Stablecoin Issuers Face Regulatory Hurdles Over Know Your Customer Rules

Stablecoin issuers are facing a regulatory challenge as federal agencies consider how to implement know your customer (KYC) requirements for permitted payment stablecoin issuers under the GENIUS Act.

The proposed customer identification program (CIP) would require issuers to maintain a written CIP and establish procedures for identifying and verifying customers. However, the proposal has raised questions about which relationships trigger KYC obligations, particularly in secondary markets where stablecoins can change hands multiple times before redemption.

Regulators are considering a tiered approach, with full CIP requirements for primary-market customers and limited requirements for one-time or occasional direct redeemers. The issue of reliance is also at stake, as institutions may rely on another's KYC verification without clear responsibility in case of non-compliance.

The GENIUS Act comment period closed on August 21, with comments from various groups supporting a technology-neutral approach to identification and urging regulators to clarify the treatment of wallet-to-wallet transfers, custodial and non-custodial wallets, exchange-mediated transactions, third-party technology providers, and smart contracts.