Fed Targets Stablecoin Loopholes With Customer ID Proposal

TLDR

• The Federal Reserve proposed new customer identification rules for payment stablecoin issuers.
• Issuers would need to collect customer names, addresses, birth dates, and government-issued ID numbers.
• The proposal aligns stablecoin compliance standards with existing banking customer identification requirements.
• Regulators opened a 60-day public comment period on the proposed framework.
• The rules support implementation of the Genius Act signed into law in July 2025.

The Federal Reserve has proposed new customer identification requirements for payment stablecoin issuers. The proposal would require firms to verify customer identities before opening accounts. Regulators released the measure as agencies work to complete rules tied to the Genius Act before its implementation deadline.

Federal Reserve Sets New Identity Standards for Issuers

The proposal requires permitted payment stablecoin issuers to establish written customer identification programs. Under the plan, issuers must collect a customer’s legal name and physical address. They must also obtain a date of birth or formation and a government-issued identification number.

The Federal Reserve aligned the proposal with existing customer identification standards used by banks and broker-dealers. Regulators will accept public comments on the proposal for 60 days. The agency said the framework supports compliance with anti-money laundering requirements.

The proposal follows the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act. President Donald Trump signed the law in July 2025. The legislation created a federal framework for payment stablecoin issuers.

The law requires issuers to maintain full reserve backing with liquid assets. It also subjects issuers to Bank Secrecy Act requirements. The statute mandates customer identification, sanctions compliance, and anti-money laundering controls.

Stablecoin Rules Expand Under Federal Oversight

Federal Reserve Governor Michael Barr addressed digital asset compliance requirements while discussing the proposal. Barr said some digital asset providers operate under anti-money laundering rules in their home jurisdictions. However, he said bad actors can still avoid restrictions through digital asset transactions.

“While some digital asset service providers are subject to anti-money laundering and anti-terrorist financing requirements in their home jurisdiction, it is far too easy for bad actors to evade these restrictions and operate without detection when transacting in digital assets,” Barr said.

Barr has repeatedly discussed reserve quality, compliance obligations, and financial stability issues linked to digital assets. He stated that detailed regulations remain necessary for enforcing statutory requirements. His comments came as agencies continue drafting rules under the Genius Act.

In April 2026, the Treasury Department, FinCEN, and OFAC proposed separate compliance requirements for issuers. Their proposal would require written anti-money laundering and counter-terrorism financing programs. It would also require a formal sanctions compliance framework.

Redemption Transactions Would Trigger Verification Checks

The Federal Reserve included provisions tailored to payment stablecoin operations. The proposal recognizes that issuers may redeem tokens acquired through secondary markets. As a result, some users may interact directly with issuers only during redemption.

Under the proposal, a redemption request could create an account relationship for compliance purposes. An issuer would then need to complete customer identification checks. The requirement would apply even if the customer acquired tokens elsewhere.

The framework excludes secondary market transfers where the issuer is not a direct counterparty. It also excludes transactions completed through smart contracts without issuer involvement. Those activities would not trigger account-based identification requirements.

Regulators continue working toward final rules before the Genius Act takes effect. The law becomes effective on January 18, 2027, or 120 days after final rules appear. The customer identification proposal remains open for public feedback during the review period.

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