Regulators Rewrite the Rules—Stablecoins Step Into the Banking Light

Banks in the United States are navigating a pivotal shift in regulatory policy as new frameworks begin to take shape around stablecoins, opening a path for broader adoption of these digital assets within traditional financial systems. Central to this development is the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) in July 2025, a landmark piece of legislation that creates a federal regulatory framework for payment stablecoins. The act mandates a "one-to-one" backing of stablecoins with safe assets such as cash, insured bank deposits, or short-term U.S. Treasuries, aligning these digital currencies with traditional banking standards. This framework not only sets a compliance baseline but also signals an intent to support responsible innovation in the digital asset space, in line with Executive Order 14178 on digital financial technology.

The GENIUS Act defines who can issue stablecoins, restricting the right to insured banks, credit unions, and entities regulated by the Office of the Comptroller of the Currency (OCC). This effectively places stablecoin issuance under federal oversight akin to the banking sector. Under the act, permitted stablecoin issuers must undergo rigorous audits, maintain public transparency on their reserve holdings, and submit to enhanced anti-money laundering (AML) and sanctions compliance. These measures aim to mitigate risks associated with stablecoin volatility, fraud, and potential misuse in illicit financial activity. The legislation also mandates that stablecoin holders be prioritized in insolvency scenarios, ensuring that their claims to reserves come before those of the issuer or other creditors. This provision addresses concerns around liquidity and the safety of stablecoin assets in the event of a financial collapse.

The implications of the GENIUS Act are far-reaching for both financial institutions and technology providers. For banks and non-bank issuers, the act creates a clearer pathway to enter the stablecoin market by providing a federal charter and reducing uncertainty around regulatory expectations. It also places these entities under the Bank Secrecy Act (BSA), requiring robust AML programs and the ability to detect and block suspicious transactions. For fintech firms, the act means navigating a more structured compliance environment that mirrors traditional banking obligations, such as reserve management and liquidity controls. This shift is expected to encourage innovation by offering a stable regulatory foundation, though it will likely increase operational costs for smaller firms.

The regulatory landscape is not limited to the U.S. On the other side of the Atlantic, the European Union’s Markets in Crypto-Assets Regulation (MiCA) offers a contrasting approach. MiCA covers a broader range of digital assets and service providers, setting uniform standards across 27 EU member states. It includes specific chapters on asset-referenced tokens (ARTs) and e-money tokens (EMTs), both of which are considered stablecoin categories. MiCA emphasizes prudential oversight, requiring stablecoin issuers to maintain robust reserves, disclose risks, and adhere to transparency and consumer protection rules. Unlike the GENIUS Act, which is focused narrowly on U.S. dollar-backed stablecoins, MiCA applies to a wider array of tokens, including those pegged to the euro or other fiat currencies. The EU framework also allows for "passporting," enabling a single authorization to operate across the bloc, streamlining cross-border compliance for firms.

The differing approaches between the U.S. and EU highlight the complexity of navigating global digital asset regulation. While the U.S. prioritizes federal oversight and tight restrictions on non-bank participants, the EU emphasizes harmonization and broad market access. This divergence raises practical challenges for firms operating in both regions, necessitating distinct strategies for compliance and product design. For instance, a firm issuing euro-denominated stablecoins under MiCA could face additional hurdles if it seeks to enter the U.S. market, where the GENIUS Act restricts access to foreign stablecoins unless their home regulatory regime is deemed comparable. Conversely, a U.S.-based stablecoin issuer may find it easier to scale across the EU under MiCA’s passporting rules, provided it meets all necessary disclosure and reserve requirements.

Industry response to these regulatory shifts has been mixed. In the U.S., the American Bankers Association and other banking groups have raised concerns about potential loopholes in the GENIUS Act, particularly regarding the payment of interest on stablecoins. While the act explicitly prohibits stablecoin issuers from offering interest, it does not address whether crypto exchanges can offer interest to users trading stablecoins. This, according to critics, could lead to indirect circumvention of the law and increase the risk of runs on stablecoin reserves. Similar concerns have emerged in Hong Kong, where the private sector has raised doubts about the feasibility of stringent Know Your Customer (KYC) requirements imposed by the Hong Kong Monetary Authority (HKMA). These debates underscore that stablecoin regulation remains a work in progress, with policymakers actively considering adjustments based on industry feedback and emerging risks.

The evolving regulatory environment also has implications for market participants beyond banks and stablecoin issuers. For example, the U.S. Treasury has initiated a request for public comments on innovative tools to detect illicit activity involving digital assets, such as blockchain analytics and AI-driven compliance systems. This highlights the administration’s interest in leveraging technology to address financial crime while balancing privacy and innovation. At the same time, entities like the Financial Crimes Enforcement Network (FinCEN) are expanding their focus to address risks associated with crypto ATMs and other emerging points of entry into the digital asset ecosystem.

In conclusion, the new regulatory frameworks around stablecoins reflect a global effort to bring clarity and stability to a rapidly evolving market. In the U.S., the GENIUS Act represents a significant step toward federal oversight of stablecoin issuance, with a focus on safety, transparency, and compliance. The EU’s MiCA framework, meanwhile, provides a broader and more harmonized regulatory environment for digital assets. As these policies continue to unfold, the challenge for market participants will be to adapt quickly to changing requirements while maintaining innovation and consumer trust. The coming months will be critical in determining how effectively these frameworks address the risks and opportunities presented by stablecoins in the modern financial landscape.

Source: [1] Ripple USD Price Chart (RLUSD) (https://www.coingecko.com/en/coins/ripple-usd) [2] Breaking Update on Several Spot Ripple (XRP) ETF Filings (https://cryptopotato.com/breaking-update-on-several-spot-ripple-xrp-etf-filings/) [3] Stablecoin issuer applies for OCC national trust charter ... (https://www.jdsupra.com/legalnews/stablecoin-issuer-applies-for-occ-7310818/) [4] Treasury Issues Request for Comment Related to the ... (https://home.treasury.gov/news/press-releases/sb0228) [5] Stablecoins and Compliance: Preparing for the New Wave ... (https://www.piranirisk.com/blog/stablecoins-and-compliance-preparing-for-the-new-wave-of-regulation?hsLang=en) [6] MiCA vs. GENIUS Act: How Crypto Laws Differ in Europe ... (https://www.ccn.com/education/crypto/mica-vs-genius-act-how-crypto-laws-differ-in-europe-and-the-us/) [7] Crypto regulatory affairs: Private sector in US and Hong ... (https://www.elliptic.co/blog/crypto-regulatory-affairs-private-sector-in-us-and-hong-kong-push-for-changes-in-new-stablecoin-rules)