The Federal Deposit Insurance Corporation (FDIC) has proposed potential federal laws to oversee how regulated financial platforms roll out stablecoin services in alignment with U.S.’ GENIUS Act. The FDIC on Tuesday said stablecoin issuers would have to prove and maintain bank-grade financial reserves and instant fiat redemption solutions to ensure their clients are protected against financial risks.
In an official announcement, the FDIC proposed strict requirements around reserve, redemption, capital, and risk management for stablecoin issuers affliated with traditional banks.
While the issuers would have to prove 1:1 reserves to back their stablecoin offerings, the FDIC said, banks backing these assets should have to be prepared to process stablcoin-to-fiat redemption for users efficiently.
“The FDIC would define ‘significant redemption request’ to mean a circumstance in which aggregate redemption requests exceed 10 percent of a PPSI’s outstanding issuance value within a single 24-hour period,” it said, inviting feedback on whether the proposed 10 percent threshold seems adequate or not.
These moves are aimed at setting comprehensive compliance standards for permitted payment stablecoin issuers (PPSIs). Typically, these entities are subsidiaries of FDIC-supervised institutions like state non-member banks and state savings associations.
The insurance see-saw
The FDIC said that if a stablecoin issuer holds its reserves in a traditional bank, the token holders will not be directly insured by the FDIC.
In this case, if the stablecoin issuer was to faulter, the token holders would not be allowed to file a claim with the government, the proposed rules stated.
The government agency, however, did say that for tokenized deposits that are generally issued by banks representing actual money in the user accounts, the standard $250,000 FDIC insurance would be guranteed.
The FDIC said it will be seeing tokenized deposits as regular deposits regardless of the fact that the deposit entry is put down on paper or on a blockchain network.
“The FDIC is proposing to amend its deposit insurance rules o provide that deposits held as reserves for a payment stablecoin would be insured to the PPSI under the FDIC’s coverage rules for corporate deposits, but would not be insured to payment stablecoin holders on a pass-through basis,” it noted.
FDIC-OCC release joint updates
The FDIC is considered a sister agency of the Office of the Comptroller of the Currency (OCC). While the FDIC is tasked with insuring deposits and supervising the consumer protection provisions of financial entities, the OCC regulates federal savings accounts as well as national banks.
Both of the agencies are working together to implement the GENIUS Act as intended by the Trump government on stablecoin firms to maintain effective risk controls.
In a joint statement shared on Tuesday, the FDIC and the OCC said they are looking to revise their respective regulations around anti-money laundering and counter terror financing guidelines.
As per an official statement, the agencies said banks must tighten oversight around high-risk clients, ensure that their AML and CTF officers are stationed within the U.S., and promptly share suspicious activities with the relevant regulators. Failure to adhere to these proposed amendments, if passed, could invite an enforcement action on violating platforms.
“Comments on the proposed rule will be accepted for 60 days after publication in the Federal Register,” the FDIC said.
Last year in December, the FDIC had outlined how banks could receive approvals to issue payment stablecoins. Tuesday’s proposals marks FDIC’s second regulatory proposal around stablecoins in the last four months.
In February this year, the OCC had also proposed how it plans to regulate stablecoin issuers. The agency, at the time, had said that it was going to absolutely necessary for stablecoins to be fully backed by easily identifiable, highly liquid assets.