Senators Urge Treasury to Preserve State Authority Under Stablecoin Law

Key facts

• A bipartisan group of senators has urged the Treasury Department to preserve state authority in regulating smaller stablecoin issuers under the GENIUS Act.
• The senators, led by Cynthia Lummis, sent a letter to Treasury Secretary Scott Bessent requesting clear guidance on certifying state stablecoin regimes.
• The GENIUS Act allows stablecoin issuers with $10 billion or less in market capitalization to remain under state oversight if their regulatory frameworks are substantially similar to federal standards.
• Lawmakers emphasized the need for an ongoing and flexible certification framework to prevent timing mismatches and support innovation and competition.
• New York's Department of Financial Services has proposed a rule to align its stablecoin framework with the GENIUS Act.

A bipartisan coalition of U.S. senators is pressing the Treasury Department to maintain states' regulatory authority over smaller stablecoin issuers as the agency develops rules for the recently enacted GENIUS Act. The senators, spearheaded by Cynthia Lummis, expressed concerns that the current proposed rulemaking lacks sufficient clarity on the timeline and standards for state certification, potentially hindering innovation and competition.

The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law last year, establishes a federal framework for stablecoins. Key provisions include requirements for full backing by U.S. dollars or liquid assets, annual audits for issuers exceeding $50 billion in market capitalization, and a pathway for issuers with $10 billion or less to operate under state oversight if their regulatory regimes are deemed comparable to federal standards.

In a letter to Treasury Secretary Scott Bessent, the lawmakers emphasized the need for an ongoing and flexible certification process to accommodate varying state legislative calendars. They also requested specific guidance on the practical aspects of state application, review, and certification procedures. This push comes as some states, like New York, are actively working to align their existing digital asset regulations with the federal law, proposing formal rules to that effect.

The GENIUS Act aims to create a robust regulatory environment for payment stablecoins, distinguishing them from securities or national currencies and clarifying issuer structures. Financial regulators are tasked with establishing capital, liquidity, and risk management requirements within 18 months, alongside rules for nonfinancial companies issuing stablecoins and ensuring foreign issuers meet stringent standards. Additionally, FinCEN is expected to develop regulations to bolster anti-money laundering and counter-terrorism financing measures for stablecoin issuers.