Implementing the GENIUS Act: The Federal Reserve Proposes a Comprehensive Rulemaking Governing Payment Stablecoin Issuance

On September 24, 2026, the Board of Governors of the Federal Reserve System (Board) issued two companion notices of proposed rulemaking to implement its responsibilities under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act or Act).¹ One proposal would establish the procedures an insured state member bank must follow to obtain Board approval for a subsidiary to become a Board-supervised permitted payment stablecoin issuer (PPSI) (the Application Proposal).² The other would implement substantive reserves, capital, redemption, risk management, custody, and reporting requirements for PPSIs; establish safeguards for Board-supervised custodians; and clarify certain stablecoin activities of Board-regulated firms (the Framework Proposal) (together, the Proposals).³

Together, the Proposals complete the initial interagency rollout of the GENIUS Act’s regulatory architecture. The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) each proposed their own implementing rules earlier in 2026, and the U.S. Department of the Treasury (Treasury) and Treasury’s Financial Crimes Enforcement Network (FinCEN) have proposed rules addressing state-regime equivalence, foreign issuers, and illicit-finance compliance.⁴ The GENIUS Act, which was signed into law on July 18, 2025, will take effect on the earlier of January 18, 2027, or 120 days after the issuance of final implementing regulations. To that end, we expect to see the issuance of final rules in the coming weeks; however, the ultimate timing of full implementation of each required rulemaking is not certain. For an overview of the GENIUS Act and agency rulemaking, please see Arnold & Porter’s series of Advisories on Implementing the GENIUS Act.

The Application Proposal

A person becomes a PPSI through one of three routes: (i) as a subsidiary of an insured depository institution approved by its primary federal payment stablecoin regulator; (ii) as a federally qualified issuer approved by the OCC; or (iii) as a State-qualified issuer approved by a state payment stablecoin regulator.⁵ The Application Proposal addresses the first route — setting application requirements and procedures for a subsidiary of an insured depository institution approved by its primary federal payment stablecoin regulator.⁶

An applicant would file a letter through the appropriate Federal Reserve Bank addressing four statutory factors the Board must evaluate: (1) the proposed PPSI’s financial condition and ability to meet Framework Proposal requirements (reserves, capital, AML/CFT, permissible activities, and technological capability to comply with lawful orders); (2) whether a disqualifying felon serves as an officer or director; (3) the competence, experience, and integrity of officers, directors, and principal shareholders, including their compliance record and ability to satisfy conditions imposed by their primary regulator; and (4) whether the PPSI’s redemption policy satisfies statutory disclosure and timeliness standards.⁷ For purposes of the Application Proposal, “applicant” would mean an insured state member bank seeking approval for a subsidiary to issue payment stablecoin; however, for evaluating the four statutory factors, the Application Proposal would interpret “applicant” to also include the PPSI subsidiary itself.⁸

With respect to prescribed content, applications would be required to contain, at a minimum:⁹

• A Business Plan including proposed products and services, affiliate transactions and control arrangements; governance structure; material third-party relationships (including parties with control over private keys or redemption authority); and compliance approach
• Financial information including funding sources, projected reserve composition, reserve management plans, and three years of pro forma financial projections
• Policies and procedures covering redemption, reserve maintenance, custody of customer assets, recordkeeping and reconciliation, and AML/CFT and sanctions compliance
• Capital-Structure Documentation if the PPSI will not be wholly owned by the applicant
• Certifications by (i) every officer and director that he or she has not been convicted of a felony involving insider trading, embezzlement, cybercrime, money laundering, terrorist financing, or financial fraud, and (ii) an authorized representative that the filing contains no material misrepresentation or omission¹⁰
• Biographical reports, fingerprints, and background checks for principal shareholders (greater than or equal to 10% of a voting class) and the PPSI’s top two decision-makers

The Application Proposal would set forth a tailored approach to application contents.¹¹ Applicants proposing to own 100% of the PPSI would generally not need to duplicate information already available to the Board as the bank’s primary regulator. By contrast, applicants involving multiple owners, a consortium structure, or third-party control arrangements would face more extensive disclosure obligations, including capital-structure documentation and beneficial-ownership information for any shareholder holding more than 5% of any class of voting securities.

Within 30 days of filing, the Board would be required to notify the applicant whether the application is substantially complete; if not, the Board would be required to specify the missing information.¹² Once substantially complete, the Board would have 120 days to act.¹³ The Board may deny an application only on a finding that the applicant’s activities (including those of the proposed PPSI) would be unsafe or unsound. Any denial would be required to be explained in writing with specific findings and actionable recommendations within 30 days of the denial.¹⁴

If denied, an applicant may request a written or oral hearing to appeal a denial within 30 days of receiving it.¹⁵ The Board would be required to notice the hearing within 30 days of the request and issue a final determination within 60 days of the hearing. The applicable standard would permit reversal where the applicant presents good-cause new facts or the Board otherwise determines that relief is warranted.

The Framework Proposal 

The Framework Proposal prescribes proposed rules that would apply to Board supervised PPSIs and Board-supervised custodians, implements the GENIUS Act’s tying prohibition for all PPSIs, and mandates rules applicable to state-qualified PPSIs.

Permissible and Prohibited Activities

Board-supervised PPSIs would be limited to core activities authorized by the Act including issuing, redeeming, and managing reserves for, and providing custody of, payment stablecoins.¹⁶ PPSIs also would be permitted to assess fees relating to the purchase or redemption of payment stablecoins, act as principal or agent in connection with core activities, and perform incidental activities that directly support the core activities. Specifically, Board-supervised PPSIs could, in connection with payment stablecoin activities and investments contemplated by the Act, (i) act as principal or agent with respect to any payment stablecoin; (ii) pay fees to facilitate customer transactions (e.g., network or “gas” fees); (iii) pay fees and undertake other activities necessary to test distributed ledger-based platforms; and (iv) hold principal non-payment stablecoin as necessary to conduct permissible activities (i.e., paying certain fees to facilitate transactions as described above), provided such holdings do not exceed quantities reasonably expected to be necessary to meet near-term demand.¹⁷ The OCC and FDIC proposals similarly would permit PPSIs to act as principal or agent with respect to payment stablecoins and to pay fees to facilitate customer transactions, and the OCC’s proposal likewise would permit limited holdings of non-payment stablecoin digital assets for the purpose of facilitating payment of transaction fees.

The Framework Proposal would prohibit certain conduct by PPSIs. Two such prohibitions have attracted considerable attention from industry participants:

Prohibition on payment stablecoin yield. Like previous agency proposals implementing the GENIUS Act, the Framework Proposal would prohibit paying interest or yield to stablecoin holders solely for holding, using, or retaining the stablecoin. There is a rebuttable presumption reaching affiliate and white-label arrangements structured to achieve the same result.¹⁸ This approach is consistent with the OCC’s proposal, which would likewise establish a rebuttable presumption that arrangements with affiliates or related third parties, including white-label partners, to pay interest or yield to stablecoin holders violate the prohibition.

Tying prohibition. The Framework Proposal would implement the GENIUS Act’s tying prohibition for every PPSI — regardless of primary regulator. It would bar a PPSI from conditioning the provision of services to a customer on the customer’s agreement to purchase an additional product or service from the PPSI or its subsidiaries, or to refrain from obtaining an additional product or service from a competitor.¹⁹

The Framework Proposal also, in brief, would prohibit (i) deceptive names or marketing that could suggest a stablecoin is legal tender or government guaranteed; (ii) misrepresentations regarding deposit insurance; (iii) rehypothecation of reserve assets outside narrow exceptions for margining, standard custodial services, and redemption-driven liquidity needs; and (iv) evasive conduct generally.

Reserve Assets

A Board-supervised PPSI would be required to maintain identifiable, segregated reserves with a fair value that at all times equals or exceeds the outstanding par value of its stablecoins (a one-to-one reserve requirement). Reserves could be held directly, through an eligible custodian, or through a wholly owned, liability-free special-purpose subsidiary whose assets are pledged to secure the PPSI’s stablecoin obligations.²⁰ The reserve assets would be required to consist of limited, enumerated asset categories:

• U.S. coin and currency
• Federal Reserve Bank balances
• Eligible deposit claims
• Short-dated Treasury securities and related repurchase transactions
• Interests in qualifying investment funds holding only such assets²¹

The Framework Proposal would also impose principles-based diversification standards requiring PPSIs to mitigate concentration in uninsured deposit claims at, or reverse repurchase exposure to, a single counterparty or small group of counterparties.²²

Liquidity and Redemption

A Board-supervised PPSI would be required to publicly disclose a redemption policy that provides for timely redemption, which generally would be required to occur within two business days. The redemption policy would be subject to extension only at the Board’s discretion and only when warranted by safety and soundness, financial-stability, or public-interest considerations.²³

Capital Requirements

The Framework Proposal would require Board-supervised PPSIs to hold tangible equity, which would be defined to include common stock, perpetual stock, retained earnings, and accumulated other comprehensive income, less intangibles, sufficient to cover two categories of risk.²⁴

First, capital would be required to cover a 2% charge against reserve assets held as uninsured deposit claims or undercollateralized reverse repurchase agreements (applied on a look through basis to fund holdings).²⁵ Second, capital would be required to cover an operational risk charge combining (i) a graduated charge on outstanding stablecoin issuance (2.0% on the first $20 billion outstanding, 1.5% on the next $30 billion, and 1.0% above $50 billion) and (ii) a charge equal to 25% of the three-year average of non reserve asset revenue, adjusted by a loss scalar tied to realized operational losses.²⁶

A PPSI that falls short of its capital requirement as of quarter-end would be required to submit a remediation plan. If the PPSI remains noncompliant at the following quarter-end, the Framework Proposal would mandate liquidation of reserves and redemption of outstanding stablecoins.²⁷

Risk Management Procedures

The Framework Proposal would impose operational and managerial standards (including insider- and affiliate-transaction limits), information-technology and security-program requirements, and AML/CFT and sanctions compliance obligations, with a deemed-compliance accommodation for PPSI subsidiaries that participate in their parent bank’s enterprise-wide risk-management framework.²⁸ Board-supervised PPSIs would be subject to examination on a 12-month cycle (extendable to 18 or 36 months if specified conditions are met). The Board would also require confidential weekly reports on issuance, redemption, trading volume, and reserves, in addition to quarterly financial-condition reports.²⁹

Consistent with a standard the Board recently proposed for banks generally, a AML/CFT deficiency would need to be “significant or systemic” before triggering a supervisory or enforcement action.³⁰ The Board’s rules of practice and procedure would be revised to incorporate the GENIUS Act’s specific procedural requirements for PPSI enforcement matters.

Custodians

The Framework Proposal would apply to Board-supervised entities that provide custody or safekeeping for stablecoin reserves, stablecoins used as collateral, private keys, or related cash and property.³¹ Custodians would be required to treat customer property as belonging to the customer rather than the custodian, protect it from the claims of the custodian’s (and any sub-custodian’s) creditors, and “maintain control” such that no other party (including the customer or a custodian affiliate) may transfer the property without the custodian’s affirmative consent.³² Commingling would generally be prohibited, subject to limited exceptions for identifiable omnibus accounts, cash held as a deposit liability, and routine fee withdrawals.³³ The Framework Proposal would permit sub-custody, subject to oversight of the sub-custodian’s compliance.

State-Qualified PPSIs

The Framework Proposal would implement the Board’s enforcement authority over state qualified PPSIs in “unusual and exigent circumstances.” This authority would be exercisable only where such circumstances exist, the PPSI or an institution-affiliated party is violating the Act, continuation of the activity poses a serious risk to the PPSI’s safety, soundness, or stability, and the Board has given the relevant state regulator 48 hours’ prior written notice with illustrative fact patterns.³⁴

The Framework Proposal would also establish a transition and waiver process for “covered PPSIs,” i.e., uninsured state-chartered depository institutions with $10 billion or more in outstanding stablecoins. This process would include notification and information-submission requirements, an initial examination within six months of notification, and criteria under which the Board may waive the transition and leave the covered PPSI under state supervision alone.³⁵

Banking-Organization Amendments

The Framework Proposal would also implement the GENIUS Act’s bar on requiring a parent bank or holding company to hold regulatory capital, at the consolidated level, in excess of what its PPSI subsidiary must hold under the Act.³⁶ To do so, the Framework Proposal would amend the Board’s capital adequacy regulation under 12 CFR part 217 to require deconsolidation of the PPSI from the parent’s balance sheet and a dollar-for-dollar deduction of the PPSI’s minimum capital requirement from the parent’s common equity tier 1 capital, rather than allowing the parent to count capital held at the PPSI level toward its own requirement.³⁷ The Framework Proposal would also amend Regulations H, K, and Y to confirm that state member banks, depository institution holding companies, Edge and agreement corporations, and uninsured state branches and agencies of foreign banks may engage in authorized stablecoin-related activities for Board-regulated entities.³⁸

Compliance and Operational Implications

Banks and holding companies that provide custody services, either to their own PPSI subsidiary or to third-party stablecoin issuers, should map their existing custody and trust operations against the proposed “maintain control” standard, the omnibus-account exception, and the self-custody hardware and software exclusion, each of which may require operational or contractual changes. The proposed capital framework — a 2% charge on uninsured deposit and reverse-repo exposure, a graduated operational-risk charge, and mandatory deconsolidation from the parent’s balance sheet — would meaningfully affect the economics of a bank-affiliated stablecoin program and should be modeled now.

Comment Period and Next Steps

Institutions evaluating a stablecoin subsidiary through a state member bank may wish to actively consider the requirements set forth in the Application Proposal as part of strategic planning efforts. Although the specific contents of an application could change in a final rule, the Application Proposal’s requirements are designed to address the evaluation of statutory factors set out in section 5(c) of the GENIUS Act. Institutions therefore can reasonably begin developing core application materials now, including governance and control documentation, a business plan addressing requirements under the Framework Proposal, and financial projections, while recognizing that these materials may need to be updated to reflect the final Application and Framework rules.

Capital planning also warrants early attention. The graduated operational-risk charge rewards scale and the 25% charge on non-reserve-asset revenue could affect the economics of custody, white-label, or other ancillary fee arrangements. Parent banks may wish to model the proposed deconsolidation-and-deduction approach’s effect on their consolidated capital ratios now, as the Framework Proposal would not permit capital held at the PPSI level to satisfy the parent’s own requirement.

The Application Proposal poses 23 specific questions on which the Board invites comment, while the Framework Proposal poses 254. Comments on both proposals are due November 30, 2026. Key comment topics include:

• Whether the Application Proposal should adopt additional factors, including a standalone safety-and-soundness factor for the impact on the applicant bank.
• The Application Proposal’s first statutory factor would require demonstrating the proposed PPSI’s financial ability to meet Framework Proposal capital requirements, yet would only require an applicant to show sufficient initial capital under its business plan — without specifying how to demonstrate forward compliance with standards that could change before taking effect.
• Whether the Board will require single-brand issuance, permit multi-brand issuance with brand-level reserve segregation, or adopt another approach.
• The Application Proposal would use a 10% “principal shareholder” threshold for biographical reporting purposes, while the Framework Proposal would define a distinct “covered shareholder” concept (25% ownership or voting-control, with a rebuttable 10% presumption) for insider- and affiliate-transaction limits. Commenters may wish to ask the Board to reconcile these definitions.
• Both Proposals pose open questions on which the Board has signaled genuine openness, including yield-prohibition presumption scope and rebuttal, reserve-asset diversification calibration, and multi-brand structuring.
• Interagency inconsistencies: The FDIC would require self-reporting of “significant redemption requests” (exceeding 10% of outstanding issuance within 24 hours) and would permit FDIC discretion on extensions, while the OCC would impose an automatic seven-day extension upon a comparable trigger, liftable only at its discretion. The Board’s Framework Proposal, in contrast, would not adopt either agency’s specific trigger.

If you would like to discuss the Board’s proposals or determine whether to comment, please contact any of the authors of this Advisory or your usual firm contact.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.