Bipartisan senators urge US Treasury to preserve state authority under GENIUS Act

Lummis (pictured), in her letter to the US Treasury on Tuesday said that section 4(c) of the GENIUS Act establishes a pathway for certification of state regulatory regimes for payment stablecoin issuers.

“Congress clearly sought to preserve the dual banking system and the crucial role of State banking agencies in supervising this market. Accordingly, it is critical that Treasury implement the provisions in the GENIUS Act in a manner that preserves and promotes state participation.”

She said the Treasury’s finalised principles for assessing whether State regimes are substantially similar to the federal regulatory framework are critical, as many states are currently considering legislation or regulations to implement the GENIUS Act.

“The GENIUS Act introduces a dual-track framework that permits certain smaller issuers, those with less than $10 billion (£7.5bn) in consolidated outstanding stablecoin issuance, to opt into a state-level regulatory regime, provided that regime is certified as “substantially similar” to the federal framework,” according to Paul Hastings, a California-based law firm.

Lummis said the proposed principles were published by the Treasury but did not address the timeline and procedural requirements related to state certification.

“This lack of clarity creates uncertainty for states. We have heard from stakeholders that, absent clear procedural guidance, the certification process could be interpreted or applied in a manner that effectively forecloses future participation.”

The senators urged the Treasury to promptly issue written procedural guidance clarifying the application, review, and certification process for State regimes.

“This guidance should include clear timelines and requirements and should explicitly allow states to seek certification when their frameworks are ready. The process should not operate as a one-time window that effectively bars future certifications,” the lawmakers emphasised.

Senators Kirsten Gillibrand (D-New York), Bill Hagerty (R-Tennessee), Angela Alsobrooks (D-Maryland), Kevin Cramer (R-North Dakota), Catherine Masto (D-Nevada), and Pete Ricketts (R-Nebraska) signed the letter.

The New York State Department of Financial Services (DFS) last week proposed first state stablecoin framework aligned with GENIUS Act. The department said that the proposed regulation is built on its June 2022 guidance on the issuance of US dollar-backed stablecoins.

European Central Bank’s (ECB) executive board member Isabel Schnabel this month said that central banks must carefully assess the implications of the rapid growth of stablecoins, which operate outside the traditional banking system, as they could disintermediate banks.