GENIUS Act Implementation: OCC Issues Proposed Rules

Introduction

On February 25, 2026, the Office of the Comptroller of the Currency (the “OCC”) issued a notice of proposed rulemaking (the “NPRM”)[1] to implement provisions of the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” or the “GENIUS Act.” The proposed rule would address requirements for OCC-licensed payment stablecoin issuers, including application requirements for any entity that seeks to become an OCC-licensed issuer, limits on permissible activities, prohibitions on payments of interest or yield, requirements for maintenance and treatment of reserves for payment stablecoins, requirements for redemption of payment stablecoins and obligations with respect to risk management and capital adequacy. The proposed rule would also impose certain requirements on all OCC-regulated institutions that provide custody services for payment stablecoin reserves and related assets of any payment stablecoin issuer (i.e., regardless of which regulator supervises the issuer).

The OCC’s proposed rule is a major component of the several rulemakings required to be promulgated by the federal banking agencies under the GENIUS Act. Rules must also be issued by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Deposit Insurance Corporation (the “FDIC”) and the National Credit Union Administration (the “NCUA”). However, the OCC rulemaking will likely be the most far-reaching federal rulemaking among those to be issued by the federal banking agencies because the OCC will be the regulator of “permitted payment stablecoin issuers” (“PPSIs”) that are subsidiaries of OCC-supervised insured depository institutions (“IDIs”), federally licensed PPSIs that are nonbank entities, uninsured national banks or federal branches of foreign banks and registered foreign payment stablecoin issuers (“FPSIs”). In contrast, the other federal banking agencies will generally be the primary regulators of only PPSI subsidiaries of IDIs they supervise. Because the GENIUS Act contemplates that payment stablecoin issuers may be regulated at the federal or state level, state regulators will likely also issue rules to implement the statute. It remains to be seen the extent to which other regulators will take the same or different approaches as the OCC in implementing the GENIUS Act. Additionally, rules must be issued under the GENIUS Act by the Department of the Treasury (the “Treasury Department”).[2] These rules have not yet been proposed and they may also have significant effects on payment stablecoins and their issuers, including with respect to anti-money laundering (“AML”) and economic sanctions compliance obligations.

The OCC requests comments on all aspects of its proposal, including on 211 specific questions. Comments on the NPRM are due on May 1, 2026.

Summary

The GENIUS Act was enacted on July 18, 2025 and establishes a federal regulatory framework for “payment stablecoins” and their issuers.[3] At the core of the statute is a prohibition on the issuance of payment stablecoins in the United States except by entities approved as PPSIs.[4] Depending on the type of entity and the amount of payment stablecoins it has issued, an entity may be approved, and then regulated and supervised, by either a federal or state regulator. Additionally, a PPSI that is initially regulated at the state level is required under the GENIUS Act to “transition” to federal regulation (administered jointly by a federal and state regulator) after issuing more than $10 billion in outstanding payment stablecoins, unless this requirement is waived.[5] Qualifying FPSIs that register with the OCC are also permitted to offer and sell payment stablecoins in the United States.[6] Additionally, custodians, exchanges and other “digital asset service providers” may not offer or sell payment stablecoins to persons in the United States except if issued by a PPSI or qualifying FPSI.[7]

The GENIUS Act establishes standards for the issuance of payment stablecoins by PPSIs and FPSIs and directs several regulators, including the FDIC, Federal Reserve Board, NCUA, OCC, Treasury Department and state regulators, to issue regulations to implement the statute. These regulations in many cases are required to be issued no later than one year after the statute’s enactment (i.e., by July 18, 2026). The GENIUS Act will take effect on the earlier of 18 months from enactment (i.e., January 18, 2027) and 120 days after the date on which the primary federal payment stablecoin regulators issue any final regulations implementing the statute.[8] For a detailed summary of the GENIUS Act and the related regulations that must be issued, please refer to our Memoranda to Clients of June 23, 2025 and of July 18, 2025.

The NPRM proposes rules to address “all of the regulations the OCC is required to promulgate under the GENIUS Act,” excluding those related to the Bank Secrecy Act, AML and sanctions, which will be “addressed in a separate rulemaking in coordination with the Department of Treasury.”[9] For the reasons discussed above, the OCC’s regulations are likely to have an outsized degree of significance.

In its proposed rule, the OCC would implement several provisions of the GENIUS Act by restating the statutory text with relatively few changes. For example, the factors to be considered in evaluating applications from prospective PPSIs, and specified risk management and reporting requirements applicable to PPSIs, would largely follow the related statutory provisions. Similarly, the obligations of OCC-regulated custodians with respect to payment stablecoin reserves and related assets would largely mirror those in the statute.

The proposed rule, however, would implement several statutory provisions by imposing presumptions or requirements that provide greater specificity than is provided in the GENIUS Act. Notable examples of these presumptions and requirements include the following:

• Prohibition on payment of interest or yield: The OCC proposes to mirror in its regulations the GENIUS Act’s prohibition on PPSIs or FPSIs paying interest or yield to payment stablecoin holders solely in connection with the holding, use or retention of their payment stablecoins. However, the OCC would implement a rebuttable presumption not specified in the GENIUS Act under which certain arrangements involving payments of interest or yield by an issuer to an affiliate or third party, and then by an affiliate or third party to holders, would violate the prohibition.
• Reserve asset diversification requirements: The OCC would implement quantitative diversification standards and concentration limits—either as a safe harbor or an outright requirement—with respect to the reserves that PPSIs hold to back their payment stablecoins. These standards would be conceptually similar to the diversification and liquidity standards applicable to money market funds. The NPRM also would implement quantitative requirements with respect to reserve asset maturities (i.e., minimum daily and weekly liquidity availability and maximum weighted average maturity for the reserve asset portfolio as a whole) and limits on exposures to single counterparties. Any PPSI with an outstanding payment stablecoin issuance of at least $25 billion would be required to hold 0.5% of its reserve assets, up to a cap of $500 million, in insured deposits or insured shares.
• Redemption requirements: The OCC would provide that the “timely redemption” that PPSIs must provide to customers upon a request for redemption may not exceed two business days. However, the OCC would automatically extend this period to seven calendar days if a PPSI experiences significant redemption requests, with this extension intended to facilitate orderly liquidation of reserve assets and help ensure financial stability.
• Insider and affiliate transaction limitations: The OCC would require PPSIs to limit their transactions with insiders and affiliates such that they are not “excessive,” do not pose “significant risks of material financial loss” and are conducted on “market terms.” These requirements resemble certain requirements in the Federal Reserve Board’s Regulations O and W but without the specificity and comprehensiveness of those regulatory frameworks.

Additionally, the NPRM does not provide specific rules for how several provisions in the GENIUS Act should be addressed by PPSIs, but instead articulates principles-based standards that PPSIs would be required to implement in a manner tailored to their respective business models and risk profiles. For example, several risk management obligations—including as to internal controls, information systems, internal audit systems, interest rate risk management, asset growth, earnings, and liquidity, diversification and concentration risk management—would have few specific requirements. Instead, PPSIs would be required to implement appropriate risk management for these topics based on the specifics of their businesses, operations and risks. Similarly, the OCC would not impose standardized minimum capital requirements on PPSIs. The OCC instead would impose “principles-based” capital requirements that each PPSI would implement on an ongoing basis “commensurate with the level and nature of all risks to which the [PPSI] is exposed, including risks for off-balance sheet activities.” PPSIs would additionally be required to maintain “operational backstops” proportional to their respective annual expense levels for maintaining ongoing operations.

These and other aspects of the proposed rule could change, possibly significantly, in the OCC’s final rule. As noted above, the OCC includes 211 specific questions, which address all aspects of the proposal, some of which suggest different approaches that the OCC is considering for the rulemaking.

Moreover, because the GENIUS Act provides multiple pathways for an entity to become a PPSI, the ultimate impact of the OCC’s rules will depend on which pathways prospective PPSIs choose, the prevalence and size of OCC-regulated PPSIs and the extent to which other regulators “follow” the OCC’s approach to implementing requirements applicable to PPSIs. The OCC is the first federal regulator to propose substantially all the rules that it is required to issue under the GENIUS Act,[10] and it remains to be seen how the OCC’s proposal will compare to those that will be issued by other federal and state regulators.

Description of the Proposed Rule

Under the GENIUS Act, an OCC-regulated IDI (i.e., an insured national bank, federal savings association or insured federal branch of a foreign bank) may seek approval from the OCC for a subsidiary to issue payment stablecoins.[11] A nonbank entity, an uninsured national bank (e.g., a national trust bank) or an uninsured federal branch of a foreign bank may also seek approval from the OCC to issue payment stablecoins.[12] Any of these entities, if approved by the OCC to issue payment stablecoins, will be subject to regulation and supervision by the OCC.[13] Moreover, any nonbank entity established under state law and approved by a state regulator to issue payment stablecoins that has over $10 billion in total outstanding payment stablecoin issuance will be required to “transition” to federal regulation jointly administered by the state regulator and the OCC, unless the OCC waives this requirement.[14] Finally, any FPSI that seeks to offer and sell payment stablecoins in the United States must register with the OCC, and if approved, will be subject to OCC supervision.[15]

In the NPRM, the OCC proposes to add a new Part 15 to its regulations, which would implement procedures for applications and registrations for prospective payment stablecoin issuers that would, if approved, be subject to the OCC’s regulatory jurisdiction under the GENIUS Act. It would also impose requirements on all PPSIs and FPSIs that are subject to OCC regulation, supervision and/or enforcement.

In addition to requirements applicable to PPSIs, Part 15 would impose requirements on all OCC-regulated entities that act as custodians with respect to payment stablecoin reserves and related assets for any PPSI or FPSI, regardless of which regulator supervises the PPSI or FPSI. Finally, the OCC proposes revisions to other parts of its regulations to address topics related to PPSIs, FPSIs and payment stablecoins.

Application Requirements

Federally Regulated PPSIs

The proposal would require (1) any insured national bank, federal savings association or insured federal branch seeking to issue payment stablecoins through a subsidiary and (2) any uninsured national bank, uninsured federal branch or nonbank entity seeking a federal license[16] to issue payment stablecoins to file an application with the OCC to become a PPSI. In accordance with the GENIUS Act, the OCC would be subject to strict timelines for evaluating applications, including that it would have 30 days from receipt of an application to notify the applicant whether the application is “substantially complete,” meaning that the application contains sufficient information for the OCC to render a decision on whether the applicant satisfies the factors the OCC must evaluate, which are discussed below.[17] Unless denied by the OCC, a substantially complete application would be deemed approved 120 days after its receipt by the OCC.[18]

In evaluating a substantially complete application, the OCC would consider the following factors, and the NPRM seeks comment on whether additional factors are necessary to ensure the safety and soundness of a PPSI:[19]

• the ability of the prospective PPSI, based on financial condition and resources, to satisfy the requirements applicable to PPSIs under the OCC’s rule;
• whether any officer or director of the applicant has been convicted of a felony offense involving certain specified financial crimes;
• the competence, experience and integrity of the officers, directors and principal shareholders of the applicant, its subsidiaries and parent companies;
• the ability of those officers, directors and principal shareholders to fulfill any commitments or conditions imposed by the OCC; and
• whether the prospective PPSI’s redemption policy satisfies the standards required under the rule.[20]

For an applicant with an application that is substantially complete as of the effective date of the GENIUS Act, the OCC could waive the requirements applicable to PPSIs under the OCC’s rule for a period of up to 12 months after the effective date.[21] This waiver authority would appear to provide a means for existing payment stablecoin issuers to be licensed as PPSIs subject to the OCC’s jurisdiction, but with a transition period to become compliant with all the requirements of the GENIUS Act.

State-Regulated PPSIs

To implement the required transition to federal regulation (which would be administered jointly by the OCC and a state regulator) for state-regulated nonbank PPSIs that exceed $10 billion in outstanding payment stablecoin issuance, any state-regulated nonbank PPSI would be required to provide written notice to the OCC within five days of crossing the $10 billion threshold. That notice would state, among other things, whether the PPSI does not plan to transition to federal regulation, either because it has ceased issuing, on a net basis, payment stablecoins (and, in so doing, intends to fall under the $10 billion threshold) or intends to seek a waiver of the required transition.[22]

A PPSI that intends to transition to federal regulation would be required to complete the transition within 360 days of crossing the $10 billion threshold.[23] It would also need to make submissions to the OCC during the transition period to enable the OCC to set, as discussed further below, a minimum capital requirement for the PPSI upon its transition to federal regulation.[24]

A state-regulated nonbank PPSI could seek to remain regulated exclusively at the state level by requesting a waiver of the required transition to federal regulation. To do so, the PPSI would be required to request the waiver within 240 days of crossing the $10 billion threshold.[25] In evaluating a waiver request, the OCC would, consistent with the GENIUS Act, consider only the following factors: the capital maintained by the PPSI, the past operations and examination history of the PPSI, the experience of the applicable state regulator in supervising payment stablecoin and digital asset activities, and the supervisory framework of the PPSI with respect to payment stablecoins and digital assets.[26] Also consistent with the GENIUS Act, the OCC would create a presumption in favor of approving a waiver request if the applicable state regulator had established, as of April 19, 2025, a prudential regime for payment stablecoins or digital assets that is certified by the new “Stablecoin Certification Review Committee” as “substantially similar” to the federal regulatory framework established under the GENIUS Act and the state regulator has approved at least one PPSI under its supervision.[27] This presumption would not apply if the OCC finds by “clear and convincing evidence” that the waiver criteria are not substantially met or that the PPSI poses significant safety and soundness risks to the U.S. financial system.[28]

FPSIs

An FPSI that seeks to be registered with the OCC, and offer and sell payment stablecoins in the United States, must file an application with the OCC.[29] That application must provide, among other things, evidence that the Secretary of the Treasury has determined that the applicant is, as required by the GENIUS Act, subject to a regulatory and supervisory regime “comparable” to the GENIUS Act with respect to payment stablecoins, a certification that the applicant will make available to the OCC all information that the OCC deems necessary to determine and enforce compliance with the GENIUS Act, and the applicant’s consent to U.S. jurisdiction relating to enforcement of the GENIUS Act and the OCC’s rules.[30] Unless the OCC notifies the applicant in writing that the registration application has been rejected, the application would be approved on the 30th day after receipt by the OCC.[31]

In evaluating an application for registration, the OCC would consider the following factors:

• the Secretary of the Treasury’s determination that the FPSI is subject to a regulatory and supervisory regime comparable to the GENIUS Act;
• the financial and managerial resources of the U.S. operations of the FPSI;
• whether the FPSI will provide adequate information to the OCC to determine compliance with the GENIUS Act;
• whether the FPSI presents a risk to the financial stability of the United States, including risks relating to ensuring timely redemption for U.S. customers; and
• whether the FPSI presents illicit finance risks to the United States.[32]

Requirements Applicable to OCC-Regulated PPSIs

Permissible Activities

The proposed rule would specify that PPSIs are generally limited in the activities in which they may engage. PPSIs may issue and redeem payment stablecoins; manage related reserves, including by purchasing, selling and holding reserve assets; provide custodial or safekeeping services for payment stablecoins, required reserves or private keys of payment stablecoins; and undertake any other activities that directly support these activities. PPSIs may also assess fees associated with purchases or redemptions of payment stablecoins, act as principal or agent with respect to payment stablecoins and pay fees (e.g., network or “gas” fees) to facilitate customer transactions.[33]

Notwithstanding these generally applicable limits on PPSI activities, the proposed rule would also incorporate language from section 16(a) of the GENIUS Act to provide that nothing in the list of permitted activities for PPSIs “may be construed to limit the authority of a depository institution, national bank, or trust company to engage in other activities permissible under applicable law.”[34] The NPRM clarifies that, consistent with this provision, an uninsured national trust bank that is a PPSI may engage in all fiduciary, trust and other related activities that are permitted under applicable law.[35]

Prohibitions on Use of Deceptive Names, Misrepresentations and Pledging Reserve Assets

The proposed rule would restate, with limited clarifications, the prohibitions in the GENIUS Act against PPSIs (1) using deceptive names for payment stablecoins; (2) marketing payment stablecoins in a way that would cause them to be perceived as legal tender or issued or guaranteed by the U.S. government; (3) representing that payment stablecoins are backed or guaranteed by the U.S. government or subject to federal deposit insurance; or (4) pledging, rehypothecating or reusing reserve assets, except in limited circumstances.[36]

Prohibition on Paying Interest or Yield

The proposed rule would repeat the GENIUS Act’s prohibition on a PPSI paying “the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”[37] The proposed rule would also establish a rebuttable presumption that certain arrangements in which a PPSI coordinates with an “affiliate” or “related third party” to pay interest or yield to holders of the PPSI’s payment stablecoins are prohibited. The NPRM explains that the OCC is proposing this presumption because it “understands that [PPSIs] could attempt to make prohibited payments of interest or yield to payment stablecoin holders through arrangements with third parties” and that “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.”[38] Accordingly, rather than identifying specific arrangements that would be prohibited, the OCC establishes a presumption with respect to arrangements that will generally be prohibited, unless a PPSI can demonstrate that the arrangement is not prohibited and not an attempt to evade the prohibition on paying interest or yield.

Under this presumption, a PPSI would be presumed to violate the prohibition on the payment of interest or yield if: (1) the PPSI “has a contract, agreement, or other arrangement with an affiliate of the [PPSI] or related third party to pay interest or yield to the affiliate or related third party”; and (2) the affiliate or related third party (or affiliate of the 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 [PPSI] solely in connection with the holding, use, or retention of such payment stablecoin.”[39] Under the proposed rule, an “affiliate” of a PPSI would be determined generally by reference to the Bank Holding Company Act definition of that term.[40] A “related third party” would include a person (1) “offering to pay interest or yield to payment stablecoin holders as a service” or (2) “that the issuer issues payment stablecoins on the person’s behalf or under the person’s branding.”[41] The NPRM indicates that the first prong of the definition of “related third party” is intended to cover persons that pay interest or yield “on behalf of” a PPSI and the second prong is intended to cover persons that have entered into a “white-label” relationship with the PPSI under which the PPSI issues payment stablecoins on the third-party’s behalf.[42]

The OCC notes that arrangements that are not captured by the presumption may nonetheless violate the GENIUS Act prohibition on payments of interest or yield or constitute an evasion of that prohibition. The OCC will assess those arrangements on a case-by-case basis.[43]

The NPRM asks several questions about the proposed prohibition on the payment of interest or yield, including:

• whether the prohibition should be clarified;
• whether the OCC should provide a de minimis exception for arrangements that are not designed to violate the prohibition and that do not have a meaningful economic impact;
• whether there should be a safe harbor for certain arrangements;
• whether the prohibition should be broader (such that it prevents PPSIs from paying interest or yield to payment stablecoin holders, whether directly or indirectly); and
• whether the regulation should define various terms used in the prohibition, such as “pay,” “interest,” “yield,” “solely” or any other terms.

The NPRM also requests comment on the economic impact, and the impact on bank deposits, of a narrow prohibition on the payment or interest or yield.[44]

Reserve Assets

The OCC is proposing to implement the GENIUS Act’s requirement that a PPSI maintain “identifiable reserves backing the outstanding payment stablecoins of the [PPSI] on an at least 1 to 1 basis”[45] by requiring a PPSI to:

• maintain reserve assets that (1) are identifiable; (2) are segregated from and not commingled with other assets owned or held by the PPSI; (3) at all times have a total fair value that equals or exceeds the outstanding issuance value of the PPSI; and (4) are either held directly by the PPSI or in the custody of a financial institution that is eligible under the GENIUS Act to provide custodial and safekeeping services for payment stablecoin reserves;[46]
• demonstrate operational capability to access and monetize the reserve assets, commensurate with the PPSI’s risk profile and business model; and
• only withdraw any surplus reserve assets in excess of outstanding issuance value once per month, upon the publication of a required monthly reserves composition report.

The OCC would limit reserves for payment stablecoins to the same high-quality short-duration assets specified as eligible reserve assets in the GENIUS Act.[47] The GENIUS Act specifies that such assets may include “any other similarly liquid Federal Government-issued asset approved by the OCC.” The NPRM specifies the factors the OCC would consider in determining whether an asset may be added to the list of permissible reserve assets on that basis, which include the liquidity characteristics of the asset.[48] In the NPRM, the OCC asks whether it should specify that additional assets may be treated as eligible reserves under this provision, such as Treasury securities with a remaining maturity of two years or less, which would be substantially longer than the maximum 93-day remaining maturity permitted for Treasury securities under the list of eligible reserve assets expressly specified in the GENIUS Act.[49]

The GENIUS Act also directs the OCC to issue regulations implementing reserve asset diversification standards for PPSIs that are tailored to PPSI business models and risks and do not exceed standards sufficient to ensure the ongoing operation of PPSIs.[50] The NPRM includes two alternative approaches to implement these standards: “Option A” would combine a principles-based requirement with a safe harbor for PPSIs that satisfy certain quantitative standards.[51] “Option B” would adopt the same quantitative standards, but as a requirement rather than a safe harbor.[52]

Under Option A, a PPSI would be required to maintain reserve assets that are “sufficiently diverse to manage potential credit, liquidity, interest rate, and price risks,” and would be required to “measure and manage the risk that concentrating reserve assets at one eligible financial institution or a small number of eligible financial institutions may impair the ability of a [PPSI] to satisfy redemption demands.”[53] Under this option, a PPSI would be deemed to satisfy this principles-based requirement if it satisfies the following “safe harbor” standards:

• “daily liquidity”: the PPSI maintains at least 10% of its reserve assets as demand deposits or money standing to the credit of an account with a Federal Reserve Bank;
• “daily liquidity concentration limit”: the PPSI maintains no more than 50% of its required daily liquidity at any one eligible financial institution;
• “weekly liquidity”: the PPSI maintains at least 30% of its reserve assets as demand deposits or money standing to the credit of an account with a Federal Reserve Bank or amounts receivable and due unconditionally within five business days on pending sales of reserve assets, maturing reserve assets or other maturing transactions;
• “overall concentration limit”: the PPSI maintains no more than 40% of its reserve assets at any one eligible financial institution, whether as deposits, custodied securities, bilateral reverse repurchase transactions or other exposures; and
• “weighted average maturity”: the PPSI’s total stock of reserve assets has a weighted average maturity of no more than 20 days.[54]

Under Option B, the same daily liquidity, daily liquidity concentration limit, weekly liquidity, overall concentration limit and weighted average maturity standards would apply, but as mandatory requirements rather than a safe harbor.[55] According to the OCC, Option B would reduce flexibility, but increase transparency and comprehensibility of applicable requirements.[56]

As an additional requirement, the OCC proposes that a PPSI with aggregate outstanding payment stablecoin issuance of at least $25 billion would be required to maintain, on each business day, at least 0.5% of its total reserve assets, up to a cap of $500 million, as fully insured deposits or shares at an IDI (i.e., deposits at each IDI of no more than the federal deposit insurance limit, currently $250,000).[57] The NPRM notes that it is not practicable in light of existing deposit insurance limits to maintain all reserve deposits in fully insured form, but explains that the requirement to maintain a minimum portion of reserve assets in the form of fully insured deposits or shares would promote confidence for both stablecoin holders and the broader market. The NPRM indicates that the OCC may revisit this provision if deposit insurance limits are statutorily increased to make it more operationally feasible for PPSIs to hold deposits in fully insured form.[58]

If a PPSI fails to maintain reserves at any time on an at least a one-to-one basis with outstanding payment stablecoins, the PPSI would be required to notify the OCC and cease any new issuance of payment stablecoins.[59] If the PPSI fails to meet the minimum one-to-one reserve requirement for 15 consecutive business days (or a longer period permitted by the OCC), the PPSI would be required to begin liquidation of reserve assets and redemption of outstanding payment stablecoins, and may not charge customers a fee to redeem their payment stablecoins during the liquidation.[60] If the OCC determines that a PPSI has not demonstrated that it meets applicable requirements relating to the maintenance, diversification and composition of reserve assets, the OCC may require a PPSI to submit a plan to achieve compliance.[61]

Redemption

The GENIUS Act requires that a PPSI disclose its “redemption policy,” which must “establish clear and conspicuous procedures for timely redemption of outstanding payment stablecoins.”[62] The proposed rule would establish a requirement for what constitutes “timely redemption”: a PPSI must redeem a payment stablecoin within two business days following the date that redemption is requested.[63] According to the OCC, although issuers may choose a shorter timeframe, this timeframe should provide “sufficient responsiveness to stablecoin holders who seek to redeem their stablecoins, while also ensuring that [PPSIs] can appropriately manage liquidity demands.”[64] The permitted period for “timely redemption,” however, would automatically be extended to seven calendar days if a PPSI experiences redemption demands exceeding 10% of its outstanding issuance value in a single 24-hour period, and no redemptions would be permitted during this seven-day period without OCC approval.[65] The OCC could further extend this timeframe for redemption if the OCC determines that the PPSI poses a threat to safety and soundness or financial stability, or an extension is otherwise in the public interest.[66] The NPRM explains that these provisions on extension of the redemption period are “intended to facilitate the orderly liquidation of sufficient reserve assets in the event of a spike in redemption requests and would help ensure financial stability by lowering the potential price impact of a sudden liquidation of reserve assets.”[67]

The proposed rule would also require a PPSI to provide specified disclosures regarding its redemption policy, including, among other things, the timeframe for redemption and potential extensions to the timeframe, the requirement that only an applicable regulator may impose discretionary limitations on timely redemption and information on the instructions to be followed in order to carry out redemption.[68] A PPSI’s policy may require that persons be “subject to appropriate customer screening and onboarding” prior to being able to redeem stablecoins.[69] Additional disclosures that a PPSI must provide include information on fees for purchasing or redeeming payment stablecoins.[70]

Risk Management Standards

The GENIUS Act requires that the primary federal payment stablecoin regulators, including the OCC, implement “appropriate operational, compliance, and information technology risk management principles-based requirements and standards, including Bank Secrecy Act and sanctions compliance standards, that . . . are tailored to the business model and risk profile of permitted payment stablecoin issuers . . . [and] consistent with applicable law.”[71] The OCC proposes to implement this requirement with “flexible standards . . . that scale based on the nature, scope, and risk of a [PPSI’s] activities.”[72]

The proposed rule would impose a general requirement that a PPSI have “internal controls and information systems to support effective risk management that are appropriate for the size and complexity of the [PPSI], and the nature, scope, and risk of its activities.”[73] These controls and systems would need to be integrated into the PPSI’s organizational structure, with appropriate segregation of duties and clear lines of authority.[74] They also would need to provide for risk assessment; financial, operational and regulatory reporting; procedures for monitoring, safeguarding, managing, controlling and monetizing assets; and compliance with applicable law.[75] The proposed rule would also impose specific requirements that include the following:

• Internal audit: A PPSI must have an internal audit system appropriate to its size and complexity and the nature, scope and risk of its activities;
• Interest rate risk: A PPSI must manage interest rate risk in a manner that is appropriate to its size and complexity and the complexity of its assets and liabilities;
• Asset growth: A PPSI’s asset growth must be prudent and commensurate with its risk management capabilities, operational capacity and staffing;
• Earnings: A PPSI must establish and maintain a system to evaluate and monitor earnings and ensure earnings are sufficient to support operations and maintain required capital levels;
• Insider and affiliate transactions: A PPSI must ensure that transactions with insiders and affiliates are not excessive and do not pose significant risk of material financial loss, are conducted on “market terms” and appropriately documented and reviewed by the PPSI’s board of directors;
• Service provider arrangements: A PPSI must implement due diligence in selecting service providers, include specified terms in contracts with service providers and monitor service provider relationships;
• Liquidity, diversification and concentration: A PPSI must monitor and validate compliance with the reserve asset requirements discussed above and manage liquidity and concentration risks in a manner appropriate to its business model and risk profile; and
• Information technology and security: A PPSI must have a comprehensive written information security risk and control framework that is approved by its board of directors and satisfies required elements, including as to security of customer information, safe handling of digital assets and customer notifications in case of unauthorized access.[76]

The OCC indicates in the NPRM that Bank Secrecy Act and sanctions compliance requirements applicable to PPSIs will be addressed in a different proposed rule to be issued in coordination with the Treasury Department.[77]

Capital and Operational Backstop

The GENIUS Act requires that the primary federal payment stablecoin regulators, including the OCC, implement capital requirements applicable to PPSIs (1) that are tailored to the business model and risk profile of PPSIs, (2) that do not exceed requirements sufficient to ensure the ongoing operations of PPSIs and (3) if determined necessary to ensure the ongoing operations of PPSIs, that may include capital buffers that are tailored to the business model and risk profile of PPSIs.[78]

The OCC does not propose to establish standardized minimum capital requirements for PPSIs. This is because, as described in the NPRM, “[d]ue to the novelty of payment stablecoins and various business models for stablecoin issuers being discussed among industry participants, the OCC believes that setting capital requirements based on individual evaluations of prospective [PPSIs] would be most appropriate at this time.”[79] Additionally, the NPRM provides that in determining capital requirements for PPSIs, the OCC would “focus[] primarily on the operational risk” of PPSIs on the basis that other risks (e.g., credit risk, market risk and interest rate risk) traditionally addressed by regulatory capital requirements are either “minimal” in the case of PPSIs or would be addressed through other aspects of the proposal, such as the reserve asset liquidity and diversification requirements.[80]

The capital elements that a PPSI may use to satisfy capital requirements are common equity tier 1 (“CET1”) capital[81] and additional tier 1 capital,[82] with the eligible instruments “generally consistent with the capital elements for national banks” under Part 3 of the OCC’s regulations.[83] Capital elements for a PPSI would not include tier 2 capital instruments such as subordinated debt instruments on the basis that doing so “may incentivize an issuer to take on additional leverage with a stated repayment obligation.”[84] The NPRM would not require specific deductions from regulatory capital instruments for PPSIs, such as for goodwill and other intangible assets. However, the NPRM indicates that the OCC is also considering a number of alternate approaches for specifying the capital requirements applicable to PPSIs—including frameworks based on tangible capital or GAAP equity that implement deductions for goodwill and other intangible assets—and asks several specific questions regarding implementation of capital requirements.[85]

Under the OCC’s proposed approach for PPSI capital requirements, a “de novo” PPSI—meaning a PPSI (whether initially licensed by the OCC or a nonbank state-regulated PPSI that transitions to the federal regulatory framework administered jointly by the OCC and a state regulator) during its first three years of being subject to OCC supervision or a different period determined by the OCC—would be subject to a requirement to maintain capital in the forms described above in an amount specified by the OCC, with a floor of $5 million.[86] After this de novo period, the proposed rule would not impose a specific minimum capital requirement. A PPSI would instead be required to calculate (based on estimates submitted during the de novo chartering phase and the PPSI’s operating history, particularly in relation to operational risk) and maintain “capital commensurate with the level and nature of all risks to which the [PPSI] is exposed, including risks for off-balance sheet activities.”[87] The OCC would review and monitor the amount of capital as part of its examination process. The PPSI would also be required to “have a process for assessing its overall capital adequacy” and “a comprehensive strategy for sustaining an appropriate level of capital.”[88]

In addition to these capital requirements, the OCC would require a PPSI to hold an “operational backstop.” In particular, a PPSI would be required to maintain assets equal to 12 months of total expenses, generally calculated on a rolling four-quarter basis.[89] The operational backstop would be required to consist only of specified high-quality liquid assets and must be held separately from the PPSI’s reserve assets and other PPSI assets.[90]

The OCC would be permitted to impose additional capital or backstop requirements for an individual PPSI based on that PPSI’s circumstances, for example, due to management deficiencies, losses, risk or control weaknesses or other issues.[91] Additionally, similarly to a PPSI that fails to maintain adequate reserve assets at any time, if a PPSI fails to satisfy minimum capital or backstop requirements at a quarter-end, the PPSI would be prohibited from issuing new payment stablecoins.[92] If a PPSI fails to satisfy minimum capital or backstop requirements at two consecutive quarter-ends, the PPSI would be required to begin liquidation of reserve assets and redemption of outstanding payment stablecoins. PPSIs would not be permitted to charge customers a fee to redeem their payment stablecoins during such a liquidation.[93]

Supervision, Reports and Audits

Under the proposed rule, the OCC would conduct a full-scope examination of each OCC-regulated PPSI at least once every 12 months, subject to an exemption for certain smaller PPSIs, in which case the OCC would be permitted to implement an 18-36 month examination cycle.[94]

Consistent with the GENIUS Act, a PPSI must comply with several reporting requirements, including to publish a monthly report as to the composition of its reserves that has been examined by a registered public accounting firm; the chief executive officer and chief financial officer of a PPSI would also be required to submit a certification as to the accuracy of the monthly reserves composition report.[95] Additionally, the OCC would require a PPSI to provide confidential weekly reporting, quarterly reports of financial condition and additional reporting as the OCC may request.[96]

Consistent with the GENIUS Act, the OCC would require a PPSI with more than $50 billion in outstanding payment stablecoins that is not subject to Securities and Exchange Commission (“SEC”) reporting obligations to obtain annual financial statement audits, publicly disclose the audited financials and submit them to the OCC within 120 days after the end of the PPSI’s fiscal year.[97]

The OCC would also impose a change in control framework on PPSIs similar to that under the Change in Bank Control Act.[98] Any person seeking to acquire “control” (as defined in Section 5.50 of the OCC’s regulations, which is the OCC’s change in control regulation) of a PPSI would be required to follow the requirements of Section 5.50 as if the PPSI were a national bank.[99]

Finally, the OCC would implement assessment rates applicable to OCC-regulated PPSIs in order to fund OCC supervision of these entities.[100]

Back-up Enforcement Authority over State-Regulated PPSIs

Under the GENIUS Act, the OCC may pursue an enforcement action to impose restrictions on a state-regulated nonbank PPSI if the OCC determines that “unusual and exigent circumstances” exist.[101]

Under the proposed rule, the OCC would determine whether unusual and exigent circumstances exist by evaluating, among any other factors that the OCC deems appropriate: (1) whether a PPSI is engaging (or is expected to imminently be engaging) in activity posing an immediate risk to the financial safety, soundness or stability of the PPSI or the U.S. financial system; (2) actions of the relevant state regulator to promptly address the risk to the PPSI or the U.S. financial system; and (3) risks presented to payment stablecoin holders.[102] In accordance with limitations on this “back-up” OCC enforcement authority in the GENIUS Act, the OCC would pursue an enforcement action against a state-regulated nonbank PPSI only if “there is reasonable cause to believe that the continuation of any activity, including any failure to act, by [the PPSI] constitutes a serious risk to the financial safety, soundness, or stability” of the PPSI.[103] If the OCC takes an action under this back-up enforcement authority against a state-regulated nonbank PPSI, it could seek to impose limitations on, among other things, redemptions, transactions between the PPSI and affiliates, and activities of the PPSI.[104]

Requirements Applicable to Registered FPSIs

The proposed rule would impose requirements on any FPSI that is registered with the OCC. Several of these requirements would mirror those applicable under the proposed rule to PPSIs, including that an FPSI would be subject to the same prohibition on paying interest or yield (and the related presumption) and that an FPSI would be subject to similar reporting requirements and frequency of examinations.[105]

The OCC would also impose several conditions on any FPSI when approving its registration application. An FPSI would be required to (1) grant the OCC prompt and complete access to all officers, directors, employees and agents, and to all relevant books, records or documents of any type, with all of this information made available in English; (2) provide evidence that the FPSI holds reserves in the United States that are sufficient to meet the liquidity demands of U.S. customers on an ongoing basis (unless permitted otherwise under a reciprocal agreement with another jurisdiction implemented by the Secretary of the Treasury); (3) consent to jurisdiction of U.S. federal courts and of U.S. government agencies for claims brought by the United States or federal agencies (including the OCC) in any matter arising under the GENIUS Act or other applicable federal law; and (4) comply with any relevant requirements in a determination by the Secretary of the Treasury that the regulatory and supervisory regime applicable to the FPSI in its home jurisdiction is comparable to the GENIUS Act or in a reciprocal arrangement with that jurisdiction implemented by the Secretary of the Treasury.[106]

Requirements Applicable to OCC-Regulated Custodians

The GENIUS Act establishes restrictions on the types of financial institutions that are eligible to provide custodial or safekeeping services for payment stablecoin reserves, payment stablecoins used as collateral and private keys used to issue payment stablecoins.[107] The GENIUS Act also requires that the custody and safekeeping of these assets comply with requirements established in the GENIUS Act, unless a financial institution performing these custodial activities does so in compliance with “similar” requirements imposed by a federal payment stablecoin regulator (including the OCC), the SEC or Commodity Futures Trading Commission.[108]

The proposed rule would define “covered assets” as consisting of payment stablecoin reserves, payment stablecoins used as collateral, private keys used to issue payment stablecoins and any cash or property received in the course of providing custody or safekeeping services for those assets.[109] The rule would establish requirements for OCC-regulated institutions—including national banks, federal savings associations, federal branches of foreign banks and OCC-regulated PPSIs—with respect to custody and safekeeping services they provide for covered assets, regardless of the regulator of the applicable PPSI or FPSI. That is, the OCC’s rules would apply based on which institution is providing custodial services for covered assets, not which institution is receiving the custodial services.

According to the NPRM, the proposed rule would “implement certain minimum principles-based requirements” applicable to an OCC-regulated institution’s provision of custodial and safekeeping services for covered assets.[110] Among other requirements, a custodian would be required to segregate the covered assets of a customer (e.g., a PPSI or FPSI) and treat those assets as belonging to the customer and not as property of the custodian.[111] A custodian would also be required to take appropriate steps to protect the covered assets of a customer from claims of creditors of the custodian and of any sub-custodian and maintain possession or control of covered assets held in custody (directly or through a sub-custodian, provided the custodian has in place adequate oversight of the sub-custodian).[112] A custodian would also be required to segregate a customer’s covered assets from the custodian’s own assets; however, a custodian could commingle covered assets of multiple customers in omnibus accounts if done in a manner consistent with applicable law and the custodian maintains appropriate practices for omnibus accounts.[113]

Finally, the proposed rule would provide that an insured national bank or federal savings association that provides custodial or safekeeping services for covered assets in the form of cash may hold these assets in the form of a deposit liability if doing so is consistent with federal law.[114]

Amendments Applicable to Entities other than Payment Stablecoin Issuers

The proposed rule would also amend OCC regulations applicable to OCC-regulated entities other than PPSIs or FPSIs. These amendments include the following:

First, the GENIUS Act requires that the federal banking agencies modify their rules imposing leverage and risk-based capital requirements to implement a “building block” approach to the amount of capital that would be required to be maintained by an IDI, bank holding company or savings and loan holding company in respect of a subsidiary PPSI.[115] This approach limits the ultimate level of capital that the IDI or holding company must maintain in respect of its subsidiary PPSI to a level no greater than the amount of capital required to be maintained directly at the PPSI under capital rules specifically applicable to PPSIs.

The proposed rule would implement this approach by revising the capital adequacy standards in Part 3 of the OCC’s regulations. Under these proposed revisions, an insured national bank or Federal savings association would be required, when calculating its capital ratios, to (1) deconsolidate any subsidiary PPSI from the IDI’s balance sheet; (2) deduct from the IDI’s CET1 capital any positive retained earnings originating from the PPSI to the extent not paid out as dividends to the IDI; and (3) exclude any investment in (if not already deducted as positive retained earnings) or receivable from the PPSI when calculating standardized and advanced approaches risk-weighted assets, average total consolidated assets and total leverage exposure, as applicable.[116]

Second, the OCC would amend its Prompt Corrective Action framework such that these same adjustments would be applied for purposes of calculating the “total assets” of an insured national bank or federal savings association under that framework.[117]

Third, the OCC proposes to permit all uninsured national trust banks to elect to be subject to the individualized capital requirements that are proposed for PPSIs. Currently, uninsured national trust banks are subject to the capital adequacy standards in Part 3 of the OCC’s regulations, including risk-based and leverage capital ratios.[118] According to the NPRM, these existing measures “are not optimal measures of capital adequacy for national trust banks.”[119] To “promote parity among uninsured national trust banks, whether or not they issue payment stablecoins,”[120] the proposed rule would permit any uninsured national trust bank to elect to comply with the capital requirements applicable to PPSIs in Part 15 of the OCC’s regulations and, in so doing, opt out of the existing capital adequacy standards in Part 3 that would otherwise apply.[121]

Next Steps

As described above, the NPRM includes over 200 questions, many of which include detailed, substantive alternatives that the OCC is considering for its regulations under the GENIUS Act. These questions cover all aspects of the proposed rule. Examples of the topics covered include the following:

• whether the definition of the term “customer,” which would be used in several contexts in the rule and would be defined as “a person that purchases (through any consideration) the products or services of another person,”[122] should be narrowed or broadened, including so that the term would cover “all downstream payment stablecoin holders;”[123]
• whether a prospective PPSI’s ability to conduct its proposed activities in a “safe and sound manner” should be a factor considered by the OCC in evaluating an application;
• whether the OCC should include in the permissible activities of PPSIs “digital asset service provider activities” by including an approval process for engaging in these activities;
• whether the term “holder” of a payment stablecoin, which determines the persons to which a PPSI or FPSI may not pay any form of interest or yield in connection with the holding, use or retention of payment stablecoins, should be defined and, if so, how;
• whether the OCC should impose a buffer or haircuts on certain reserve assets to ensure PPSIs maintain reserves on an at least one-to-one basis for outstanding payment stablecoins;

• whether additional provisions should be included to encourage PPSIs to hold reserve assets in the form of fully insured deposits or provisions should be included to offset potential reductions in overall deposit levels caused by the licensing and growth of PPSIs and FPSIs;
• whether secondary market fluctuations in the price of a payment stablecoin issued by a PPSI should result in restrictions on the issuance of additional payment stablecoins by that PPSI;
• whether the OCC should explicitly require PPSIs to directly redeem payment stablecoins from any holder;
• whether the standardized liquidity requirements applicable to banks (including the LCR and NSFR) should be amended in light of the proposed rule and GENIUS Act, including whether the stablecoin activities of PPSI subsidiaries should be fully excluded from the LCR calculations of parent entities;
• whether a PPSI that is a subsidiary of a national bank or federal savings association should be required to make arrangements to borrow from the discount window or other contingent funding sources, such as the Federal Home Loan Banks;
• whether a PPSI or FPSI should be allowed to issue only a single “brand” of payment stablecoin and, if so, if a streamlined process should be added for a payment stablecoin issuer to set up a separate entity to issue each additional brand of payment stablecoins;
• how the OCC should implement capital requirements for PPSIs, as also discussed above;
• whether a PPSI should be required to hold additional capital to the extent it is subject to foreign exchange risk;
• what the OCC should consider in determining that unusual and exigent circumstances exist with respect to a state-regulated nonbank PPSI in connection with the OCC’s back-up enforcement authority for such a PPSI, and whether the OCC should publicize any determination that these circumstances exist;
• how the proposed rule would affect credit creation and how the OCC could minimize any adverse impact; and
• whether any aspects of the proposed rule should be adjusted to promote fair competition between banks and nonbanks.

Additionally, proposed “digital asset market structure” legislation is currently pending in Congress. It is not yet clear, if this legislation is enacted, whether (or to what extent) it may alter the GENIUS Act’s payment stablecoin regime, in particular the prohibition on payment of interest or yield, or otherwise affect implementing regulations under the GENIUS Act, including the OCC’s rulemaking.[124]