FATA News Alert
In the News: GENIUS Act
Background:
The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), signed into law in July 2025, establishes the first comprehensive U.S. federal framework for regulating payment stablecoins. This article examines the Act’s key provisions and their implications for monetary policy, financial stability, and regulatory theory. The analysis concludes by outlining open research questions regarding systemic risk, cross-border enforcement, and the interaction between stablecoins and central bank digital currency (CBDC) policy.
Main issue(s):
Prior to 2025, stablecoins operated under a patchwork of state-level money transmission laws, with little federal clarity. Congressional debate focused on whether stablecoins should be treated as securities, commodities, or novel financial products. The GENIUS Act resolved these debates by establishing a bespoke framework for payment stablecoins. The Act’s stated aims are threefold: (1) enhance consumer protection, (2) safeguard financial stability, and (3) preserve U.S. competitiveness in digital asset innovation.
The Act:
The rapid growth of stablecoins has challenged existing financial regulatory frameworks, raising concerns about consumer protection, systemic stability, and monetary sovereignty. The GENIUS Act (Public Law No. 119-27) addresses these challenges by creating a structured regulatory environment for payment stablecoins in the United States.
Regulatory Classification
Defines payment stablecoins as a distinct category, exempting qualifying issuers from securities regulation
Establishes permitted stablecoin issuer licensed under state or federal regimes, with thresholds that trigger federal oversight.
Reserve and Consumer Protection Requirements
Requires 1:1 reserve backing in cash or short-term U.S. Treasuries.
Prohibits rehypothecation and risky reserve practices.
Prioritizes stablecoin holders in insolvency proceedings.
Transparency and Oversight
Mandates monthly public reserve disclosures.
Requires annual audits for issuers above $50B.
Clarifies supervisory roles of the OCC, Federal Reserve, and Treasury.
Compliance and Enforcement
Extends Anti-Money Laundering and Know Your Customer and sanctions compliance to all PPSIs, including foreign issuers servicing U.S. persons.
Requires technical capacity to freeze, redeem, or burn tokens in compliance with lawful orders.
All “permitted payment stablecoin issuers” must publicly disclose monthly reports on reserve-asset composition (i.e., the assets backing their issued stablecoins) and have those reports examined by a registered public accounting firm.
Risks & considerations:
Regulatory Risks: The emergence of stablecoins has attracted nonbanks to enter into the arena and could cause shifts in deposits across the United States. The new bill has also caused more market entrants such as Circle and Tether to become larger participants in the banking system.
Cybersecurity Risks: Stablecoins are decentralized cryptographic currencies that still rely on people and systems for security. Sophisticated actors will look for ways to attack new entrants as they may not have proper systems and personnel in place.
Market Risk: The GENIUS Act will generate increased demand for U.S. debt and cement the dollar’s status as the global reserve currency by requiring stablecoin issuers to back their assets with Treasuries and U.S. dollars. Additionally, the GENIUS Act will play a key role in attracting more digital asset activity to the country by providing clear rules and promoting responsible innovation in the stablecoin market but could also cause dollar deposits to leave the banking system.
Illicit Activity: The GENIUS Act explicitly subjects stablecoin issuers to the Bank Secrecy Act (BSA), thereby clearly obligating them to establish effective anti-money laundering and sanctions compliance programs with risk assessments, sanctions list verification, and customer identification. New market entrants may not have training or expertise in BSA related matters and/or be able to monitor illicit activity effectively.
Takeaways:
Use Cases: Stablecoins offer the ability to be used to simplify payments, utilize blockchain technology, reduce payment frictions, and decentralize control. The use cases will continue to evolve into new areas as technology matures. The ability for everyday users to have a part in the stablecoin payment system is transformative as blockchain technology continues to develop.
Educate Yourself: The convergence of cryptocurrencies is at the early stages of development and will continue to evolve. Before engaging with cryptocurrencies, consider the risks and costs along with the benefits through research and education.
Case Study:
Shan Hanes, Former Bank President of Heartland Tri-State Bank, embezzled more than $47MM and caused the bank to fail. Hanes laundered the funds through USDT, the world’s largest stablecoin by market capitalization. Due to the financial tracing by the investigators, more than $8.2MM was recovered in USDT and returned to the bank's shareholders. Hanes was sentenced to 24 years in prison as a result of his actions. Hanes actions highlight positive and negative issues with stablecoins. Stablecoins provide fraudsters with on and off ramp capabilities of illicit proceeds and provide price stability and traceability.
Learning Resources:
AICPA GENIUS Act Summary of Requirements: A high level summary of the GENIUS Act requirements created by the AICPA.
GENIUS Act creates oversight and opportunity for stablecoins: Details on how the GENIUS Act enhances trust in the stablecoin ecosystem and increases professional oversight opportunities.
AICPA's Cybersecurity Resource Center: Offers guidance on managing cybersecurity risks, including those associated with AI technologies.
About
The Forensic Accounting Technology & Analytics (FATA) task force serves as a strategic leadership group for the integrated areas of accounting information systems, data analytics, and digital financial forensics. This group facilitates uniquely cross-trained experts into an innovative and strategic thought leadership team, whose primary roles include: stimulating forward-thinking solutions to emerging FATA issues in our global economies; promulgating best practices that are unique to FATA practitioners and environments; identifying and developing FATA resources to enhance learning and professional development opportunities; and educating members and stakeholders to promote FATA’s mission through strategic global relationships.