Overview
- The Blockchain Association has called on regulators to restrict stablecoin identity verification to direct issuer-customer relationships.
- The organization cautioned that such requirements should not apply to peer-to-peer stablecoin transfers.
- It also advocated for the adoption of modern identity verification methods, including zero-knowledge proofs.
The Blockchain Association, a prominent advocate for cryptocurrency, is urging federal regulators to confine identity verification processes to direct interactions between stablecoin issuers and their clients. They warn that expanding these requirements to include peer-to-peer transactions could significantly harm the sector.
In a letter dated August 21, addressed to several federal financial authorities including the Financial Crimes Enforcement Network and the Federal Reserve, the association responded to proposed customer identification regulations linked to the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS Act).
Enacted in June of the previous year, the GENIUS Act lays down a framework for the legal usage and issuance of stablecoins, which are cryptocurrency tokens pegged to the dollar.
In the letter signed by CEO Summer K. Mersinger, a former commissioner of the Commodity Futures Trading Commission, the Blockchain Association expressed support for excluding secondary transfers from Customer Identification Program (CIP) mandates while seeking clearer definitions for when these requirements should apply.
“The agencies are correct that customer identification protocols should focus on where issuers maintain a direct relationship with customers: the primary market,” the Blockchain Association stated on X. “In alignment with the GENIUS Act, these requirements should not extend to downstream peer-to-peer stablecoin transactions that issuers do not facilitate or approve.”
The suggested federal regulations for applying the GENIUS Act would mandate stablecoin issuers to confirm the identities of direct customers, adhering to standards similar to those outlined in the Bank Secrecy Act. These identity checks, often referred to as KYC (Know Your Customer), should not be required for wallet-to-wallet transfers, one-off redemptions, technology providers, or unrelated businesses of the issuer, the Blockchain Association argued, claiming that broader requirements could be “nearly impossible” to enforce and detrimental to the industry.
This letter follows a recent amicus brief submitted by the Blockchain Association, urging the Supreme Court to consider a case where a federal appeals court ruled that the Federal Reserve could deny access to its payment system to a state-chartered crypto bank.
The association also sought protections for issuers relying on regulated financial institutions for identity verification processes, asserting that an issuer should not be held liable if the institution fails to fulfill its responsibilities.
Moreover, the Blockchain Association urged regulators to embrace innovative identity verification methods.
“The final rule should not impose redundant compliance burdens and should clarify that issuers can utilize modern, secure methods for collecting and verifying customer data, including digital identity tools and other interoperable technologies,” they emphasized.
Additionally, the association recommended that regulatory frameworks coordinate with existing anti-money laundering and sanctions requirements from the Financial Crimes Enforcement Network and the Office of Foreign Assets Control, warning that staggered deadlines might compel issuers to repeatedly update their compliance systems.
“The GENIUS Act established a significant framework for payment stablecoins,” the Blockchain Association remarked. “Its implementation should maintain its objectives: robust safeguards, practical regulations, and fostering ongoing innovation.”