Federal Reserve Proposes CIP Rules for Permitted Payment Stablecoin Issuers Under Genius Act

The proposal implements sections of the Genius Act signed July 2025, which mandates Bank Secrecy Act compliance for stablecoin issuers with 100 percent liquid reserves. It aligns PPSIs with existing CIP standards applied to banks and broker-dealers since 2001, carving them out of the money services business category previously used by roughly half of known issuers. Public comments close after 60 days, ahead of the January 2027 statutory deadline or 120 days post-final rules.

Parallel April 2026 FinCEN-OFAC and FDIC-OCC notices address AML programs, sanctions screening, licensing, capital, and redemption. The CIP rule specifically handles secondary-market redemptions by defining accounts to include token holders without direct issuance relationships, closing an arbitrage channel that allowed evasion of KYC in cross-border flows.

This tightening raises fixed compliance costs for issuers while reducing regulatory uncertainty that has capped institutional allocation. Liquidity effects concentrate on offshore or unregistered platforms as on-ramps shift to compliant entities. Reserve quality and financial stability concerns cited by Governor Barr remain unaddressed by identification alone.

Next steps include interagency coordination on final rules and potential enforcement actions once the Genius Act effective date triggers. Issuers must document program effectiveness or face BSA penalties.