OCC Gives More Guidance On Stablecoin Rewards And GENIUS Act

OCC has released a rulemaking update on the GENIUS Act.

The Office of the Comptroller of the Currency has provided a 60 day timeframe for industry participants and regulatory actors to send in relevant feedback on the rulemaking document. This comes at a time when the CLARITY Act is in the processes of deep negotiations, with the main hurdle being the distribution of stablecoin rewards.

Here it is made clear that there will be strict prohibition on passing on stablecoin rewards, yield, or interest, from issuer to individuals as it pertains to simply holding or using stablecoins. This means that stablecoin issuers would have to rethink any existing agreements with third-parties and affiliates that currently rely on this.

There are some areas that may be eligible, including only merchants themselves providing incentives or offers to holders for engaging with stablecoins, as well as profit-sharing scenarios between stablecoin issuers and "non-affiliate partner[s]" under a white-label.

Previously, it was anticipated that the notion of "holding" may be pursued by regulators on the back of "deposit flight" arguments from community banks, but focusing on terms like "use" in the rulemaking does now complicate the US stablecoin landscape. This comes just days after the White House held a third meeting to resolve the stalemate.

However, the OCC mentions that at present it is avoiding proposing an outright ban and broad yield prohibition due to market uncertainty it could inflict, and goes further to ask for feedback comments as seen in Questions 35 - 39 (pp.184 - 186) from industry participants.

Overall, the document is a comprehensive breakdown on everything that is included within the scope of the GENIUS Act as it pertains to payment stablecoin activities and permitted stablecoin issuers. Below is a brief overview, with more proposals and questions (p.117) to be found inside.

OCC GENIUS Act Rulemaking Overview:

> OCC has oversight over certain national stablecoin issuers and foreign issuers.

> Effective date of GENIUS Act is 18 months or 120 days post final regulations.

> Supports ban on repurposing the reserves unless meets strict criteria.

> Asks for comments on limiting a stablecoin issuer to 1 branded stablecoin (p.43).

> In a de-peg scenario, issuers are expected to keep full pre de-peg value quantity of reserve assets on balance, which may be more than the (decreased) market value. 

> Issuers must have 10% of overall reserves as daily liquidity balance for sudden redemption and withdrawals, and 30% as deposits for redemptions. 

> Holding reserve assets at one custodian or financial entity are capped at 40%.

> Issuers must publish transparency reports on active asset reserves on their official website on last day of the month for the previous month's reserves.

> Reserve balances should be audited by registered financial auditing companies.

> Issuers must publish the entire redemption process and timeframe (max 2 days proposed) and provisions for extending this, with 7 days allowed if more than 10% redemption requests occur with the span of a 24hr period.

> Issuers must provide with 7 days’ notice for any fee change for redeeming or buying.

> Issuers must submit quarterly reporting to OCC on internal audits and balances.