Summary
- The Federal Reserve has proposed regulations mandating U.S. crypto companies to verify their stablecoin users.
- Former Fed Chair Jerome Powell expressed support for the proposal, while current Chair Kevin Warsh abstained without providing a reason.
- Concerns were raised by some officials regarding the risks associated with exempting decentralized protocols from these regulations.
On Thursday, the Federal Reserve introduced a proposed rule that outlines how U.S. cryptocurrency firms must assess their customers and mitigate the risk of money laundering following the official legalization of stablecoins.
This rulemaking, developed in collaboration with agencies from President Donald Trump’s administration, such as the Treasury Department and the FDIC, clarifies the implementation of customer identification requirements as stipulated in the GENIUS Act. This GENIUS Act, passed last summer, legalized the issuance of stablecoins—cryptocurrencies that are pegged to the U.S. dollar.
All governors of the Fed, including former Chair Jerome Powell, voted in favor of the proposed rule, with one notable exception: Kevin Warsh, the newly appointed Fed Chair under Trump, chose to abstain.
No explanation for Warsh's abstention was provided, and a Fed spokesperson did not respond promptly to a request for comments from Decrypt.
The proposed regulations will require “digital asset service providers”—defined as any U.S. individual or organization involved in exchanging, transferring, or holding crypto—to implement specific measures to prevent providing stablecoin services to potentially illicit enterprises.
This includes verifying customers’ names, birthdates, and addresses, as well as cross-referencing this information with lists of terrorists and other sanctioned groups maintained by the U.S. government.
It is important to note that decentralized protocols are exempt from these verification requirements, a point that elicited criticism from Fed Governor Michael Barr, who expressed concerns despite his support for the proposed rules. Barr stated, “I support the issuance of this proposal. I remain concerned, however, that the GENIUS Act regulatory framework does not do enough so far to address the risks of illicit finance conducted through secondary market transactions in payment stablecoins.”
The proposed regulations will now undergo a 60-day public comment period.