OCC Issues Final GENIUS Act Implementing Rule

The OCC rule establishes application requirements and procedures for insured national banks, federal savings associations, and insured federal branches of foreign banks that seek to issue payment stablecoins through a subsidiary. The rule also establishes application requirements and procedures for nonbank entities, uninsured national banks, and uninsured federal branches of foreign banks that seek to be federal qualified payment stablecoin issuers, as well as establishes registration procedures for entities that seek to register as foreign payment stablecoin issuers.

The rule also establishes prudential requirements that would apply to permitted payment stablecoin issuers that are subsidiaries of insured national banks, subsidiaries of federal savings associations, uninsured national banks, federal branches or subsidiaries thereof, nonbank entities that are not state qualified payment stablecoin issuers, and state qualified payment stablecoin issuers that are nonbank entities with total outstanding stablecoin issuance in excess of $10 billion that are required to transition to federal oversight under Section 4 of the GENIUS Act but which have not obtained a waiver.

This summary refers to a permitted payment stablecoin issuer subject to the OCC rule as a “PPSI” and, collectively, as “PPSIs” (though other types of entities not subject to the OCC rule may obtain approval from other federal or state regulators in accordance with the GENIUS Act to become permitted payment stablecoin issuers).

The rule also implements the OCC’s authority to impose restrictions on a nonbank state qualified payment stablecoin issuer during unusual and exigent circumstances, pursuant to Section 7 of the GENIUS Act.

National banks, federal savings associations, federal branches of foreign banks, and federal and state qualified payment stablecoin issuers supervised by the OCC that provide custodial or safekeeping services for reserve assets and other “covered assets” will also be subject to certain aspects of the OCC’s rule.

The OCC regulation does not address Bank Secrecy Act, anti-money laundering, and Office of Foreign Assets Control sanctions requirements, which the OCC has stated will be addressed in a separate rulemaking in coordination with the U.S. Department of the Treasury.

Section 3 of the GENIUS Act, in general, makes it unlawful for any person other than a permitted payment stablecoin issuer to issue a payment stablecoin in the United States after the effective date of the GENIUS Act, which is January 18, 2027.

The GENIUS Act does not provide any automatic grandfathering or transition process for existing payment stablecoin issuers on the effective date. Instead, Section 5(f) of the GENIUS Act permits the primary federal payment stablecoin regulators to waive the application of the requirements of the GENIUS Act for a period not to exceed 12 months beginning on the effective date of the GENIUS Act with respect to a subsidiary of an insured depository institution that has an application pending on the effective date for the subsidiary to become a permitted payment stablecoin issuer or an entity with an application pending on the effective date to become a federal qualified payment stablecoin issuer.

The OCC’s final rule incorporates the safe harbor waiver process by providing that any stablecoin issuer that has a substantially complete application pending with the OCC on or before January 18, 2027, to become a PPSI may request in writing that the OCC waive requirements of the GENIUS Act or the OCC’s final rule. The OCC has stated that it intends to accept applications and waiver requests soon after the Office of Management and Budget approves of the information collection related to the OCC’s application forms and has advised that the OCC will issue a press release when it begins accepting applications and waiver requests.

Existing payment stablecoin issuers will need to submit a substantially complete application to the OCC to become a PPSI or seek approval of another appropriate regulator prior to the effective date and obtain a waiver from the issuance prohibition and other requirements of the GENIUS Act while the application is pending (or, if a waiver is not granted, obtain prior regulatory approval before continuing to issue payment stablecoins in the United States following the effective date of the GENIUS Act).

The OCC has advised that, in light of the fact that existing issuers have had 18 months from the passage of the GENIUS Act to prepare for compliance with the GENIUS Act’s statutory requirements, “the OCC has not identified compelling, generally applicable reasons to grant waiver requests with respect to requirements of the GENIUS Act or final rule other than” the requirement to obtain prior approval to be a permitted payment stablecoin issuer. As a result, existing issuers seeking to become OCC-regulated PPSIs should be prepared to comply with the substantive requirements of the OCC rule when it becomes effective, other than the requirement to obtain prior approval to become a PPSI (if this latter requirement is waived by the OCC). The OCC also stated that it “has not identified compelling, generally applicable reasons to grant waivers ... for stablecoin issuers or prospective stablecoin issuers who are not currently operating or issuing in the United States” and that it “generally expects prospective stablecoin issuers to begin operations in the United States after they have received ... approval to do so.”

Entities considering issuing stablecoins should evaluate whether the proposed stablecoin meets the requirements to be characterized as a payment stablecoin for purposes of the GENIUS Act. If so, the prospective issuer will need to apply to an appropriate regulator to become a permitted payment stablecoin issuer. If the contemplated token would not be a payment stablecoin for purposes of the GENIUS Act, the proposed issuer should consider how the contemplated token would be regulated for purposes of state laws related to money transmission and digital assets, the regulations of the U.S. Treasury Department’s Financial Crimes Enforcement Network related to money services businesses, and applicable securities and commodities laws.

The definition of “payment stablecoin” in the OCC rule is substantially identical to the statutory definition in the GENIUS Act. As set forth in the rule, a “payment stablecoin” is a digital asset that is, or is designed to be, used as a means of payment or settlement and the issuer of which:

• Is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a digital asset denominated in a fixed amount of monetary value; and
• Represents that such issuer will maintain, or creates the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value.

A payment stablecoin does not include a digital asset that is a:

• National currency
• Deposit, including a deposit recorded using distributed ledger technology
• Security, as defined in Section 2 of the Securities Act of 1933, Section 3 of the Securities Exchange Act of 1934, or Section 2 of the Investment Company Act of 1940

In the adopting release to the rule, the OCC stated that, for purposes of the OCC’s implementation of the GENIUS Act, a “wrapped” stablecoin generally would not be a payment stablecoin.

Section 4(a)(11) of the GENIUS Act provides that no permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin. The OCC rule would implement this prohibition by including a substantially identical prohibition in the regulation.

The OCC originally proposed a rebuttable presumption under which it would presume that a PPSI is paying the holder of a payment stablecoin interest or yield solely in connection with the holding, use, or retention of the payment stablecoin if (1) the PPSI has a contract, agreement, or other arrangement with an affiliate or a “related third party” to pay interest or yield to the affiliate or related third party; and (2) the affiliate or related third party (or affiliate of such related third party) has a contract, agreement, or other arrangement to pay interest or yield (whether in cash, tokens, or other consideration) to a holder of the payment stablecoin issued by the PPSI issuer solely in connection with the holding, use, or retention of such payment stablecoin.

A “related third party” was defined to include any person offering to pay interest or yield to payment stablecoin holders as a service (i.e., on behalf of the permitted payment stablecoin issuer) and any person that the issuer issues payment stablecoins on behalf of or under the branding of (i.e., persons that have entered into a white-label relationship with the issuer).

In connection with the adoption of its final implementing regulation, the OCC determined not to adopt this presumption because the OCC observed that “[t]he rebuttable presumption could have been both overinclusive and underinclusive, capturing permissible arrangements that would have been subject to the rebuttable presumption and allowing the inference that impermissible arrangements not triggering the presumption are consistent with the yield prohibition.” The OCC also noted that “payment stablecoins are a nascent market” and that the OCC expected it would be able to “monitor arrangements with PPSIs and foreign payment stablecoin issuers as part of its review of issuers’ applications and ongoing supervision of such entities” and could take action “where it identifies transactions that violate or evade the yield prohibition” and provide public guidance and interpretations as appropriate or propose a rulemaking to clarify the yield prohibition.

The OCC also explained that “[t]he word ‘solely’ in the statutory yield prohibition is best read under its plain terms to exclude payments made in connection with reasons other than holding, using, or retaining a payment stablecoin” and that “payments made for other purposes are not barred by the GENIUS Act.”

While any arrangement involving the payment of a bonus or reward related to permitted payment stablecoins, even if paid by an affiliate of the issuer or a third party such as a custodian or exchange and not directly by an issuer, should be reviewed for compliance with the statutory yield prohibition, the OCC guidance concerning the plain meaning of the word “solely” coupled with the absence of the proposed presumption in the final rule will likely provide some measure of flexibility for OCC-regulated PPSIs to incentivize adoption of stablecoins. That said, of particular note, the OCC rule prohibits a PPSI from engaging in any activity that the OCC determines is an evasion of the requirements of Section 4 of the GENIUS Act.

The OCC rule requires that a PPSI maintain minimum capital of at least $5 million, but the OCC reserves the right to require a higher minimum capital floor in connection with its approval of the PPSI’s licensing application. This minimum amount of capital must be held for at least three years, but the OCC reserves the right to specify a shorter or longer period of time. In general, capital consists of shareholders’ equity less goodwill, other intangible assets, deferred tax assets net of valuation allowances, and the portion of the operational backstop (see below) funded by equity. The portion of the operational backstop funded by equity consists of the operational backstop assets required to be held less than the amount of qualifying operational backstop debt (up to 50% of the required operational backstop amount) that meets certain requirements.

A PPSI must have a process for assessing its overall capital adequacy in relation to its business model and risk profile and a comprehensive strategy for sustaining an appropriate level of capital to maintain ongoing operations. On an ongoing basis, a PPSI must hold capital in an amount that is commensurate with the level and nature of all risks to which the PPSI is exposed, including risks for off-balance-sheet activities, but not less than $5 million. The OCC may require additional capital on a case-by-case basis.

The OCC rule also requires a PPSI to maintain an “operational backstop” consisting of certain permitted high-quality, liquid assets in an amount equal to 12 months of total expenses, but the OCC may require a higher backstop amount on a case-by-case basis. The operational backstop requirement is separate from and in addition to the minimum capital requirement.

A PPSI must notify the OCC within 24 hours if it fails to meet either the minimum capital or backstop requirement during a financial quarter, and it must publicly report whether it has complied with its minimum capital and operational backstop requirements.

A PPSI that fails to satisfy its minimum capital or backstop requirement during a quarter and remains noncompliant at the end of the quarter is prohibited from issuing any new payment stablecoins starting on the first day of the following month and until such time as it satisfies its minimum capital and backstop requirements. If a PPSI fails to meet its minimum capital or backstop requirements at the end of two consecutive quarters, it must:

• Begin liquidation of reserve assets and redemption of outstanding payment stablecoins
• Not charge customers a fee to redeem their payment stablecoins
• Not issue any new payment stablecoins

Consistent with the GENIUS Act, the OCC rule limits the scope of permissible activities of a PPSI, but the rule includes additional supporting or related activities that are not expressly described in the statute. The activities listed in the rule include:

• Issuance of payment stablecoins
• Redemption of payment stablecoins
• Management of reserves related to the issuance or redemption of payment stablecoins, including certain related activities
• Provision of custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins
• Charging fees associated with purchasing or redeeming payment stablecoins
• Acting as principal or agent with respect to any payment stablecoin
• Paying fees to facilitate customer transactions
• Holding as principal nonpayment stablecoin digital assets as necessary to pay fees, including customer fees and network fees, or to conduct necessary testing on distributed ledger-based platforms (provided that such principal holdings shall not exceed quantities necessary for the reasonably foreseeable conduct of such activities)
• Establishing a trust arrangement for reserve assets, including the granting of a security interest in reserve assets in certain limited circumstances and subject to certain requirements
• Managing foreign-exchange risk subject to certain requirements
• Other activities, including hiring third parties, that directly support issuance or redemption of payment stablecoins, management of reserves, or provision of permitted custodial or safekeeping services

Commenters suggested that the OCC consider clarifying that other activities, such as integration with payment networks, provision of digital wallets, and money transmission, would be permissible activities. The rule does not address these activities but does not exclude the possibility that they could potentially be considered permissible directly supportive activities.

Yes. The OCC originally proposed a single-brand restriction for PPSIs. The OCC ultimately declined to adopt this approach. The OCC also decided not to take the same approach proposed by the FDIC of requiring multi-brand issuers to have a segregated pool of reserves that are recorded separately, unless otherwise approved. Rather, the OCC explained that it intends to take a case-by-case approach as part of the licensing process.

As required by the GENIUS Act, a PPSI will be required to maintain qualifying reserve assets at all times having a value that equals or exceeds outstanding issuance value.

Reserve assets must consist of:

• US coins and currency (including balances held at a Federal Reserve Bank)
• Funds held as demand deposits (or other deposits that may be withdrawn upon request at any time) or insured shares at an insured depository institution (including any foreign branches or agents, including correspondent banks, of an insured depository institution), subject to limitations established by the FDIC and the National Credit Union Administration
• Treasury bills, Treasury notes, or Treasury bonds with a remaining maturity of 93 days or less (including qualifying Treasury Inflation-Protected Securities, STRIPS, and Floating Rate Notes)
• Money received under repurchase agreements, with the PPSI acting as a seller of securities and with a no longer than overnight maturity, that are backed by Treasury bills with a maturity of 93 days or less
• Reverse repurchase agreements, with the PPSI acting as a purchaser of securities and with a no longer than overnight maturity, that are collateralized by Treasury bills, Treasury notes, or Treasury bonds on a no longer than overnight basis, subject to overcollateralization in line with standard market terms; such agreements must either be tri-party arrangements, centrally cleared through a clearing agency registered with the Securities and Exchange Commission, or bilateral agreements with a counterparty that the issuer has determined to be adequately creditworthy even in the event of severe market stress
• Securities issued by a registered investment company or other registered government money market fund that invests solely in underlying assets that are permissible reserve assets
• Any other similarly liquid federal government-issued asset approved by the OCC — in consultation with the state payment stablecoin regulator, if applicable, of the PPSI — and subject to such conditions as the OCC may impose consistent with the purposes of the GENIUS Act

Cash, demand deposits at an insured depository institution, permissible short-term Treasury obligations, permissible money market mutual fund shares, and other similar high-quality liquid federal government-issued assets approved by the OCC may be held in tokenized form, provided such reserves comply with all applicable laws and regulations.

A PPSI will be required to maintain at least 5% of reserve assets as demand deposits (or deposits that may be withdrawn upon request at any time) or deposits with a Federal Reserve Bank and must limit its exposure to any one counterparty to no more than 40% of its reserve assets, except for exposures to the US government, exposures to an appropriate custodian arising out of the custody services if certain requirements are met, and exposures resulting from centrally cleared repurchase agreements and centrally cleared reverse repurchase agreements. Reserve assets must be sufficiently diverse to manage potential credit, liquidity, interest rate, and price risks, and a PPSI must measure and manage the risk that concentrating reserve assets at one eligible financial institution or a small number of eligible financial institutions may impair the ability of a PPSI to satisfy redemption demands if individual eligible financial institutions are unable to return — or if there is a delay in returning — reserve assets placed by a PPSI. This latter requirement means that a PPSI may need to maintain a greater amount of demand deposits or reserve assets that exceed outstanding issuance value.

A PPSI will be required to monitor and validate compliance with the liquidity and diversification requirements for reserve assets and manage liquidity and concentration risk in a manner that is appropriate to its business model and risk profile. In addition, PPSIs will be required to perform stress testing to demonstrate that the reserve asset portfolio under both normal and stressed conditions is capable of supporting timely redemption.

The reserve asset portfolio must be capable of supporting timely redemption by the PPSI under both normal conditions and adverse economic, liquidity, market, and interest rate conditions, which may require a PPSI to maintain a buffer of reserve assets in excess of outstanding issuance value. Reserves must be identifiable and must be segregated from and not commingled with other assets owned or held by the PPSI. A PPSI will be required at all times to maintain a reserve asset value that equals or exceeds the outstanding issuance value of payment stablecoins of the PPSI. Reserve assets must be either held directly by the PPSI or in the custody of an eligible financial institution (see below). In general, reserve assets may not be pledged or hypothecated except in certain limited circumstances.

The rule will require a PPSI to demonstrate the operational capability to access and monetize the identifiable reserve assets to meet redemptions, in both normal and adverse economic, liquidity, market, and interest rate conditions, commensurate with the PPSI’s risk profile and business model, taking into account, among other relevant factors, market access, financing channels, haircut assumptions, and operational readiness.

A PPSI would only be permitted to withdraw reserve assets in excess of outstanding issuance value after appropriate due diligence and confirmation that the withdrawal would not cause the reserve asset value to fall below outstanding issuance value, calculated as of the time and date of withdrawal.

Yes, the OCC rule imposes certain ongoing prudential requirements on PPSIs, including the following:

Deceptive Practices. A PPSI is prohibited from using a deceptive name that suggests that the payment stablecoin is US government-backed (including terms relating to the US government such as ‘‘United States,’’ ‘‘United States Government,’’ and ‘‘USG,’’ in the name of the payment stablecoin), but this prohibition would not apply to abbreviations relating directly to the currency to which the payment stablecoin is pegged, such as “USD.” A PPSI would also be prohibited from marketing a payment stablecoin in such a way that a reasonable person would perceive the payment stablecoin to be legal tender, issued by the United States, guaranteed or approved by the government of the United States, backed by the full faith and credit of the United States, guaranteed by the United States government, or subject to federal deposit insurance or federal share insurance.

Monthly Report and Certification. On a monthly basis, each PPSI will be required to publish on its website the monthly composition of the PPSI’s reserves at the end of the previous month and must have this information examined by a registered public accounting firm. The registered public accounting firm’s examination report must be published on the PPSI’s website at the same time as the month-end report. On a monthly basis, the PPSI’s CEO and CFO certify the accuracy of the monthly report.

Shortfall Notice. A PPSI will be required to notify the OCC on any day in which its reserve asset amount has fallen below the minimum reserve asset amount. A PPSI that fails to satisfy the minimum reserve asset amount is prohibited from issuing any new payment stablecoins (except for certain transfers from one distributed ledger to another that does not increase the outstanding amount in issuance). If a PPSI fails to meet the minimum reserve requirement for 15 days, it must (unless the OCC grants an extension) begin liquidation of reserve assets and redemption of outstanding payment and not charge customers a fee to redeem their payment stablecoins at any time during the liquidation.

Redemption Requirements. The OCC rule provides that a PPSI’s obligation to redeem a payment stablecoin begins once it has received a redemption order from a customer (subject to completion of any applicable onboarding procedures reasonably designed not to unduly delay the onboarding of customers and satisfaction of legal conditions necessary to permit redemption).

A PPSI must publicly disclose its redemption policy and include, at a minimum, the following information in the policy:

• The timeframe in which the PPSI will redeem payment stablecoins and an explanation that “timely redemption may not exceed two business days following the date of the requested redemption”
• A statement explaining that any discretionary limitations on timely redemptions can only be imposed by the OCC (or, in the case of a state qualified payment stablecoin issuer, by the OCC, the Federal Reserve, or the state payment stablecoin regulator, as applicable)
• A statement explaining that a PPSI must notify the OCC if it receives redemption requests in excess of 10% of the outstanding issuance value of any brand of payment stablecoin issued by the PPSI in a single 24-hour period and, in such case, may request that the OCC extend the timeframe for timely redemption, which may be granted or denied by the OCC in its discretion
• A statement with clear instructions on how a payment stablecoin holder can redeem a payment stablecoin, including a link to the website(s) where a payment stablecoin holder can redeem the payment stablecoin
• The minimum number of payment stablecoins, if any, that the PPSI will redeem, provided that the issuer must redeem any number greater than or equal to one payment stablecoin, subject to appropriate customer screening and onboarding

Other Disclosures. A PPSI must publicly, clearly, and conspicuously disclose in plain language and in a format that is readily noticeable to payment stablecoin holders, readily understandable by payment stablecoin holders, and segregated from other information:

• The name of the PPSI that issues the payment stablecoin
• That the PPSI is the entity that is obligated to convert, redeem, or repurchase the payment stablecoin for a fixed amount of monetary value
• The website that contains a link to the monthly composition report of the relevant PPSI’s reserve assets
• All fees associated with purchasing or redeeming payment stablecoins
• That the payment stablecoin is not legal tender, issued by the United States, or guaranteed or approved by the United States
• That payment stablecoins are not deposits, not backed by the full faith and credit of the United States, not subject to deposit insurance by the FDIC, and not subject to share insurance by the National Credit Union Administration

Risk Management and Internal Audit. A PPSI will be required to maintain a system of internal controls and information systems to support effective risk management. The system must be appropriate for the size and complexity of the PPSI and its activities and must meet certain requirements specified in the OCC rule.

A PPSI will also be required to have an internal audit system appropriate for its size and complexity that provides for adequate monitoring of internal controls, independence and objectivity, independent testing, documentation of testing, findings and corrective action, review and verification of actions to address deficiencies, and board or audit committee review. The internal audit function must be staffed by qualified personnel.

Interest Rate Exposure. A PPSI will be expected to manage interest rate exposure in a manner appropriate for the size and complexity of its business.

Asset Growth and Earnings. A PPSI’s asset growth must be prudent and commensurate with its risk management capabilities. A PPSI will be expected to establish and maintain a system to evaluate earnings to ensure that earnings are sufficient to support operations and maintain adequate capital levels.

Insider and Affiliate Transactions. A PPSI must ensure that transactions between the PPSI and insiders or affiliates are not qualitatively detrimental to the PPSI, do not pose a significant risk of material financial loss to the PPSI, and are conducted on terms that are at least as favorable to the PPSI as prevailing market terms for comparable transactions with or involving nonaffiliates or insiders. In the absence of comparable transactions, the transaction must be offered on terms and under circumstances that, in good faith, would be offered to, or would apply to, nonaffiliates or non-insiders. Insider and affiliate transactions must be appropriately documented and reviewed by the PPSI’s board of directors.

A PPSI that is a limited purpose national bank or that is a subsidiary of an insured depository institution would, in addition to these requirements, need to comply with a similar market terms requirement in Section 23B of the Federal Reserve Act and certain quantitative and qualitative limitations on transactions with affiliates as provided in Section 23A of the Federal Reserve Act.

Service Provider Arrangements. PPSIs will be expected to oversee service provider arrangements by exercising appropriate due diligence in selecting service providers, contractually requiring service providers to implement appropriate measures to comply with the GENIUS Act, and monitoring service providers.

Foreign Exchange Risk. If a PPSI issued a payment stablecoin denominated in monetary value other than the US dollar, then the PPSI will be required to hedge residual foreign exchange risk in accordance with OCC requirements.

Information Technology and Security. A PPSI will be required implement a comprehensive written information security risk and control framework approved by its board of directors or appropriate committee. The program must be monitored and updated as appropriate, must be overseen by a qualified individual, and must include:

• An inventory and classification of assets, processes, and sensitivity of data
• Controls supporting and safeguarding sensitive information and processes
• Evaluation, validation, and reporting processes to ensure that key information technology systems and controls, including smart contracts, are operating as intended
• Periodic independent testing
• A comprehensive and effective incident identification and assessment process and incident response program
• Administrative, technical, and physical safeguards designed to ensure the security and confidentiality of records containing nonpublic personal information about a customer or sensitive customer information, protect against any anticipated threats or hazards to the security or integrity of such records, protect against unauthorized access to or use of such records that could result in substantial harm or inconvenience to any customer, and ensure the proper disposal of such records

PPSIs will also be required to develop, implement, and maintain appropriate measures to ensure secure handling of digital assets, including private key management, backup, and recovery. The information technology and security program must include measures to ensure continuity of operations and recovery of critical functions.

Data Security Breach. If a PPSI becomes aware of unauthorized access to sensitive customer information, including a customer’s private key, the PPSI will be required to conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If the PPSI determines that misuse of its information about a customer has occurred or is reasonably possible to occur, it must notify the affected or possibly affected customer or group of customers and the OCC as soon as possible, except that customer notice must be delayed if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and makes a written request for the delay.

The rule defines a “customer” as a person that purchases (through any consideration) the products or services of a PPSI or foreign payment stablecoin issuer directly from the issuer or that makes a request directly to the issuer that the issuer convert, redeem, or repurchase a payment stablecoin.

The final rule modifies the definition of customer from the one originally proposed by focusing on the relationship between the issuer and its direct counterparties. As an example, the OCC clarified that a payment stablecoin holder that acquired its payment stablecoin from a third-party distributor (including a distributor that is associated with the payment stablecoin as part of a white-label arrangement) that did not act as agent for the PPSI would not be a customer of the issuer unless and until the holder sought to redeem the payment stablecoin from the PPSI (or otherwise purchased products or services directly from the PPSI).

The rule separately defines a “payment stablecoin holder” as the beneficial owner of a payment stablecoin, and there are different obligations that run to a payment stablecoin holder under the rule versus those that apply to customers.

Reserve assets must be held by the PPSI or in the custody of an eligible financial institution. An eligible financial institution must meet the eligibility criteria specified in Section 10(a) of the GENIUS Act. This provision of the GENIUS Act only permits a person to engage in the business of providing custodial or safekeeping services for payment stablecoin reserve assets, payment stablecoins used as collateral, or private keys used to issue permitted payment stablecoins (i.e., covered assets) if the person is subject to supervision or regulation by a primary federal payment stablecoin regulator, the Securities and Exchange Commission, or the Commodity Futures Trading Commission or is subject to supervision by a state bank or credit union supervisor that makes available certain information to the Federal Reserve Board. The OCC rule provides that a Federal Reserve Bank is also an eligible financial institution.

Eligible financial institutions must treat and deal with covered assets as belonging to its customer and not as the property of the eligible financial institution and must take such steps as are appropriate to protect the covered assets of a customer from the claims of creditors of the person. Custodial property must be separately accounted for, segregated, and not commingled with the assets of the eligible financial institution (but it may be held in an omnibus account containing property of more than one customer, and cash may be self-deposited if consistent with federal law). A written custody agreement must document the eligible financial institution’s duties and responsibilities as custodian and should include provisions that address compliance with the custody requirements of the GENIUS Act. An eligible financial institution having custody of covered assets must have policies and procedures designed to ensure compliance with the GENIUS Act.

No. Section 16(a) of the GENIUS Act provides that the GENIUS Act shall not be construed to limit the authority of a depository institution, national bank, or trust company to engage in activities permissible pursuant to applicable state and federal law. In the adopting release that accompanied the rule, the OCC clarified that, “[c]onsistent with this provision, for example, an uninsured national bank that is a permitted payment stablecoin issuer could engage in fiduciary, trust, and other related activities consistent with applicable law.” It also explained that “a national bank or Federal savings association could provide crypto-asset custody services, either in a fiduciary or non-fiduciary capacity, or use distributed ledger technology and related stablecoins to carry out payment activities.”

The OCC’s regulations related to chartering of national banks provide that “[t]he bank may be a special purpose bank that limits its activities to the operations of a trust company and activities related thereto or to any other activities within the business of banking” and further states that “[a] special purpose bank that conducts activities other than the operations of a trust company and activities related thereto must conduct at least one of the following three core banking functions: Receiving deposits; paying checks; or lending money.”

The OCC rule provides that a person seeking to acquire control of a PPSI must follow the requirements of the OCC’s regulations implementing the Change in Bank Control Act as if the PPSI were a national bank. In general, these rules require a person to file a prior notification with the OCC and obtain the OCC’s non-objection before proceeding with a proposed acquisition of control. The notice requires submission of personal financial and other background information concerning the proposed acquirer. The OCC’s rules implementing the Change in Bank Control Act provide that a notice of a prospective acquisition of control is subject to public notice and comment.

In general, under the OCC’s rules implementing the Change in Bank Control Act, a person has control of an institution if the person possesses the power, directly or indirectly, to direct the management or policies of the institution or to vote 25% or more of any class of voting securities of the institution. The OCC presumes, unless rebutted, that an acquisition or other disposition of voting securities through which any person proposes to acquire ownership of, or the power to vote, 10% or more of a class of voting securities of an institution is an acquisition by a person of the power to direct the institution’s management or policies if:

• The securities to be acquired or voted are subject to the registration requirements of Section 12 of the Securities Exchange Act of 1934; or
• Immediately after the transaction, no other person will own or have the power to vote a greater proportion of that class of voting securities

These requirements also generally apply to an indirect acquisition of control of an institution through acquiring control of a holding company, and the holdings of persons and entities that are regarded as “acting in concert” will be aggregated for purposes of applying these thresholds. Certain transactions are exempt from the requirements of the Change on Bank Control Act or are exempt from prior notice requirements but may still require a filing with the OCC.

The OCC has historically taken the position that the Change in Bank Control Act applies to a limited purpose national bank even if is not an insured depository institution.

An applicant seeking approval to become a PPSI must submit an application to the OCC. The OCC has not yet published the required application form and has stated that it is not yet accepting applications. The OCC rule provides that the OCC will consider the following factors when evaluating applications:

• The ability of the applicant to meet the requirements for issuing payment stablecoins
• Whether any officer or director of the applicant has been convicted of a felony offense involving insider trading, embezzlement, cybercrime, money laundering, financing of terrorism, or financial fraud
• The competence, experience, and integrity of the officers, directors, and principal shareholders of the applicant, its subsidiaries, and parent companies
• Whether the applicant’s redemption policy meets applicable requirements
• The ability of the applicant to conduct its proposed activities in a safe and sound manner, including whether the applicant’s proposed structure adequately addresses run risks and adequately ensures the ability to redeem payment stablecoins

The OCC has also advised that an application must include an overview of the applicant, a detailed business plan, and information to assess the factors described above that the OCC is required to consider when evaluating an application, including proposed activities and their permissibility, reserve policy and requirements, redemption policy and requirements, risk management policy and program, as well as certification that any filing or supporting material submitted to the OCC contains no material misrepresentations or omissions. Each director, executive officer, and principal shareholder of a proposed PPSI must submit an Interagency Biographical and Financial Report to the OCC.

The OCC rule provides that a substantially complete application will be deemed approved by the OCC as of the 120th day after the substantially complete application is received by the OCC, unless the OCC denies the substantially complete application before the 120-day deadline.

Section 18 of the GENIUS Act provides that the prohibition on issuing payment stablecoins in the United States does not apply to a foreign payment stablecoin issuer if the foreign payment stablecoin issuer is subject to regulation and supervision by a foreign payment stablecoin regulator of a foreign country, a territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands that has a regulatory and supervisory regime that the Secretary of the Treasury has determined to be comparable to the regulatory and supervisory regime established under the GENIUS Act. In addition, the foreign payment stablecoin issuer must be registered with the OCC and must hold reserves in a US financial institution sufficient to meet liquidity demands of US customers (unless otherwise permitted pursuant to a “reciprocal arrangement” established by the Secretary of the Treasury with another jurisdiction). The foreign country in which the foreign payment stablecoin issuer is domiciled and regulated must not be subject to comprehensive economic sanctions by the United States or in a jurisdiction that the Secretary of the Treasury has determined to be a jurisdiction of primary money laundering concern.

The OCC rule provides that a foreign payment stablecoin issuer that seeks to be registered with the OCC must file an application in the form prescribed by the OCC (the application form has not yet been published) and must also provide:

• Evidence that the Secretary of the Treasury has determined that the applicant is subject to a regulatory and supervisory regime comparable to the GENIUS Act with respect to payment stablecoins
• A certification that the applicant will make available to the OCC all information that the OCC deems necessary to determine and enforce compliance with the GENIUS Act
• The applicant’s consent to United States jurisdiction relating to enforcement of the GENIUS Act
• A certification that any filing or supporting material submitted to the OCC contains no material misrepresentations or omissions
• A certification as to whether Section 4(a)(12) of the GENIUS Act applies to the applicant, with this provision generally prohibiting a public company that is not predominantly engaged in one or more financial activities and its wholly or majority-owned subsidiaries and affiliates from issuing payment stablecoins unless approved by a unanimous vote of the Stablecoin Certification Review Committee

An application for registration made by a foreign payment stablecoin issuer that meets relevant requirements will be deemed approved by the OCC as of the 30th day after the OCC received the filing, unless the OCC notifies the filer in writing that the application for registration has been rejected.