GENIUS Act: NCUA Proposal on Payment Stablecoin Issuance by Credit Union-Affiliated Entities

Permitted Activities

NCUA-PPSIs would be permitted to issue and redeem payment stablecoins; manage reserve assets; provide custody or safekeeping services for payment stablecoins, reserve assets, and private keys; assess purchasing or redemption fees; hold and transact in payment stablecoin as principal or agent; pay customer transaction fees; and engage in directly supportive activities.

Prohibited Activities

NCUA-PPSIs would be prohibited from:

• Using deceptive names or marketing to present payment stablecoins as legal tender or government-backed.
• Representing payment stablecoins as backed by the full faith and credit of the United States or covered by deposit or share insurance.
• Paying interest or yield solely for holding, using, or retaining payment stablecoins.
• Pledging or rehypothecating reserve assets except for specified purposes.
• Evading GENIUS Act requirements.
• Providing customer credit to purchase payment stablecoins.

Reserve Assets

Reserve assets would need to be identifiable; segregated, not commingled; maintained with a fair value at least equal to outstanding issuance value at all times; and held directly or within the custody of an eligible institution. Permissible reserve assets would include:

• U.S. currency and Federal Reserve balances.
• Demand deposits or share accounts at insured depository institutions (IDIs).
• Short-duration Treasury securities, repo and reverse repo arrangements, and government money market funds invested solely in permitted assets.
• Other NCUA-approved liquid federal government-issued assets and reserve assets in tokenized form.

Reserve Diversification and Reporting

Two alternatives would apply for reserve diversification and concentration standards, including a principles-based option with a quantitative safe harbor and an option making quantitative standards mandatory.

NCUA-PPSIs would need to publish monthly reserve composition information, obtain an accounting-firm examination of the prior month-end report, and submit CEO/CFO certifications to NCUA.

Redemption and Customer Disclosures

NCUA-PPSIs would need to publicly disclose redemption policies and provide clear, conspicuous procedures for timely redemption. Policies would need to address:

• Redemption timing, instructions, discretionary limitations (to be imposed only by the NCUA), and timing-extension circumstances.
• Minimum redemption amounts, fees, issuer identity, and a link to the relevant reserve composition report.

Redemption generally would be required within two business days after a request, with a seven-calendar-day redemption period allowed if redemption demands exceed 10 percent of outstanding issuance value in a 24-hour period, subject to NCUA involvement. Fee changes would need advance notice to customers and publication on the NCUA-PPSI’s website.

Risk Management

NCUA-PPSIs would be required to establish and maintain internal controls, internal audit systems, and interest-rate risk management appropriate for their size, complexity, activities, and risk profile. Risk management expectations would also address:

• Prudent asset growth, earnings monitoring, and insider and affiliate transactions.
• Third-party service provider oversight.
• Liquidity and concentration risk management.
• Information technology and security program, private-key safeguards, incident response, and business continuity.
• BSA/AML/CFT, sanctions, and other Treasury financial-crime regulations.

Examinations, Books, and Records

NCUA would generally conduct a full-scope examination of each issuer at least once every 12 months, with a possible 14- to 24-month cycle for qualifying issuers. NCUA-PPSIs would need books and records in English and in compliance with Generally Accepted Accounting Principles (GAAP) and a records-retention policy demonstrating compliance with the GENIUS Act, NCUA payment stablecoin standards, and applicable laws and regulations.

Reports and Audits

NCUA-PPSIs would be required to provide:

• Confidential weekly reports covering issuance, redemption, trading volume, reserve assets, blockchains, and related data.
• Quarterly financial-condition reports covering income, expenses, balance sheet, reserves, equity, investments, capital, outstanding issuance value, and assets under custody.

In addition, NCUA-PPSIs would be required to provide other reports to the NCUA upon request, including reports on the:

• Financial condition of the NCUA-PPSI.
• Systems of the NCUA-PPSI for monitoring and controlling financial and operational risk.
• Compliance of the NCUA-PPSI and any subsidiary thereof with the GENIUS Act and the NCUA’s regulations.
• Compliance with the BSA and laws authorizing sanctions.

Annual audited GAAP financial statements would be required for issuers with more than $50 billion in outstanding issuance value that are not subject to specified Securities Exchange Act reporting requirements.

Changes in Control and Duplication Avoidance

A person seeking to acquire control of a NCUA-PPSI would need to follow notice procedures similar to those for a FICU seeking to become a new parent company, and NCUA would be able to disapprove or extend review of the acquisition. NCUA would use existing supervisory reports and information where possible and avoid duplicative examination activities, reporting requirements, and information requests to the fullest extent possible.

Covered Assets

Custodial and safekeeping requirements in the proposal would apply to:

• Payment stablecoin reserves.
• Payment stablecoins used as collateral.
• Private keys used to issue payment stablecoins.
• Cash or property, as defined in the GENIUS Act, received by the custodian in the course of providing custodial or safekeeping services.

Covered Custodians and Customers and Omnibus Accounts

“Covered custodians” (defined to include IDIs and NCUA-PPSIs) would be required to account separately for covered assets, treat those assets as belonging to covered customers, and protect covered assets from claims of the custodian’s creditors and, where applicable, sub-custodians’ creditors. Custodians could use omnibus accounts if safeguards are adequate and use is consistent with applicable law.

Self-Custody Hardware and Software Exclusion

FICUs and NCUA-PPSIs would not become subject to custody requirements solely by providing hardware or software that facilitates a person’s self-custody of payment stablecoins or private keys. The exclusion would not apply if the entity controls or holds itself out as controlling payment stablecoins or private keys or provides custodial or safekeeping services.

Capital Elements and Minimum Capital

NCUA-PPSI regulatory capital would consist of common equity tier 1 capital and additional tier 1 capital. Initial capital requirements would be established during licensing on an individualized basis, subject to a minimum of $5 million and NCUA-PPSIs would need an ongoing process to assess and maintain adequate capital.

Individualized capital expectations would be based on its business model, risk profile, financial projections, expenses, products, and services.

Backstop

Failure to Meet Requirements

Minimum capital and backstop requirements must be met on a quarterly basis. NCUA-PPSIs that fail to meet the requirements at the end of quarter would be prohibited from issuing new payment stablecoins. NCUA-PPSIs that fail to meet the requirements for two consecutive quarters would be prohibited from issuing new payment stablecoins and would be required to begin liquidating reserve assets and redeeming payment stablecoins.

NCUA could impose additional or revised individualized capital or backstop requirements if a NCUA-PPSI’s circumstances change (examples provided in the rule).

Administrative Actions and Investigations

NCUA administrative action and adjudication rules would be amended to incorporate GENIUS Act-related proceedings into NCUA’s enforcement and investigative framework. The NCUA process would apply to suspension, revocation, cease-and-desist, removal, prohibition, civil money penalty, and investigation matters involving issuers.

Share Insurance Treatment

NCUA share insurance would apply to qualifying accounts at FICUs, not to payment stablecoins themselves. Payment stablecoins would not be backed by the full faith and credit of the United States or guaranteed by the government, and misrepresenting payment stablecoins as subject to deposit or share insurance would be prohibited.

Reserve Accounts and Tokenized Shares

Accounts at insured credit unions held as reserves for a payment stablecoin would be treated as accounts of the NCUA-PPSI and insured as corporate accounts, without pass-through insurance for individual payment stablecoin holders. Shares recorded in tokenized form would be evaluated under existing account concepts, and the technology or recordkeeping method used would not determine whether those liabilities are accounts.