FDIC proposes to comply with BSA and sanctions against stablecoin issuers

The FDIC has approved the announcement of the proposed regulation to establish standards for compliance with the Bank Security Act and sanctions against payment stablecoin issuers supervised by the FDIC.

5/23/20264 min read

Legal infrastructure is gradually forming around Stablecoin

The proposed regulation of the FDIC is the latest component in the coordinated effort between many agencies to operate the GENIUS Act, which was passed by Congress earlier this year, creating a federal legal framework for payment stablecoins. This act designates the Office of Money Control (FinCEN) as the main federal regulator for stablecoin subsidiaries of national banks, the Federal Reserve (Fed) for subsidiaries of the parent bank, and FDIC for subsidiaries of non-member state banks, and establishes the authority of the Treasury Department for compliance aspects of anti-money laundering and penalties applicable to all issuers. Payment stablecoins are allowed, regardless of which banking authority supervises their cautious operations.

On April 8, FinCEN and OFAC jointly announced a comprehensive announcement of the proposed regulation, for the first time considering PPSI (Payment-Performance Institutions) as financial institutions under the Bank Security Act and requiring effective sanction compliance programs including five core elements: commitment of senior management, comprehensive risk assessment, risk-based internal control including technical capacity, independent inspection and audit, and risk-based training. That proposal establishes the basic compliance framework applicable to all stablecoin issuers, while the FDIC's May 22 regulation implements oversight and enforcement provisions on the group of issuers operating as FDIC-monitored organizations.

The OCC issued its own comprehensive proposed regulation at the end of April, which addresses capital requirements, liquidity standards, reserve asset composition, custody agreements, and governance expectations for stablecoin subsidiaries of the national bank. That proposal raises more than two hundred specific questions for the public to comment on the definition, permitted activities, reserve requirements and key design options, reflecting the real uncertainty about how traditional banking regulations should adapt to the issuance of digital assets. The Treasury Department proposed a separate framework on April 3 to determine whether state-level regulatory regimes are "significantly similar" to federal standards, setting a roadmap for smaller issuers to operate under state supervision instead of requiring federal banking licenses.

What does the FDIC regulation really require?

The proposed regulation requires financial institutions supervised by the FDIC to comply with current regulations on anti-money laundering, anti-terrorist financing, economic sanctions programs and reporting requirements set by FinCEN and OFAC. This includes the implementation of comprehensive written AML/CFT programs that are reasonably designed to prevent the use of PPSI to facilitate money laundering or terrorist financing, appointing compliance officers responsible for overseeing the program, providing appropriate training to employees, and conducting independent checks to assess and maintain the effectiveness of compliance systems.

Requirements for customer identity verification programs are adjusted from traditional banks to apply, which means that PPSIs must verify the identity of those who open accounts or establish customer relationships by using names, date of birth, address and ID numbers. The regulation requires maintaining a record of information used to verify identity and search in the government's list of known or suspected terrorists or terrorist organizations. For stablecoins designed for retail use, where there is no "account" in the traditional banking sense, the implementation raises new questions about how identity verification obligations applicable to blockchain addresses can be created without the permission of the issuer.

Requirements for technical and enforcement capacity on the chain

Freezing and confiscation are the most specific technical requirements in the proposed regulation, acknowledging that compliance with sanctioning obligations requires architectural decisions related to smart contract design and token governance. Major stablecoin issuers, including Tether, Circle and Paxos, have maintained the ability to centrally freeze through upgradeable smart contracts or governance functions that allow designated addresses to block specific addresses from receiving transfers or being recognized as valid balances. Technical implementation usually involves maintaining an on-chain register of blocked addresses that transfer and balance functions check before making a transaction.

This requirement forced to make a design decision between the two architectures with significantly different consequences. Completely decentralized stablecoins without governance control cannot comply with freeze and confiscation obligations, resulting in them not being eligible to be considered PPSI under the framework of the GENIUS Act. Centralized stablecoins with the ability to freeze governance can comply but accept centralized control, which is in contrast to the decentralization spirit that many cryptocurrency advocates value. As a result, the legal framework has systematically detravadized truly decentralized methods, favoring centrally controlled tokens that can meet government directives, creating tension between compliance requirements and ideological goals that drive the majority of the development of cryptocurrencies.

Roadmap, Feedback Process and Path to the Final Regulation

The FDIC's proposal accepts contributions within sixty days after being published in the Federal Gazette, which may last until the end of July or early August 2026. The comment period takes place in parallel with the ongoing comment periods on relevant regulations, including the FinCEN-OFAC joint proposal and the OCC's cautious requirements, creating a shortened roadmap in which industry participants must simultaneously analyze and respond to many complex proposed regulations that address different aspects of stablecoin regulations. Major issuers, banking associations, consumer protection campaigners, and blockchain industry groups are likely to submit broad contributions addressing questions about technical implementation, compliance cost estimates, and policy concerns.

The main issues that are likely to attract a lot of comments include technical requirements for freezing and confiscation and whether the regulation should specify specific smart contract architectures or governance mechanisms to meet operational requirements. Some contributors will argue in favor of a technology-neutral approach, allowing issuers flexibility in their deployment approach, while others may require more regulatory standards, ensuring consistency across all PPSIs. Challenges in cross-chain enforcement and how to address time delays or technical limitations in a multi-network environment will also generate many important contributions.

Disclaimer: The information presented in this article is the author's personal opinion in the field of cryptocurrencies. This is not financial or investment advice at all. Every investment decision should be based on careful consideration of your personal portfolio and risk tolerance. The opinion in the article does not represent the official position of the platform. We recommend that readers do their own research and consult experts before making any investment decisions.

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