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Stablecoins are no longer operating in a regulatory gray area. The GENIUS Act is now the baseline for accessing the US market. With the GENIUS Act now signed into law, the US has taken a major step toward formalizing how these digital assets are issued, managed, and supervised.
This new framework brings long-awaited clarity along with some new licensing obligations, compliance burdens, and strategic decisions for fintech firms. This article breaks down what the GENIUS Act requires and how it changes the landscape for stablecoin issuers.
We’ll cover who’s allowed to issue stablecoins, what is required for compliance programs, and how timelines affect both new and existing players. If you’re building or operating in the stablecoin space, this isn’t something you can ignore.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
What Is the GENIUS Act?
Short for Guiding and Establishing National Innovation for US Stablecoins, the GENIUS Act is the first US federal law specifically focused on stablecoin issuance. It creates a formal regulatory framework for digital assets that are pegged to fiat currency and designed for payments.
Under this Act, only certain regulated entities can issue what it defines as “payment stablecoins.” These are digital assets redeemable on demand at a fixed value, typically one-to-one with the US dollar. Issuers must meet strict requirements around reserve backing, redemption policies, and regulatory approval.
The GENIUS Act shifts stablecoin oversight away from uncertain, overlapping jurisdictions and into a defined structure under US banking regulators. It also clarifies that properly issued stablecoins are not treated as securities or commodities, which removes them from the SEC and CFTC’s direct authority.
Why the GENIUS Act Matters for Stablecoin Issuers
The GENIUS Act changes how stablecoin issuers operate in the US. Before this law, most issuers relied on a patchwork of state money transmitter licenses or operated without a clear regulatory classification. That uncertainty is over.
Here is why the GENIUS Act is the focal point of everyone working with stablecoins:
Stablecoin issuance is now restricted: Only federally or state-approved entities can issue payment stablecoins. Unlicensed issuance becomes a prohibited activity with penalties after the law takes effect.
Non-compliant stablecoins will be phased out: Existing stablecoins that don’t meet the GENIUS Act’s requirements must wind down or restructure. They can’t be sold or distributed to US users after the transition period ends.
Reserve management and redemption rules are regulated: Issuers must maintain 1:1 backing with eligible assets and honor redemption at par. Monthly reserve reports and independent audits are mandatory.
Institutional adoption is more likely: A defined regulatory framework reduces legal uncertainty, making it easier for banks, funds, and payment providers to work with compliant stablecoins.
Marketing, data usage, and tech stack choices face new limits: The law restricts how issuers can advertise, handle user data, and structure custody or wallet infrastructure. Compliance now extends beyond just financial reporting.
Who Can Issue Stablecoins Under the GENIUS Act?
The GENIUS Act doesn't just regulate how stablecoins are issued. It now defines who is allowed to issue them at all. This is the core of the framework. Once the law is fully in effect, issuing a payment stablecoin without proper authorization will be illegal in the US.
The Act lays out the following four types of permitted issuers, each with its own path to approval and supervision:
Federal Issuers (OCC-Licensed)
Nonbank companies can apply for a new type of federal license from the Office of the Comptroller of the Currency (OCC). This gives them national authority to issue stablecoins and operate under direct federal oversight.
This model suits fintechs looking to build a stablecoin-native entity. But the bar is high. Applicants need to demonstrate operational readiness, financial strength, and a compliance infrastructure that meets OCC expectations.
Bank-Affiliated Issuers
A stablecoin can also be issued through a subsidiary of a federally insured bank or credit union. In this case, the parent institution’s existing federal regulator, such as the Federal Reserve or FDIC, takes on supervisory responsibility.
This route appeals to banks looking to segment stablecoin activity from traditional deposits. It’s also a viable option for fintech-bank partnerships, where the bank owns the issuance infrastructure and the fintech manages front-end operations.
State-Chartered Issuers
Entities can operate under state law as long as their state’s stablecoin regime is certified as “substantially similar” to the federal framework. The Treasury Department and a new certification committee will review and approve qualifying state regimes.
There’s a catch: once a state-regulated issuer exceeds $10 billion in outstanding stablecoins, it must shift to federal oversight unless granted a waiver. This caps the scale of purely state-level operations.
Foreign Issuers Serving US Users
Foreign companies aren’t exempt. If a stablecoin is offered to US users, the issuer must either obtain a US license or prove that its home country’s regulations are comparable to GENIUS Act standards.
The Treasury Secretary will determine which jurisdictions qualify. Even then, the issuer must register with US authorities and agree to comply with law enforcement actions, such as freezing assets linked to criminal activity.
See also:
Key Compliance Requirements Under the GENIUS Act
The GENIUS Act brings stablecoin issuers under a regulatory framework modeled on banking standards. That means issuers must build and maintain operational, financial, and compliance structures that regulators can supervise over time.
Below are the core requirements every permitted issuer must meet:
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Reserve Backing and Redemption Rules
Every payment stablecoin must be backed one-to-one by eligible reserve assets. These include US dollars, Federal Reserve deposits, short-term Treasury bills, and similar high-quality liquid assets.
Issuers must provide redemption at par, meaning stablecoins must be redeemable for their face value on demand. Redemption terms must be published in plain language, with clear policies and any applicable fees disclosed upfront.
Audit, Reporting, and Transparency Standards
Issuers must publish monthly reserve reports reviewed by an independent public accounting firm. These reports must break down the composition and total value of reserve assets.
For larger issuers, annual financial statements are also required. The CEO and CFO must certify that all financial disclosures are accurate and complete, introducing personal accountability at the executive level.
Business Activity Restrictions
Stablecoin issuers can’t engage in unrelated business lines. Their operations must focus on issuing, redeeming, and managing stablecoin reserves.
Other activities like lending, yield generation, or offering non-stablecoin digital assets require separate approval. This narrow business scope is designed to reduce risk and avoid regulatory conflict.
AML and Sanctions Compliance
All permitted issuers are classified as financial institutions under the Bank Secrecy Act. That means full anti-money laundering (AML) program obligations apply, including customer due diligence, transaction monitoring, and suspicious activity reporting. Issuers must also comply with OFAC sanctions and maintain systems for screening transactions and users accordingly.
Consumer Protection and Marketing Limits
The Act prohibits misleading language, including terms that imply stablecoins are government-backed or insured. Issuers can’t ever advertise their products as “FDIC-insured,” “official US currency,” or anything similar that could mislead the masses. That’s why it’s critical to understand and use the right technical terms of fintech marketing before you announce your stablecoin issuance.
It also limits the use of customer data. Issuers may not share personal or transaction information with third parties without consent, and may not use that data for targeted advertising. This element protects against potential concerns about data privacy in the US.
Timeline and Transition Periods
The GENIUS Act does not take effect overnight. It includes a multi-year rollout that gives both regulators and market participants time to adapt. But the deadlines are real, and companies waiting too long may run out of runway.
The law becomes enforceable whichever comes first:
18 months after enactment (January 2027), or
120 days after the final implementing rules are published by regulators like the OCC and Federal Reserve.
This means the earliest possible effective date could land in late 2026, depending on how quickly rulemaking moves. The GENIUS Act includes a grace period for legacy products. Issuers can continue operating under current frameworks until the effective date. After that, new issuances must come from licensed entities.
But by mid-2028, all stablecoins offered to US users must be issued under the GENIUS framework or qualify as a permitted foreign equivalent. Non-compliant coins will need to exit the US market.
Note: There’s an additional transition window through July 2028 for existing stablecoins already in circulation. During that time, platforms may continue to support them unless regulators determine they pose a consumer or systemic risk.
See also:
Common Compliance Challenges
The GENIUS Act introduces a structured framework, but compliance isn’t just about checking boxes. For stablecoin issuers, especially fintechs used to rapid iteration and lean operations, adapting to regulatory expectations will require significant changes in how teams operate.
Here are the key areas where most companies will face friction:
Capital and Liquidity Expectations
Permitted issuers will be subject to capital requirements based on risk exposure, operational scale, and reserve composition. These requirements are still under development by regulators like the OCC and the Federal Reserve, but early signals point toward minimum equity thresholds, internal liquidity stress testing, and capital buffers to absorb losses.
Startups with minimal retained earnings or high dependency on venture capital may struggle to meet these thresholds. Furthermore, the law prohibits rehypothecation of reserves (with limited exceptions), so issuers can’t use reserve capital for yield, further tightening liquidity flexibility.
Data Privacy and Custody Obligations
The GENIUS Act prohibits issuers from using customer transaction data for behavioral targeting or sharing personal data without explicit consent. This rule affects wallet design, user analytics infrastructure, and any monetization strategy based on user behavior.
On the custody side, stablecoin issuers must safeguard both reserve assets and private keys using systems that meet institutional standards. That likely means:
Segregated custody with a qualified custodian (e.g., a bank or trust company)
Real-time monitoring of asset balances and user liabilities
Key management protocols that support freezing assets under a court order
Fintechs relying on homegrown systems or outsourced crypto wallets may need major upgrades.
Marketing Limitations and Brand Risks
As mentioned, the GENIUS Act introduces strict boundaries around how stablecoins are described in public materials. Phrases that imply government endorsement, such as “FDIC-insured,” “backed by the US,” or “digital dollar”, are prohibited.
Issuers must also avoid any naming or branding that could mislead users into thinking a stablecoin is legal tender or carries any form of government protection. This has implications for:
Website content and disclaimers
Investor pitch materials
Wallet UX language
Paid search and ad campaigns
Missteps here are not just reputational. They’re enforceable by regulators and may carry financial penalties.
Managing Audits and Regulatory Exams
Issuers must produce:
Monthly reserve reports, independently reviewed by a public accounting firm
Annual financial statements (if over a size threshold)
Ongoing certifications by the CEO and CFO attesting to reporting accuracy
Beyond documentation, regulators may conduct in-depth exams covering internal controls, cybersecurity protocols, vendor management, as well as operational risk. For fintechs unfamiliar with this level of scrutiny, the process can be resource-intensive and unnerving.
Teams will need audit-readiness plans, internal owners for compliance functions, and a way to manage regulatory communication, particularly during the early years of operation, when your systems are still evolving. This is where many startups find themselves unprepared.
Common Misconceptions About the GENIUS Act
Now that the GENIUS Act is law, founders and compliance leads are starting to reframe their stablecoin strategies. But even well-informed teams are making assumptions that don’t hold up under the new rules.
Some of these misunderstandings come from how things worked pre-GENIUS; others stem from misreading how the Act interacts with existing frameworks. Below are four specific misconceptions that could lead to compliance gaps, legal exposure, or failed licensing efforts:
“Stablecoins are Now FDIC-Insured”
They’re not. Even if a stablecoin is fully regulated under the GENIUS Act, it is not considered a bank deposit. The law explicitly prohibits marketing language that implies FDIC insurance or government guarantees.
Stablecoin holders don’t have the same legal protections as depositors in a failed bank. Redemption rights exist, but they depend on reserve quality, operational soundness, and redemption process design, not government backstops.
“DeFi or Third-Party Yield Avoids Issuer Rules”
Some believe they can sidestep the Act’s ban on paying yield by routing users through DeFi platforms or third-party lenders. The GENIUS Act only prohibits issuers from offering yield directly, but that doesn’t make workarounds safe.
If a yield-bearing product is promoted in tandem with the stablecoin or relies on a prearranged flow from the issuer to the yield provider, regulators may still consider it a violation. Plus, offering yield could trigger securities law exposure independent of the GENIUS Act.
“Only US Laws Matter”
Not quite. While the Act governs stablecoins in the US, it also applies to foreign issuers serving US users. That includes offshore companies with US-facing apps, platforms, or token distribution.
The law requires comparable regulation in the issuer’s home country, plus registration and cooperation with US authorities. Ignoring that can lead to access restrictions, enforcement risk, or removal from US exchanges.
“Labeling a Token a ‘Stablecoin’ is Enough”
It isn’t. The GENIUS Act ties legal treatment to issuer status and compliance, not marketing. Calling a token a “stablecoin” does not exempt it from securities, commodities, or banking laws if it doesn’t meet the Act’s requirements.
In fact, using the stablecoin label without regulatory approval could trigger enforcement, especially if the product mimics the behavior of covered instruments without qualifying under the framework.
Strategic Paths to GENIUS Act Compliance
The GENIUS Act doesn’t prescribe a single path forward. Issuers, platforms, and fintech partners have options depending on their structure, growth plans, and appetite for regulatory complexity.
Here are four common approaches companies are considering:
Applying for OCC or State Licensing
For fintechs looking to issue directly, the most straightforward path is applying for a new federal license through the OCC. This provides national authority and federal supervision, but the bar is high. Applicants must show financial resilience, operational readiness, and compliance infrastructure.
Alternatively, some firms may qualify under a state regime that’s been certified as “substantially similar.” This option may be faster but comes with scaling limits: once an issuer exceeds $10 billion in outstanding stablecoins, it must either federalize or seek a waiver.
Partnering With a Bank Issuer
For companies focused on product, not infrastructure, partnering with a federally regulated bank is increasingly attractive. The bank holds the license and issues the stablecoin, while the fintech handles distribution, branding, and UX.
This model reduces licensing burden but shifts ongoing compliance coordination to the partnership level. Agreements need to clarify roles around reserve management, marketing approvals, transaction monitoring, and audit access.
Transitioning Existing Products
Many platforms already offer dollar-linked tokens, credits, or stored-value products. If those are classified as “payment stablecoins” under the Act, they’ll need to be restructured or discontinued.
This means mapping each product against the GENIUS definition and assessing:
Who issues the instrument
Whether it’s redeemable at par
How reserves are managed
If users are located in the US
Depending on the outcome, the company may need to migrate users, sunset tokens, or rebuild issuance infrastructure.
Deciding Whether to Pursue or Exit the US Market
Some stablecoin projects might decide against the US being their primary growth market, or that the GENIUS Act compliance isn’t viable for their model. That’s a valid business decision, but it still requires careful execution.
US user access must be blocked at the platform level. Token listings may need to be geo-fenced. And public communications must stop short of targeting US residents. Even firms outside the US borders are still subject to enforcement if they serve the US market improperly.
How Companies Navigate GENIUS Act Compliance
The GENIUS Act now demands a fully operational compliance framework that can stand up to federal examination. From reserve oversight and data privacy to marketing controls and documenting your compliance program, there’s a lot to be done.
For most fintech teams, that means working with specialists who understand both the regulatory environment and how fast-paced financial products are built. That’s where InnReg comes in.
InnReg helps fintech companies with the following responsibilities:
Identifying and monitoring regulatory red flags in your product or business model
Coordinating directly with legal counsel to support your application
Creating policies and procedures for reserve management, marketing approvals, and vendor oversight
Managing your compliance calendar, from reporting deadlines to policy refresh cycles
Preparing for and supporting regulatory exams and third-party audits
Acting as your outsourced compliance department or supporting your internal team as needed
Stablecoin issuers can no longer rely on fragmented state licenses, interpretive gaps, or informal best practices. The rules are here, and so are the expectations.
Whether you plan to issue directly, partner with a bank, or restructure an existing product, this is the time to act. The transition window will close quickly, and the legal and operational cost of getting it wrong has never been higher.
For fintechs that want to keep building while mitigating regulatory risks, the path is clear: take GENIUS seriously, plan early, and work with specialists who understand how regulation and innovation intersect.
How Can InnReg Help?
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013.
We are especially effective at launching and scaling fintechs with innovative compliance strategies and delivering cost-effective managed services, assisted by proprietary regtech solutions.
If you need help with blockchain compliance, reach out to our regulatory experts today:
Published on Aug 20, 2025
Last updated on Aug 20, 2025
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