited from incurring any
liability of its own, thereby helping to ensure that the reserve assets
held in the subsidiary are effective security for the corresponding
payment stablecoin liabilities. The Board seeks comment on this
approach.
Question 36: Could the prohibition against paying remuneration
solely in connection with the holding or use of a 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 Board should provide on what de minimis means? [similar to
OCC Question 35]
Question 37: Does the presumption with respect to the prohibition
against paying remuneration solely in connection with the holding, use,
or retention of a payment stablecoin appropriately address concerns
relating to evasion? Is the presumption with respect to the prohibition
against paying remuneration solely in connection with the holding, use,
or retention of a payment stablecoin appropriately scoped? Is the
presumption sufficiently clear? How could the presumption be clarified?
Should the Board clarify the standard of review under which it would
consider written materials to rebut the presumption related to
remuneration and specify whether the Board's determination is
appealable? Should the Board propose any safe harbor for arrangements
that the Board believes do not violate the statutory prohibition?
[similar to OCC Question 36]
Question 38: Should the prohibition on remuneration in proposed
Sec. 247.10(c)(4) be broader to prevent Board-supervised PPSIs from
directly or indirectly paying remuneration 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 Board should
expressly include in a prohibition? If the Board were to expand the
prohibition, are there activities that should be expressly carved out
of such an expansion? [similar to OCC Question 37]
Question 39: Should the prohibition on interest and yield in
proposed Sec. 247.10(c)(4) clarify the terms ``pay,'' ``interest,''
``yield,'' ``solely,'' or any other terms? If so, what clarifications
would be helpful? Would specific examples of arrangements where the
consideration offered would not be considered ``interest'' or ``yield''
be helpful? [similar to OCC Question 38]
Question 40: What would the economic impact of a narrow prohibition
on paying remuneration 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 bank deposits?
[similar to OCC Question 39]
Question 41: Is the scope of the prohibition against pledging,
rehypothecating, or reusing reserve assets sufficiently clear? The
proposed rule states that the Board does not believe this general
prohibition on rehypothecation applies to reserve assets that are
specifically permitted under sections 4(a)(1)(A)(iv) and (v) of the
GENIUS Act (12 U.S.C. 5903(a)(1)(A)(iv) and (v)). Should the Board take
further steps to provide additional clarity on this point? Should the
Board instead follow the approach proposed by the OCC in section
15.10(c)(5) of its GENIUS Act notice of proposed rulemaking? \41\ 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 Board 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 Board-supervised
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 Board-supervised PPSI be required to make
particular disclosures if it uses such an arrangement? What should
those disclosures include? [similar to OCC Question 40]
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\41\ See 91 FR 10202 (March 2, 2026).
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Question 42: Should the Board specify what ``creating liquidity to
meet reasonable expectations of requests to redeem payment
stablecoins'' means under proposed Sec. 247.10(c)(5)(iii)? Should the
Board pre-approve Board-supervised PPSIs to engage in term repurchase
agreements during periods of market stress pursuant to proposed Sec.
247.10(c)(5)(iii) such that Board-supervised PPSIs can signal to
counterparties that they have access to an additional source of
liquidity? Alternatively, should the Board 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 Board consider prior to
granting approval of the sale of reserves as purchased securities in
repurchase agreements under proposed Sec. 247.10(c)(5)(iii)(B)?
[similar to OCC Question 41]
[[Page 61594]]
Question 43: Should Board-supervised 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 Board impose any requirements on the manner
in which disclosures are made? For example, should the Board require
that disclosures be made on the Board-supervised PPSI's website, at
point of direct sale by the issuer, alongside other types of
disclosures, or in some other manner? [similar to OCC Question 42]
Question 44: Is any further clarity needed regarding the
prohibition on the use of deceptive names, marketing, and
representations in proposed Sec. 247.10(c)(1) through (3)? For
example, should the Board specify what kind of images or branding are
likely to violate the prohibition? Should the Board require Board-
supervised PPSIs to affirmatively state that payment stablecoins are
not legal tender, issued by the United States, or guaranteed or
approved by the Government of the United States? Should the Board
explicitly require Board-supervised PPSIs to disclose that payment
stablecoins are not covered by deposit insurance or share insurance
even if they are partially backed by insured eligible deposit claims?
The proposal indicates that a Board-supervised PPSI may make
representations that its stablecoins are 100 percent or more backed by
reserve assets permitted by the GENIUS Act including very short-term
U.S. Government securities, if true. Should the Board provide
clarifications regarding other permissible statements? [similar to OCC
Question 43]
Question 45: Should the Board explicitly prohibit Board-supervised
PPSIs from issuing more than one type of stablecoin, for example
different brands or series of stablecoins? If the Board permits Board-
supervised PPSIs to issue more than one type of stablecoin, should it
require the Board-supervised PPSI to keep all of its reserve assets in
a wholly owned subsidiary with no liabilities of its own, the assets of
which secure a particular type of stablecoin liabilities of the Board-
supervised PPSI, as discussed in section II.B.2.a of this SUPPLEMENTARY
INFORMATION?
2. Reserve Assets (Proposed Sec. 247.11)
a. Reserve Requirement (Proposed Sec. 247.11(a))
Under section 4(a)(4)(A)(ii) of the Act (12 U.S.C.
5903(a)(4)(A)(ii)), the Board is responsible for ``issu[ing]
regulations implementing . . . the liquidity standard under section
4(a)(1) of the Act'' with respect to Board-supervised PPSIs. Section
4(a)(1)(A) of the Act (12 U.S.C. 5903(a)(1)(A)) 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. A Board-supervised
PPSI would not be in compliance with this requirement if it did not
maintain reserve assets sufficient to back outstanding payment
stablecoins of the Board-supervised PPSI on a one-to-one basis. A
Board-supervised PPSI may maintain reserve assets through a custodian,
including an affiliate acting as a custodian, provided that the
custodian is eligible to provide such services under, and is in
compliance with, section 10 of the GENIUS Act (12 U.S.C. 5909) and its
implementing regulations.
Proposed Sec. 247.11(a)(1) would require that Board-supervised
PPSIs maintain reserve assets that: (i) are identifiable; (ii) are
segregated from, are not commingled with other assets owned or held by
the Board-supervised PPSI, and are not available to satisfy the claims
of any creditor (other than through the redemption of payment
stablecoins) unless and until all payment stablecoins have been
redeemed at par; (iii) at all times have a total fair value that equals
or exceeds the outstanding issuance value of the Board-supervised PPSI;
and (iv) are held (A) in custody by a person that is eligible to
provide such services under, and is in compliance with, section 10 of
the Act (12 U.S.C. 5909), including any applicable implementing
regulations; (B) as an eligible deposit claim; (C) as money standing to
the credit of an account at a Federal Reserve Bank; or (D) by the
Board-supervised PPSI. With respect to prong (D), as discussed in more
detail below, the Board is proposing to allow Board-supervised PPSIs to
hold reserve assets directly or indirectly through a wholly owned
subsidiary of the Board-supervised PPSI that has no liabilities of its
own, the assets of which are pledged to secure the Board-supervised
PPSI's obligations on its payment stablecoins.
In order to maintain reserve assets that are ``identifiable'' and
comply with proposed Sec. 247.11(a)(1)(i), Board-supervised 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. The Board generally anticipates that
reserve assets will be recorded on the Board-supervised PPSI's balance
sheet under GAAP and be included in the quarterly reports required
under proposed Sec. 247.14(i) and on Consolidated Reports of Condition
and Income (Call Report) Schedule RC, Balance Sheet, for a parent State
member bank, as applicable. A Board-supervised PPSI must maintain the
appropriate operational capabilities, internal controls, policies, and
safeguards to ensure that its payment stablecoins are at all times
backed by reserves on an at least one-to-one basis.
Proposed paragraph Sec. 247.11(a)(ii) sets out a requirement that
a Board-supervised PPSI must maintain reserve assets that are
segregated from, are not commingled with other assets owned or held by
the Board-supervised PPSI, and are not available to satisfy the claims
of any creditor (other than through the redemption of payment
stablecoins) unless and until all payment stablecoins have been
redeemed at par. This requirement helps ensure that reserve assets are
only used to back outstanding payment stablecoins of a Board-supervised
PPSI and to satisfy redemption requests.
Proposed Sec. 247.11(a)(1)(iii) sets out a requirement that a
Board-supervised PPSI must, at all times, maintain reserve assets that
have a total fair value that equals or exceeds the outstanding issuance
value of the Board-supervised PPSI (one-to-one requirement). To comply
with this requirement, a Board-supervised PPSI must ensure that the
fair value of all reserve assets equals or exceeds the outstanding
issuance value at all times.\42\ Valuing reserve assets at fair value,
rather than another measure, such as amortized cost, will help ensure
that the reserve assets maintained by the Board-supervised 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 a Board-
supervised 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 Board-supervised 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 Board-
supervised PPSI is able to credibly meet
[[Page 61595]]
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 increase the risk that Board-
supervised PPSIs would be unable to redeem all of their payment
stablecoins at all times at par on demand, which may in turn exacerbate
run risk for a Board-supervised PPSI.
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\42\ The proposed rule defines ``fair value'' as ``fair value
determined under GAAP.'' GAAP determines ``fair value'' of United
States coins and currency to be their par value. Accordingly, United
States coins and currency will be valued at par.
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Proposed Sec. 247.11(a)(1)(iv) provides that reserve assets must
be held (A) in custody by a person that is eligible to provide such
services under, and is in compliance with, section 10 of the Act (12
U.S.C. 5909), including any applicable implementing regulations; (B) as
an eligible deposit claim; (C) as money standing to the credit of an
account at a Federal Reserve Bank; \43\ or (D) by the Board-supervised
PPSI. The Board generally expects that Board-supervised PPSIs will hold
reserve assets with an eligible custodian only after they have entered
into a custody agreement establishing the custodian's duties and
responsibilities in providing safekeeping and ancillary services to the
Board-supervised PPSI.
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\43\ Certain industry participants have raised questions
regarding the extent to which funds held in a parent insured
depository institution's Federal Reserve Bank account can qualify as
its PPSI subsidiary's reserve assets in the form of money standing
to the credit of a Federal Reserve Bank. For the avoidance of doubt,
balances held by a parent insured depository institution at a
Federal Reserve Bank are liabilities of the Federal Reserve Bank
solely to the parent insured depository institution acting in a
principal capacity and not to any subsidiary thereof. As explained
in the Board's recent request for comment on the proposal to
establish a special-purpose payment account, the Federal Reserve
Banks do not recognize third-party interests, including those of a
subsidiary for which an insured depository institution may be acting
in a trustee, fiduciary, or similar capacity, in Federal Reserve
Bank accounts. See 91 FR 30627, 30641, 30646 (May 26, 2026).
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With respect to prong (D) of proposed Sec. 247.11(a)(1)(iv), the
Board is proposing and seeking comment on an approach that would permit
a Board-supervised PPSI to hold reserve assets directly or indirectly
through a wholly owned subsidiary of the Board-supervised PPSI that has
no liabilities and is fully capitalized by the Board-supervised PPSI
(i.e., a special purpose vehicle). Under such a structure, the Board-
supervised PPSI would remain the issuer of payment stablecoins, and
such payment stablecoins would be reflected as liabilities on the
balance sheet of such Board-supervised PPSI. However, the payment
stablecoin liabilities of the Board-supervised PPSI would, pursuant to
appropriate legal agreements, be secured by the assets of the Board-
supervised PPSI's wholly owned subsidiary. This type of structure may
be attractive for a Board-supervised PPSI that issues more than one
kind of payment stablecoin, as the reserve assets backing each kind of
payment stablecoin could be clearly segregated in different
subsidiaries and therefore be easily identifiable with a particular
type of payment stablecoin. While the Board expects Board-supervised
PPSIs will generally not incur material liabilities other than payment
stablecoin liabilities, or maintain significant assets other than those
listed in proposed Sec. 247.11(b), this structure may be attractive
for a Board-supervised PPSI that receives the Board's permission to do
so. The use of a subsidiary to hold reserve assets in no way alters the
obligation of a Board-supervised PPSI to comply with all provisions of
the GENIUS Act and its implementing regulations, including those
relating to reserve assets and capital. The Board invites comment on
the legal and operational benefits and drawbacks of this approach.
To demonstrate compliance with the proposed one-to-one requirement,
proposed Sec. 247.11(a)(2) would require a Board-supervised PPSI to
record the fair value of reserve assets required under proposed Sec.
247.11(a)(1) at a minimum of once each calendar day at 5:00 p.m. in the
time zone of the Board-supervised PPSI's supervising Federal Reserve
Bank. This requirement represents the minimum frequency for
demonstrating compliance with the one-to-one requirement, but does not
modify the requirement to meet the one-to-one requirement at all times.
Depending on the circumstances, more frequent assessments of the
reserve assets' fair value may be necessary to demonstrate that the
one-to-one requirement is being met at all times. For example, if the
fair value of the reserve assets is only marginally above the
outstanding issuance value, a Board-supervised PPSI may need to re-
assess the fair value of reserve assets multiple times per day. A
Board-supervised PPSI should generally have systems that enable it to
conduct such monitoring. This approach provides some flexibility for
Board-supervised PPSIs to develop their own approach for demonstrating
compliance with the one-to-one requirement. A minimum demonstration of
compliance at 5:00 p.m. each day would prevent Board-supervised PPSIs
from choosing the time of day that might be most beneficial to their
demonstration.
Proposed Sec. 247.11(a)(3) would require that a Board-supervised
PPSI demonstrate the operational capability to access and monetize the
identifiable reserve assets, commensurate with the Board-supervised
PPSI's risk profile and business model. The Board-supervised 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 Board-
supervised PPSI to maintain the stable value of its payment
stablecoins.
To comply with proposed Sec. 247.11(a)(3), a Board-supervised PPSI
must be able to demonstrate the ability to monetize all types of
reserve assets that it maintains. In the case of reverse repurchase
agreements, monetization may happen automatically when the agreement
matures and the counterparty repurchases the collateral. Other types of
reserve assets may require additional demonstration of monetization
capacity. Depending on the Board-supervised PPSI's size, risk profile,
business model, activities, and operations, the Board-supervised PPSI
may be able to demonstrate monetization in different ways. For example,
smaller Board-supervised PPSIs may meet this requirement by
demonstrating established relationships with brokers to sell reserve
assets. In some cases, additional measures, such as preparations to
execute repurchase agreements on short notice, may be appropriate. Such
arrangements may be necessary if a Board-supervised PPSI maintains a
large position in U.S. Treasury securities that could be difficult to
monetize in its entirety without causing adverse market movements,
which should be rare since the maximum term of such securities would be
93 days (as required by the GENIUS Act), or if a Board-supervised PPSI
maintains concentrated positions in other types of reserve assets. The
availability of multiple monetization channels helps ensure that a
Board-supervised PPSI is not required to monetize assets at reduced or
``fire sale'' prices.
Proposed Sec. 247.11(a)(4) would include requirements for when
Board-supervised PPSIs could withdraw excess reserve assets when the
total fair value of all reserve assets exceeds outstanding issuance
value. Board-supervised PPSIs would be permitted to withdraw excess
reserve assets only once per month upon the publication of the
composition report required by section 4(a)(3) of the GENIUS Act (12
U.S.C. 5903(a)(3)) and provided for in proposed Sec. 247.11(d).
Specifically, Board-supervised PPSIs would be able to withdraw any
reserve assets in excess of the amount needed for the total fair value
of reserve assets to equal the outstanding issuance value, calculated
and reported as of the last day of the
[[Page 61596]]
previous month, after the information in the month-end report is
examined and certified pursuant to proposed Sec. 247.11(e). Permitting
a Board-supervised PPSI to withdraw surplus reserve assets only 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 could undermine public
confidence in the sufficiency of a Board-supervised PPSI's reserve
assets. If Board-supervised PPSIs were able to withdraw excess reserve
assets at any time, based only upon their own internal calculations,
that could undermine public confidence in the value of reserve assets
between public reports and even create concerns about misconduct; for
example, it could give rise to a concern that a Board-supervised PPSI
might make a bad faith or unvalidated determination that an excess
existed in order to justify a withdrawal. Proposed Sec. 247.11(a)(4)
would also require that, while withdrawals would be based on
calculations at the end of the previous month, a Board-supervised PPSI
could only make withdrawals if the remaining reserve assets had a
current total fair value at least equal to the current outstanding
issuance value, calculated as of the day of withdrawal.
Question 46: The Board seeks comment on all aspects of the proposed
monetization requirement in proposed Sec. 247.11(a)(3). What would be
the advantages and disadvantages of requiring Board-supervised PPSIs to
conduct actual sales or repurchase agreements in reserve assets to
demonstrate their monetization capabilities? Given the highly liquid
markets for reserve assets allowed by the GENIUS Act, how useful is the
monetization requirement? Under what circumstances, if any, would
Board-supervised PPSIs be unable to monetize reserve assets (e.g.,
Treasury bills) to meet redemptions within a time frame of two days?
How frequently could those circumstances occur?
Question 47: The Board seeks comment on the use of ``fair value''
for valuing reserve assets. Given the types of assets that qualify as
reserve assets, would another valuation measure such as ``fair market
value'' be more appropriate and help ensure that the reserve assets
reflect current market prices? What would be the advantages or
disadvantages of using another valuation measure such as fair market
value?
Question 48: The Board seeks comment on the requirement in proposed
Sec. 247.11(a)(2) that Board-supervised PPSIs record the fair value of
reserve assets at a minimum once each calendar day at 5:00 p.m. in the
time zone of the Board-supervised PPSI's supervising Federal Reserve
Bank. Is this requirement sufficient to ensure compliance with the one-
to-one requirement at all times? As an alternative, the Board
considered requiring real-time monitoring of the fair value of reserve
assets. Would real-time monitoring be feasible? What would be the
advantages or the disadvantages associated with such a requirement?
What alternative approaches to ensuring that Board-supervised PPSIs are
meeting the one-to-one requirement at all times can the Board adopt?
What would be the advantages or disadvantages of such approaches?
Question 49: Should the Board allow Board-supervised PPSIs to use
wholly owned subsidiaries to hold reserve assets and secure stablecoin
liabilities, provided that each such subsidiary would have no
liabilities of its own (a special purpose vehicle or ``SPV'')? What are
the legal and operational implications of this approach? What are the
benefits and drawbacks the SPV structure? What legal mechanisms might
be employed to ensure the assets of the SPV serve as security for the
payment stablecoin liabilities of the Board-supervised PPSI and
effectively subordinate other creditors of the Board-supervised PPSI
with respect to reserve assets backing the payment stablecoins?
Question 50: The proposed rule would require a Board-supervised
PPSI to maintain reserve assets, the fair value of which must equal or
exceed the outstanding issuance value at all times. Should the Board
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? [similar to OCC
question 56]
Question 51: Should the final rule include additional risk
management or other requirements beyond those proposed to protect
reserve assets against fraud or misuse? Proposed Sec. 247.11(a)(4)
provides that a Board-supervised PPSI may withdraw any reserve assets
in excess of the amount needed for the total fair value of reserve
assets to equal the outstanding issuance value, calculated and reported
as of the last day of the previous month, after the publication and
certification of the monthly composition report. Should the final rule
include additional guardrails to ensure that customer funds provided to
a Board-supervised PPSI for purposes of acquiring payment stablecoins
are secure against fraud or other threats? For example, the proposed
rule could clarify that customer funds become reserve assets as soon as
they are provided to the Board-supervised PPSI for purposes of
acquiring payment stablecoins--and are therefore subject to the
protections afforded to reserve assets. Additionally, proposed Sec.
247.11(a)(1)(i) requires that reserve assets be ``identifiable.''
Should the final rule also clarify that the requirement that reserve
assets be ``identifiable'' includes the requirement that any income,
interest, or other proceeds generated by reserve assets remain
``identified'' as reserve assets until a Board-supervised PPSI claims
any excess pursuant to the process required by proposed Sec.
247.11(a)(4)? For example, if a Board-supervised PPSI invests $100 of
reserve assets in a 90-day Treasury bill that yields $101 upon
maturity, should the entirety of the $101 proceeds remain
``identified'' as a reserve asset? Or should the requirements in
proposed Sec. 247.11(a)(4) for claiming excess reserve assets only
apply to principal, not income? In this example, the Board-supervised
PPSI would be required to identify $100 of the proceeds as a reserve
asset while it would not be required to identify the $1 in interest as
a reserve asset. Should proposed Sec. 247.13 (risk management) include
additional requirements around making sure reserve assets are
``identifiable''? For example, proposed Sec. 247.13 could include a
requirement that Board-supervised PPSIs must maintain appropriate
controls and systems necessary to ensure that reserve assets can be
traced and identified at all times.
Question 52: Should the final rule include other requirements
related to securing reserve assets? Proposed Sec. 247.11(a)(1)(iv)
would require that a Board-supervised PPSI maintain reserve assets that
are held in custody by certain persons or by the Board-supervised PPSI.
Should the final rule include additional requirements for such persons
or Board-supervised PPSIs holding or managing reserve assets, for
example, requiring that Board-supervised PPSIs verify that persons
holding reserve assets have appropriate capabilities, safeguards,
systems to secure reserve assets, including against fraud? Should
proposed Sec. 247.11 include other protections to secure reserve
assets, for example, a limitation on Board-supervised PPSIs charging
fees for the management or trading of its own reserve assets--or an
outright prohibition against such fees? Should
[[Page 61597]]
proposed Sec. 247.11 include requirements around disclosure of fees,
for example, that fees must be disclosed prominently to new and
existing payment stablecoin holders, or prohibitions against fees that
are excessive or out of line with prevailing market terms?
b. Permissible Reserve Assets (Proposed Sec. 247.11(b))
Under proposed Sec. 247.11(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) eligible deposit claims subject to any limitation established
by the FDIC and NCUA, as applicable, pursuant to section 4(a)(1)(A)(ii)
of the GENIUS Act (12 U.S.C. 5903(a)(1)(A)(ii)) to address safety and
soundness risks of such insured depository institution; \44\ (3)
Treasury bills, Treasury notes, or Treasury bonds with a remaining
maturity of 93 days or less; \45\ (4) money received under repurchase
agreements, with the Board-supervised 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; \46\ (5)
reverse repurchase agreements, with the Board-supervised 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,\47\ subject to
overcollateralization in line with standard market terms, that are: (i)
tri-party; (ii) centrally cleared through a clearing agency registered
with the SEC; 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 (15
U.S.C. 80a-8(a)), or other registered Government money market fund, and
that are invested solely in underlying assets described in proposed
Sec. 247.11(b)(1) through (5); \48\ (7) any other similarly liquid
Federal Government-issued asset approved by the Board, in consultation
with the State payment stablecoin regulator, if applicable, of the
PPSI; or (8) any reserve described in proposed Sec. 247.11(b)(1)
through (3), (6), or (7), in tokenized form, provided that such
tokenized asset (i) confers legal rights that are identical to those of
the non-tokenized form of the same asset, and (ii) is in compliance
with all applicable laws and regulations.
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\44\ For the avoidance of doubt, an uninsured U.S. branch or
agency of a foreign bank is not an ``insured depository
institution'' for purposes of the GENIUS Act, but insured U.S.
branches and agencies of foreign banks would be.
\45\ 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. 247.11. Board-supervised PPSIs may
choose to categorize these assets separately for other reasons, for
example accounting or risk management purposes. For clarification,
the 93-day maturity limit is measured from the settlement date to
the stated final maturity.
\46\ 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 Board 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.
\47\ For clarity, deposits and cash may serve as additional
permitted collateral in the repurchase and reverse repurchase
agreements described in this provision.
\48\ 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.
---------------------------------------------------------------------------
In determining whether a potential reserve asset qualifies as ``any
other similarly liquid Federal Government-issued asset,'' under
proposed Sec. 247.11(b)(7) the Board 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. 247.11(b); (ii) Board-supervised
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. 247.11(b), including interest rate risk and counterparty
credit risk; and (iv) whether the asset introduces additional risks
that may be difficult for Board-supervised PPSIs to manage. Only assets
that are actually issued by the Federal government (i.e., the U.S.
Department of the Treasury and other agencies of the federal
government), and are not merely guaranteed by the Federal government,
may qualify as a potential ``similarly liquid Federal Government-issued
asset.''
An asset exists in ``tokenized form'' under proposed Sec.
247.11(b)(8) when the asset's ownership rights are represented on a
blockchain or some other form of distributed ledger technology. Thus, a
tokenized asset only qualifies as a permissible reserve asset under
proposed Sec. 247.11(b)(8) if the tokenized asset confers legal rights
that are identical to those of the non-tokenized form of the
permissible asset.\49\ A tokenized asset that does not meet this
standard could have a lower value than the non-tokenized permissible
asset, which could, depending on the difference in value, undermine the
Board-supervised PPSI's compliance with the one-to-one requirement.
---------------------------------------------------------------------------
\49\ This approach is consistent with the Interagency FAQ on
tokenized securities. See Board of Governors of the Federal Reserve
System, ``Capital Treatment of Tokenized Securities Frequently Asked
Questions'' (updated March 5, 2026), available at <a href="https://www.federalreserve.gov/supervisionreg/capital-treatment-of-tokenized-securities-faqs.htm">https://www.federalreserve.gov/supervisionreg/capital-treatment-of-tokenized-securities-faqs.htm</a>.
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Because market practices around tokenization are not firmly
established, it may be difficult to determine whether a tokenized asset
confers legal rights that are materially the same as those conferred by
a non-tokenized permissible reserve asset. The Board encourages any
Board-supervised PPSI that seeks clarity on whether a specific
tokenized asset qualifies as a permissible reserve asset under proposed
Sec. 247.11(b)(8) to seek an opinion from competent counsel or the
Board as to whether the asset qualifies. To the extent feasible, the
Board is considering publishing a list of, or otherwise making public,
a nonexclusive list of tokenized reserve assets that satisfy this
standard.
Question 53: Section 4(a)(1)(A)(vi) of the Act (12 U.S.C.
5903(a)(1)(A)(vi)) includes ``securities issued by an investment
company registered under section 8(a) of the Investment Company Act of
1940 (15 U.S.C. 80a-8(a)), 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) of the Act (12
U.S.C. 5903(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
[[Page 61598]]
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) of the Act 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 Board-supervised PPSIs? [similar to OCC
question 44]
Question 54: Should there be further clarifications on the
provisions relating to repurchase agreements and reverse repurchase
agreements? For example, should the Board include limitations with
respect to the use of eligible deposit claims as collateral? If so,
what limitations? [similar to OCC question 45]
Question 55: Is the term ``eligible deposit claims'' sufficiently
clear? If not, how should the Board clarify the term (i.e., what types
of accounts should expressly be included within the term)? Should the
Board expand the definition of ``eligible deposit claims'' to include
uninsured claims of a PPSI against an insured credit union in respect
of any amount standing to the credit of a share account, which is an
asset from the perspective of the accountholder, including a Board-
supervised PPSI (consistent with the NCUA's GENIUS Act notice of
proposed rulemaking)? [similar to OCC question 48]
Question 56: Is the proposed rule sufficiently clear regarding what
constitutes a ``reserve in tokenized form?'' What modifications to this
definition or the rule's related terminology would enhance clarity?
[similar to OCC question 49]
Question 57: Should the Board provide additional detail on what
securities could be in scope for ``any other similarly liquid Federal
Government-issued asset'' under Sec. 247.11(b)(7)? For example, should
Treasury securities with a remaining maturity of two years or less be
permitted under Sec. 247.11(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 Board were to permit two-year
Treasury securities to be used as reserve assets, should the Board
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 eligible deposit claims or minimum number of
depository institutions holding the Board-supervised PPSI's reserve
assets) for Board-supervised PPSIs that hold Treasury securities with a
remaining maturity between 94 days and two years? [similar to OCC
question 51]
Question 58: Should the final rule clarify that Treasury Floating
Rate Notes (FRNs) and Treasury Inflation-Protected Securities may 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 be included? Are there other instruments that should be
considered as included within the GENIUS Act's phrase ``Treasury bills,
notes, or bonds'' (12 U.S.C. 5903(a)(1)(A)(iii))? 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? [similar to OCC question 52]
Question 59: The proposed rule would, consistent with the GENIUS
Act, allow as reserve assets funds held as eligible deposit claims,
which are defined in part as claims of a Board-supervised PPSI against
an insured depository institution (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 eligible deposit
claims against a U.S.-based insured depository institution (i.e.,
reserve assets could not include eligible deposit claims against
insured depository institutions outside the United States)? Should the
Board 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? [similar to OCC question 54]
Question 60: Should the Board develop a formal process to consider
and approve Federal Government-issued assets under proposed Sec.
247.11(b)(7)? Should the Board allow Board-supervised PPSIs or other
parties to request that the Board consider a specific type of Federal
Government-issued asset? Should any determinations on additional
Federal Government-issued assets approved under this authority be made
public? [similar to OCC question 55]
Question 61: Should the final rule include special measures to
ensure that reverse repurchase agreements are ``overcollateralized in
line with standard market terms?'' Proposed Sec. 247.11(b)(5) would
permit the inclusion, as reserve assets, of reverse repurchase
agreements ``subject to overcollateralization in line with standard
market terms.'' As one possibility, the final rule could include no
special measures, and the examination and supervision process could be
used to evaluate if a particular Board-supervised PPSI fails to
overcollateralize their reverse repurchase agreements in line with
standard market terms. As another possibility, the final rule could
include more express requirements--for example, that
overcollateralization haircuts cannot be less than 0.5 percent.
[similar to OCC question 80]
c. Reserve Asset Diversification and Concentration (Proposed Sec.
247.11(c)-(d))
Section 4(a)(4)(A)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iii)) requires the Board to ``issue regulations
implementing . . . reserve asset diversification, including deposit
concentration at banking institutions, and interest rate risk
management standards applicable to [Board-supervised PPSIs] that--(I)
are tailored to the business model and risk profile of [Board-
supervised PPSIs] and (II) do not exceed standards that are sufficient
to ensure the ongoing operations of [Board-supervised PPSIs].'' The
Board is proposing to take a principles-based approach to reserve asset
diversification regulations. The Board generally believes that Board-
supervised PPSIs should maintain reserve assets consisting
predominantly of U.S. Treasury securities. The proposal would require a
Board-supervised PPSI to maintain reserve assets that are sufficiently
diverse to ensure that it can comply with the one-to-one requirement at
all times, including under stress. Among other actions, a Board-
supervised PPSI must mitigate concentration risks that could arise
from: (i) uninsured eligible deposit claims against one or a small
number of insured depository institutions, including any foreign
branches or agents (including correspondent banks) of an insured
depository institution; and (ii) reverse repurchase transaction
exposures to one or a small number of counterparties and their
affiliates, excluding designated financial market utilities.
[[Page 61599]]
A Board-supervised PPSI that maintains a portion of its reserve
assets as uninsured eligible deposit claims faces risk of default from
the insured depository institution(s) that issued the deposit
liabilities. A Board-supervised PPSI similarly faces risk from reverse
repurchase agreement counterparties defaulting on their repurchase
obligations. Diversifying these counterparties, consistent with
proposed Sec. 247.11(c), can help reduce the impact of any individual
counterparty's stress or failure on the value of the Board-supervised
PPSI's reserve assets and support the Board-supervised PPSI's ability
to meet the one-to-one requirement. Under the proposal, the
diversification requirements would not apply to designated financial
market utilities, given the central role they play in the clearing of
reverse repurchase agreements involving Treasury securities and recent
efforts to promote the clearing of such transactions.
The Board also recognizes that a Board-supervised PPSI may
temporarily increase the concentration in uninsured eligible deposit
claims against a particular insured depository institution in
connection with the (i) liquidation of other reserve assets to satisfy
actual redemption requests; or (ii) receipt of funds in connection with
issuance requests. The Board acknowledges that the risk from such
concentrations would be minimal because of the temporary nature of the
holdings, and a Board-supervised PPSI may temporarily increase its
credit exposure to a particular insured depository institution or its
concentration in uninsured eligible deposit claims for these purposes.
While various prescriptive reserve asset diversification
requirements were considered, the Board is not proposing such
prescriptive requirements at this time given the potential for diverse
risk and activities profiles across Board-supervised PPSIs. However,
the Board requests comment on whether prescriptive requirements would
be more appropriate and, if so, how such a requirement should be
calibrated.
For example, while there are similarities between stablecoin
issuers and money market funds, the proposal would not establish a
requirement based on daily or weekly asset maturities similar to those
established for money market funds under 17 CFR 270.2a-7. Permissible
reserve assets under the Act are transacted in highly liquid markets,
which can support intraday or next-day settlement. For example, Board-
supervised PPSIs may monetize Treasury securities with overnight
repurchase agreements, allow overnight reverse repurchase agreements to
mature, or obtain cash the same day by selling Treasury securities.
Treasury bills have maintained their highly liquid status during
previous episodes of stress.\50\ Thus, the reserve asset limitations
imposed by the GENIUS Act are already sufficient to provide assurance
that Board-supervised PPSIs will be able to meet their redemption
obligations within the two day time frame as required under the
proposal, as discussed more in section II.B.3 of this SUPPLEMENTARY
INFORMATION. For similar reasons, the Board is not proposing to require
that a minimum amount of reserve assets be held as eligible deposit
claims.
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\50\ See Scott Davis, ``Treasuries' allure as safe haven noted
in short maturities, not in long bonds,'' Dallas Fed Economics (June
27, 2023), available at <a href="https://www.dallasfed.org/research/economics/2023/0627">https://www.dallasfed.org/research/economics/2023/0627</a>.
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Question 62: The SUPPLEMENTARY INFORMATION indicates that the Board
generally believes that Board-supervised PPSIs should maintain reserve
assets consisting predominantly of U.S. Treasury securities. What are
the advantages and disadvantages of the Board retaining this language
when finalizing Regulation UU?
Question 63: What would be the advantages and disadvantages if the
final rule were to require a buffer or impose haircuts on certain
reserve assets to ensure that reserve asset values do not fall below
outstanding issuance values? What would be the appropriate buffers or
haircuts, and how could such buffers or haircuts be determined (e.g.,
price volatility in stress or price changes given movements in interest
rates). Section 4(a)(1)(A) of the GENIUS Act (12 U.S.C. 5903(a)(1)(A))
requires PPSIs to maintain identifiable reserves ``on an at least [one-
to-one] basis.'' What measures should the final rule include to ensure
that Board-supervised PPSIs are able to maintain this minimum? Without
a buffer or other measures, the fair value of a Board-supervised PPSI's
reserve assets could fall below the required minimum if there are, for
example, sudden increases in interest rates. What other requirements,
such as an explicit requirement to diversify reserves to manage
interest rate risk, should the Board consider to help ensure a Board-
supervised PPSI's reserve assets do not fall below the one-to-one
requirement? For example, the proposed rule could require Board-
supervised PPSIs to maintain a buffer of one percent of assets or hold
an amount of reserve assets sufficient to stay above the outstanding
issuance value in light of risks facing the Board-supervised PPSI,
including interest rate risk and risks associated with the capability
to access and monetize reserve assets. Are there other considerations
the Board should take into account if it chooses to calibrate such a
buffer? As an alternative to requiring such a buffer, what type of
guidance could the Board provide on the level of buffer that would
generally be appropriate as a matter of prudent risk management?
[similar to OCC question 46]
Question 64: What type of limits or haircuts on permissible reserve
assets denominated in a national currency other than the U.S. dollar,
if any, should the Board consider in the final rule? If the Board
imposed such limits or haircuts, what factors should the Board consider
in calibrating the limits or haircuts, such as the management of
foreign exchange risk? What would be an appropriate level of any such
limit or haircut to ensure reserve asset values do not fall below
outstanding issuance values?
Question 65: What would be the potential costs and benefits of
requiring Board-supervised PPSIs to maintain a minimum percentage of
reserve assets at unaffiliated third-parties, including with respect to
operational risk?
Question 66: How should the final rule's requirements for reserve
assets reflect potential interactions with the larger market for
Treasury securities? For example, what requirements should the Board
consider in order to prevent any disruptive or negative effects that
the management or liquidation of Treasury reserve assets might have on
markets? [similar to OCC question 53]
Question 67: What would be the advantages and disadvantages of
prescribing quantitative limits or minimums on specific types of
reserve assets instead of or in addition to the proposal's principles-
based approach to reserve asset diversification? For example, the Board
could (i) limit the amount of uninsured eligible deposit claims against
an insured depository institution to no more than five percent of the
Board-supervised PPSI's total amount of reserve assets, (ii) limit the
Board-supervised PPSI's reserve assets held in the form of uninsured
eligible deposit claims issued by a single insured depository
institution to no more than 10 percent of the insured deposit
institution's deposit liabilities, (iii) impose a weighted-average
maturity limit on a Board-supervised PPSI's reserve assets to no more
than 30 days, or (iv) impose a combination of such limits. Would
quantitative limits or minimums, either as mandatory requirements for
all Board-supervised PPSIs or as a safe harbor for a
[[Page 61600]]
principles-based approach, be more appropriate and, if so, how should
these limits or minimums be calibrated? What types of operational
challenges would these limits or minimums introduce or present? What
proportion of reserve assets, if any, should a Board-supervised PPSI
maintain as eligible deposit claims in order to facilitate reserve
asset management? Should smaller Board-supervised PPSIs be subject to
different reserve asset diversification standards and, if so, what
considerations should the Board account for?
Question 68: What would be the advantages and disadvantages of a
requirement limiting a Board-supervised PPSI's exposures to a single
financial institution? For example, the Board could require a PPSI to
maintain no more than 40 percent of its reserve assets at any one
``eligible financial institution'' (as that term is defined by the OCC
in its GENIUS Act notice of proposed rulemaking), whether as eligible
deposit claims against any one insured depository institution,
securities held in custody at any one eligible financial institution,
bilateral reverse repurchase agreements with any counterparty, or
through other exposures. Alternatively, such a limit could apply to
certain types of eligible financial institutions or other
counterparties, or with respect to a specific requirement only. What
would be the advantages and disadvantages of this specific limit?
Question 69: What would be the advantages and disadvantages of
requiring that a Board-supervised PPSI's reserve assets have a maximum
weighted average maturity (e.g., no more than 20 or 30 days) to help
the Board-supervised PPSI manage interest rate risks? If requiring a
maximum weighted average maturity would be advantageous, what should be
the maximum weighted average maturity for reserve assets, and why? How
should the Board differentiate, if at all, between the maximum weighted
average maturity applicable for larger Board-supervised PPSIs and
smaller Board-supervised PPSIs (e.g., should smaller Board-supervised
PPSIs be subject to a 45-day weighted average maturity requirement on
their reserve assets, and why)? How should larger and smaller Board-
supervised PPSIs be defined for this purpose?
Question 70: The Board is proposing a principles-based requirement
that requires Board-supervised PPSIs to diversify reserve assets in a
manner that ensures that it can comply with the one-to-one requirement
at all times, including under stress. What are the advantages and
disadvantages of such a principles-based approach? Are there types of
risks (e.g., credit, liquidity, interest rate, price, and concentration
risks) or other considerations that PPSIs should be required to measure
or manage under this approach?
Question 71: What would be the advantages and disadvantages of
requiring that a Board-supervised PPSI that holds reserve assets
described in proposed Sec. 247.11(b)(6) apply the diversification
requirements in proposed Sec. 247.11(c) to the underlying assets of
such funds on a look-through basis?
Question 72: What would be the advantages and disadvantages of
considering requirements to diversify the maturity profile of reserve
assets? For example, should Board-supervised PPSIs be required to
maintain a minimum amount of their reserve assets in cash or
equivalents or assets that can be converted more readily into short-
term liquidity within a daily or weekly timeframe, akin to the
requirements for money market funds in SEC Rule 2a-7 or short-term
investment funds in 12 CFR 9.18(b)(4)(iii), and, if so, why? [similar
to OCC question 62]
Question 73: What would be the advantages and disadvantages of
considering a minimum requirement to maintain reserve assets as
eligible deposit claims or money standing to the credit of an account
with a Federal Reserve Bank, or as those aforementioned assets or
amounts receivable and due unconditionally within five business days on
pending sales of reserve assets or other maturing transactions? At what
level should such thresholds be set (e.g., 5 percent, 10 percent, 20
percent, 25 percent, or 30 percent)?
Question 74: What would be the advantages and disadvantages of
considering measures to encourage reserve assets to be held in the form
of insured eligible deposit claims against insured depository
institutions? While it may be difficult for larger Board-supervised
PPSIs to hold a material proportion of reserve assets as insured
eligible deposit claims against insured depository institutions because
of deposit insurance limits and the finite number of insured depository
institutions in the United States, what would be the advantages and
disadvantages of requiring larger Board-supervised PPSIs to hold some
minimum amount of reserves, such as 0.5 percent of reserves, as insured
eligible deposit claims against insured depository institutions, capped
at a level such as $500 million, in order to provide extra protection
for stablecoin holders? What could be the size threshold for applying
this provision to a Board-supervised PPSI? Under such an approach, how
should the Board consider differentiating requirements for larger and
smaller Board-supervised PPSIs, and how should the Board consider an
appropriate level for the cap on the requirement? [similar to OCC
question 63]
Question 75: Board-supervised PPSIs could use deposit placement
services to hold a higher proportion of reserves as insured eligible
deposit claims against insured depository institutions, as long as
Board-supervised PPSIs are able to maintain the operational ability to
access and monetize the eligible deposit claims, consistent with
proposed Sec. 247.11(a). Please describe any risks associated with
using such services or other intermediaries, and how Board-supervised
PPSIs could best mitigate these risks. [similar to OCC question 66]
Question 76: Consistent with the GENIUS Act, the proposed rule
would allow physical currency, including coins, to serve as reserve
assets. Nevertheless, given the limitations on transferring physical
currency, particularly difficulties that may arise in deploying
physical currency quickly to meet sudden demands for redemptions, what
would be the advantages and disadvantages of imposing limits on how
much physical currency can serve as reserve assets? For example, the
final rule could require that physical currency constitute no more than
five percent or 10 percent of a Board-supervised PPSI's reserve assets.
What special requirements, if any, should the Board require to make
sure that physical currency is safeguarded (for example, against theft
or fire)? Should the special requirements include periodic verification
or inspection requirements for physical currency used as reserve
assets? [similar to OCC question 75]
Question 77: What would be the advantages and disadvantages of
including special limits on Treasury bonds and notes that may be more
thinly traded and therefore more likely to sell at a discount? The
GENIUS Act would allow PPSIs to hold as reserve assets Treasury notes
and bonds so long as they have a maturity of 93 days or less (12 U.S.C.
5903(a)(1)(A)(iii)). Older and off-the-run Treasury securities may be
more difficult to sell and may only be marketable at a discount.\51\
What limit, if any, should the final rule
[[Page 61601]]
impose on the portion of reserve assets that Treasury bonds and notes
can comprise--for example, 20 percent of total reserve assets? [similar
to OCC question 77]
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\51\ See Dimitri Vayanos & Jiang Wang, ``Market Liquidity--
Theory and Empirical Evidence,'' National Bureau of Economic
Research Working Paper 18251 (July 2012), <a href="https://www.nber.org/system/files/working_papers/w18251/w18251.pdf">https://www.nber.org/system/files/working_papers/w18251/w18251.pdf</a>.
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Question 78: What would be the advantages and disadvantages of
diversification requirements that would limit over-reliance on short-
term repurchase transactions (e.g., limits on the aggregate amount of
short-term repurchase transactions as a percentage of a Board-
supervised PPSI's total reserve assets)? How should such requirements
be calibrated?
Question 79: What would be the advantages and disadvantages of
considering requirements for Board-supervised PPSIs to conduct stress
tests, including stress tests to manage liquidity and interest rate
risks? The GENIUS Act permits the inclusion of bilateral reverse
repurchase agreements as reserve assets ``with [counterparties] that
the issuer has determined to be adequately creditworthy even in the
event of severe market stress'' (12 U.S.C. 5903(a)(1)(A)(v)(III)). How
should Board-supervised PPSIs evaluate the impact of ``severe market
stress''? Should diversification requirements be based on or account
for the outcome of any stress tests? For example, Board-supervised
PPSIs could be required to maintain a minimum amount of readily
available reserve assets (for example, eligible deposit claims that are
payable on demand and reserve balances) based on the results of
liquidity stress tests. In particular, Board-supervised PPSIs could be
required to maintain--or could elect to maintain as part of a potential
safe harbor to a principles-based approach that could be adopted in the
final rule--an amount of readily available reserve assets at least
sufficient to meet outflow levels predicted by an internal liquidity
stress test. [similar to OCC question 81]
Question 80: What would be the advantages and disadvantages of
requiring Board-supervised PPSIs to adopt written plans or policies and
procedures related to liquidity planning? For example, how should
Board-supervised PPSIs be required to adopt their own concentration
restrictions, including limits on concentrations in eligible deposit
claims against insured depository institutions, that are tailored to
their own business model, operations, and risk profile? Similarly, what
would be the advantages or disadvantages of requiring Board-supervised
PPSIs to adopt liquidity management plans, which would include
provisions to assign responsibility for liquidity risk management and
address contingency funding needs? [similar to OCC question 82]
Question 81: For Board-supervised PPSIs that are subsidiaries of
insured State member banks, what would be the advantages and
disadvantages of prescribing special requirements to ensure that
reserve assets are appropriately maintained and controlled within the
larger corporate structure, and what should such requirements entail?
Alternatively, what would be the advantages and disadvantages of
requiring that a Board-supervised PPSI have dedicated liquidity
management personnel who have independent control over the liquidity
management functions of the Board-supervised PPSI (and its reserve
assets)? [similar to OCC question 84]
Question 82: What would be the advantages and disadvantages of
requiring Board-supervised PPSIs to monitor the financial condition of
insured depository institutions holding reserve assets? How should the
financial condition of an insured depository institution holding a
Board-supervised PPSI's reserve assets be considered in whether the
Board-supervised PPSIs have met their obligations related to
concentration in eligible deposit claims? [similar to OCC question 97]
d. Reports and Certifications (Proposed Sec. 247.11(d)-(e))
Proposed Sec. 247.11(d) would require a Board-supervised PPSI to
publish on its website by noon on the last day of each month the
monthly composition of the Board-supervised PPSI's reserves held
pursuant to the GENIUS Act as of noon of the last day of the previous
month, using a format substantially similar to the template provided in
table 1 to proposed Sec. 247.11(d). The report must contain the total
number of outstanding payment stablecoins issued by the Board-
supervised PPSI 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 fair 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 (12 U.S.C. 5903(a)(1)(C)). To satisfy the
geographic location requirement, the Board expects that it will
generally be sufficient for Board-supervised PPSIs to disclose the
jurisdiction where reserve assets are held in custody or otherwise
located.
Proposed Sec. 247.11(e) implements the applicable requirements of
section 4(a)(3) of the GENIUS Act (12 U.S.C. 5903(a)(3)). This
provision would require Board-supervised PPSIs to, each month, have the
report required under proposed Sec. 247.11(d) examined by a registered
public accounting firm prior to publication. Proposed Sec.
247.11(e)(1) would require that the examination of the previous month-
end report occur by noon on the last day of each month and would
require the registered public accounting firm's examination report to
be published on the Board-supervised PPSI's website at the same time as
the month-end report required under proposed Sec. 247.11(d).
Consistent with the Act, proposed Sec. 247.11(e)(2) would require the
Chief Executive Officer and Chief Financial Officer (or the persons
performing the equivalent functions) of the Board-supervised PPSI to
submit a certification as to the accuracy of each monthly report to the
Board. Under section 4(a)(3)(C) of the Act (12 U.S.C. 5903(a)(3)(C)),
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).
Question 83: For purposes of incorporating ``average tenor and
geographic location of custody of each category of reserve
instruments'' in the composition report required under proposed Sec.
247.11(d), what, if any, specific content and structure should the
Board require? For example, should the report include information about
concentration in eligible deposit claims and CUSIPS of securities?
Should the required content include the composition of the reserve
assets by type of assets and maturities and by counterparty issuer? For
purposes of stating the geographic location of custody, should it
suffice to state the country of custody? Or should more granular
information be required? Should the Board require that the composition
report conform to the specified template? Are there specific methods
for calculating tenor that the rule should require or explicitly
permit? For example, should the rule define average tenor as the
weighted average maturity or life of the asset? Should the monthly
composition report require the Board-supervised PPSI to distinguish
between insured and uninsured eligible deposit claims? [similar to OCC
question 88]
Question 84: Are there any additional steps that the Board should
take to encourage transparency while minimizing burden with respect to
the reserve asset composition report? [similar to OCC question 89]
Question 85: What modifications to the reporting requirements,
including the reserve asset composition report, would be appropriate
for arrangements
[[Page 61602]]
where one Board-supervised PPSI issues multiple stablecoins under
different brands (e.g., white label arrangements), if that arrangement
is permitted in the final rule? Are there any additional disclosures
that the Board-supervised PPSI should provide in order to ensure that
the report is not misleading? [similar to OCC question 90]
Question 86: Should the report be required to list and name any
insured depository institutions holding reserve assets? Should the
report be required to list and name any custodians holding reserve
assets? Should the final rule include additional measures to ensure
that reserve assets are appropriately traceable and linked to their
corresponding stablecoin so as to avoid any difficulties in resolving
claims to reserve assets? [similar to OCC question 91]
Question 87: For purposes of the composition report and reserves in
tokenized form, should the Board-supervised PPSI be required to
disclose the location of custody of both the reserve instrument in
tokenized form on a ledger and any real-world asset that the reserve in
tokenized form represents? What related reporting requirements would be
appropriate? [similar to OCC question 92]
Question 88: Should the values and information in the monthly
report be required to be as of a particular date or time?
Alternatively, should Board-supervised PPSIs publish on their websites
a report showing the real-time values of the items required in the
monthly composition report? Having the most recent information will
make the more report more useful, and the Board invites comment on how
much real-time reporting is feasible and whether it may only be
feasible for certain items. Should the monthly report be required to
include both month-end figures (for the previous month) and some
information that can be presented in real-time (for example, the value
of reserves or outstanding issuance value)? Are there potential
challenges in providing assurance over real-time information presented
in a monthly report? [similar to OCC question 93]
Question 89: Should the Board require Board-supervised PPSIs to
publish the monthly certification on their websites, in addition to
publishing the monthly reserve asset composition report? Should the
Board specify the content and form of the certification? [similar to
OCC question 94]
Question 90: Should the monthly composition report be published at
some point before the examination by a registered public accounting
firm? For example, a Board-supervised PPSI could publish the report
five days after the end of the previous month and have the report
examined 30 days after the end of the previous month and disclose any
discrepancies uncovered by the examination. Would the benefits of more
timely availability of these reports outweigh the potential costs
associated with the risk of subsequent changes as a result of the
examination that would be completed at a later date? [similar to OCC
question 95]
Question 91: Is the requirement in proposed Sec. 247.11(e) to have
information disclosed in the previous month-end report examined by a
registered public accounting firm sufficiently clear? If not, what
additional clarity should the Board provide with respect to the
examination by a registered public accounting firm? Should the
examination be performed at the ``reasonable assurance'' level or at
some other standard? What additional standards, if any, should the
Board apply to ensure that the examination is accurate and appropriate?
Should the engagement letter between the Board-supervised PPSI and the
registered public accounting firm require the registered public
accounting firm to attest to whether the Board-supervised PPSI is in
compliance with the reserve asset requirements in proposed Sec. 247.11
(or a subset thereof), based on the information available to the
registered public accounting firm? What criteria should be used for the
examination? Would assurances from the management of the Board-
supervised PPSI regarding the information in the issuer's weekly or
monthly report be sufficient? If not, what other criteria should be
included? [similar to OCC question 96]
e. Consequences and Remedial Measures for Noncompliance (Proposed Sec.
247.11(f)-(g))
Proposed Sec. Sec. 247.11(f)-(g) provide the consequences and
remedial measures that apply if a Board-supervised PPSI does not comply
with the requirements of proposed Sec. 247.11. Proposed Sec.
247.11(f) applies to violations of the one-to-one requirement in
proposed Sec. 247.11(a)(1)(iii), whereas proposed Sec. 247.11(g)
applies to violations of Sec. 247.11(a)-(c) generally.
Proposed Sec. 247.11(f)(1) would require a Board-supervised PPSI
that fails to satisfy the one-to-one requirement in proposed Sec.
247.11(a)(1)(iii) to, within 24 hours of such failure, submit: (i)
notification to the Board through its supervising Federal Reserve Bank
of such failure; and (ii) a plan describing how the Board-supervised
PPSI will return to compliance with the one-to-one requirement.
Proposed Sec. 247.11(f)(1)(ii)(A) clarifies that the Board reserves
discretion to require the Board-supervised PPSI to modify the plan
submitted under proposed Sec. 247.11(f)(1)(ii) as appropriate in light
of circumstances surrounding the shortfall.
Proposed Sec. 247.11(f)(2)(i) would require the Board-supervised
PPSI to begin liquidating reserve assets and redeeming outstanding
stablecoins consistent with proposed Sec. 247.12 by no later than 5:00
p.m. in the time zone of the Board-supervised PPSI's supervising
Federal Reserve Bank on the business day following the deadline for
submission of a plan under Sec. 247.11(f)(1), unless either (A) it has
returned to compliance with the one-to-one requirement in the interim;
or (B) the Board directs the Board-supervised PPSI to proceed with the
plan submitted under proposed Sec. 247.11(f)(1)(ii) or, if in the case
of the Board's modification of such a plan, the modified plan. Under
proposed Sec. 247.11(f)(2)(ii), the Board-supervised PPSI must not
charge customers a fee to redeem their payment stablecoins at any time
during liquidation. Similarly, under proposed Sec. 247.11(f)(2)(iii),
the Board-supervised PPSI must not issue new payment stablecoins at any
time during liquidation.\52\
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\52\ For the avoidance of doubt, the prohibition in proposed
Sec. 247.11(f)(2)(iii) does not prevent a Board-supervised PPSI
from transferring payment stablecoins across blockchains, to the
extent such transfer is necessary to facilitate the liquidation
process.
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The proposed approach aims to protect payment stablecoin holders
and promote market confidence in payment stablecoins. The GENIUS Act
requires PPSIs to process all redemptions at par. While redemption at
par is important for payment stablecoins' use as a means of payment, it
can lead to run dynamics when outstanding payment stablecoins are not
fully backed by reserve assets. In such situations, for every
redemption the PPSI processes, the payment stablecoin would fall
further away from full backing. As a result, the risk that the
remaining payment stablecoin holders will suffer a loss and the
magnitude of the loss they stand to incur grows.\53\ This dynamic may
incentivize payment stablecoin holders to rush to redeem at any
indication that the one-to-one
[[Page 61603]]
requirement has been breached, which, in turn, could lead to the Board-
supervised PPSI's failure.
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\53\ For example, a PPSI that issues a payment stablecoin with
outstanding issuance of $100 million and a $5 million shortfall in
reserve assets can theoretically redeem all stablecoin holders at
$0.95 for each payment stablecoin. However, if that PPSI processes
$35 million in redemptions at par, and the shortfall remains $5
million, the PPSI could only redeem all stablecoin holders at $0.92
for each payment stablecoin.
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The transparency of the public blockchains on which payment
stablecoins will likely circulate has the potential to make them more
or less vulnerable to runs. Public blockchains allow the market to
observe redemptions as they occur. If some subset of payment stablecoin
holders request redemptions after learning that the payment stablecoin
is no longer fully backed, the remaining payment stablecoin holders
could observe those redemptions in real time, which could then trigger
a new round of redemptions. A surge in trading volume on the secondary
market could also provide an observable signal that a payment
stablecoin is coming under stress, with similar consequences.\54\
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\54\ See Gordon Y. Liao, et al. Risk-based Capital for Stable
Value Tokens (June 30, 2024), available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4926568">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4926568</a>.
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At the same time, the secondary market for payment stablecoins
could also ameliorate these dynamics to some degree: If payment
stablecoin holders who become concerned about the payment stablecoin's
backing choose to sell on the secondary market rather than redeem
directly with the PPSI, there will be no need for the PPSI to liquidate
reserve assets to redeem at par, and no direct adverse impact on the
remaining holders.
Nevertheless, the Board believes the potential for stablecoin
holders' losses because of insufficient reserve assets, particularly
once the one-to-one requirement has been breached, is a legitimate
concern. Proposed Sec. 247.11(f) would address these concerns by
requiring a Board-supervised PPSI that has fallen out of compliance
with the one-to-one requirement to notify the Federal Reserve and
liquidate its reserves promptly unless it has a credible plan to
promptly return to full backing. This requirement to redeem outstanding
payment stablecoins, based on the value of the reserve assets, will
also help ensure that payment stablecoin holders will bear any losses
from a reserve deficit on a pro-rata basis, and avoid disproportionate
losses to those holders who did not rush to redeem. Additionally, the
Board's proposed approach may also help prevent run dynamics from
developing in the first place. The Board's commitment to intervene if
the fair value of the reserves fall irretrievably below the aggregate
par value of outstanding payment stablecoins may give the market
confidence that any payment stablecoin that continues to operate
remains fully backed.
Additionally, proposed Sec. 247.11(f)(2)(iii), which prohibits a
Board-supervised PPSI from issuing new payment stablecoins once the
liquidation process has commenced, is necessary to protect prospective
payment stablecoin holders. At this stage, any newly-issued payment
stablecoin would immediately be subject to the redemption requirement,
so the payment stablecoin would have no utility to its holder.
The Board considered requiring Board-supervised PPSIs in breach of
the one-to-one requirement to suspend issuing new payment stablecoins
immediately after the breach occurs, rather than when the liquidation
process has commenced. However, the Board ultimately determined that
such a requirement would be imprudent. The Board's proposal creates a
brief window during which Board-supervised PPSIs would be able to
restore full backing of their payment stablecoins, so they can return
to normal operation. Requiring PPSIs to suspend new issuance during
this period could effectively deprive them of that opportunity, since
the market would observe the lack of minting on the public blockchain.
Moreover, the relatively compressed time-period between a Board-
supervised PPSI's breach of the one-to-one requirement and required
liquidation effectively limits new redemptions in such circumstances to
less than 48 hours, and in many cases, much less than that. Further,
suspending new issuances would, at best, provide incomplete protection,
since it would not prevent customers from purchasing the payment
stablecoin on the secondary market. For all these reasons, the Board
declined to require Board-supervised PPSIs with a shortfall in reserve
assets to suspend issuing new payment stablecoins.
Finally, proposed Sec. 247.11(g) provides that if at any point the
Board determines that a Board-supervised PPSI has not demonstrated that
it meets any of the reserve asset requirements in proposed Sec.
247.11(a)-(c), the Board may require the issuer to submit a plan
describing how the Board-supervised PPSI will attain compliance and the
timeline for the plan. If the Board determines, either before or after
the submission of a plan, that a Board-supervised PPSI faces a
significant risk of being unable to attain compliance with the reserve
requirements in proposed Sec. 247.11(a)-(c) within a reasonable
period, the Board may order the Board-supervised PPSI to initiate
redemption of all outstanding payment stablecoins. Proposed Sec.
247.11(g) also states that the Board's authority to require a
compliance plan or order redemption does not limit the Board's
authority to pursue other measures, including enforcement actions, if
appropriate. This approach would provide the Board with more
supervisory discretion than the process in proposed Sec. 247.11(f) for
breaches of the one-to-one requirement. The more flexible approach to
enforcement of the reserve asset requirements in proposed Sec.
247.11(a)-(c) is appropriate, given that a breach of such requirements
poses less immediate risk of loss to payment stablecoin holders.
Question 92: What would be the advantages or disadvantages of
allowing a Board-supervised PPSI that experiences a shortfall in
required reserve assets to issue new payment stablecoins? What limits
(e.g., such as no increase in total outstanding issuance), if any,
should be placed on the amount such a Board-supervised PPSI can issue
and what would be the advantages or disadvantages of placing such a
limit? Should the Board prohibit a Board-supervised PPSI from issuing
new stablecoins upon breaching the one-to-one requirement, instead of
once it commences the liquidation process?
Question 93: Are there additional considerations that the Board
should take into account with respect to proposed Sec. 247.11(f)? What
operational difficulties would a Board-supervised PPSI encounter in
notifying the Board of a shortfall in required reserve assets and
submitting a remediation plan within 24 hours of such failure or in
liquidating reserve assets and redeeming outstanding stablecoins at
5:00 p.m. in the time zone of the supervising Federal Reserve Bank the
following business day after the deadline for submitting the
remediation plan? What would be the advantages or disadvantages of
allowing a longer period (e.g., allowing the issuer two additional days
to hear from the Board), or using a different threshold (e.g., Board-
supervised PPSI fails to meet the minimum reserve asset requirement for
15 consecutive business days), before requiring a Board-supervised PPSI
to begin liquidating reserve assets and redeeming outstanding
stablecoins? Should the Board prohibit Board-supervised PPSIs that fail
to satisfy the one-to-one requirement from issuing new payment
stablecoins until they have remediated the shortfall? Would such a
requirement, which may result in a sudden pause in the issuance of new
payment stablecoins, exacerbate run risks, given the public nature of
the
[[Page 61604]]
blockchains on which such payment stablecoin are issued?
Question 94: Should the final rule include restrictions on expenses
that may be charged against reserve assets? Is it worth making clear
that Board-supervised PPSIs may not charge general corporate expenses
against reserve assets? While there may be a narrow set of expenses
that can be paid from reserve assets (for example, interest on a
repurchase agreement or fees paid to an investment company holding
reserve assets), the Board expects that paying most other expenses from
reserve assets would be inconsistent with the requirement for permitted
payment stablecoin issuers to maintain identifiable reserve assets
backing outstanding issuance value on a one-to-one basis. [similar to
OCC question 99]
Question 95: Should the final rule include additional measures to
address de-pegging in the secondary market? For example, should the
final rule bar a Board-supervised PPSI from issuing new payment
stablecoins if a Board-supervised PPSI's payment stablecoins trade in
secondary markets at some price that is a set amount less than par
(e.g., trading at or below $0.99, $0.80 or some other amount) for some
sustained period of time (e.g., 24 hours)? [similar to OCC question 86]
Question 96: Should other liquidity rules be amended to accommodate
the changes made by the final rule and the GENIUS Act? For example,
should the liquidity coverage ratio (LCR) and net stable funding ratio
(NSFR) rules be amended so that depository institutions are unable to
include high quality liquid assets (HQLA) held by PPSI subsidiaries as
eligible HQLA in their own LCR and NSFR calculations? Similarly, should
any outflows associated with a PPSI subsidiary be excluded from a
parent entity's LCR calculations? Should the stablecoin activities of
PPSI subsidiaries be fully excluded from the LCR calculations of parent
entities? Or should there be a limited outflow commensurate with the
possibility that a parent entity may provide support to a PPSI
subsidiary (for example, one percent, five percent, or 10 percent of
outstanding issuance value)? Should the LCR rule be amended so that, if
PPSIs hold a large volume of eligible deposit claims against a
particular depository institution, that depository institution must
assign a higher outflow to such deposit liabilities? Should the LCR
rule be amended in light of any other implications of the GENIUS Act,
such as how it may apply to custodians under section 10 of the GENIUS
Act? [similar to OCC question 87]
3. Redemption and Fees (Proposed Sec. 247.12)
Proposed Sec. 247.12 addresses redemption requirements imposed by
section 4(a)(1)(B) of the GENIUS Act (12 U.S.C. 5903(a)(1)(B)).
Consistent with the statute, under proposed Sec. 247.12(a), a Board-
supervised PPSI must publicly disclose its redemption policy.\55\ The
Board proposes that in disclosing its redemption policy, the Board-
supervised PPSI must include, at a minimum, certain information.
Specifically, proposed Sec. 247.12(a)(1) provides that the Board-
supervised PPSI must include a timeframe in which the Board-supervised
PPSI will redeem payment stablecoins and the timeframe under which the
Board-supervised PPSI is required to redeem payment stablecoins (which,
under proposed Sec. 247.12(b)(2) may not exceed two business days
following the date of the requested redemption). For the avoidance of
doubt, a Board-supervised PPSI may choose a redemption timeframe that
is less than 2 days in its redemption policy. In proposed Sec.
247.12(a)(2), the Board proposes to require the Board-supervised PPSI
to include a statement consistent with proposed Sec. 247.12(b)(3) that
any discretionary limitations on timely redemptions may only be imposed
by the Board, or in the case of a State-qualified PPSI that is a Board-
supervised PPSI, by the Board or the State payment stablecoin
regulator, as applicable. Proposed Sec. 247.12(a)(3) requires that
Board-supervised PPSIs include in their redemption disclosures a
statement explaining the scenarios when the redemption period may be
extended as provided for in proposed Sec. 247.12(c)-(d). Proposed
Sec. 247.12(a)(4) provides that the Board-supervised PPSI must provide
a statement with clear instructions on how a customer can redeem a
payment stablecoin, including a link to the website(s) where a customer
can redeem the payment stablecoin.
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\55\ Under section 2(22) of the GENIUS Act (12 U.S.C. 5901(22)),
the issuer of a payment stablecoin must be obligated to convert,
redeem, or repurchase a payment stablecoin for a fixed amount of
monetary value, not including a digital asset denominated in a fixed
amount of monetary value.
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[…truncated; see source link]Indexed from Federal Register on September 29, 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.