Trade groups call for changes to GENIUS Act

Banking trade groups this week urged Congress to repeal what they see as a loophole in the GENIUS Act, which established a regulatory framework for stablecoin issuers..Section 16(d) of the law allows state-chartered uninsured depository institutions to undertake money transmission and custody activities nationwide through a subsidiary without securing approval from each state. According to the groups, Section 16(d) weakens crucial consumer protections and state sovereignty. “Ignoring state law in this regard invites regulatory arbitrage, allowing certain uninsured depository institutions special privileges to operate across state lines as federally insured banks currently do, but without the panoply of regulatory and supervisory requirements, or limitations on preemption applicable to those institutions,” the groups wrote. The letter was signed by the American Bankers Association, Independent Community Bankers of America, Conference of State Bank Supervisors, Americans for Financial Reform, Money Transmitter Regulators Association, National Conference of State Legislatures and the National Consumer Law Center. Passed in July, the GENIUS Act requires stablecoin issuers to keep reserves backing their tokens and defines the status of stablecoins as being under the supervision of the Bank Secrecy Act. In a separate letter, the American Bankers Association and 52 state banking associations called on Congress to eliminate loopholes in the GENIUS Act’s ban on nonfinancial companies being payment stablecoin issuers. To eliminate the loophole, the trade groups urged legislators to strengthen the prohibition on interest payments for payment stablecoins by expanding the ban to dealers, brokers, exchanges and affiliates of payment stablecoin issuers.“By closing regulatory gaps, preserving the dual banking system and upholding the longstanding separation between banking and commerce, Congress can foster responsible innovation while protecting consumers, preserving access to credit and promoting economic stability,” the groups said.“The decisions made in this space will shape the future of our financial system — its structure, efficiency and fairness — for decades to come,” they added.