By Michael Scott
The US edges closer to establishing a framework on transparency and enforcement rules for stablecoins stipulating licensing, audits, and reserve requirements.
The US Senate Banking Committee (SBC) is scheduled to vote on the amended bipartisan bill on Thursday, March 12, aiming to regulate stablecoins and enhance consumer protection.
Since Senator Bill Hagerty’s introduction on February 4, the GENIUS Act has won key support from the SBC chai Tim Scott. Additionally, the bill has received endorsement from Wyoming Senator Cynthia Lummiss and New York’s Sen. Kirsten Gillibrand.
Senate Committee Votes on GENIUS Bill
The GENIUS bill builds upon the initial discussion draft Sen. Hagerty released in October last year to clarify stablecoin regulation at the federal and state levels. A majority vote on Thursday positions the US towards the clear path guiding stablecoin issuers. Similarly, this further advances the crypto policies that President Donald Trump promised during the 2024 campaigns to cement the US as global capital for crypto.
Sen. Hagerty reiterated that the GENIUS Act will enhance transaction efficiency and fuel demand for the US Treasuries while supporting stablecoin innovation. He added that the legislation prioritizes a pro-growth and safe regulatory framework that advances Trump’s mission to further crypto innovation.
The GENIUS Act will facilitate stablecoin issuers utilizing federal or state charters relative to the market cap. Moreover, the bill introduces the “reciprocity” agreements mandating foreign issuers to satisfy the US standards on sanctions compliance, anti-money laundering (AML), and reserves. In an X post, a Hogan & Hogan law firm partner, Jeremy Hogan, indicated that the GENIUS bill proposal for reserve and AML requirements would apply neatly to the USD Coin (USDC) and RLUSD issued by Circle and Ripple, respectively.
The bill designates the issuers as financial institutions mandated to fulfill the anti-money laundering (AML) purpose. As such, they should implement compliance programs and exercise due diligence on high-value transactions. The recent draft expands the versions of the bill to have enhanced know-your-customer (KYC) measures.
GENIUS Act Seals Fate for Foreign-based Stablecoins
Hogan considers that the GENIUS bill mandates stablecoin issuers to comply with the subsequent orders instructing them to facilitate seizure, freezing, burning, or stopping transfers. The attorney indicates the US authorities could control the crypto assets within the jurisdiction. This imposes additional burdens on the existing issuers.
Similarly, the bill has provisions targeting the foreign-issued stablecoins. Still, these provisions align with the US-based stablecoins, including RLUSD and USDC, which are now stated to comply with the bill’s requirements. The stablecoin bill could offer an edge for the US-based stablecoins over the foreign-based issuers, including Tether (USDT), which some critics argue could struggle to satisfy the requirements.
Although the largest stablecoin by market value, Tether is domiciled within the Bitcoin-friendly El Salvador and lacks a formal presence in the US. Tether’s team has previously revealed that they are backing the USDT stablecoin with US Treasury bills, corporate paper, and Bitcoin. Per a recent JP Morgan report, a substantial portion of Tether’s reserves, including Bitcoin holdings, may not satisfy the new compliance standards.
Compliance with Stablecoin Regulations
Efforts to comply with the provisions could force Tether to liquidate some BTC reserves. This could affect the capability to sustain the US dollar peg. Tether appears to downplay those concerns by appointing a chief financial executive to oversee the full audit, which has attracted contention from observers.
The onboarding of Simon McWilliams is critical given his 20-year experience in a finance executive role. His integration will add to Tether’s quarterly attestations via the auditing firm BDO.
It is uncertain how swiftly the stablecoin issuers will adjust, given that the majority have relied upon the unregulated sector to develop their entities into multi-billion dollar enterprises. This coincides with Binance’s plans to delist nine stablecoins, among them USDT, UST, TUSD, FDUSD, PAXG, DAI, USDP, and USTC, for non-compliance with the EU’s Markets in Crypto Assets (MiCA) regulations.