FED unveils tough new rules for stablecoin firms! What are the implications for the crypto market?

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 their stablecoin users. The proposed framework aims to clarify how customer due diligence requirements—designed to limit money laundering and illicit financing—should be applied to stablecoin services.

New identity verification mandate for stablecoin firms

The draft regulation is the result of collaboration among relevant agencies under the Donald Trump administration, including the Treasury Department and the Federal Deposit Insurance Corporation (FDIC). It interprets how customer identification provisions, implemented last summer under the GENIUS Act, are to be enforced. That legislation brought the issuance of US dollar-pegged stablecoins into a formal legal framework.

According to the draft, both individuals and legal entities classified as “digital asset service providers” will be required to implement certain controls. US-based entities offering services related to the purchase, transfer, or custody of crypto assets fall within this scope. These firms will need to implement additional checks to prevent stablecoin-related services from being used by criminal organizations or illegal enterprises.

The rules mandate verification of client names, birth dates, and addresses. Additionally, this information must be compared against government-maintained records of terrorist groups and other blacklisted entities.

Board vote sees notable abstention

A majority of FED board members expressed support for the regulation proposal. Notably, former chair Jerome Powell was among those who endorsed the draft. However, current FED chair Kevin Warsh abstained from voting on the proposal.

Warsh has offered no public explanation for his abstention. A FED spokesperson also did not immediately respond to requests for comment on the matter. This unusual silence has raised new questions about which aspects of the proposal may be contentious within the institution.

Controversy over decentralized protocol exemptions

The exclusion of decentralized protocols from these requirements, as stated in both the draft regulation and the scope of the GENIUS Act, has sparked criticism among some officials. This exemption has become a focal point of debate in the regulatory process.

Michael Barr, a prominent member of the FED board known for his views on financial regulation, backed the draft’s release. Nevertheless, he cautioned that current rules may fall short in addressing illegal financing risks, particularly those that could emerge in secondary market dealings.

Public consultation period begins

The FED’s proposal will now head into a 60-day public comment period. During this time, industry representatives, legal experts, companies, and other stakeholders will have the opportunity to submit their feedback on the draft. Whether or not the draft will be revised before finalization will become clear after this consultation period concludes.

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