Excellent operational insights from @amanda_remittance and @kevin_merchant. Let me address the compliance and regulatory infrastructure that makes all of this legally possible post-GENIUS Act.
GENIUS Act Compliance Framework
The GENIUS Act created a clear regulatory structure:
Stablecoin Issuer Requirements:
1. Reserve Backing (100%)
- High-quality liquid assets only
- U.S. Treasury securities
- Cash deposits at Federal Reserve or insured banks
- Prohibited: Commercial paper, corporate bonds, crypto assets
2. Attestation and Audit
- Monthly attestation reports (public)
- Annual audits by registered accounting firms
- Real-time reserve transparency (many issuers)
- Proof of reserves on-chain
3. Redemption Rights
- 1:1 redemption guaranteed
- T+1 redemption timeline maximum
- No fees for redemption (or disclosed upfront)
- Consumer protection if issuer fails
4. Licensing Paths
Option A: Bank-Issued Stablecoins
- Existing bank charters apply
- OCC oversight
- FDIC insurance considerations
- Example: JPMorgan JPM Coin
Option B: Licensed Non-Bank Issuers
- Federal registration required
- Federal Reserve oversight
- State licensing coordination
- Example: Circle (USDC), PayPal (PYUSD)
AML/KYC Requirements
Stablecoin transactions must comply with Bank Secrecy Act:
Customer Identification Program (CIP):
- Name, address, DOB, identification number
- Risk-based verification procedures
- Ongoing monitoring
Transaction Monitoring:
- Suspicious Activity Reports (SARs) for unusual patterns
- Currency Transaction Reports (CTRs) for $10K+ transactions
- Enhanced due diligence for high-risk customers
Who Is Responsible:
- Issuers: Circle, PayPal, Tether, etc.
- Exchanges: Coinbase, Kraken, Gemini (on/off ramps)
- Payment processors: Stripe, others facilitating conversion
- Money transmitters: Remittance companies
The Travel Rule (Cross-Border Compliance)
Requirement:
For transfers $1,000+, must transmit:
- Originator information (sender)
- Beneficiary information (recipient)
- This applies to stablecoins same as wire transfers
How It Works:
Traditional solution (SWIFT):
- Built into messaging system
- Centralized coordination
Blockchain solution (decentralized):
- Notabene: Travel Rule compliance network
- Sygna: Travel Rule protocol
- CipherTrace: Compliance infrastructure
Implementation:
- Wallet providers exchange KYC data off-chain
- Encrypted peer-to-peer messaging
- Meets regulatory requirements without on-chain PII
Sanctions Screening
OFAC Compliance:
All stablecoin service providers must:
- Screen against SDN (Specially Designated Nationals) list
- Block transactions to sanctioned addresses
- Report blocked transactions
Tools:
- Chainalysis: Sanctions screening, transaction monitoring
- Elliptic: AML/CFT compliance, risk scoring
- TRM Labs: Blockchain intelligence, compliance
Address Blacklisting:
- Known sanctioned wallets blocked
- Tornado Cash addresses blocked (post-sanctions)
- Real-time screening at transaction time
State-Level Money Transmitter Licensing
Even with federal GENIUS Act framework:
Still Required in Most States:
- 48+ state money transmitter licenses
- State-specific requirements vary
- Surety bonds (varies by volume)
- Ongoing state reporting
Burden:
- Cost: $2M-5M+ for nationwide licensing
- Timeline: 12-24 months
- Compliance staff required
Why licensed providers matter:
Circle, PayPal, Coinbase have done this work. Smaller players partner with licensed entities.
Consumer Protection Mechanisms
1. Segregated Reserves
- Customer funds separate from company assets
- Bankruptcy-remote structure
- If issuer fails, customers made whole
2. Transparency Requirements
- Monthly attestation reports
- Reserve composition disclosed
- On-chain proof of reserves (some issuers)
3. Redemption Guarantees
- Legal right to 1:1 redemption
- Enforcement mechanisms
- Regulatory oversight
Cross-Border Regulatory Coordination
U.S. ↔ EU:
- MiCA (Markets in Crypto-Assets) in EU
- GENIUS Act in U.S.
- Similar reserve requirements
- Coordination improving but not seamless
Challenge:
Same stablecoin, different regulatory regimes. Geo-fencing sometimes required.
Asia-Pacific:
- Singapore: Progressive (MAS licensing framework)
- Hong Kong: Stablecoin framework announced
- Japan: Strict but clear rules
- China: Banned crypto, exploring CBDC
Risk-Based Approach
Customer Risk Categories:
Low Risk:
- Small transactions
- Established customer
- Normal patterns
- Basic KYC sufficient
High Risk:
- Large transactions (>$50K)
- New customer
- High-risk jurisdiction
- PEP (Politically Exposed Person)
- Enhanced due diligence required
Transaction Limits:
Most platforms implement:
- Daily limits for unverified users ($1K-10K)
- Higher limits with KYC verification
- Institutional limits ($1M+)
Compliance Technology Stack
Successful stablecoin services use:
1. KYC/AML Onboarding:
- Jumio, Onfido, Persona (identity verification)
- Database screening (LexisNexis, etc.)
2. Transaction Monitoring:
- Chainalysis KYT (Know Your Transaction)
- Elliptic Navigator
- TRM Labs platform
3. Travel Rule:
4. Sanctions Screening:
- OFAC SDN list integration
- Real-time address screening
5. Reporting:
- SAR filing systems
- CTR automated reporting
- Regulatory report generation
The Compliance Gap (Pre vs Post-GENIUS)
Before GENIUS Act:
- Regulatory uncertainty
- State-by-state patchwork
- Banks hesitant to work with crypto
- Institutional adoption limited
After GENIUS Act:
- Clear federal framework
- Coordinated state/federal approach
- Banks comfortable with licensed issuers
- Institutional adoption accelerating
This is why we’re seeing $5T+ transaction volume.
Addressing @carlos_payments Compliance Question:
What’s Working:
- Licensed issuers (Circle, PayPal) handle heavy lifting
- Custodial wallets (Coinbase, Kraken) manage KYC/AML
- Payment processors (Stripe) integrate compliance seamlessly
- Blockchain analytics (Chainalysis, Elliptic) enable monitoring
Best Practice for Businesses:
- Partner with licensed providers: Don’t build compliance from scratch
- Use custodial solutions for customers: Reduces user friction
- Implement transaction monitoring: Required for any payment business
- Stay current on regulations: Evolving rapidly
Future Watch:
- FIT21 (market structure bill) could further clarify
- International coordination improving
- CBDC integration with private stablecoins possible
- DeFi compliance frameworks emerging
Bottom Line:
The compliance infrastructure for stablecoins is now institutional-grade. Post-GENIUS Act, regulated stablecoins are safer and more transparent than many traditional payment rails. This is why banks, payment processors, and institutions are comfortable deploying at scale.
#Compliance #AML #KYC #GENIUS #Regulation #TravelRule