The US Federal Reserve (Fed) has released a draft regulation that would require cryptocurrency companies operating in the United States to verify the identities of stablecoin users. This proposal aims to apply customer identification rules to stablecoin activities as part of efforts to mitigate money laundering and illicit finance risks.
Identity checks for stablecoin firms
The draft regulation was developed in coordination with relevant agencies from the Trump administration, including the Treasury Department and the FDIC. It provides guidance on the enforcement of customer identification requirements from the GENIUS Act, which came into force last summer. That legislation established a legal framework for issuing stablecoins pegged to the US dollar.
Under the draft, any individual or entity defined as a “digital asset service provider” will need to implement specific safeguards. This includes US-based individuals and organizations who buy, sell, transfer, or store crypto assets. The regulation compels companies to adopt additional controls to prevent stablecoin-related services from being exploited by criminal networks or illicit organizations.
According to the Fed’s proposal, digital asset service providers must verify customers’ names, dates of birth, and addresses; this information will be cross-checked against US government lists of terror suspects and sanctioned individuals.
The rules specify that customer name, birthdate, and address must be verified. In addition, this data must be checked against government watchlists, including those related to terrorist organizations and other sanctioned groups.
Notable abstention in the board vote
Most members of the Fed’s Board of Governors expressed support for the regulatory proposal. According to the draft text, former Fed Chair Jerome Powell also voted in favor. However, current Fed Chair Kevin Warsh abstained during the vote.
Warsh did not provide any comments on his abstention. A Fed spokesperson also did not immediately respond to requests for comment on the matter, fueling questions about areas of disagreement within the agency regarding the proposal.
Exemption for decentralized protocols sparks debate
Some officials criticized the draft’s carve-out for decentralized protocols, which are exempt from these requirements. The same exception appears in both the proposed regulation and the GENIUS Act.
Fed Board Member Michael Barr stated his support for the proposal but emphasized that the current regulatory framework under the GENIUS Act may fall short in addressing illegal financing risks arising from secondary market transactions involving payment stablecoins.
Barr voiced support for releasing the proposed regulation, yet cautioned that existing rules might be insufficient to address potential illegal finance risks, particularly in secondary market activities. Barr is known for frequently commenting on financial regulation matters as a Fed board member.
Sixty-day public comment period begins
The Fed’s proposed regulation will now enter a 60-day public comment period. During this stage, industry stakeholders, legal experts, companies, and other interested parties will be able to submit their assessments of the draft. Whether changes will be made to the final text will become clear after this feedback period.
