- Key insight: Issuers must hold liquid reserves and capital as well as an additional FDIC-insured operational backstop.
- Supporting data: OCC sets $5 million minimum capital for all new stablecoin issuers.
- Forward look: The rule will be open for 60 days for comment.
The Office of the Comptroller of the Currency on Wednesday proposed a comprehensive framework for capital and other requirements for payment stablecoin issuers under the GENIUS Act.
The nearly 400-page
"The OCC has given thoughtful consideration to a proposed regulatory framework in which the stablecoin industry can flourish in a safe and sound manner," said Comptroller of the Currency Jonathan V. Gould. "We welcome feedback on the proposal to inform a final rule that is effective, practical and reflects broad industry perspective. The OCC will continue its work to implement the GENIUS Act and provide OCC regulated entities with more opportunities to meet the needs of their customers and communities."
Under the proposal, stablecoin issuers would need to have a federal charter from the OCC to operate as "permitted payment stablecoin issuers." The agency would undergo a case-by-case process for granting issuers licenses, considering each applicant's business model, likely growth trajectory, operational risks and governance.
The OCC puts emphasis on its ability to flexibly evaluate each model and likened its thinking about stablecoin issuance to that of its current chartering regime for national trust banks.
"The overall approach in the proposed rule would provide for an individualized evaluation of each prospective permitted payment stablecoin issuer," the proposal notes. "Consistent with the process the OCC applies when determining minimum capital requirements for chartering national trust banks."
Applicants would be required to demonstrate that their stablecoin activities can be conducted safely, that reserve assets are appropriately managed and that they have systems in place to handle operational disruptions. The OCC also proposes a "de novo" period of approximately three years for newly chartered issuers, during which the OCC would monitor operations closely and retain the ability to adjust requirements based on performance or changes in the business model originally applied for.
The OCC is also proposing implementing a $5 million minimum capital requirement that sets a floor for new stablecoin issuer entrants, regardless of size.
"This floor is primarily intended to ensure that every proposed payment stablecoin issuer has sufficient resources to support initial operations, particularly to cover the losses that are expected to occur early in the startup phase of a new stablecoin," the OCC proposal states. "The OCC's experience with chartering de novo national trust banks seeking to provide stablecoin programs determined that minimum capital amounts ranging from $6.05 million to $25 million would be necessary to establish a viable business model."
Issuers would be required to maintain liquid reserve assets including U.S. Treasuries, deposits at insured depository institutions, certain money market funds and cleared or tri-party reverse repurchase agreements. OCC says it is mulling publishing a list of reserve assets to assist banks in ensuring compliance.
"To the extent feasible, the OCC is considering publishing a list of, or otherwise making public, the acceptable tokenized reserve assets for the sake of transparency," the proposal said. "In determining whether a potential reserve asset qualifies … the OCC will consider, among other relevant factors, whether the asset has liquidity characteristics, including during times of stress, comparable to the other reserve assets allowed … [whether] permitted payment stablecoin issuers will be operationally capable of monetizing the asset to meet redemption request."
The proposal requires stablecoin issuers to manage liquidity carefully and be able to redeem stablecoins quickly, even during stressful market conditions. The OCC considered adding extra capital rules for risky reserve assets or counterparties but decided that holding diversified, liquid reserves and monitoring them regularly is enough to protect users without imposing additional costs for issuers.
Issuers would be required to maintain common equity Tier 1 capital and additional Tier 1 capital, sufficient to cover operational risks and ensure ongoing operations. Capital levels would be assessed both at the outset of the charter and with additional ongoing evaluations.
"These two elements are generally consistent with the capital elements for national banks and Federal savings associations under [OCC regulations]," the proposal states. "These elements consist of common equity, retained earnings and noncumulative perpetual preferred stock that meet certain terms designed to ensure significant loss-absorbing capabilities."
As part of the proposal, the OCC is also proposing a designated pool of highly liquid assets separate from both capital and reserves to act as an operational backstop for firms. The backstop aims to allow issuers to maintain operations during disruptions, such as system outages, cyberattacks or unexpected operational losses. The amount would be calculated quarterly based on the firm's overall operating costs, which OCC says, "are highly correlated with the permitted payment stablecoin issuer's ability to maintain the operations of its payment stablecoin and stabilize from a business disruption."
"This amount would need to be held in U.S. currency directly or at a Federal Reserve Bank, as demand deposits at a U.S. insured depository institution, with those deposits fully insured by the FDIC, or in U.S. Treasuries that meet the requirements to qualify as reserve assets, which could be readily liquidated," the proposal notes. The OCC would also impose penalties for issuers which fail to meet their capital and backstop requirements.
"If a permitted payment stablecoin issuer does not meet the minimum capital … [or] the operational backstop at the end of a quarter, it must make efforts [that] may include raising additional capital, reducing the size of the operations or risk profile … converting less-liquid assets into highly liquid assets," the proposal states. "Until the capital and backstop requirements are satisfied, the stablecoin issuer would be restricted from issuing any new stablecoins, except as necessary to facilitate a transfer … from one distributed ledger to another … [if noncompliant] for two consecutive quarters, it must begin liquidating reserve assets and redeeming outstanding stablecoins at the start of the following month and can no longer issue any new payment stablecoins going forward."
Boards and management of issuers must maintain risk management frameworks that address operational, market and legal risks. Issuers must submit quarterly reports detailing financial statements, reserve holdings and operational backstop amounts among other compliance metrics, the OCC said.
