What has happened?

During Crypto Week, the House focused on advancing a cohesive approach to digital asset regulation through a set of bipartisan legislative efforts. After the Senate passed the GENIUS Act bill on June 17th, the bill faced a two-day delay in the procedural vote in the House, but ultimately passed the House with a 308 - 122 vote. The GENIUS Act was signed into law on July 18th, marking the first federal digital asset regulation to be enacted in the United States.

In addition to the GENIUS Act, the House passed the Digital Asset Market Clarity (“CLARITY”) Act, aiming to clarify (among other things) a regulatory framework for digital commodities and jurisdictional boundaries between the SEC and CFTC. The House also passed the CBDC Anti-Surveillance State Act, which prohibits the Federal Reserve from issuing central bank digital currency (“CBDC”) without explicit Congressional approval, codifying the CBDC policy objectives set forth in Executive Order 14178 issued by the Trump administration in January 2025. Both bills are now awaiting a Senate vote, though it is worth noting that the Senate Banking Committee released an initial discussion draft for crypto market structure legislation on July 22nd, so the final version of the CLARITY Act (or similar) bill remains to be seen. Together, these developments reflect growing legislative momentum toward a more defined regulatory framework for digital assets in the United States.

The GENIUS Act: Overview

The GENIUS Act regulates the issuance of payment stablecoins, which broadly refers to a digital asset that is designed to be used as a means of payment or settlement, where the issuer represents that it will maintain a stable value relative to a fixed amount of monetary value, and is obligated to redeem such payment stablecoin for the fixed amount of monetary value. The GENIUS Act explicitly excludes “payment stablecoins” issued by a “permitted stablecoin issuer” from the definition of “security” contained in U.S. federal securities laws.

Some key aspects of the GENIUS Act include the following:

• Only permitted payment stablecoin issuers (PPSIs) approved under the GENIUS Act may issue a payment stablecoin in the United States. These can include certain bank and non-bank entities, which must obtain approval from the appropriate regulator (e.g. the Office of the Comptroller of the Currency, the FDIC, the Federal Reserve, or relevant state agency, depending on the type of entity). More specifically, PPSIs may include (only after receiving the required approval):
  • Subsidiaries of FDIC-insured deposit institutions (with approval of the insured depository institution’s primary federal regulator – the OCC, the FDIC or the Federal Reserve);
  • Nonbank entities, uninsured national banks, or federal branches of non-U.S. banks (with OCC approval);
  • State-qualified payment stablecoin issuers, which have been approved by a state payment stablecoin regulator.>
• Notably, publicly traded companies that are not predominantly engaged in financial activities will additionally need to obtain a unanimous approval from the Stablecoin Certification Review Committee (“SCRC”) which includes the Secretary of Treasury, the Chair of the Federal Reserve, and the Chair of the FDIC. Among other conditions, the SCRC must find that the company will not pose a material risk to the safety and soundness of the financial system and that it will comply with data use limitations.
• The GENIUS Act establishes a dual federal-state regulatory framework. To participate in this framework, state regulators must, within one year of the GENIUS Act’s effective date, submit an initial certification to the SCRC confirming that their state regulatory framework is substantially similar to the federal regime (which will be reviewed by the SCRC). This certification must be renewed on an annual basis. PPSIs with a consolidated total outstanding issuance of not more than $10 billion may opt for state-level regulation provided that the state-level regime is substantially similar to the federal regime. Conversely, a state-qualified issuer that exceeds the $10 billion threshold will generally need to transition to the federal regime within 360 days. 
• Payment stablecoins must be backed on an at least one-to-one basis, with reserve assets comprising of low-risk, highly liquid assets such as cash, demand deposits, short term Treasury bills or bonds with a maturity of 93 days or less and other similarly liquid assets (including tokenized versions of such assets). PPSIs must make monthly, public disclosures of the composition of reserves. 
• PPSIs must comply with marketing restrictions (e.g. must not use terms relating to the United States Government in the name of the payment stablecoin, or market the stablecoin as being legal tender or guaranteed by the United States government). 
• The issuer’s redemption policy must be publicly disclosed and must, among other things, establish clear procedures for timely redemption. 
• PPSIs must comply with requirements under the Bank Secrecy Act and other federal laws in relation to economic sanctions and anti-money laundering. 
• PPSIs may not pay any form of interest or yield to holders solely in connection with the holding, use or retention of payment stablecoins. 
• Only regulated entities (e.g. subject to supervision by federal or state banking regulators, the CFTC or SEC) may provide custodial or safekeeping services for reserve assets, payment stablecoins used as collateral, or private keys used to issue payment stablecoins. 
• In the event of an insolvency of a PPSI, the claim of the payment stablecoin holders will have priority over the claims of the PPSI or any other holder of claims against the PPSI with respect to the reserve assets. 
• The GENIUS Act sets out restrictions in relation to digital asset service providers making available in the United States payment stablecoins issued in overseas jurisdictions. That said, it is notable that the Secretary of the Treasury is empowered to implement reciprocal arrangements with other jurisdictions that have “comparable” regulatory regimes. The Secretary of the Treasury should complete such arrangements no later than two years after the date of enactment of the GENIUS Act. A stablecoin issued by a foreign issuer (if from a jurisdiction deemed by the Secretary of the Treasury to have a “comparable” regulatory regime) may be offered and sold in the United States if the issuer is registered with the OCC, meets certain reserve, reporting, supervision and examination requirements, and the jurisdiction of the issuer is not subject to comprehensive U.S. sanctions or a jurisdiction that has been deemed to be of primary money laundering concern. 
• Broadly, the GENIUS Act takes effect on the earlier of 18 months after the date of enactment, or 120 days after the date on which the primary federal payment stablecoin regulators issue final implementing regulations. The primary federal regulators will be required to issue further regulations such as in relation to capital requirements, liquidity standards, and operational risk management no later than one year after enactment of the GENIUS Act. As with other laws, many of the important practical details will depend on the implementing regulations, so these rulemakings will be important to watch.

Final thoughts

The events of “Crypto Week” mark a significant milestone for the adoption of digital assets and blockchain in financial services. The full extent to which the U.S. regulatory framework will influence the approach to be taken by other jurisdictions that are also seeking to develop digital asset regulatory frameworks remains to be seen, particularly in light of the reciprocity provisions introduced under the GENIUS Act. Other jurisdictions may also be encouraged to accelerate the pace of development and implementation of their own stablecoin regulatory frameworks.

The U.S. banking industry has responded to the GENIUS Act with measured support, viewing it as a significant step toward bringing stablecoins within the bounds of the traditional financial regulatory framework. While the GENIUS Act offers much-needed clarity and creates new opportunities in stablecoin issuance and custody, the banking industry notes that it also raises questions about potential disintermediation of core banking functions, such as deposit-taking (and, in turn, lending).

More broadly, the GENIUS Act signals a shift toward deeper integration of digital assets into the regulated financial system, prompting banks and other financial institutions to evaluate potential risks, compliance obligations, and long-term opportunities as the regulatory landscape continues to evolve.

For more information, please feel free to get in touch with a member of the team.

This article is for guidance only and is a non-exhaustive summary only of certain aspects of the points discussed and should not be relied on as legal advice in relation to a particular transaction or situation. 

Authored by Sara Lenet, Christina Wu, and Haebin Lee.