Breaking Down the GENIUS Act: Stablecoin Legislation Passes in the Senate and House

Key Takeaways:

• Clear Regulatory Guardrails: The GENIUS Act provides guardrails for payment stablecoins, including strict reserve, disclosure, and anti-money laundering standards.
• Federal and State Regimes: Both the federal government and states, with certain limitations, may regulate stablecoins.
• Securities Exemptions: Payment stablecoins issued by permitted issuers are explicitly excluded from being classified as securities or commodities under federal law.
• Consumer Protections: The Act provides strong consumer protections, including first-priority claims on reserves in insolvency and strict asset segregation requirements.

Both the Senate and the House have passed the “Guiding and Establishing National Innovation for U.S. Stablecoins Act,” otherwise known as the “GENIUS Act.” The GENIUS Act offers clarity to stablecoin issuers in the United States and abroad while also enshrining consumer protections and anti-money laundering requirements into law. The bill now goes to President Trump’s desk to sign.

At the heart of the GENIUS Act is a robust set of definitions that set the scope of the law. "Payment stablecoins" are defined as “digital assets designed for use as a means of payment or settlement, redeemable for a fixed amount of monetary value, and not classified as a security or deposit.” Only "permitted payment stablecoin issuers"—entities approved under the Act—may issue such stablecoins in the U.S. Moreover, payment stablecoins are, under the GENIUS Act, not securities. This distinction marks a clear departure from the current, largely unregulated environment, and sets the stage for further stablecoin development in the United States. 

So, Who Can Issue Stablecoins?

The Act draws a bright line around who may issue payment stablecoins: after a three-year transition period, only permitted issuers—those approved under the new federal or certified state regimes—may issue stablecoins. After this three-year transition period, digital asset service providers that are not permitted issuers will be prohibited from offering or selling stablecoins. 

However, “public companies”—public companies “not predominantly engaged in 1 or more financial activities, and its wholly or majority owned subsidiaries or affiliates”—cannot issue payment stablecoins “unless the public company obtains a unanimous vote of the Stablecoin Certification Review Committee[.]” 
Relatedly, foreign issuers will face some additional hurdles, including registration, compliance with U.S. lawful orders, and demonstration of a comparable regulatory regime in their home jurisdiction—but this most recent iteration of the bill does not completely restrict foreign stablecoin issuers as previous iterations once did.

Operational and Compliance Requirements

The GENIUS Act imposes stringent operational requirements on stablecoin issuers. Issuers must maintain fully-backed, identifiable reserves on a 1:1 basis, limited to highly liquid assets such as U.S. currency, short-term Treasuries, and certain money market instruments. Moreover, issuers are required to publicly disclose clear redemption procedures and all associated fees, and to publish monthly reports on reserve composition, subject to third-party examination. 

Issuers are subject to the Bank Secrecy Act and must implement robust anti-money laundering and sanctions compliance programs, including technological capabilities to block or freeze transactions in response to lawful orders. 

That said, pursuant to Section 9(d), FinCEN is directed to issue public guidance and notice and comment rulemaking regarding stablecoins and illicit activity.

Limitations on Rehypothecation, Yield

Under Section 4(a)(2), reserves may not be rehypothecated or pledged except to (1) satisfy margin obligations in connection with investments in permitted reserves, (2) satisfy obligations associated with standard custodial services, or (3) create liquidity to meet reasonable expectations of redemption requests.

Additionally, under Section 4(a)(11), issuers are restricted to stablecoin-related activities and are expressly prohibited from paying interest or yield to holders: “No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall 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.” 

Insolvency and Customer Protections

Another notable feature of the Act is its treatment of issuer insolvency under Section 11. In the event of a bankruptcy, stablecoin holders are granted first-priority claims on reserve assets, with specific amendments to the Bankruptcy Code to enshrine these rights. This is a significant step toward protecting consumers and maintaining confidence in stablecoin arrangements.

Custody, Safekeeping, and Asset Segregation

Under Section 10, only regulated entities may provide custody services for stablecoin reserves and private keys, and the Act mandates strict segregation and customer property protections. This is designed to prevent the commingling of customer assets and to ensure that customer claims are protected in the event of a custodian’s insolvency.

Foreign Issuers and International Reciprocity

Per Section 18, foreign stablecoin issuers may operate in the U.S. if their home country’s regulatory regime is deemed comparable, they register with U.S. authorities, and meet reserve and compliance requirements. The Act also contemplates reciprocal arrangements with other jurisdictions, potentially paving the way for cross-border interoperability and regulatory harmonization.

However, under Section 8(b), if a foreign payment stablecoin issuer does not enter compliance with the above within 30 days, secondary trading of that issuer’s payment stablecoins shall become prohibited.

Clarification of Securities and Commodities Laws

Perhaps its most consequential element, Section 17 of the Act explicitly excludes payment stablecoins issued by permitted issuers from the definitions of "security" and "commodity" under federal securities and commodities laws. This added provision provides long-debated regulatory clarity and should, ideally, reduce the risk of overlapping or inconsistent regulatory treatment (setting aside the question of yield-bearing stablecoins, of course).

Looking Ahead: GENIUS Act Compliance

The GENIUS Act, once signed, creates regulatory certainty for payment stablecoins in the U.S. To that end, stablecoin issuers and digital asset service providers should begin preparing for a regime that demands greater compliance, robust operational controls, and proactive engagement with federal or state legal requirements. Stablecoin issuers will have to register with either federal or state regulatory bodies and then begin preparing audits of their reserves. As such, the three-year transition period will be critical for existing issuers to align their operations with these new requirements.

Norton Rose Fulbright’s digital assets team has been tracking this rapidly-evolving legislation and stands ready to advise on any queries you may have regarding the GENIUS Act. Please reach out to Andrew Lom, Eric Martin, Rachael Hashmall, Jamison Winters, or Gage Raju-Salicki with your questions.