S. 394 — GENIUS Act of 2025

This section defines 22 terms for purposes of the Act, including (1) “payment stablecoin” as a digital asset designed or used as a means of payment or settlement, redeemable for a fixed amount of monetary value (i.e., national currency or deposit) and intended to maintain stable value relative thereto (excluding national currencies and certain investment company securities); (2) “permitted payment stablecoin issuer” as an approved subsidiary of an insured depository institution, Federal qualified nonbank payment stablecoin issuer, or State qualified payment stablecoin issuer; (3) “Federal qualified nonbank payment stablecoin issuer” as a nonbank entity approved by the primary Federal payment stablecoin regulator to issue payment stablecoins; and (4) “primary Federal payment stablecoin regulator” as the appropriate Federal banking agency, National Credit Union Administration, or Comptroller of the Currency, depending on the issuer.

This section establishes standards for permitted issuers of payment stablecoins, requiring them to (1) maintain reserves backing outstanding payment stablecoins on a 1-to-1 basis using specified high-quality liquid assets—including United States coins and currency, demand deposits at insured depository institutions or regulated foreign depository institutions (subject to safety-and-soundness limits), Treasury bills/notes/bonds with remaining or original maturities of 93 days or less, repurchase agreements (7 days or less maturity backed by 90-day-or-less Treasuries), certain reverse repurchase agreements, money market funds invested solely in the foregoing assets (except reverse repos), or central bank reserve deposits; (2) publicly disclose their redemption policy and establish timely redemption procedures; and (3) publish monthly on their website the total outstanding payment stablecoins and reserve composition. The section further (1) prohibits rehypothecation of reserves except to create liquidity for redemptions (e.g., pledging Treasury bills for 90-day-or-less repurchase agreements cleared by an approved central counterparty or with prior regulator approval); (2) requires monthly examination of reserve reports by a registered public accounting firm, with CEO and CFO certification of accuracy to the primary Federal or State regulator (subject to criminal penalties under 18 U.S.C. 1350(c) for knowing false certifications); (3) directs primary Federal payment stablecoin regulators (jointly) or State regulators to issue tailored capital requirements (not exceeding those needed for ongoing operations), liquidity/interest rate risk management standards, and operational/compliance/IT risk standards (including Bank Secrecy Act and sanctions compliance); (4) treats permitted issuers as financial institutions under the Bank Secrecy Act; and (5) limits their activities to issuing, redeeming, and managing related [activities]. (As background, payment stablecoins are digital assets designed to maintain stable value, typically pegged 1:1 to the U.S. dollar, and used for payments and settlements; these requirements aim to ensure redeemability, transparency, and financial stability.)

This section establishes an approval process for the primary Federal payment stablecoin regulator to receive, review, and decide on applications from insured depository institutions seeking to issue payment stablecoins through subsidiaries and from nonbank entities seeking to become Federal qualified nonbank payment stablecoin issuers, based on the applicant's financial condition and ability to meet requirements in section 4. The regulator must issue implementing regulations before the effective date in section 16; decide on complete applications within 120 days (deeming them approved if no timely decision); deny only if activities would be unsafe or unsound, with a written explanation, actionable recommendations, and applicant rights to request a hearing within 30 days (final determination within 60 days of hearing) or reapply; and submit annual reports to Congress on applications pending over 6 months due to incompleteness. The section further directs the Comptroller to issue necessary rules for regulating payment stablecoin issuance, consistent with section 4 requirements.

This section establishes supervision and enforcement authorities over permitted payment stablecoin issuers that are subsidiaries of insured depository institutions and Comptroller-regulated entities (i.e., entities regulated by the Comptroller of the Currency), modeled on section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818). Under supervision provisions, (1) such subsidiaries are subject to supervision by the primary Federal payment stablecoin regulator in the same manner as the parent insured depository institution and are deemed financial institutions under title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.); and (2) Comptroller-regulated entities must submit reports on financial condition, risk systems, and compliance upon request and are subject to Comptroller examinations of operations, financial condition, risks to entity safety and soundness or U.S. financial stability, and risk controls—with requirements to use existing reports, avoid duplicative activities, and limit exams and reports to those similar in cadence and format to other Comptroller-regulated entities. Under enforcement provisions, the primary Federal payment stablecoin regulator may (1) suspend or revoke a permitted payment stablecoin issuer's registration for material violations of the Act, regulations, orders, or written agreements; (2) issue cease-and-desist orders, including temporary orders, for violations or practices; and (3) remove or prohibit institution-affiliated parties for violations of the Act, regulations, orders, or specified anti-money laundering laws (31 U.S.C. ch. 53, subch. II)—using notice, hearing, judicial review, and injunction procedures from subsections (b), (e), (h), and (i)(1) of section 8 of the Federal Deposit Insurance Act.

This section grants primary supervisory, examination, and enforcement authority to a state payment stablecoin regulator over state-qualified payment stablecoin issuers in that state. It authorizes such regulators to enter memoranda of understanding with the Federal Reserve Board for the Board to conduct such activities on their behalf; requires ongoing information sharing between state regulators and the Board, including initial applications; and permits state regulators to issue orders and rules under section 4 applicable to such issuers to the same extent as federal regulators do for non-state issuers. It further authorizes the Board and Comptroller of the Currency, after at least five days' prior written notice to the state regulator and in exigent circumstances (defined by rulemaking within 180 days of enactment), to impose restrictions—equivalent to final cease-and-desist orders—on such issuers and affiliates limiting (1) dividend payments, (2) inter-affiliate transactions, and (3) activities risking imposition of holding company liabilities on the issuer, subject to administrative review (with automatic lapse after 10 days absent Board/Comptroller action) and judicial review in U.S. district court.

This section establishes customer protection requirements for persons providing custodial or safekeeping services for permitted payment stablecoins or their private keys. Such persons must be subject to supervision by a primary Federal payment stablecoin regulator, specified primary financial regulatory agencies under the Dodd-Frank Act, or State bank or credit union supervisors (with information-sharing requirements) and must comply with asset segregation rules. Those rules require (1) treating customer payment stablecoins, private keys, cash, and other property as belonging to the customer and protecting it from the person's creditors; (2) prohibiting commingling with the person's funds, subject to exceptions for omnibus accounts at insured depository institutions or trust companies, transaction-related withdrawals, and Board-prescribed commingling in customer accounts; and (3) submitting operational and asset-protection information to the primary regulator. The requirements do not apply to providers of hardware or software solely for customer self-custody.

This section establishes that, in any insolvency proceeding—including under the Bankruptcy Code—of a payment stablecoin issuer, claims of persons holding the issuer's payment stablecoins (as defined in section 2 of the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025) have priority over all other claims. The section amends section 507(a) of the Bankruptcy Code (which sets the order of priority for unsecured claims in bankruptcy cases, currently with first priority for domestic support obligations such as alimony and child support) by making it subject to new subsection (e), which provides first priority to payment stablecoin holder claims notwithstanding subsection (a). (Thus, such claims supersede domestic support obligations and all other priority and general unsecured claims.) The section further specifies that a payment stablecoin issuer that is not a depository institution may be a debtor under the Bankruptcy Code.

This section directs the primary Federal payment stablecoin regulators, in consultation with the National Institute of Standards and Technology, other relevant standard-setting organizations, and state governments, to assess and, if necessary, prescribe standards for payment stablecoin issuers to promote compatibility and interoperability.

This section directs the Secretary of the Treasury, in consultation with the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission, to conduct a study on endogenously collateralized stablecoins (i.e., digital assets represented as redeemable for a fixed monetary value and backed solely by another digital asset issued by the same originator). Not later than 365 days after enactment, the Secretary must submit a report to the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs containing all study findings, including analyses of non-payment stablecoin categories and technological risks and benefits; participants; utilization; reserve compositions; algorithms; governance and decentralization; promotion and advertising; and consumer disclosures.

This section establishes reporting requirements concerning payment stablecoins. Specifically, it (1) requires primary Federal payment stablecoin regulators to provide a rulemaking status update to the House Committee on Financial Services and Senate Committee on Banking, Housing, and Urban Affairs not later than 6 months after enactment; (2) requires the Board of Governors of the Federal Reserve System and Comptroller of the Currency, beginning 1 year after enactment and annually thereafter, to submit to those committees and the Director of the Office of Financial Research a report on payment stablecoin industry trends, the number of permitted issuer applications under section 5 (including aggregate approvals and rejections), and potential financial stability risks from such activities; and (3) directs the Financial Stability Oversight Council to incorporate subsection (b) report findings into its annual report to Congress under 12 U.S.C. 5322(a)(2)(N).

This section establishes a rule of construction providing that nothing in the Act limits the authority of depository institutions (i.e., banks or savings associations, as defined in 12 U.S.C. 1813), Federal credit unions, State credit unions, or trust companies to engage in activities permissible under applicable state and federal law, including (1) accepting or receiving deposits and issuing digital assets that represent deposits, (2) utilizing a distributed ledger for books and records and to effect intrabank transfers, and (3) providing custodial services for payment stablecoins, private keys of payment stablecoins, or reserves backing payment stablecoins. The section directs the appropriate federal banking agency, National Credit Union Administration (for credit unions), and Securities and Exchange Commission not to require such entities or affiliates to (1) include assets held in custody as a liability on financial statements or balance sheets (including for payment stablecoin custody); (2) hold additional regulatory capital against custody or safekeeping assets except as necessary to mitigate operational risks (as determined by the relevant federal banking agency, NCUA, state bank supervisor, or state credit union supervisor); or (3) recognize a liability for obligations related to non-owned digital assets exceeding the related expense on the income statement. The section defines "depository institution" by cross-reference to 12 U.S.C. 1813 and "Federal credit union" and "State credit union" by cross-reference to the Federal Credit Union Act.

This section amends the definition of "security" in five federal securities statutes to exclude a payment stablecoin issued by a permitted payment stablecoin issuer, as defined in section 2 of the Clarity for Payment Stablecoins Act of 2023. (Payment stablecoins are digital assets designed to maintain stable value relative to a fiat currency, such as the U.S. dollar, for use in payments and settlements.) Specifically, the section makes this exclusion in (1) section 202(a)(18) of the Investment Advisers Act of 1940; (2) section 2(a)(36) of the Investment Company Act of 1940; (3) section 2(a)(1) of the Securities Act of 1933; (4) section 3(a)(10) of the Securities Exchange Act of 1934; and (5) section 16(14) of the Securities Investor Protection Act of 1970. (Thus, such stablecoins are not subject to registration, disclosure, antifraud, or other requirements applicable to securities under these statutes.)

This section directs the Federal Reserve, in collaboration with the Secretary of the Treasury, to create and implement reciprocal arrangements or bilateral agreements with jurisdictions that have substantially similar payment stablecoin regulatory regimes. Such agreements are to facilitate international transactions and interoperability with United States dollar-denominated stablecoins issued overseas.

This section establishes the effective date of the Act as the earlier of 18 months after enactment or 120 days after the primary Federal payment stablecoin regulators issue final implementing regulations. The section further directs those regulators to notify Congress upon beginning to process applications under the Act and authorizes them to waive the Act's requirements for up to 12 months from the effective date for subsidiaries of insured depository institutions or nonbank entities with pending applications to become permitted payment stablecoin issuers or Comptroller-regulated entities, respectively.