[Federal Register Volume 91, Number 95 (Monday, May 18, 2026)]
[Proposed Rules]
[Pages 28956-29035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-09915]
[[Page 28955]]
Vol. 91
Monday,
No. 95
May 18, 2026
Part VI
National Credit Union Administration
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12 CFR Parts 702, 704, et al.
Implementing the Guiding and Establishing National Innovation for U.S.
Stablecoins Act for the Issuance of Stablecoins by Entities Subject to
the Jurisdiction of the National Credit Union Administration; Proposed
Rule
Federal Register / Vol. 91 , No. 95 / Monday, May 18, 2026 / Proposed
Rules
[[Page 28956]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702, 704, 706, 745, and 747
RIN 3133-AG10
Implementing the Guiding and Establishing National Innovation for
U.S. Stablecoins Act for the Issuance of Stablecoins by Entities
Subject to the Jurisdiction of the National Credit Union Administration
AGENCY: National Credit Union Administration (NCUA).
ACTION: Supplemental proposed rule.
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SUMMARY: The NCUA Board (Board) is seeking comment on proposed
regulations to implement portions of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act). The GENIUS
Act charges the NCUA with licensing, regulating, and supervising
Payment Stablecoin issuers that are subsidiaries of federally insured
credit unions (FICU subsidiaries). In February 2026, the NCUA issued
proposed regulations to govern investments in and licensing of
permitted payment stablecoin issuers subject to the NCUA's
jurisdiction. This current proposal supplements the previous proposal
and would govern the issuance of Payment Stablecoins and certain
related activities by entities subject to the NCUA's jurisdiction. This
proposal would also make amendments to address share insurance
coverage, tokenized shares, and other conforming and clarifying
amendments.
DATES: Comments must be received by July 17, 2026.
ADDRESSES: Comments may be submitted in one of the following ways.
(Please send comments by one method only):
Federal eRulemaking Portal: https://www.regulations.gov.
The docket number for this proposed rule is NCUA-2026-1024. Follow the
``Submit a comment'' instructions. If you are reading this document on
federalregister.gov, you may use the green ``SUBMIT A PUBLIC COMMENT''
button beneath this rulemaking's title to submit a comment to the
regulations.gov docket. A plain language summary of the proposed rule
is also available on the docket website.
Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
Hand Delivery/Courier: Same as mailing address. Mailed and
hand-delivered comments must be received by the close of the comment
period.
Public inspection: Please follow the search instructions on https://www.regulations.gov to view the public comments. Do not include any
personally identifiable information (such as name, address, or other
contact information) or confidential business information that you do
not want publicly disclosed. All comments are public records; they are
publicly displayed exactly as received, and will not be deleted,
modified, or redacted. Comments may be submitted anonymously. If you
are unable to access public comments on the internet, you may contact
the NCUA for alternative access by calling (703) 518-6540 or emailing
[email protected].
FOR FURTHER INFORMATION CONTACT:
Office of Examination and Insurance: Amanda Parkhill, at (703) 518-
6385 or at 1775 Duke Street, Alexandria, VA 22314. Office of General
Counsel: Thomas Zells and Rachel Ackmann, Senior Staff Attorneys; or
Ariel Woodard-Stephens, Staff Attorney at (703) 518-6540 or at the
above address.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Legal Authority
III. The NCUA Licensing Proposal
IV. The NCUA Standards Proposal
V. General Request for Comment
VI. Regulatory Procedures
I. Background
On July 18, 2025, President Trump signed the GENIUS Act into law.
The GENIUS Act establishes a regulatory framework for Payment
Stablecoins and provides pathways for regulation at both the Federal
and State level.
Stablecoins are Digital Assets, i.e., digital representations of
value recorded on a cryptographically secured Distributed Ledger,\1\
such as a blockchain.\2\ In contrast to many other types of Digital
Assets, stablecoins are intended to maintain a stable value relative to
a reference asset, most often fiat currency.\3\ Most stablecoin issuers
use a pool of high quality and highly liquid reserve assets to back the
stablecoin and maintain a stable value.\4\ Stablecoins often rely on
smart contracts (i.e., self-executing programs that automatically
enforce agreements between users) for different aspects of their
functionality.\5\ When an issuer redeems a tendered stablecoin, it
typically accepts a stablecoin from a user or third party in exchange
for a fixed amount of Monetary Value, e.g., one dollar.\6\ Stablecoins
are frequently used to facilitate trading in Digital Assets and may be
used for retail and institutional payments.\7\ Certain stablecoin
issuers have the capability to freeze funds or block transactions
involving their stablecoin, which they may do, for example, to
effectuate a court order.\8\
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\1\ 12 U.S.C. 5901(6).
\2\ White House, ``Strengthening American Leadership in Digital
Financial Technology,'' at 15 (July 17, 2025), [hereinafter, Digital
Financial Technology Report], https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf. A
cryptographically secured ledger uses cryptography to maintain the
integrity of the ledger. See also E.O. No. 14178, Strengthening
American Leadership in Digital Financial Technology, 90 FR 8647
(Jan. 31, 2025) (defining blockchain to mean ``any technology where
data is: (i) shared across a network to create a public ledger of
verified transactions or information among network participants;
(ii) linked using cryptography to maintain the integrity of the
public ledger and to execute other functions; (iii) distributed
among network participants in an automated fashion to concurrently
update network participants on the state of the public ledger and
any other functions; and (iv) composed of source code that is
publicly available'').
\3\ Digital Financial Technology Report at 88, 130.
\4\ See id. at 90.
\5\ See id. at 11.
\6\ Currently, rather than mint or redeem stablecoins through
the issuer, most market participants rely on digital asset
trading platforms to exchange stablecoins for national
currencies (or even other stablecoins).
\7\ Id. at 93.
\8\ See id. at 105.
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The GENIUS Act focuses on a subset of stablecoins: Payment
Stablecoins. Under section 2(22) of the Act, ``payment stablecoin''
means ``a digital asset--(i) that is, or is designed to be, used as a
means of payment or settlement; and (ii) the issuer of which--(I) is
obligated to convert, redeem, or repurchase for a fixed amount of
monetary value, not including a digital asset denominated in a fixed
amount of monetary value; and (II) represents that such issuer will
maintain, or create the reasonable expectation that it will maintain, a
stable value relative to the value of a fixed amount of monetary
value[.]'' \9\ The term does not include a Digital Asset that is (i) a
national currency; (ii) a deposit, including a deposit recorded using
distributed ledger technology; or (iii) a security, as defined in 15
U.S.C. 77b, 78c, or 80a-2.\10\
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\9\ 12 U.S.C. 5901(22).
\10\ The Act provides that, for the avoidance of doubt, no bond,
note, evidence of indebtedness, or investment contract that was
issued by a permitted payment stablecoin issuer shall qualify as a
security solely by virtue of its satisfying the conditions described
in section 2(22)(A) of the Act, consistent with section 17 of the
Act. 12 U.S.C. 5901(22)(B)(iii).
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The GENIUS Act generally prohibits any Person other than a
permitted payment stablecoin issuer (PPSI) from issuing a Payment
Stablecoin in the
[[Page 28957]]
United States.\11\ It further prohibits digital asset service providers
\12\ from offering or selling a Payment Stablecoin to a Person in the
United States unless the issuer is a PPSI or the issuer is a foreign
payment stablecoin issuer that meets certain requirements.\13\ The
GENIUS Act sets forth various regulatory and licensing requirements for
PPSIs and foreign payment stablecoin issuers. In many instances, the
GENIUS Act states that the specific requirements applicable to these
entities (e.g., those related to capital, liquidity, operational risk
management), shall be set forth by regulations issued by the relevant
primary Federal payment stablecoin regulator, in coordination with
other relevant agencies, as appropriate.\14\ This proposed rulemaking
represents one piece of the GENIUS Act's implementing regulations.\15\
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\11\ See 12 U.S.C. 5902(a). See also 12 U.S.C. 5916 (excepting
foreign payment stablecoin issuers that meet certain requirements
from the prohibition in section 3 of the Act).
\12\ ``Digital asset service provider'' means a person that, for
compensation or profit, engages in the business in the United States
(including on behalf of customers or users in the United States) of:
(1) exchanging digital assets for monetary value; (2) exchanging
digital assets for other digital assets; (3) transferring digital
assets to a third party; (4) acting as a digital asset custodian; or
(5) participating in financial services relating to digital asset
issuance. See 12 U.S.C. 5901(7). The term ``digital asset service
provider'' does not include (1) a distributed ledger protocol; (2)
an immutable and self-custodial software interface; or (3) a person
solely by virtue of their (A) developing, operating, or engaging in
the business of developing distributed ledger protocols or self-
custodial software interfaces; (B) developing, operating, or
engaging in the business of validating transactions or operating a
distributed ledger; or (C) participating in a liquidity pool or
other similar mechanism for the provisioning of liquidity for peer-
to-peer transactions. See id. A liquidity pool is a portfolio of
digital assets that is algorithmically bound and traded based on
smart contracts. Liquidity providers and takers interact with
liquidity pools by adding assets that the liquidity pools trade and
receive a liquidity pool token in return that is proportionate to
the percentage of assets they have contributed to the liquidity
pool. Digital Financial Technology Report at 23.
\13\ The prohibition against digital asset service providers
offering or selling Payment Stablecoins that are not issued by PPSIs
begins on July 18, 2028. See 12 U.S.C. 5902(b)(1). The prohibition
against digital asset service providers offering or selling Payment
Stablecoins that are not issued by foreign payment stablecoin
issuers that meet certain requirements goes into effect as of the
effective date of the GENIUS Act. See 12 U.S.C. 5902(b)(2). The
prohibitions that apply to a digital asset service provider would
apply to an issuer to the extent that the issuer is a digital asset
service provider.
\14\ See, e.g., 12 U.S.C. 5903(a)(4), (b), (h).
\15\ For example, on September 19, 2025, the Department of the
Treasury issued an advance notice of proposed rulemaking concerning
the GENIUS Act. See 90 FR 45159 (Sept. 19, 2025). On December 19,
2025, the FDIC released a notice of proposed rulemaking related to
certain application provisions under the GENIUS Act. 90 FR 59409
(Dec. 19, 2025). On February 12, 2026, the NCUA issued a notice of
proposed rulemaking relating to investments in and licensing of
PPSIs. 91 FR 6531 (Feb. 12, 2026). On March 2, 2026, the OCC issued
a notice of proposed rulemaking relating to the issuance of Payment
Stablecoins and certain related activities by entities subject to
the OCC's jurisdiction. 91 FR 10202 (Mar. 2, 2026).
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Under the GENIUS Act, ``insured depository institutions,'' which
the Act defines to include both FDIC-insured depository institutions
and FICUs (collectively referred to as ``IDIs''), cannot be issuers of
Payment Stablecoins. Instead, IDIs must use ``subsidiaries'' as
issuers. The GENIUS Act defines the term ``subsidiary of an insured
credit union'' to mean ``(A) an organization providing services to the
insured credit union that are associated with the routine operations of
credit unions, as described in section 107(7)(I) of the Federal Credit
Union Act (12 U.S.C. 1757(7)(I)); (B) a credit union service
organization, as such term is used under part 712 of title 12, Code of
Federal Regulations, with respect to which the insured credit union has
an ownership interest or to which the insured credit union has extended
a loan; and (C) a subsidiary of a State chartered insured credit union
authorized under State law.'' \16\ The GENIUS Act requires that issuers
that are subsidiaries of IDIs (including subsidiaries of FICUs) must be
regulated by the primary Federal payment stablecoin regulators and does
not allow them to opt for the state-level regulatory framework. Thus,
the NCUA has jurisdiction over Payment Stablecoin issuers that are FICU
subsidiaries.
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\16\ 12 U.S.C. 5901(33).
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Under the GENIUS Act, only PPSIs may issue a Payment Stablecoin in
the United States, subject to certain exceptions and safe harbors.
PPSIs are subject to a number of requirements, including requirements
related to reserves, capital, liquidity, illicit finance, and
information technology risk management standards. For example, PPSIs
must maintain reserves backing the Payment Stablecoin on a one-to-one
basis using U.S. currency or certain other liquid assets, as specified.
PPSIs must also publicly disclose their redemption policy and publish
monthly the details of their reserves.
The GENIUS Act details the process for the primary Federal payment
stablecoin regulators, which include the NCUA, the Federal Deposit
Insurance Corporation (FDIC), the Office of the Comptroller of the
Currency (OCC), and the Board of Governors of the Federal Reserve
System (Federal Reserve Board), to evaluate and review applications for
licenses to be PPSIs and provides examination, supervision, and
enforcement authority over PPSIs. Other issues addressed in the GENIUS
Act include the provision of custody services for Payment Stablecoins;
application of the Bank Secrecy Act and anti-money laundering and
economic sanctions requirements; and treatment of PPSIs in insolvency
proceedings.
The GENIUS Act establishes clear prohibitions and penalties to
prevent the misrepresentation of Federal backing or insurance for
Payment Stablecoins and to ensure that only authorized products may be
marketed as such.\17\ The GENIUS Act explicitly dictates that Payment
Stablecoins are not backed by the full faith and credit of the United
States, they are not guaranteed by the U.S. Government, nor are they
covered by deposit or share insurance from the FDIC or NCUA. Similarly,
it is unlawful to market a product in the United States as a Payment
Stablecoin unless it is issued pursuant to the GENIUS Act.\18\
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\17\ See 12 U.S.C. 5903(e).
\18\ 12 U.S.C. 5903(e)(3).
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As detailed below, the GENIUS Act imposes a number of rulemaking,
review, and reporting requirements on the primary Federal payment
stablecoin regulators, including the NCUA. This supplemental proposal
proposes regulations to implement the standards and restrictions
imposed by the GENIUS Act on PPSIs (hereinafter, the ``NCUA Standards
Proposal''). This NCUA Standards Proposal supplements the notice of
proposed rulemaking that the NCUA published in the Federal Register on
February 12, 2026, entitled ``Investments in and Licensing of Permitted
Payment Stablecoins Issuers'' (hereinafter, the ``NCUA Licensing
Proposal'').\19\
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\19\ 91 FR 6531 (Feb. 12, 2026).
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Separately, as is required by the GENIUS Act, the NCUA is engaging
in a required review of its existing guidance and regulations to
determine what steps are necessary, if any, to amend or promulgate new
regulations and guidance to clarify FICUs' authority to engage in the
Payment Stablecoin activities and investments contemplated by the
GENIUS Act.
In addition to the above, the GENIUS Act requires the NCUA to
examine and supervise issuers that are FICU subsidiaries. Thus, the
NCUA is working to update various NCUA examination policies, guidance,
and procedures, such as the National Supervision Policy Manual and
Examiner's Guide, to accommodate the new examination and supervision
authority over these FICU subsidiaries. The NCUA is also working to
determine
[[Page 28958]]
whether further guidance to FICUs and FICU subsidiaries may be
necessary on these subjects.
This proposal sets forth, and seeks comment on, the regulations
that would apply to NCUA-Licensed Permitted Payment Stablecoin Issuers
(NCUA-Licensed PPSIs) as well as certain custody activities conducted
by FICUs and NCUA-Licensed PPSIs. These proposed regulations do not
address stablecoins that do not qualify as Payment Stablecoins or
issuers for which the NCUA does not have regulatory or enforcement
authority. The GENIUS Act's effective date is the earlier of 18 months
after the enactment date (July 18, 2025) or 120 days after the primary
Federal payment stablecoin regulators issue final regulations
implementing the GENIUS Act. The NCUA anticipates that these
implementing regulations will be updated, as necessary, in the years
following the effective date of the GENIUS Act as the business
practices of NCUA-Licensed PPSIs continue to evolve and develop. In
addition, other regulations beyond those addressed in this rulemaking
may need to be updated in light of the passage of the GENIUS Act. This
proposal would also make amendments to address share insurance
coverage, tokenized shares, and other conforming and clarifying
amendments.
A. Self-Executing Provisions
The GENIUS Act includes a number of self-executing provisions that
are not addressed in this rulemaking. For example, the GENIUS Act
includes several provisions addressing the applicability of State law
to PPSIs. These provisions ensure that FICU subsidiaries approved to be
NCUA-Licensed PPSIs are not subject to State licensure and address the
effect of the GENIUS Act on State consumer protection laws.
Section 5(h) of the GENIUS Act expressly preempts ``any State
requirement for a charter, license, or other authorization to do
business with respect to a'' FICU subsidiary approved to be an NCUA-
Licensed PPSI.\20\ As a result, these entities are only required to
obtain authorization to do business from the NCUA, which reduces the
unnecessary complexity that would result from requiring these entities
to also obtain a charter, license, or other authorization from one or
more States. Section 7(f)(4) of the GENIUS Act provides that nothing in
the GENIUS Act preempts State consumer protection laws.\21\
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\20\ 12 U.S.C. 5904(h).
\21\ 12 U.S.C. 5906(f)(4).
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Together, these GENIUS Act provisions establish a framework for
assessing the applicability of State law to a FICU subsidiary approved
to be an NCUA-Licensed PPSI.\22\ Because these GENIUS Act provisions
are self-executing, the NCUA is not proposing regulatory text to
implement them. However, the agency invites public comment on all
aspects of this framework, including whether the self-executing
provisions of the GENIUS Act should be codified in the NCUA's
regulations for convenience.
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\22\ The GENIUS Act also addresses the applicability of State
law to State qualified payment stablecoin issuers. See, e.g.,
section 7(f) of the Act (12 U.S.C. 5906(f)).
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II. Legal Authority
As discussed in Section I. Background of this SUPPLEMENTARY
INFORMATION section, the NCUA is a primary Federal payment stablecoin
regulator with respect to a FICU or FICU subsidiary.\23\ As a primary
Federal payment stablecoin regulator, the GENIUS Act provides authority
for the NCUA to approve and license issuance of Payment Stablecoins
through FICU subsidiaries,\24\ establish regulations for issuing
Payment Stablecoins,\25\ and examine for and enforce applicable
requirements imposed on FICU subsidiaries.\26\ The GENIUS Act also
confers authority related to standards for custody of Payment
Stablecoins, Private Keys, and reserves.\27\ The GENIUS Act grants the
NCUA general authority to promulgate regulations to carry out the
GENIUS Act through appropriate notice and comment rulemaking.\28\
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\23\ 12 U.S.C. 5901(25)(B).
\24\ 12 U.S.C. 5904.
\25\ 12 U.S.C. 5903(h).
\26\ 12 U.S.C. 5903 and 5905.
\27\ 12 U.S.C. 5909.
\28\ 12 U.S.C. 5913.
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Apart from the GENIUS Act, the FCU Act grants the NCUA a broad
mandate to issue regulations governing both Federal Credit Unions
(FCUs) and all FICUs. Section 120 of the FCU Act is a general grant of
regulatory authority, and it authorizes the Board to prescribe rules
and regulations for the administration of the FCU Act.\29\ Section 209
of the FCU Act is a plenary grant of regulatory authority to the NCUA
to issue rules and regulations necessary or appropriate to carry out
its role as share insurer for all FICUs.\30\
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\29\ 12 U.S.C. 1766.
\30\ 12 U.S.C. 1789.
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Additionally, Section 204 of the FCU Act authorizes the Board,
through its examiners, ``to examine any [federally] insured credit
union . . . to determine the condition of any such credit union for
insurance purposes.'' \31\ Section 206(e) of the FCU Act authorizes the
Board to take certain actions against a FICU, if, in the opinion of the
Board, the credit union ``is engaging or has engaged, or the Board has
reasonable cause to believe that the credit union or any institution
affiliated party is about to engage, in any unsafe or unsound practice
in conducting the business of such credit union.'' \32\ Therefore, the
Board has statutory authority to determine whether a FICU is operated
in an unsafe or unsound manner and terminate a FICU's insurance if a
FICU is not operated in a safe or sound manner.
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\31\ 12 U.S.C. 1784.
\32\ 12 U.S.C. 1786.
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With respect to proposed amendments to clarify the share insurance
coverage of funds deposited in Share Accounts at FICUs that serve as
Reserve Assets and the treatment of tokenized Share Accounts, in
addition to the broad FCU Act authorities provided in sections 120 and
209 of the FCU Act, the FCU Act provides that the ``[d]etermination of
the net amount of share insurance under subparagraph (A), shall be in
accordance with such regulations as the Board may prescribe . . .''
\33\ and that the ``Board may define, with such classifications and
exceptions as it may prescribe, the extent of the share insurance
coverage provided for member accounts. . ..'' \34\ As discussed later
in this preamble, the FCU Act also defines the term ``member account.''
\35\ The NCUA insures member accounts at all FICUs. Importantly, this
term is not limited to those persons enumerated in the credit union's
field of membership who have become members. It also includes as member
accounts certain nonmembers, such as other nonmember credit unions;
nonmember public units and political subdivisions; and, in the case of
credit unions serving predominantly low-income members, deposits of
nonmembers generally. In other words, the NCUA provides share insurance
coverage to members and those otherwise eligible to maintain insured
accounts at FICUs.
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\33\ 12 U.S.C. 1787(k)(1)(B).
\34\ 12 U.S.C. 1787(k)(1)(C).
\35\ 12 U.S.C. 1752(5).
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III. The NCUA Licensing Proposal
On February 12, 2026, the NCUA published a notice of proposed
rulemaking in the Federal Register entitled ``Investments in and
Licensing of Permitted Payment Stablecoins Issuers.'' The NCUA
Licensing Proposal served as the first of two main proposed
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rules that the NCUA anticipated issuing to implement the GENIUS Act.
The NCUA is providing a high-level summary of that proposal to assist
stakeholders as they review this second NCUA supplemental proposed
rulemaking, the NCUA Standards Proposal, addressing standards for NCUA-
Licensed PPSIs and FICUs, among other subjects.
The NCUA interprets the GENIUS Act to limit PPSI status to those
institutions functioning as a subsidiary of an IDI (including a
FICU),\36\ a Federal qualified payment stablecoin issuer,\37\ and a
State qualified payment stablecoin issuer.\38\ FICUs are not permitted
to issue Payment Stablecoins directly. However, the GENIUS Act provides
that subsidiaries of IDIs may apply and be approved to be PPSIs. As
FICUs are expressly defined as IDIs, FICU subsidiaries may apply for
and receive approval and license under the GENIUS Act to be PPSIs.
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\36\ As discussed throughout the proposed rule, the GENIUS Act
uses banking-specific terminology when defining PPSIs. For example,
the GENIUS Act uses the two defined terms ``subsidiary'' and
``insured depository institution'' without using the defined term,
``subsidiary of an insured credit union.'' With respect to
subsidiaries of FICUs, the Board believes the defined terms
``subsidiary'' of an ``insured depository institution'' should be
read referring to the defined term ``subsidiary of an insured credit
union.'' Given that FICUs are defined as insured depository
institutions, it appears reasonable to read the terms synonymously.
Additionally, the GENIUS Act expressly provides that all
subsidiaries of an Insured Credit Union are subject to NCUA
jurisdiction incorporating the defined term of ``subsidiary of an
insured credit union'' into the definition of primary Federal
payment stablecoin regulator. The term primary Federal payment
stablecoin regulator is used for approvals under section 5 and it
would be inharmonious for the NCUA to approve applications for
issuers that otherwise are not subject to NCUA supervision.
\37\ A Federal qualified payment stablecoin issuer includes (1)
a nonbank entity, (2) an uninsured national bank, and (3) a Federal
branch. FICUs and their subsidiaries would not qualify as Federal
qualified payment stablecoin issuers.
\38\ A State qualified payment stablecoin issuer is an entity
that is: (A) legally established under the laws of a State and
approved to issue payment stablecoins by a State payment stablecoin
regulator; and (B) is not an uninsured national bank chartered by
the OCC, a Federal branch, an IDI, or a subsidiary of a national
bank, Federal branch, or IDI. FICUs and FICU subsidiaries, including
CUSOs, therefore, would not qualify as a State qualified payment
stablecoin issuer.
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Section 5 of the GENIUS Act establishes the procedures and
standards for the ``approval of subsidiaries of insured depository
institutions.'' \39\ The NCUA is required to ``receive, review, and
consider for approval applications'' to issue Payment Stablecoins
through a FICU subsidiary and to ``establish a process and framework
for the licensing, regulation, examination and supervision of such
entities that prioritizes the safety and soundness of such entities.''
Section 5(a)(2) requires the NCUA to issue regulations to carry out
section 5.\40\ Section 5(g) further requires that the NCUA issue rules
necessary for the regulation of the issuance of Payment
Stablecoins.\41\
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\39\ 12 U.S.C. 5904.
\40\ 12 U.S.C. 5904(a)(2).
\41\ 12 U.S.C. 5904(g).
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As explained in more detail in the NCUA Licensing Proposal, the
GENIUS Act does not allow FICUs to directly issue Payment Stablecoins
and instead provides that they must be issued through FICU subsidiaries
that receive an NCUA-PPSI license. The Board made certain decisions in
proposing to implement the GENIUS Act's application and licensing
requirements that it believes will simplify the process and reduce the
costs for the credit union industry and the NCUA. The Board discusses
this approach in more detail in the NCUA Licensing Proposal.
The NCUA Licensing Proposal determined that it is preferrable for
FICU subsidiaries themselves to submit the required applications to be
an NCUA-Licensed PPSI jointly with their FICU Parent Company(ies), as
defined in the NCUA-Licensing Proposal, rather than having every single
FICU investing in them submit an application. The Board's proposed
approach would also require the applying FICU subsidiary, and any of
its FICU Parent Companies and Principal Shareholders, to provide
written certification that any filing or supporting material submitted
to the NCUA contains no material misrepresentations or omissions.
Further, as required by the GENIUS Act, all Directors and Officers of
the applying FICU subsidiary, its FICU Parent Company(ies), and any of
its Principal Shareholders would have to provide certain information so
that the NCUA can evaluate their competence, experience, and integrity
and ensure they do not have felony convictions prohibited by the GENIUS
Act. Finally, the NCUA Licensing Proposal proposed limiting FICUs to
investing in NCUA-Licensed PPSIs. The Board believes this limitation is
consistent with the definition of FICU subsidiary in the GENIUS Act and
should not pose a barrier to the credit union industry's ability to
facilitate Payment Stablecoin services for their members.
Further information about the proposed regulations to govern the
process for reviewing and granting NCUA-PPSI licenses can be found in
the NCUA Licensing Proposal.
IV. The NCUA Standards Proposal
The NCUA is issuing this supplemental proposed rule governing the
issuance of Payment Stablecoins and certain related activities by
entities subject to the NCUA's jurisdiction to supplement the NCUA
Licensing Proposal and substantially implement the NCUA's proposed
regulatory regime for NCUA-Licensed PPSIs and FICUs.
The NCUA is proposing the following procedures and standards for
NCUA-Licensed PPSIs. Each section of the proposed rule will be
discussed separately. As noted, the NCUA is providing a high-level
summary of portions of the NCUA Licensing Proposal to assist
stakeholders as they review this NCUA Standards Proposal. Unless
explicitly stated in this supplemental proposal, the NCUA is not
reproposing or otherwise modifying those provisions proposed in the
NCUA Licensing Proposal.
The NCUA also notes that, as discussed throughout the NCUA
Licensing Proposal, the GENIUS Act frequently uses banking-specific
terminology and standards. Given this reliance on banking-specific
terminology and the importance of providing consistent regulatory
terminology and standards across the various primary Federal payment
stablecoin regulators, where possible, proposed part 706 would maintain
consistency with the standards and terminology proposed by the other
primary Federal payment stablecoin regulators.
A. Sec. 706.1. Authority, Purpose, and Scope
The NCUA Licensing Proposal proposed Sec. 706.1 to describe the
authority, purpose, and scope of part 706. The NCUA Standards Proposal
is not proposing changes to what was previously proposed, but is
restating the explanation provided in the NCUA Licensing Proposal to
assist stakeholders as they review this proposal. Proposed Sec. 706.1
would state that the NCUA is issuing part 706 under the GENIUS Act.
Section 706.1 would state that part 706 applies to FICUs and all PPSIs
with investment or loans from FICUs and sets forth such entities'
requirements for an NCUA-issued license. Finally, Sec. 706.1 would
state that there is nothing in this part that shall be read to limit
the authority of the NCUA to take action under provisions of law other
than the GENIUS Act, including action to address unsafe or unsound
practices or conditions, or violations of law or regulation, under
section 206 of the FCU Act.
[[Page 28960]]
B. Sec. 706.2. Definitions
Proposed Sec. 706.2 would provide the definitions used throughout
part 706.\42\ It would state that, unless otherwise provided in part
706, the terms used in this part have the same meanings as set forth in
12 U.S.C. 1752 and 5901. It would also state that all accounting terms
not otherwise defined in this part have meanings consistent with the
commonly accepted meanings under United States generally accepted
accounting principles (U.S. GAAP). Proposed Sec. 706.2 would provide
the following defined terms specific to part 706.
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\42\ The definitions in proposed Sec. 706.2 describe only terms
used in proposed part 706. These definitions do not interpret terms
for purposes of any other statute or regulation and are not issued
pursuant to section 3(d) of the GENIUS Act (12 U.S.C. 5902(d)).
---------------------------------------------------------------------------
This NCUA Standards Proposal restates the definitions provided in
the NCUA Licensing Proposal to assist commenters. Except where
explicitly noted, the NCUA Standards Proposal does not modify the
proposed definitions from the NCUA Licensing Proposal.
As discussed throughout the NCUA Licensing Proposal, the GENIUS Act
frequently uses banking-specific terminology and standards. Given this
reliance on banking-specific terminology and the importance of
providing consistent regulatory terminology and standards across the
various primary Federal payment stablecoin regulators, where possible,
proposed part 706 would maintain consistency with the standards and
terminology proposed by the other primary Federal payment stablecoin
regulators. The GENIUS Act's reliance on banking-specific terminology
also compels the NCUA to at times clarify the best meaning of credit
union specific terminology in part 706.
The NCUA solicits stakeholder input as to the below definitions and
specifically as to whether individual definitions appropriately balance
consistent meaning across the primary Federal payment stablecoin
regulators with needed differences to accommodate the credit union
industry.
1. Affiliate
The NCUA is proposing to define the term ``Affiliate'' consistent
with the definition proposed by the OCC in their Payment Stablecoin
notice of proposed rulemaking published in the Federal Register on
March 2nd (hereinafter, the ``OCC Proposal''). The OCC proposal would
define the term consistent with the definition in the Bank Holding
Company Act, 12 U.S.C. 1841(k), but modified to use the defined term
``Person'' in place of the term ``company.'' \43\ Under the proposed
rule, the term ``Affiliate'' would mean a Person that controls, is
controlled by, or is under common Control with another person. The NCUA
believes the proposed definition of Affiliate would include the
appropriate individuals and entities that could be involved in Payment
Stablecoin issuance. As articulated above, the NCUA also believes that
it is important to, where possible, provide consistent regulatory
standards across the various primary Federal payment stablecoin
regulators.
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\43\ While the proposed definition of ``Affiliate'' is
consistent with the definition in the Bank Holding Company Act, the
NCUA would retain interpretive authority with respect to this
definition for purposes of proposed 12 CFR part 706.
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2. Applying Issuer
As proposed in the NCUA Licensing Proposal, the term ``Applying
Issuer'' would mean any entity applying to the NCUA for an NCUA-PPSI
license. This term would be used throughout part 706 to generally refer
to any entity that is applying for an NCUA-PPSI license. As is required
in proposed Sec. 706.103, an Applying Issuer must apply jointly with
any Insured Credit Union Parent Company(ies), as defined in the NCUA
Licensing Proposal.
3. Bank Secrecy Act
The NCUA is proposing to define the term ``Bank Secrecy Act''
consistent with the definition provided in the GENIUS Act, 12 U.S.C.
5901(2). Under the proposal, the term ``Bank Secrecy Act'' would mean:
(1) section 21 of the Federal Deposit Insurance Act (12 U.S.C. 1829b);
(2) chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951 et seq.);
and (3) subchapter II of chapter 53 of title 31, United States Code and
notes thereto (31 U.S.C. 5311 et seq.). The proposal would add the
phrase ``and notes thereto'' as a clarification.
4. Control
The NCUA is defining ``Control'' such that a Person would control
another Person if: (1) the Person directly or indirectly or acting
through one or more other Persons owns, controls, or has power to vote
25 percent or more of any class of voting securities of the other
Person; (2) the Person controls in any manner the election of a
majority of the Directors or trustees of the other Person; or (3) the
NCUA determines, after notice and opportunity for hearing, that the
Person directly or indirectly exercises a controlling influence over
the management or policies of the other Person. Like the definition of
``Affiliate,'' the proposed definition of ``Control'' is generally
consistent with the Bank Holding Company Act.\44\ The NCUA notes that
Sec. 706.111, as proposed in the NCUA Licensing Proposal, included
certain provisions regarding changes in control of an NCUA-Licensed
PPSI related to ownership interests of FICU Parent Companies. As
discussed later in this NCUA Standards Proposal, the NCUA is proposing
to change proposed Sec. 706.111 to refer to changes in FICU Parent
Companies rather than changes in control. This is to help clarify that
NCUA-Licensed PPSIs obtaining investment from FICUs and the investing
FICUs should refer to the standards for FICUs that are or would be
Parent Companies as described in Sec. 706.111 while NCUA-Licensed
PPSIs obtaining investment from non-FICU investors and the non-FICU
investors should refer to this definition of Control and Sec.
706.205(m). This is not intended to create a substantive change from
the standards applicable to FICU Parent Companies initially proposed in
the NCUA Licensing Proposal.
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\44\ While the proposed definition of Control is consistent with
the definition in the Bank Holding Company Act, the NCUA would
retain interpretive authority with respect to this definition for
purposes of proposed 12 CFR part 706.
---------------------------------------------------------------------------
5. Customer
The NCUA is proposing to define the term ``Customer'' to mean a
Person that purchases (through any consideration) the products or
services of another Person. This term appears in a variety of different
contexts in the proposed rule, so the NCUA has proposed a broad
definition for the term. The definition for purposes of the proposed
rule is not intended to affect any customer identification program or
customer due diligence rules.
6. Digital Asset
The NCUA is proposing to define the term ``Digital Asset'' as
provided in section 2(6) of the GENIUS Act.\45\ Under the proposed
rule, the term ``Digital Asset'' would mean any digital representation
of value that is recorded on a cryptographically secured Distributed
Ledger.
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\45\ 12 U.S.C. 5901(6).
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7. Director
As provided in the NCUA Licensing Proposal, proposed Sec. 706.2
would define the term ``Director'' to mean an individual who serves on
the board of directors of an Applying Issuer, a Parent Company of the
Applying Issuer, or a Principal Shareholder of the Applying
[[Page 28961]]
Issuer. Under the NCUA-Licensing Proposal, individuals meeting the
definition of a Director will generally need to complete the NCUA's
Biographical and Financial Report so that the NCUA can verify their
competence, experience, and integrity, as is required by the GENIUS
Act.\46\ The Directors and proposed Directors of an Applying Issuer
will also generally need to provide legible fingerprints for a
biometric based criminal history search so that the NCUA can evaluate
whether any of these individuals have been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud as is required
by the GENIUS Act.\47\
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\46\ 12 U.S.C. 5904(c)(3).
\47\ See 12 U.S.C. 5903(f).
---------------------------------------------------------------------------
As part of this NCUA Standards Proposal, the NCUA is proposing to
amend the definition as proposed in the NCUA Licensing Proposal to
specifically include individuals who serve on the board of directors of
an NCUA-Licensed PPSI and to exempt certain advisory directors. These
are not intended to be substantive changes, but instead to make clear
that (1) an individual that is a Director of an Applying Issuer remains
covered by the term Director once the Appling Issuer becomes an NCUA-
Licensed PPSI; and (2) the definition is not intended to cover advisory
directors who do not have the authority to vote on matters before the
board of directors or any committee of the board of directors and
provide solely general policy advice to the board of directors or any
committee. Additionally, it is worth noting that Directors of NCUA-
Licensed PPSIs would be subject to a number of additional requirements
imposed by the NCUA Standards Proposal, including those related to
Insider and Affiliate transactions in proposed Sec. 706.204(a)(6).
Finally, as noted above, the NCUA is also proposing to include
language in the definition of Director exempting advisory directors who
do not have the authority to vote on matters before the board of
directors or any committee of the board of directors and provides
solely general policy advice to the board of directors or any
committee.
8. Distributed Ledger
The NCUA is proposing to define the term ``Distributed Ledger'' as
provided in the GENIUS Act with certain technical edits.\48\ The
proposed rule would define the term ``Distributed Ledger'' to mean
technology in which (1) data is shared across a network that creates a
public digital ledger of verified transactions or information among
network participants and (2) cryptography is used to link the data to
maintain the integrity of the public ledger and execute other
functions. The proposed definition reformats the definition in the
GENIUS Act by using numbering to distinguish between the two components
of the definition. The formatting changes are technical and do not have
a substantive effect on the definition.
---------------------------------------------------------------------------
\48\ 12 U.S.C. 5901(8).
---------------------------------------------------------------------------
9. Distributed Ledger Protocol
The NCUA is proposing to define the term ``Distributed Ledger
Protocol'' as provided in the GENIUS Act.\49\ The term ``Distributed
Ledger Protocol'' would mean publicly available and accessible
executable software deployed to a Distributed Ledger, including smart
contracts or networks of smart contracts.
---------------------------------------------------------------------------
\49\ 12 U.S.C. 5901(9).
---------------------------------------------------------------------------
10. Eligible Financial Institution
The NCUA is proposing to define ``Eligible Financial Institution''
to mean (1) a Person that (a) is eligible to hold Reserve Assets in
custody under section 10(a) of the GENIUS Act; \50\ (b) complies with
the applicable requirements in section 10(b), (c), and (d) of the
GENIUS Act,\51\ including with applicable implementing regulations
issued by a relevant Federal payment stablecoin regulator as defined in
12 U.S.C. 5901(25), primary financial regulatory agency described in 12
U.S.C. 5301(12)(B) or (C), State bank supervisor, or State credit union
supervisor; and (c), if applicable, enters into a custody agreement
with an NCUA-Licensed PPSI documenting the Person's compliance with
section 10(b), (c) and (d) of the Act as well as policies and
procedures to ensure compliance; or (2) a Federal Reserve Bank.
---------------------------------------------------------------------------
\50\ 12 U.S.C. 5909(a).
\51\ 12 U.S.C. 5909(b)-(d).
---------------------------------------------------------------------------
The term ``Eligible Financial Institution'' is relevant to the
Reserve Asset diversification and concentration requirements in
proposed Sec. 706.202(c) of the proposed rule. Under section 10(a) of
the GENIUS Act, a Person may only engage in the business of providing
custodial or safekeeping services for the Payment Stablecoin reserve,
the Payment Stablecoins used as collateral, or the Private Keys used to
issue Payment Stablecoins if the Person (1) is subject to (A)
supervision or regulation by a primary Federal payment stablecoin
regulator or a primary financial regulatory agency described under
subparagraph (B) or (C) of section 2(12) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (12 U.S.C. 5301(12)); or (B)
supervision by a State bank supervisor, as defined under section 3 of
the FDI Act (12 U.S.C. 1813), or a State credit union supervisor, as
defined under section 6003 of the Anti-Money Laundering Act of 2020 (31
U.S.C. 5311 note), and such State bank supervisor or State credit union
supervisor makes available to the Federal Reserve such information as
the Federal Reserve determines necessary and relevant to the categories
of information under section 10(d) of the Act; and (2) complies with
the requirements under section 10(b), unless such Person holds such
property in accordance with similar requirements as required by a
primary Federal payment stablecoin regulator, the Securities and
Exchange Commission, or the Commodity Futures Trading Commission.
Eligible Financial Institutions would include IDIs regardless of
whether the entities engaged in stablecoin activities or provided
custody services to NCUA-Licensed PPSIs because these entities are
subject to supervision or regulation by a primary Federal payment
stablecoin regulator. Thus, for example, under proposed Sec.
706.202(c) an NCUA-Licensed PPSI could deposit reserves in Share
Accounts at a FICU regardless of whether the FICU acted as custodian
for the NCUA-Licensed PPSI's other Reserve Assets.
To meet the proposed definition, a financial institution must also
comply with the applicable requirements of section 10 of the Act,\52\
and the relevant custody agreement must reflect compliance with section
10 as well as policies and procedures to ensure such compliance.\53\
These criteria are intended to ensure compliance with section 10 of the
Act and to encourage appropriate due diligence of entities that hold
Reserve Assets for NCUA-Licensed PPSIs.
---------------------------------------------------------------------------
\52\ 12 U.S.C. 5909.
\53\ As discussed above, to the extent that an Eligible
Financial Institution does not engage in custody of covered assets,
section 10 of the GENIUS Act (12 U.S.C. 5909) would not apply.
---------------------------------------------------------------------------
The NCUA recognizes that multiple agencies will regulate PPSIs and
that multiple agencies regulate the entities that may permissibly
custody Reserve Assets. The proposed rule would impose requirements on
where and how NCUA-Licensed PPSIs may hold Reserve Assets and would
also impose requirements on NCUA-regulated institutions that hold
Reserve Assets on behalf of PPSIs, including PPSIs not regulated by the
NCUA. Accordingly, there may be overlap between the
[[Page 28962]]
requirements imposed by different regulators with separate requirements
implementing section 10 of the GENIUS Act that govern how their
regulated entities must handle Reserve Assets placed by other PPSIs.
The NCUA invites comment on the best ways to manage potentially
overlapping requirements. The proposed rule would require that an
``Eligible Financial Institution'' comply with the requirements in
section 10(b), (c), and (d) of the GENIUS Act, including applicable
implementing regulations. Accordingly, even if different types of
Eligible Financial Institutions are subject to different regulations on
the safe handling of Payment Stablecoin Reserve Assets, an NCUA-
Licensed PPSI could still custody Reserve Assets at any entity that
meets the requirements in the definition of ``Eligible Financial
Institution.'' Given the diverse set of entities that may permissibly
hold Payment Stablecoin reserves, the proposed definition of ``Eligible
Financial Institution'' would not necessarily require that Eligible
Financial Institutions be subject to uniform regulations implementing
the requirements in section 10(b), (c), and (d) of the GENIUS Act. The
proposed rule would require an NCUA-Licensed PPSI to enter into a
custody agreement with an Eligible Financial Institution, which would
establish a baseline that the Eligible Financial Institution is
adhering to the requirements in section 10(b), (c), and (d), along with
any implementing regulations. In the absence of this requirement,
Reserve Assets might be placed at a financial institution without the
financial institution even purporting to comply with the requirements
in section 10(b), (c), or (d), or possibly even knowing that its
Customer's assets represent Payment Stablecoin reserves.
11. Fair Value
The NCUA is proposing to include a definition of the term ``Fair
Value'' in the rule. As proposed, the term ``Fair Value'' would mean
the fair value as determined under GAAP.\54\ Fair value is used in
proposed Sec. 706.202 in describing proposed reserve requirements.
---------------------------------------------------------------------------
\54\ See discussion of the definition of ``GAAP,'' infra.
---------------------------------------------------------------------------
12. FDIC
The NCUA is proposing to define FDIC to mean the Federal Deposit
Insurance Corporation. This accords with the definition of
``Corporation'' in section 2(5) of the GENIUS Act.\55\ The NCUA has
opted not to use the term ``Corporation'' to describe the FDIC because
that term is used more broadly in the definition of Person, discussed
below.
---------------------------------------------------------------------------
\55\ 12 U.S.C. 5901(5).
---------------------------------------------------------------------------
13. GAAP
The NCUA is proposing to include a definition of the term GAAP in
the rule. The proposed rule would define the term ``GAAP'' to mean the
generally accepted accounting principles as used in the United States.
GAAP is used in the definition of Fair Value and proposed subparts B
and D.
14. Immediate Family
The NCUA is proposing to define the term ``Immediate Family'' to
mean the spouse of an individual, the individual's minor children, and
any of the individual's children (including adults) residing in the
individual's home. This term is relevant to the risk management
standards concerning Insider and Affiliate transactions. It aligns with
the definition in the OCC Proposal and is consistent with the
definition in Regulation O.\56\
---------------------------------------------------------------------------
\56\ 12 CFR part 215.
---------------------------------------------------------------------------
15. Insider
The NCUA is proposing to define the term ``Insider'' to mean: (1)
an Officer or Director of an NCUA-Licensed PPSI; (2) any Parent
Company, and the Officers and Directors of the Parent Company, of an
NCUA-Licensed PPSI; (3) any Principal Shareholder, and Officers and
Directors of the Principal Shareholder, of an NCUA-Licensed PPSI; and
(4) a Related Interest of or the Immediate Family of any of these
Persons. This term is relevant to the risk management standards
concerning Insider and Affiliate transactions. It aligns with the
definition in the OCC Proposal, which was adapted from the definition
in Regulation O,\57\ while accounting for Parent Company FICUs and
their Officers and Directors. It has been adapted to make direct
reference to the Immediate Family of one of the covered groups of
Officers, Directors, Parent Companies, and Principal Shareholders to
mitigate the risk of an Insider engaging in inappropriate transactions
to benefit Immediate Family members.
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\57\ Id.
---------------------------------------------------------------------------
16. Insured Credit Union
The NCUA proposes to define the term ``Insured Credit Union''
consistent with the definition of the term in the GENIUS Act.\58\ As
proposed, the term ``Insured Credit Union'' would have the meaning
given to that term in section 101 of the Federal Credit Union Act.\59\
---------------------------------------------------------------------------
\58\ 12 U.S.C. 5901(14).
\59\ 12 U.S.C. 1752.
---------------------------------------------------------------------------
17. Insured Depository Institution
The NCUA is proposing to define the term ``Insured Depository
Institution'' consistent with the definition of the term in the GENIUS
Act.\60\ As proposed, the term ``Insured Depository Institution'' would
mean an Insured Depository Institution, as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813) and an Insured Credit
Union.
---------------------------------------------------------------------------
\60\ 12 U.S.C. 5901(15).
---------------------------------------------------------------------------
18. Issuing Group
As proposed in the NCUA Licensing Proposal, proposed Sec. 706.2
would define the term ``Issuing Group'' to mean the Applying Issuer and
Parent Company(ies) and the Officers, Directors, and Principal
Shareholders, if applicable, of the Applying Issuer, its subsidiaries,
and Parent Company(ies).
As part of this NCUA Standards Proposal, the NCUA is proposing to
amend the definition as proposed in the NCUA Licensing Proposal to
specifically include NCUA-Licensed PPSIs. This is not intended to be a
substantive change, but instead to make clear that an Applying Issuer
that becomes an NCUA-Licensed PPSI remains a member of the Issuing
Group and is subject to the requirements proposed part 706 imposes on
Issuing Groups.
19. Monetary Value
The NCUA is proposing to define the term ``Monetary Value'' as
provided in the GENIUS Act.\61\ The proposal would define ``Monetary
Value'' to mean a National Currency or deposit (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)) denominated in a
National Currency.
---------------------------------------------------------------------------
\61\ 12 U.S.C. 5901(17).
---------------------------------------------------------------------------
However, as noted throughout the NCUA's Licensing Proposal and this
NCUA Standards Proposal, the GENIUS Act frequently relies on banking-
specific terminology. The references to a ``deposit'' as defined by the
FDI Act in the GENIUS Act's definitions of ``Monetary Value'' \62\ and
``Payment Stablecoin'' \63\ are an example of this. Despite these
references to FDI Act ``deposits,'' which do not explicitly cover
``accounts,'' \64\ as defined by the FCU Act, or ``shares'' at FICUs
(defined as ``Share Accounts'' in this proposal), the Board believes
the GENIUS Act broadly contemplates treating deposits
[[Page 28963]]
at banks and savings associations and funds in Share Accounts at FICUs
interchangeably and is concerned that to do otherwise could potentially
create interpretive and implementation issues.
---------------------------------------------------------------------------
\62\ See 12 U.S.C. 5901(17).
\63\ See 12 U.S.C. 5901(22).
\64\ See 12 U.S.C. 1752(5).
---------------------------------------------------------------------------
More specifically, the GENIUS limits ``Payment Stablecoins'' to
Digital Assets that the issuer must (1) ``be obligated to convert,
redeem, or repurchase for a fixed amount of monetary value'' and (2)
``represent[ ] that such issuer will maintain, or create the reasonable
expectation that it will maintain, a stable value relative to the value
of a fixed amount of monetary value[.]'' \65\ The GENIUS Act generally
defines ``Monetary Value'' to mean (1) a National Currency; or (2) a
deposit (as defined by the FDI Act) denominated in a National
Currency.\66\ In relevant part, a National Currency is defined by the
GENIUS Act to include Federal Reserve notes and Money standing to the
credit of an account with a Federal Reserve Bank.\67\ The Payment
Stablecoin definition also clarifies that Digital Assets that are a
National Currency or a deposit (as defined by the FDI Act), including a
deposit recorded using Distributed Ledger technology, are not Payment
Stablecoins.\68\
---------------------------------------------------------------------------
\65\ See 12 U.S.C. 5901(22)(A)(ii)(I)-(II).
\66\ 12 U.S.C. 5901(17)
\67\ See 12 U.S.C. 5901(19)(A)-(B).
\68\ See 12 U.S.C. 5901(22)(B)(i)-(ii).
---------------------------------------------------------------------------
While the Payment Stablecoin and Monetary Value definitions do not
explicitly address ``accounts'' or ``shares'' at FICUs (Share
Accounts), the Board believes that an overall reading of the GENIUS Act
warrants that funds in Share Accounts at FICUs have Monetary Value (1)
for which an issuer is ``obligated to convert, redeem, or repurchase''
their Payment Stablecoins for; and (2) against which an issuer can
utilize as ``a fixed amount of monetary value.'' The GENIUS Act
provides numerous instances demonstrating the intention that
``deposits'' at FDIC-insured banks and savings associations and
``shares'' at FICUs be treated the same, including: (1) parallel
treatment of ``demand deposits'' and ``insured shares'' at all
``insured depository institutions,'' which the Act defines to include
both FDIC-insured banks and FICUs, as permissible reserves by which
Payment Stablecoins can be backed; \69\ (2) explicitly granting FDIC-
insured banks and FICUs the power to accept Payment Stablecoin reserves
as ``cash on deposit'' when providing custody services for PPSIs; \70\
(3) explicit recognition that the GENIUS Act does not limit the
authority of a bank or credit union to ``accept[] or receiv[e] deposits
or shares (in the case of a credit union), and issu[e] digital assets
that represent those deposits or shares''; \71\ (4) recognition that
``[e]ntities regulated by the primary Federal payment stablecoin
regulators [including FICUs] are authorized to engage in the Payment
Stablecoin activities and investments contemplated by this Act,
including acting as a principal or agent with respect to any Payment
Stablecoin and payment of fees to facilitate customer transactions'';
\72\ and (5) a parallel prohibition for misrepresentation of insured
status of Payment Stablecoins by FDIC-insured banks and NCUA-insured
credit unions.\73\
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\69\ See 12 U.S.C. 5903(a)(1)(A)(ii).
\70\ See 12 U.S.C. 5909(c)(2)(D).
\71\ See 12 U.S.C. 5915(a)(1).
\72\ See 12 U.S.C. 5915(b).
\73\ See 12 U.S.C. 5903(e).
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Given the GENIUS Act's clear intention that, despite the use of
banking-specific terminology, Share Accounts at FICUs and deposits at
banks are to be given parallel treatment, the NCUA is specifically
seeking comment as to whether the NCUA should adopt a definition of the
term ``Deposit'' and, if so, the proper definition. Should the
parenthetical to the Federal Deposit Insurance Act definition of a
``deposit'' be dropped? Should a definition specifically include
``deposits'' as defined by the Federal Deposit Insurance Act and
``accounts'' as defined by the FCU Act (and defined as Share Accounts
in this proposal)? Relatedly, the Board seeks comment as to whether the
NCUA should provide an explicit interpretation in Part 706, the final
rule's preamble, or other guidance that the definition of Monetary
Value and/or Payment Stablecoin in the GENIUS Act expressly covers a
Digital Asset for which an issuer has an obligation to redeem funds
placed in a Share Account at a FICU? If so, how? For example, should
the NCUA expressly interpret Monetary Value to include a broader
conception of ``deposits'' not limited to the definition in section 3
of the Federal Deposit Insurance Act? Does the ubiquitous
convertibility of funds in Share Accounts and bank deposits in the U.S.
financial system bear on this question (e.g., is redemption in funds
placed in a Share Account at a FICU functionally equivalent to
redemption in bank deposits for purposes of the scope of a Payment
Stablecoin)? What are the practical or evasion risks of possible
interpretations? In practice, will FICU subsidiaries likely seek to
issue Payment Stablecoins that are redeemable only in funds in Share
Accounts, bank deposits, or both?
20. Money
Section 2(18) of the GENIUS Act defines ``Money'' to mean a medium
of exchange currently authorized or adopted by a domestic or foreign
government, including a monetary unit of account established by an
intergovernmental organization or by agreement between two or more
countries.\74\ This definition is relevant to the definition of
National Currency (discussed below) and certain Reserve Assets
described in section 4(a)(1)(A)(i) and (iv) of the GENIUS Act.\75\
Section 4(a)(1)(A)(i) refers to Money standing to the credit of an
account with a Federal Reserve Bank. Section 4(a)(1)(A)(iv) refers to
Money received under a repurchase agreement that meets certain
requirements. Although the statutory definition of Money clearly
includes Monetary Value, it may be unclear at any point in time whether
other mediums of exchange have been authorized or adopted by a domestic
or foreign government. Moreover, whether a medium of exchange meets
this definition may change based on actions of foreign governments or
intergovernmental organizations. While it may be relatively clear
whether an asset is Money standing to the credit of an account with a
Federal Reserve Bank, there could be ambiguity as to whether a
particular asset is Money received under a repurchase agreement.
Therefore, to promote clarity and uniformity for purposes of
determining whether certain assets would qualify as Money under
proposed part 706, the NCUA proposes that it would provide prior
confirmation publicly that a medium of exchange (other than those
defined as Monetary Value) meets the definition of ``Money'' under the
GENIUS Act. Specifically, the NCUA proposes to define ``Money'' for the
purposes of part 706 to mean Monetary Value and any other medium of
exchange that the NCUA has determined is currently authorized or
adopted by a domestic or foreign government, including a monetary unit
of account established by an intergovernmental organization or by
agreement between two or more countries.
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\74\ 12 U.S.C. 5901(18).
\75\ 12 U.S.C. 5903(a)(1)(A)(i) and (iv).
---------------------------------------------------------------------------
21. National Currency
The NCUA is proposing to define the term ``National Currency'' as
provided in the GENIUS Act.\76\ Under the proposed rule, the term
``National Currency'' would mean (1) a Federal Reserve note (as the
term is used in the
[[Page 28964]]
first undesignated paragraph of section 16 of the Federal Reserve Act
(12 U.S.C. 411)); (2) Money standing to the credit of an account with a
Federal Reserve Bank; (3) Money issued by a foreign central bank; or
(4) Money issued by an intergovernmental organization pursuant to an
agreement by two or more governments.
---------------------------------------------------------------------------
\76\ 12 U.S.C. 5901(19).
---------------------------------------------------------------------------
22. NCUA-Licensed Permitted Payment Stablecoin Issuer
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
would define an NCUA-Licensed Permitted Payment Stablecoin Issuer to
mean a Person formed in the United States that is a FICU subsidiary
that has been approved and licensed by the NCUA under subpart A to
issue Payment Stablecoins.
23. Nonpublic Personal Information
The NCUA is proposing to define the term ``Nonpublic Personal
Information'' to mean information (1) provided by a Customer to an
NCUA-Licensed PPSI to obtain a financial product or service, (2) about
a Customer resulting from any transaction involving a financial product
or service between the NCUA-Licensed PPSI and a Customer, or (3)
otherwise obtained by the NCUA-Licensed PPSI in connection with
providing a financial product or service to a Customer. The proposed
definition does not include publicly available information, unless such
publicly available information, when combined with other information,
would reveal the identity of a Customer or would enable access to the
Customer's account.
24. Officer
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
would define the term ``Officer'' to mean the president, chief
executive officer, chief operating officer, chief financial officer,
chief technology officer, chief lending officer, chief investment
officer, chief risk officer, Bank Secrecy Act officer, and any other
individual the NCUA identifies in writing to the Issuing Group who
exercises significant influence over, or participates in, major policy
making decisions of the Issuing Group without regard to title, salary,
or compensation. The term also includes employees of entities retained
by an Issuing Group to perform such functions in lieu of directly
hiring the individuals.
25. Outstanding Issuance Value
The NCUA is proposing to define the term ``Outstanding Issuance
Value'' to mean the total consolidated par value of all of an NCUA-
Licensed PPSI's Payment Stablecoins. This would include the combined
total par value of different brands of Payment Stablecoin issued by the
NCUA-Licensed PPSI (e.g., under a white label arrangement) to the
extent that such an arrangement complies with proposed 12 CFR part 706.
The proposed definition includes the defined term ``Payment
Stablecoin'' and should be read consistent with that definition,
discussed below. For purposes of calculating the Outstanding Issuance
Value, the NCUA believes that a Digital Asset that is, or is designed
to be, used as a means of payment or settlement but for which there is
not yet an obligation to convert, redeem, or repurchase for a fixed
amount of Monetary Value should not be included in the calculation. A
Digital Asset minted (i.e., created on a blockchain) by an issuer to be
a Payment Stablecoin would not be included in the calculation of
Outstanding Issuance Value until the obligation to convert, redeem, or
repurchase the Digital Asset for a fixed amount of Monetary Value is
incurred.
Similarly, once an issuer permanently removes a Payment Stablecoin
from circulation (e.g., burns the Payment Stablecoin) the Digital Asset
would cease to be included in the calculation of Outstanding Issuance
Value. Payment Stablecoins for which holder access has been restricted
pursuant to applicable law, regulation, or court order would remain
Payment Stablecoins, as the issuer's obligation to convert, redeem, or
repurchase for a fixed amount of Monetary Value continues and the
associated reserves are maintained in segregated accounts pending
resolution of the restriction. Likewise, if an issuer repurchased a
Payment Stablecoin but did not burn the Payment Stablecoin, the
stablecoin in the NCUA-Licensed PPSI's inventory would not be part of
the issuer's Outstanding Issuance Value (but would become part of the
Outstanding Issuance Value if the NCUA-Licensed PPSI subsequently put
the Payment Stablecoin back into circulation). Therefore, the proposed
definition of ``Outstanding Issuance Value'' only includes Payment
Stablecoins for which the NCUA-Licensed PPSI is obligated to convert,
redeem, or repurchase for a fixed amount of Monetary Value (generally
the issued Payment Stablecoins in circulation).
The NCUA also considered whether the proposed ``Outstanding
Issuance Value'' definition should include only those Payment
Stablecoins issued by an NCUA-Licensed PPSI, or also the Payment
Stablecoins issued by the issuer's non-consolidated Affiliates.\77\ The
NCUA determined that it was appropriate to limit the proposed
definition to include only the Payment Stablecoins issued by an NCUA-
Licensed PPSI (and consolidated subsidiaries). The NCUA believes that
the proposed definition would scope in the appropriate NCUA-Licensed
PPSIs to the relevant provisions regarding Reserve Assets,\78\ the
frequency of examinations,\79\ required audits,\80\ and minimum capital
calculation \81\ without being overly expansive and that it best aligns
with the language in the statute. Notwithstanding the proposed
definition of ``Outstanding Issuance Value,'' non-consolidated
Affiliates of an issuer that issue Payment Stablecoins would separately
need to comply with the requirements of the GENIUS Act.
---------------------------------------------------------------------------
\77\ As noted above, the definition of ``Outstanding Issuance
Value'' includes the consolidated value of issued Payment
Stablecoins.
\78\ See proposed Sec. 706.202.
\79\ See proposed Sec. 706.205.
\80\ See id.
\81\ See proposed subpart D.
---------------------------------------------------------------------------
26. Parent Company
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
would define the term ``Parent Company.'' The GENIUS Act requires that
applications for a PPSI license granted by a primary Federal payment
stablecoin regulator be evaluated using specifically defined
factors.\82\ One of these factors requires the NCUA to evaluate the
competency, experience, and integrity of the Officers and Directors of
the Applying Issuer's Parent Company(ies).\83\ Proposed Sec. 706.2
would define the term Parent Company to specify when a FICU must sign
onto an application and when a FICU's Officers and Directors should be
evaluated as part of an Applying Issuer's licensure application. The
term Parent Company would also be used to determine when a FICU's
investment in an NCUA-Licensed PPSI requires prior notice as a change
in control.
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\82\ 12 U.S.C. 5904(b)-(c).
\83\ 12 U.S.C. 5904(c)(3).
---------------------------------------------------------------------------
Proposed Sec. 706.2 would define a Parent Company as an Insured
Credit Union(s) that will own, control or hold the power to vote 10
percent or more of any class of voting securities, or has the ability
to direct the management or policies, of a Permitted Payment Stablecoin
Issuer. If no Insured Credit Union will own, control or hold the power
to vote 10 percent or more of any class of voting securities, the
Insured Credit Union with the largest percentage of voting securities
in relation to all other Insured Credit Unions is considered the Parent
Company.'' Under
[[Page 28965]]
this definition, any FICU that owns 10 percent or more of a class of
voting securities would be a Parent Company. Additionally, if no FICU
owns 10 percent or more of a class of voting securities, then the FICU
with the greatest percentage of a class of voting securities in
relation to any other FICU is the Parent Company for purposes of an
NCUA PPSI license. The definition would also provide that a FICU that
has the ability to direct the management or policies of a PPSI would be
considered a Parent Company. The Board believes it is important that
the definition of Parent Company cover FICUs that have the power to
direct the management or policies of a PPSI regardless of their
ownership interests.
27. Payment Stablecoin
The NCUA is proposing to define the term ``Payment Stablecoin''
consistent with the definition of the term in the GENIUS Act, 12 U.S.C.
5901(22), with certain technical changes. Under the proposal, the term
``Payment Stablecoin'' would mean a Digital Asset (i) that is, or is
designed to be, used as a means of payment or settlement; and (ii) the
issuer of which (A) is obligated to convert, redeem, or repurchase for
a fixed amount of Monetary Value, not including a Digital Asset
denominated in a fixed amount of Monetary Value; and (B) represents
that such issuer will maintain, or creates the reasonable expectation
that it will maintain, a stable value relative to the value of a fixed
amount of Monetary Value.\84\ For a Digital Asset to be a Payment
Stablecoin under proposed part 706, the issuer must be obligated to
convert, redeem, or repurchase the Digital Asset for a fixed amount of
Monetary Value.
---------------------------------------------------------------------------
\84\ The NCUA interprets the statutory language in 12 U.S.C.
5901(22) to mean that the PPSI would be obligated to meet redemption
requests at par.
---------------------------------------------------------------------------
The proposed definition also provides that a ``Payment Stablecoin''
does not include a Digital Asset that is a (i) National Currency; (ii)
deposit (as defined in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813)), including a deposit recorded using Distributed
Ledger technology; or (iii) security, as defined in section 2 of the
Securities Act of 1933 (15 U.S.C. 77b), section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c), or section 2 of the Investment
Company Act of 1940 (15 U.S.C. 80a-2).
The GENIUS Act's definition of ``Payment Stablecoin'' includes a
parenthetical with the term ``deposit'' in (B)(2) limiting the scope of
the term to a ``deposit'' as defined in section 3 of the FDI Act.
However, as discussed in this preamble's proposed definition of the
term ``Monetary Value,'' the Board believes that an overall reading of
the GENIUS Act makes clear the intention that, despite the use of
banking-specific terminology, Share Accounts at FICUs and deposits at
banks are to be given parallel treatment. Further, the GENIUS Act also
specifically states that ``[n]othing in this Act may be construed to
limit the authority of a Federal credit union [or] State credit union
to engage in activities permissible pursuant to applicable State and
Federal law, including--(1) accepting or receiving deposits or shares
(in the case of a credit union), and issuing digital assets that
represent those deposits or shares.'' \85\ The GENIUS Act clearly
contemplates shares (Share Accounts) represented by Digital Assets, but
does not intend to limit the ability of FICUs to directly accept,
receive, or issue Digital Assets that represent shares (Share
Accounts). Conversely, the GENIUS Act does prohibit FICUs from directly
issuing Payment Stablecoins. Given this clear delineation between Share
Accounts/deposits represented by digital assets and Payment
Stablecoins, the Board believes that in addition to excluding deposits
recorded using Distributed Ledger technology from the GENIUS Act's
definition of a Payment Stablecoin, shares (Share Accounts) recorded
using Distributed Ledger technology are also not covered by the GENIUS
Act's definition of a Payment Stablecoin.
---------------------------------------------------------------------------
\85\ See 12 U.S.C. 5915(a)(1).
---------------------------------------------------------------------------
The Board is specifically seeking comment as to whether the final
rule should modify the text drawn from the GENIUS Act's definition to
specifically exempt Share Accounts recorded using Distribution Ledger
technology from the GENIUS Act's definition of a Payment Stablecoin. If
so, how? Should the NCUA drop the parenthetical to the Federal Deposit
Insurance Act definition of the a ``deposit?'' Should the NCUA adopt a
definition of the term ``Deposit'' that drops the parenthetical to the
Federal Deposit Insurance Act definition of a ``deposit''? Should a
definition specifically include ``deposits'' as defined by the Federal
Deposit Insurance Act and ``accounts'' as defined by the FCU Act (and
defined as Share Accounts in this proposal)? Relatedly, the Board seeks
comment as to whether the NCUA should provide an explicit
interpretation in Part 706, the final rule's preamble, or other
guidance that the definition of Monetary Value and/or Payment
Stablecoin in the GENIUS Act expressly covers a Digital Asset for which
an issuer has an obligation to redeem funds placed in a Share Account
at a FICU? If so, how?
The GENIUS Act's definition of ``Payment Stablecoin'' also contains
language clarifying that ``no bond, note, evidence of indebtedness, or
investment contract that was issued by a permitted payment stablecoin
issuer shall qualify as a security solely [because the issuer
satisfies] the conditions in [paragraph (1) of the proposed ``payment
stablecoin'' definition], consistent with section 17 of the Act.'' The
GENIUS Act provides that this language was included ``for the avoidance
of doubt.'' The NCUA determined that it was not necessary to include
this language in the proposed ``Payment Stablecoin'' definition because
section 17 of the GENIUS Act includes amendments to the cited Federal
statutes that clarify that Payment Stablecoins are not securities.
28. Person
The NCUA is proposing to define the term ``Person'' as the term is
defined in the GENIUS Act, 12 U.S.C. 5901(24). As proposed, the term
``Person'' would mean an individual, partnership, company, corporation,
association, trust, estate, cooperative organization, or other business
entity, incorporated or unincorporated.
29. Principal Shareholder
As proposed in the NCUA's Licensing Proposal, proposed Sec. 706.2
would define the term ``Principal Shareholder.'' The GENIUS Act
requires that applications for a PPSI license granted by a primary
Federal payment stablecoin regulator be evaluated using specifically
defined factors.\86\ One of these factors requires the NCUA to evaluate
the competency, experience, and integrity of the Officers and Directors
of the Applying Issuer's Principal Shareholders.\87\ Proposed Sec.
706.2 would define a Principal Shareholder to mean a Person other than
an Insured Credit Union that directly or indirectly or acting in
concert with one or more Persons or companies, or together with members
of their Immediate Family, will own, control, or hold the power to vote
10 percent or more of any class of voting securities. Under this
definition, any non-FICU that owns 10 percent or more of a class of
voting securities would be a Principal Shareholder. Proposed Sec.
706.2 would include the defined term of Principal Shareholder to
specify when a non-FICU's Officers and Directors should be evaluated as
part of
[[Page 28966]]
an Applying Issuer's licensure application. The proposed definition is
derived from the FDIC's change of control regulations.\88\ The intent
of the definition is to capture only the non-FICUs that are most likely
to have an ability to control or direct the management and policies of
the PPSI. Under the proposed definition, if there is an Applying Issuer
that is widely held by FICUs that also has non-FICU shareholders, then
only the non-FICU shareholders with 10 percent or more of a class of
voting securities would be considered Principal Shareholders. The Board
believes the definition is the best interpretation of the term
Principal Shareholders as used in the GENIUS Act and appropriately
balances the NCUA's allocation of its resources with its statutory
mandate under the GENIUS Act. While the GENIUS Act requires that the
Board evaluate certain statutory factors related to the Officers and
Directors of the Principal Shareholders, the Board does not believe it
is practical or consistent with congressional intent for the NCUA to
review the Officers and Directors of each investing shareholder.
Requiring this level of review would disadvantage Applying Issuers
seeking NCUA licenses and FICUs investing in them. It would also impose
a prohibitive burden on the NCUA's resources, especially when
considering the 120-day deadline the GENIUS Act imposes on the NCUA for
rendering a decision on a substantially complete application. In
summary, the Board believes it is prudent to only review Officers and
Directors of an investing shareholder when the investing shareholder
would have a material amount of control of the PPSI. The Board selected
10 percent as that is a common threshold used for determining a
material amount of control under banking law.
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\86\ 12 U.S.C. 5904(b)-(c).
\87\ 12 U.S.C. 5904(c)(3).
\88\ 12 CFR part 303, subpart E.
---------------------------------------------------------------------------
30. Private Key
The NCUA is proposing to define the term ``Private Key'' to mean
the unique alphanumeric string that allows an individual to transfer a
particular unit of a Digital Asset using a Distributed Ledger. This
definition is intended to include shards of a Private Key.\89\
---------------------------------------------------------------------------
\89\ Sharding refers to dividing a Private Key into distinct
pieces for enhanced security.
---------------------------------------------------------------------------
31. Publicly Available Information
The NCUA is proposing to define the term ``Publicly Available
Information'' to mean any information that a Person has a reasonable
basis to believe is lawfully made available to the general public from:
(1) Federal, State, or local government records; (2) widely distributed
media; (3) disclosures to the general public that are required to be
made by Federal, State, or local law; or (4) a Distributed Ledger.\90\
---------------------------------------------------------------------------
\90\ As noted above, the term ``Distributed Ledger'' is limited
to publicly available and accessible ledgers.
---------------------------------------------------------------------------
32. Registered Public Accounting Firm
The NCUA is proposing to define the term ``Registered Public
Accounting Firm'' as provided in the GENIUS Act.\91\ Under the
proposal, the term ``Registered Public Accounting Firm'' would mean a
registered public accounting firm set forth in section 2 of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201).
---------------------------------------------------------------------------
\91\ 12 U.S.C. 5901(26).
---------------------------------------------------------------------------
33. Related Interest
The NCUA is proposing to define the term ``Related Interest'' of a
Person to mean (1) a company that is controlled by that Person; or (2)
a political or campaign committee that is controlled by that Person or
the funds or services of which will benefit that Person. This term is
relevant to the risk management standards for Insider and Affiliate
transactions. It aligns with the OCC Proposal and is derived from the
definition in Regulation O.\92\
---------------------------------------------------------------------------
\92\ 12 CFR part 215.
---------------------------------------------------------------------------
34. Reserve Asset
The NCUA is proposing to define the term ``Reserve Asset'' to mean
an asset maintained by an NCUA-Licensed PPSI of a type enumerated in
Sec. 706.202(b). An NCUA-Licensed PPSI may maintain Reserve Assets as
a custodian.
35. Share Account
The NCUA is proposing to define the term ``Share Account'' to have
the same meaning as the term ``account'' in section 101 of the FCU Act
(12 U.S.C. 1752(5).
36. State
The NCUA is proposing to define the term ``State'' as provided in
the GENIUS Act, 12 U.S.C. 5901(28). Under the proposed rule, the term
``State'' would mean each of the several States of the United States,
the District of Columbia and each territory of the United States.
37. Subsidiary of an Insured Credit Union
As discussed at length in the NCUA's Licensing Proposal, proposed
Sec. 706.2 would define the definition of Subsidiary of an Insured
Credit Union, or FICU subsidiary, as defined in the GENIUS Act. This
definition includes three separate prongs. Specifically, the GENIUS Act
defines a ``subsidiary of an insured credit union'' to include the
following:
(A) an organization providing services to the insured credit union
that are associated with the routine operations of credit unions, as
described in section 1757(7)(I) of this title;
(B) a credit union service organization, as such term is used under
part 712 of title 12, Code of Federal Regulations, with respect to
which the insured credit union has an ownership interest or to which
the insured credit union has extended a loan; and
(C) a subsidiary of a State chartered insured credit union
authorized under State law.\93\
---------------------------------------------------------------------------
\93\ 12 U.S.C. 5901(33).
---------------------------------------------------------------------------
Each prong is a separate and distinct avenue to qualify as a FICU
subsidiary for purposes of being a PPSI.
38. Trading Volume
The NCUA is proposing to define the term ``Trading Volume'' to mean
the aggregate number of Payment Stablecoins issued by an NCUA-Licensed
PPSI that were purchased or sold on exchanges during a specified period
of time.
39. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 1: Are the definitions in the proposed rule appropriately
scoped? How should they be improved?
Question 2: Given the GENIUS Act's frequent use of banking-specific
terminology, has the proposed rule struck the appropriate balance of
maintaining consistency with the standards and terminology used in the
GENIUS Act and proposed by the other primary Federal payment stablecoin
regulators while also reflecting the nuances of the credit union
industry and its terminology? Has the proposed rule appropriately
clarified the best meaning for banking and credit union specific
terminology? Do the proposal's definitions of terms like ``Share
Account,'' ``Insured Credit Union,'' and ``Insured Depository
Institution'' enhance the clarity of Part 706? Are there ways that
these and other terms could be better defined or utilized to strike the
appropriate balance between consistency across regulatory regimes and
clarity for those subject to the NCUA's regulations?
Question 3: Is the definition of ``Control'' sufficiently clear? If
not, how should the NCUA further clarify the term?
Question 4: The term ``Customer'' is broadly defined to mean a
Person that purchases (through any consideration)
[[Page 28967]]
the products or services of another Person. Is the scope of this
definition too broad? With respect to Customers of NCUA-Licensed PPSIs,
should the definition expressly include only Persons with direct
interactions with an NCUA-Licensed PPSI? Alternatively, should the
definition include all downstream Payment Stablecoin holders (i.e., not
just Customers with direct interactions with the PPSI)? Please address
any significant impact or burden the proposed definition or
contemplated alternative definitions may have or add given other
requirements in the proposed rule, such as the Customer notification
requirements in proposed Sec. 706.204. Because the term is used in
several different contexts throughout the proposed rule, should the
definition of ``Customer'' be refined with respect to certain
requirements (e.g., Customer notification)?
Question 5: Are the terms ``deposit'' and ``Share Account''
sufficiently clear as used in the proposed rule? If not, how should
they be clarified? Is their intersection with the terms ``Monetary
Value,'' ``Money,'' and ``Payment Stablecoin'' sufficiently clear? If
not, what can the NCUA do to provide further clarity? Would commenters
prefer that the proposed rule specifically refer to both deposits and
Share Accounts in these terms and throughout the proposed rule or would
they prefer the NCUA adopt a defined term ``Deposit'' to cover both
deposits as defined by the FDI Act and Share Accounts?
Question 6: Is the scope of the term ``Digital Asset'' sufficiently
clear? If not, how should it be clarified?
Question 7: The proposed rule does not define the term ``digital
asset service provider.'' Is the scope of the term digital asset
service provider under the statute sufficiently clear? If not, how
should it be clarified? Are there specific activities that should be
expressly excluded from digital asset service provider activities,
consistent with the statutory definition? Should additional guidance on
the exclusions from the definition of ``digital asset service
provider'' or the meaning of ``engaging in the business'' of providing
digital asset service provider activities be clarified? If so, how
should the NCUA further clarify these terms? Should the NCUA clarify
that only the provision of financial services that directly relate to
Digital Asset issuance would result in an entity becoming a digital
asset service provider?
Question 8: Is the term ``Director'' sufficiently clear? How should
the NCUA further clarify the term?
Question 9: Is the term ``Distributed Ledger'' sufficiently clear?
Should the term ``public digital ledger'' be further clarified? What
additional clarifications would be helpful? Should certain permissioned
or semi-permissioned digital ledgers be considered ``public?'' If so,
how should the definition of ``public'' delineate between different
types of permissioned or semi-permissioned blockchains?
Question 10: Is the definition of ``Eligible Financial
Institution'' appropriately scoped? How could the term be further
refined? Are there particular elements of the definition that should be
excluded or should be addressed elsewhere in the proposed rule?
Question 11: Is the definition of ``Money'' appropriately scoped?
Should the NCUA use the exact language of the statute, instead of using
the proposed definition?
Question 12: Is the term ``Nonpublic Personal Information''
appropriately scoped? How could the term be further refined or
clarified?
Question 13: The term ``Outstanding Issuance Value'' refers to the
total consolidated par value of all of an issuer's Payment Stablecoins.
Should the definition also include the par value of non-consolidated
Affiliates? If so, what changes should be made to the Reserve Asset
requirements to ensure 1:1 backing across all Affiliated entities?
Question 14: Is the term ``Payment Stablecoin'' sufficiently clear?
If not, how should the definition be amended to provide additional
clarity as to whether a particular stablecoin is a ``Payment
Stablecoin''? Please describe the types of stablecoins that the NCUA
should clarify do not meet the definition of a ``Payment Stablecoin''
and therefore would be outside the scope of the proposed rule. Should
there be additional clarity around what it means that a Payment
Stablecoin is a Digital Asset ``that is, or is designed to be, used as
a means of payment or settlement?'' For example, are there certain
settlement scenarios that the NCUA should clarify are not ``designed to
be, used as a means of payment or settlement?''
Question 15: Is the exclusion of a Digital Asset that ``is a
deposit, including a deposit recorded using Distributed Ledger
technology'' from the definition of ``Payment Stablecoin'' sufficiently
clear? Should the NCUA explicitly state in Part 706 that Share Accounts
at FICUs, including Share Accounts recorded using Distributed Ledger
technology are excluded from the definition of ``Payment Stablecoin?''
Should the NCUA clarify which tokenized products this exclusion may
apply to?
Question 16: Is the term ``NCUA-Licensed Permitted Payment
Stablecoin Issuer'' sufficiently clear? How should the definition be
amended to provide additional clarity as to whether a particular entity
issues a Payment Stablecoin and is subject to the requirements of the
GENIUS Act? Should the more generic term ``Permitted Payment Stablecoin
Issuer'' be used instead? If so, why? If not, why not?
Question 17: Is the term ``Person'' sufficiently clear? Should the
NCUA further clarify the definition, including with respect to the
meaning of ``association'' or other components of the definition?
Question 18: Is the term ``Private Key'' sufficiently clear? How
could the term be further clarified? Should the NCUA define the term to
mean the unique alphanumeric sequence that allows an individual to
prove ownership of an account on a Distributed Ledger, including for
the purpose of transferring a particular unit of a Digital Asset?
Question 19: Should the definition of ``Principal Shareholder'' or
any other definitions explicitly incorporate governance instruments
other than securities providing voting rights with respect to the
activities of the issuer? In particular, are there governance
instruments that may not qualify as securities that the NCUA should
incorporate or instruments common to partnerships that the NCUA should
consider incorporating?
Question 20: Is the term ``senior management'' as used in proposed
part 706 sufficiently clear? Should the NCUA define the term, for
example, to include all or a select subset of Officers?
Question 21: The GENIUS Act does not define ``payment stablecoin
holder.'' Should the NCUA define the term? If so, should the NCUA
define the term to mean the Person that beneficially owns the Payment
Stablecoin? Should the NCUA instead define the term based on possession
via Digital Wallets or control of cryptographic keys? What
considerations relating to custody should the NCUA bear in mind if it
chooses to define the term? What interactions with other requirements
in the proposed rule should the NCUA consider if it chooses to define
the term?
Question 22: Should the NCUA refine the definition of Trading
Volume? Should the term be limited to trades that occur on exchanges?
Should it include transactions that occur outside of an exchange?
Should the NCUA define ``exchange'' for purposes of this definition? If
so, should the NCUA
[[Page 28968]]
define it to mean a Person engaged in the business of making a market
in Digital Assets (including Payment Stablecoins)? Should any
definition include decentralized exchanges? What impediments are there
to PPSIs collecting data concerning Trading Volume?
C. Sec. 706.2. Severability
Proposed Sec. 706.3 would provide that the provisions of this
proposed part 706 are separate and severable from one another. If any
provision is stayed or determined to be invalid, it is the NCUA's
intention that the remaining provisions shall continue in effect. If a
provision of the rule were found to be invalid, the NCUA anticipates
that it would evaluate whether any re-proposal of the rule is
appropriate. The NCUA is proposing to include the severability clause
to ensure that, in the event any particular provision of the proposed
rule is held to be invalid, the remainder of the rule would continue in
effect, providing clarity for market participants on how to comply with
the NCUA's regulations implementing the GENIUS Act pending any re-
proposal.
The NCUA generally intends all of its rulemakings to be severable
to the extent portions of the rule are determined to be invalid
regardless of the presence of a severability clause. The NCUA is
proposing to include an explicit severability clause to this rulemaking
given the novelty and scope of the GENIUS Act and the importance of
ensuring as much certainty as possible for the regulatory framework for
Payment Stablecoins.
D. Subpart B--NCUA-Licensed Permitted Payment Stablecoin Issuers
1. Sec. 706.201. Activities
a. Permitted Activities
Section 4(a)(7)(A) of the GENIUS Act sets forth the list of
activities in which a PPSI may engage.\94\ Additionally, section 16(b)
of the GENIUS Act outlines certain additional activities and
investments in which PPSIs may engage.\95\
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\94\ 12 U.S.C. 5903(a)(7)(A).
\95\ 12 U.S.C. 5915(b).
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Consistent with the statute, the NCUA is proposing to mirror the
permitted activities from section 4(a)(7)(A) of the GENIUS Act in
proposed Sec. 706.201(a)(1) through (4), which include: (1) issuing
Payment Stablecoins; (2) redeeming Payment Stablecoins; (3) managing
reserves related to the issuance or redemption of Payment Stablecoins,
including purchasing, selling, and holding Reserve Assets or providing
custodial services for reserve assets, consistent with applicable State
and Federal law; and (4) providing custodial or safekeeping services
for Payment Stablecoins, required reserves, or Private Keys of Payment
Stablecoins consistent with the GENIUS Act, as implemented in proposed
subpart C.\96\ Additionally, proposed Sec. 706.201(a)(8) provides that
an NCUA-Licensed PPSI may undertake any other activities that directly
support any of the activities in proposed Sec. 706.201(a)(1) through
(4), which is explicitly provided for in section 4(a)(7)(A)(v) of the
GENIUS Act.\97\ One such example of an activity that would qualify
under proposed Sec. 706.201(a)(8) because it directly supports both
issuance and redemption of Payment Stablecoins would be the NCUA-
Licensed PPSI's holding of non-Payment Stablecoin crypto-assets as
principal necessary for testing a Distributed Ledger, whether
internally developed or acquired from a third-party.\98\ Such an
activity may be necessary to ensure that the NCUA-Licensed PPSI may
operate safely and effectively on a Distributed Ledger. To the extent
that NCUA-Licensed PPSIs are unclear about whether an activity
qualifies as activity that directly supports the activities in proposed
Sec. 706.201 (a)(1) through (a)(4), the NCUA encourages issuers to ask
the NCUA directly whether an activity is permissible. The NCUA is
seeking comment on whether there should be a more formal process for
clarifications around permissibility, including whether the NCUA should
provide additional clarity to the public through long-established
channels such as Letters to Credit Unions, published frequently asked
questions, or other means.
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\96\ 12 U.S.C. 5903(a)(7)(A).
\97\ 12 U.S.C. 5903(a)(7)(A)(v).
\98\ Separate from NCUA-Licensed PPSIs conducting this activity
to support their permissible Payment Stablecoin activities, the NCUA
believes that the holding of crypto-assets as principal necessary to
support other permissible activities is a permissible activity for
FCUs. FISCUs must look to State law to determine the permissibility
of such activities.
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In addition to the activities outlined in section 4(a)(7) of the
GENIUS Act, for the sake of clarification, proposed Sec. 706.201(a)(5)
provides that NCUA-Licensed PPSIs may assess fees that are associated
with the purchasing or redeeming of Payment Stablecoins.\99\ This power
is inherent in the activities described above and is explicitly
recognized in section 4(a)(1)(B)(ii) of the Act.\100\
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\99\ 12 U.S.C. 5903(a)(7).
\100\ 12 U.S.C. 5903(a)(1)(B)(ii).
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The NCUA also proposes to include the permitted activities outlined
in section 16(b) of the GENIUS Act,\101\ namely acting as principal or
agent with respect to any Payment Stablecoin and paying fees to
facilitate customer transactions.\102\ The NCUA notes that the language
in section 16(b) of the Act is limited by the clause that provides that
entities regulated by the primary Federal payment stablecoin regulators
are ``authorized to engage in the payment stablecoin activities and
investments contemplated by this Act . . . .'' \103\ Accordingly,
``acting as principal or agent with respect to any Payment Stablecoin''
is permissible within the limited set of authorities otherwise
prescribed by the GENIUS Act rather than, for example, any activity
that may be conducted as principal or agent (i.e., any activity
involving a Payment Stablecoin). Therefore, proposed Sec.
706.201(a)(6) would allow NCUA-Licensed PPSIs to hold and transact in
Payment Stablecoins as principal or agent. Payment Stablecoins are not,
however, a permitted Reserve Asset in proposed Sec. 706.202.\104\ To
the extent an NCUA-Licensed PPSI is a ``digital asset service
provider,'' as defined section 2(7) of the GENIUS Act,\105\ the issuer
must also comply with the prohibition outlined in section 3(b)(2) of
the GENIUS Act,\106\ providing that it is unlawful for any digital
asset service provider to offer, sell, or otherwise make available in
the United States a Payment Stablecoin issued by a foreign payment
stablecoin issuer, unless certain conditions are met.
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\101\ 12 U.S.C. 5915(b).
\102\ Section 16(b) of the Act provides in part that ``Entities
regulated by the primary Federal payment stablecoin regulators are
authorized to engage in the payment stablecoin activities and
investments contemplated by this Act, including acting as a
principal or agent with respect to any payment stablecoin and
payment of fees to facilitate customer transactions.'' 12 U.S.C.
5915(b). The activities authorized under section 16(b) include, for
example, acting as an agent for a Customer with respect to the
redemption of a Payment Stablecoin issued by a third party.
\103\ 12 U.S.C. 5915(b).
\104\ See 12 U.S.C. 5903(a)(1) (setting forth permissible
Reserve Assets).
\105\ 12 U.S.C. 5901(7).
\106\ 12 U.S.C. 5902(b)(2).
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Consistent with section 16(b) of the GENIUS Act, proposed Sec.
706.201(a)(7) would allow NCUA-Licensed PPSIs to pay fees to facilitate
Customer transactions (e.g., network or ``gas'' fees). If an issuer's
Payment Stablecoin operates on a blockchain that assesses transaction
fees, then the issuer may choose to pay transaction fees on behalf of
the Customer. The NCUA recognizes that, if an issuer is paying
transaction
[[Page 28969]]
fees on certain Distributed Ledgers, the issuer may have to hold non-
Payment Stablecoin crypto-assets to facilitate the payment of these
transaction fees. Consistent with the GENIUS Act, such crypto-assets
are not permitted Reserve Assets in proposed Sec. 706.202.
Proposed Sec. 706.201(b) incorporates language from section 16(a)
of the GENIUS Act and emphasizes that nothing in proposed Sec.
706.201(a) may be construed to limit the authority of an Insured Credit
Union to engage in activities permissible pursuant to applicable State
and Federal law.\107\
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\107\ 12 U.S.C. 5915(a)
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Beyond the core activities and those that directly support those
activities, section 4(a)(7)(B) of the GENIUS Act provides a rule of
construction such that none of a PPSI's activities discussed above
(i.e., issuance, redemption, managing reserve assets, limited custody,
etc.) are to be construed as a limitation on certain incidental
activities or Digital Asset service provider activities if the
activities are authorized by the NCUA.\108\ Digital Asset service
provider activities encompass: (1) exchanging Digital Assets for
Monetary Value; (2) exchanging Digital Assets for other Digital Assets;
(3) transferring Digital Assets to a third party; (4) acting as a
Digital Asset custodian; and (5) participating in financial services
relating to Digital Asset issuance.\109\ The NCUA is intending to
adhere to the GENIUS Act's rule of construction and would authorize
additional activities as appropriate.
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\108\ 12 U.S.C. 5903(a)(7)(B).
\109\ 12 U.S.C. 5901(7)(A).
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The NCUA's authority to approve these activities is limited to
those activities specified by the GENIUS Act that are consistent with
all other Federal and State laws, and provided that in any insolvency
proceedings described under section 11 of the GENIUS Act,\110\ the
activities would not jeopardize the claims of Payment Stablecoin
holders, which would rank senior to claims of non-Payment Stablecoin
creditors.\111\ The NCUA seeks comment on how to implement section
4(a)(7)(B) of the GENIUS Act and whether it should serve as an
independent grant of authority or whether it must be consistent with a
grant of authority provided from another Federal or State law.\112\
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\110\ 12 U.S.C. 5911.
\111\ See 12 U.S.C. 5903(a)(7)(B).
\112\ Id.
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b. Prohibited Activities
The GENIUS Act also provides for certain prohibitions for PPSIs,
including the prohibition on rehypothecation in section 4(a)(2),\113\
the prohibition on the use of deceptive names in section 4(a)(9),\114\
the prohibition against misrepresenting insured status in section
4(e),\115\ and the prohibition on paying interest or yield in section
4(a)(11).\116\
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\113\ 12 U.S.C. 5903(a)(2).
\114\ 12 U.S.C. 5903(a)(9).
\115\ 12 U.S.C. 5903(e).
\116\ 12 U.S.C. 5903(a)(11).
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In proposed Sec. 706.201(c)(1), the NCUA imports the prohibition
on the use of a deceptive name from section 4(a)(9) of the GENIUS
Act.\117\ This provision prohibits an NCUA-Licensed PPSI from using any
combination of terms relating to the United States Government,
including ``United States,'' ``United States Government,'' and ``USG,''
in the name of the Payment Stablecoin. This prohibition does not apply
to abbreviations relating directly to the currency to which the Payment
Stablecoin is pegged, such as ``USD.''
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\117\ 12 U.S.C. 5903(a)(9).
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Consistent with section 4(a)(9) of the GENIUS Act,\118\ proposed
Sec. 706.201(c)(2) would prohibit NCUA-Licensed PPSIs from marketing a
Payment Stablecoin in such a way that a reasonable person would
perceive the Payment Stablecoin to be legal tender as described in 31
U.S.C. 5103, issued by the United States, or guaranteed or approved by
the Government of the United States. The NCUA recognizes that NCUA-
Licensed PPSIs may want to market themselves as PPSIs under the GENIUS
Act. There is no prohibition against issuers marketing themselves in
this manner, so long as they do not run afoul of the prohibitions
outlined in proposed Sec. 706.201(c)(1) and (2), including the
prohibition against marketing a Payment Stablecoin in such a way that a
reasonable person would perceive the Payment Stablecoin to be
guaranteed, issued, or approved by the United States. The NCUA notes
that misrepresentations by an NCUA-Licensed PPSI cannot be cured by a
general disclaimer and that representations and disclosures should be
clear to permitted Payment Stablecoin holders and Customers. Consistent
with section 4(e) of the GENIUS Act,\119\ proposed Sec. 706.201(c)(3)
would provide that an NCUA-Licensed PPSI may not directly or through
implication represent that Payment Stablecoins are backed by the full
faith and credit of the United States, guaranteed by the United States
Government, or subject to Federal deposit insurance or Federal share
insurance.
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\118\ 12 U.S.C. 5903(a)(9).
\119\ 12 U.S.C. 5903(e).
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Consistent with section 4(a)(11) of the GENIUS Act,\120\ proposed
Sec. 706.201(c)(4) provides that NCUA-Licensed PPSIs must not pay the
holder of any Payment Stablecoin any form of interest or yield (whether
in cash, tokens, or other consideration) solely in connection with the
holding, use, or retention of such Payment Stablecoin. The NCUA
understands that issuers could attempt to make prohibited payments of
interest or yield to Payment Stablecoins holders through arrangements
with third parties. Moreover, there likely will be a large and changing
variety of arrangements with third parties in which issuers could
achieve the payment of yield to Payment Stablecoin holders. It would
not be possible to identify in detail all, or even most, of the
potential arrangements between NCUA-Licensed PPSIs and third parties
that the NCUA may prohibit under section 4(a)(11) of the GENIUS Act and
the NCUA's rulemaking authority under section 4(h) of the GENIUS
Act,\121\ particularly as such arrangements may evolve over time. On
the other hand, a rule with only a general prohibition on the payment
of yield could create uncertainty within the Payment Stablecoin market.
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\120\ 12 U.S.C. 5903(a)(11).
\121\ Section 4(h) of the GENIUS Act provides that the NCUA and
other stablecoin regulators may issue regulations to ``carry out the
requirements of this section, including to establish conditions, and
to prevent evasion thereof.''12 U.S.C. 5903(h) (emphasis added).
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To balance these interests, the NCUA is proposing to include a
presumption in paragraph (c)(4)(i) that certain types of arrangements
with certain types of Persons would be prohibited payments of yield or
interest by the issuer. Specifically, the NCUA would presume that an
NCUA-Licensed PPSI is paying the holder of any Payment Stablecoin any
form of interest or yield (whether in cash, tokens, or other
consideration) solely in connection with the holding, use, or retention
of such Payment Stablecoin if: (A) the NCUA-Licensed PPSI has a
contract, agreement, or other arrangement with an Affiliate or a
related third party to pay interest or yield to the Affiliate or
related third party; and (B) the Affiliate \122\ or related third party
(or Affiliate of such related third party) has a contract, agreement,
or
[[Page 28970]]
other arrangement to pay interest or yield (whether in cash, tokens, or
other consideration) to a holder of any Payment Stablecoin issued by
the NCUA-Licensed PPSI solely in connection with the holding, use, or
retention of such Payment Stablecoin. To the extent that the Person, or
an Affiliate of the Person with whom the NCUA-Licensed PPSI has a
contract, agreement, or other arrangement to pay interest or yield is a
related third party of the NCUA-Licensed PPSI because the NCUA-Licensed
PPSI issues Payment Stablecoins on the related third party's behalf or
under the related third party's branding, the arrangement between the
related third party and the holder of the Payment Stablecoin would
consider the holder of the Payment Stablecoin to be the holder of the
Payment Stablecoin issued by the NCUA-Licensed PPSI on the related
third party's behalf or under the related third party's branding. That
is to say, with respect to a white-label relationship, the presumption
would be triggered only to the extent the Payment Stablecoin holder is
a holder of the related third party's white-labeled stablecoin (as
opposed to other Payment Stablecoins issued by the NCUA-Licensed PPSI).
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\122\ A Person would not be included within this second prong
solely because the Person is an Affiliate of an Affiliate of the
issuer.
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Related third parties would be defined to include any Person paying
interest or yield to Payment Stablecoin holders as a service (i.e., on
behalf of the NCUA-Licensed PPSI) and any Person that the issuer issues
Payment Stablecoins on behalf or under the branding of (i.e., persons
that have entered white-label relationship with the issuer). The NCUA
believes that the close nexus to the issuer's payments and payments to
the Payment Stablecoin holder as well as the close contractual or
control relationship between the issuer and the other party would make
it highly likely that the issuer's payments of yield or interest would
be made to the holder through an intermediary or an attempt the evade
the GENIUS Act's prohibition on interest and yield payments.
Nonetheless, the NCUA would permit the issuer to rebut the presumption
given the issuer provides sufficient evidence to the contrary.
Specifically, an NCUA-Licensed PPSI may rebut the presumption by
submitting written materials that, in the NCUA's judgment, demonstrate
that the contract, agreement, or other arrangement is not prohibited
under paragraph (c)(4) and is not an attempt to evade the prohibition.
Other arrangements that are not captured by the presumption may
also violate the statutory prohibition or constitute an evasion
thereof. The NCUA would assess those arrangements on a case-by-case
basis but does not believe that it is necessary to include other
arrangements within the rebuttable presumption at this time. The
prohibition is not intended to prevent a merchant from independently
offering a discount to a Payment Stablecoin holder for using Payment
Stablecoins. The prohibition is also not intended to prevent an NCUA-
Licensed PPSI from sharing in the profits derived from the Payment
Stablecoin with a non-Affiliate partner in a white-label arrangement.
In proposed Sec. 706.201(c)(5), the NCUA proposes to include the
language from section 4(a)(2) of the GENIUS Act \123\ that prohibits
PPSIs from pledging, rehypothecating, or reusing any Reserve Assets
required under section 4(a)(1),\124\ except for the purposes listed in
section 4(a)(2). Thus, consistent with the statute, an NCUA-Licensed
PPSI may not pledge, rehypothecate, or re-use any Reserve Assets,
either directly or indirectly (e.g., through a third-party custodian of
the Reserve Assets), except for the purpose of: (i) satisfying margin
obligations in connection with investments in permitted reserves under
proposed Sec. 706.202(b)(4) or (5); (ii) satisfying obligations
associated with the use, receipt, or provision of standard custodial
services; \125\ or (iii) creating liquidity to meet reasonable
expectations of requests to redeem Payment Stablecoins, such that
reserves in the form of Treasury bills with a maturity of 93 days or
less may be sold as purchased securities in repurchase agreements,\126\
provided that either: (A) the repurchase agreements are cleared by a
clearing agency registered with the Securities and Exchange Commission;
or (B) the NCUA-Licensed PPSI receives prior approval from the NCUA. By
including the phrase ``directly or indirectly'' in the prohibition, it
is clear that Congress intended that a custodian that holds the
reserves on behalf of a PPSI also may not pledge, rehypothecate or
reuse any of the Reserve Assets, other than with respect to the limited
exceptions discussed in proposed Sec. 706.201(c)(5). To the extent
that a custodian holding the Payment Stablecoin reserves were allowed
to bypass this prohibition, it would undermine the relatively safe
nature of the Reserve Assets and the confidence that Payment Stablecoin
holders have that the Payment Stablecoin will hold its peg.
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\123\ 12 U.S.C. 5903(a)(2).
\124\ 12 U.S.C. 5903(a)(1).
\125\ The NCUA interprets this exception, codified in 12 U.S.C.
5903(a)(2)(B), as being related solely to the purposes specified in
12 U.S.C. 5909(c)(2)(B).
\126\ Section 4(a)(2)(C) of the Act (12 U.S.C. 5903(a)(2)(C))
states that reserves in the form of Treasury bills may be sold as
purchased securities for repurchase agreements with a maturity of 93
days or less if certain conditions are met. The NCUA proposes to
clarify, consistent with section 4(a)(1)(iv) of the Act (12 U.S.C.
5903(a)(1)(iv)), that the Treasury bills sold under the repurchase
agreement must have a maturity of 93 days or less. Consistent with
this clarification and the NCUA's proposed approval of repurchase
agreements under section 4(a)(2)(C) of the Act, discussed below, the
maturity of the repurchase agreement would be overnight.
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The NCUA will deem any repurchase agreement approved under this
section and section 4(a)(2)(C) of the GENIUS Act, provided that the
Treasury bills sold as purchased securities have a maturity of 93 days
or less, consistent with the requirement that Treasury bills held as
Reserve Assets must have a maturity of 93 days or less, and the
liquidity obtained through repurchase borrowings is not being obtained
solely for purposes other than meeting redemption requests or
compliance with the requirements of this proposed rule. The NCUA
believes that providing this prior approval by rule will enhance the
ability of NCUA-Licensed PPSIs to obtain liquidity quickly (through
outright sales or repurchase agreements) and thereby facilitate the
timely redemption of Payment Stablecoins. It is clear from section
4(a)(1)(A) of the Act that PPSIs may maintain identifiable reserves
comprising of Money received under certain repurchase agreements.\127\
It would frustrate section 4(a)(1)(A)(iv)'s clear permission to
maintain such Reserve Assets if PPSIs could only engage in repurchase
borrowing transactions upon the completion of cumbersome procedures and
one-off supervisory approvals. The ability to obtain immediate
liquidity through repurchase borrowings is useful and supplements a
PPSI's ability to access immediate liquidity via other means (for
example, the maintenance of deposits and Share Accounts at IDIs or
actual sales of securities). The prohibition on rehypothecation in
proposed Sec. 706.201(c)(5) would, consistent with section 4(a)(2)(C)
of the GENIUS Act, prohibit rehypothecation except for the purpose of
creating liquidity to meet reasonable expectations of requests for
redemption. However, given the fungibility of Money, the NCUA will not
scrutinize the exact uses to which repurchase borrowing proceeds are
put. The limited circumstances in which the NCUA would not consider
rehypothecation permissible would be if repurchase borrowings are
obtained solely for some purpose other than obtaining liquidity to meet
redemption requests or compliance with the rule--
[[Page 28971]]
for example, if repurchase proceeds are to be used solely for paying
dividends to a PPSI (i.e., removing excess Reserve Assets above the
required minimum).
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\127\ 12 U.S.C. 5903(a)(1)(A).
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Section 4(h)(1) of the GENIUS Act provides that the NCUA may issue
regulations to ``carry out the requirements of this section . . . and
to prevent evasion thereof .'' \128\ In proposed Sec. 706.201(c)(6),
consistent with this statutory authority, the NCUA proposes language
that provides that an NCUA-Licensed PPSI must not engage in any
activity that the NCUA determines is an evasion of the requirements of
section 4 of the GENIUS Act \129\ or Part 706.
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\128\ 12 U.S.C. 5903(h)(1).
\129\ 12 U.S.C. 5903.
---------------------------------------------------------------------------
In proposed Sec. 706.201(b)(7), the NCUA is proposing to prohibit
an NCUA-Licensed PPSI from providing credit to its Customers to
purchase Payment Stablecoins. The NCUA interprets the GENIUS Act's
requirements that a PPSI maintain Reserve Assets consisting of a narrow
set of highly liquid assets and that a PPSI engage in a narrow set of
activities to be crucial in ensuring a PPSI is able to satisfy
redemption requests. If a PPSI lends funds to Customers to enable
Customers to purchase Payment Stablecoins, or were to otherwise issue
Payment Stablecoins to Customers on credit extended by the PPSI, the
PPSI would then, in effect, need to access separate funding to acquire
and maintain identifiable Reserve Assets to back the Payment
Stablecoins issued on credit. This could result in a highly leveraged
balance in which the Reserve Assets do not provide the intended
resiliency. The NCUA seeks comment on whether this is an appropriate
prohibition, and whether other alternatives would better achieve the
statute's objectives.
The NCUA has considered and is requesting comment on whether to
prohibit an NCUA-Licensed PPSI from issuing more than one brand of
Payment Stablecoin (i.e., more than one set of Payment Stablecoins
marketed under the same name). The NCUA recognizes that there are
advantages and disadvantages associated with permitting an NCUA-
Licensed PPSI to issue multiple brands of Payment Stablecoins that may
be co-branded with a named partner in a white-label arrangement. These
arrangements can allow parties to leverage the experience and expertise
of an NCUA-Licensed PPSI and facilitate a broader range of Payment
Stablecoins in the market. However, they may also foster uncertainty
about Reserve Assets and encourage contagion and run risk among brands
of Payment Stablecoins, including but not limited to brands issued by
one issuer. One possibility that the NCUA has considered and is
requesting comment on is to restrict each NCUA-Licensed PPSI to issuing
only one brand of Payment Stablecoin but to streamline the process for
approving applications to become an NCUA-Licensed PPSI if an Affiliate
has already been approved. Under this approach, multiple NCUA-Licensed
PPSIs could share certain services and back-office functions with each
other and might operate under a common risk management framework, but
each issuer would be legally separate. This approach would allow an
entity to leverage its experience and expertise but may provide more
certainty with respect to the rights of Payment Stablecoin holders in
the event that an NCUA-Licensed PPSI becomes insolvent.
The NCUA has also considered and is requesting comment on whether
to include a provision explicitly prohibiting an NCUA-Licensed PPSI
from engaging in unsafe or unsound practices. Pursuant to section
6(a)(3) of the GENIUS Act,\130\ the NCUA has the ability to examine
NCUA-Licensed PPSIs for risks that may pose a threat to safety and
soundness. Further, section 5(a)(1)(B) of the GENIUS Act requires the
NCUA to ``establish a process and framework for the licensing,
regulation, examination, and supervision of [PPSIs] that prioritizes
the safety and soundness of such entities.'' \131\ It follows that
NCUA-Licensed PPSIs should not be allowed to engage in practices that
are unsafe or unsound. Explicitly prohibiting such activities may help
the NCUA to address practices that could undermine public confidence in
PPSIs and the financial system more generally.
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\130\ 12 U.S.C. 5905(a)(3).
\131\ 12 U.S.C. 5904(a)(1)(B).
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c. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 23: Are there activities not contemplated in proposed
Sec. 706.201 that PPSIs must be able to engage in for purposes of the
GENIUS Act? If so, please describe them and any appropriate limits for
these additional activities.
Question 24: Should the NCUA clarify that a PPSI may retain an
asset manager under a separately managed account under proposed Sec.
706.201(a)(8)?
Question 25: Are there other limits or conditions the NCUA should
consider with respect to PPSIs acting as principal or agent with
respect to any Payment Stablecoin? Should the NCUA specify the
activities contemplated under the GENIUS Act for which a PPSI may act
as principal or agent in Payment Stablecoins under section 16(b) of the
Act? \132\
---------------------------------------------------------------------------
\132\ 12 U.S.C. 5915(b).
---------------------------------------------------------------------------
Question 26: Do PPSIs need to hold crypto-assets other than Payment
Stablecoins for other purposes beyond paying transaction fees or
testing a Distributed Ledger? If so, under what circumstances would a
PPSI need to hold such assets?
Question 27: Should the final rule include specific provisions
addressing an issuer's holding of non-Payment Stablecoin crypto-assets
to pay transaction fees, such as limitations on the amount of non-
Payment Stablecoin crypto-assets that a PPSI may hold at any time? If
so, how should those limits be calibrated? Should any limit be based on
anticipated fees, a percentage of assets, or be set at a certain value
threshold?
Question 28: Should there be any limit on what methods of payment a
PPSI can accept when assessing fees, including fees associated with the
purchasing or redeeming of Payment Stablecoins? Should the final rule
include provisions addressing a PPSI's potential assessment of fees in
crypto-assets other than Payment Stablecoins and how long issuers can
hold onto such crypto-assets? Are there specific forms of payment
outside of fiat and Payment Stablecoin that PPSIs will need to accept
that the NCUA should provide additional clarity on?
Question 29: Should the NCUA include an approval process for the
activities listed in the Section 4(a)(7)(B) of the GENIUS Act,
including Digital Asset service provider activities and activities
incidental to Payment Stablecoin activities or Digital Asset service
provider activities? \133\
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\133\ 12 U.S.C. 5903(a)(7)(B).
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Question 30: Should the NCUA clarify proposed Sec. 706.201(a)(8)
by providing specific examples of activities that directly support the
activities in proposed Sec. 706.201(a)(1) through (4)? Are there
specific examples of activities that directly support the activities in
proposed Sec. 706.201(a)(1) through (4) that should be clarified?
Should the NCUA distinguish between what it means for an activity to
directly support the activities in proposed Sec. 706.201(a)(1) through
(4), and therefore, satisfy the test in proposed Sec. 706.201(a)(8) as
opposed to what it means for an activity to be incidental to the
activities in proposed Sec. 706.201(a)(1) through (7) provided in
[[Page 28972]]
section 4(a)(7)(B) of the GENIUS Act? Should the NCUA provide an
approval process related to Digital Asset service provider activities
and/or incidental activities?
Question 31: The proposed rule would permit a PPSI to hold non-
Payment Stablecoin crypto-assets to pay certain fees (e.g., network
fees). Should the rule include an express limitation on the amount of
such crypto-assets that the PPSI may hold? For example, the rule could
provide that the amount of such crypto-assets may not exceed reasonably
expected near-term demand.
Question 32: Could the prohibition against paying interest or yield
solely in connection with the holding or use of a permitted Payment
Stablecoin be clarified? If so, how? Would it be helpful to include a
de minimis exception to the prohibition to provide certainty with
respect to arrangements that are not designed to violate the
prohibition and that do not have a meaningful economic impact? If so,
is there any specific guidance the NCUA should provide on what de
minimis means?
Question 33: Does the presumption with respect to the prohibition
against paying interest or yield solely in connection with the holding,
use, or retention of a permitted Payment Stablecoin appropriately
address concerns relating to evasion? Is the presumption with respect
to the prohibition against paying interest or yield solely in
connection with the holding, use, or retention of a permitted Payment
Stablecoin appropriately scoped? Is the presumption sufficiently clear?
How could the presumption be clarified? Should the NCUA clarify the
standard of review under which it would consider written materials to
rebut the presumption related to interest or yield and specify whether
the NCUA's determination is appealable? Should the NCUA propose any
safe harbor for arrangements that the NCUA believes do not violate the
statutory prohibition?
Question 34: Should the prohibition on interest and yield in
proposed Sec. 706.201(c)(4) be broader to prevent issuers from
directly or indirectly paying interest or yield to Payment Stablecoin
holders (rather than presuming that certain arrangements with
Affiliates or related third parties violate the prohibition)? Are there
examples of potentially evasive behavior that the NCUA should expressly
include in a prohibition? If the NCUA were to expand the prohibition,
are there activities that should be expressly carved out of such an
expansion?
Question 35: Should the prohibition on interest and yield in
proposed Sec. 706.201(c)(4) clarify the terms ``pay,'' ``interest,''
``yield,'' ``solely,'' or any other terms? If so, what clarifications
would be helpful? What types of rewards, if any, should be subject to
the prohibition?
Question 36: What would the economic impact of a narrow prohibition
on paying interest or yield solely in connection with the holding, use
or retention of a Payment Stablecoin be relative to a broader
prohibition (i.e., one that includes relationships with Affiliates or
third parties)? What impact would either prohibition have on deposits
and funds placed in Share Accounts?
Question 37: Is the scope of the prohibition against pledging,
rehypothecating, or reusing Reserve Assets sufficiently clear? Are
there specific types of transactions, relationships, or structures for
which it would be helpful to clarify whether the prohibition applies?
For example, should the NCUA clarify whether the prohibition would
prevent establishing a collateral trustee that would hold a security
interest in Reserve Assets for the benefit of Payment Stablecoin
holders? What arguments weigh for and against finding that the
prohibition would prohibit these arrangements? If a PPSI sets up a
collateral trustee arrangement where the issuer grants a security
interest in the Reserve Assets, does this arrangement sufficiently
protect the Reserve Assets in the event of insolvency or bankruptcy?
Should a PPSI be required to make particular disclosures if it uses
such an arrangement? What should those disclosures include?
Question 38: Should the NCUA specify what ``creating liquidity to
meet reasonable expectations of requests to redeem Payment
Stablecoins'' means under proposed Sec. 706.201(c)(5)(iii)? Should the
NCUA pre-approve repurchase agreements by rule as proposed in Sec.
706.205(c)(5)(iii)(B)? Alternatively, should the NCUA allow for broad
and open-ended approvals of the sale of reserves as purchased
securities in repurchase agreements or should approvals be limited to
specific types of transactions? What factors should the NCUA consider
prior to granting approval of the sale of reserves as purchased
securities in repurchase agreements under proposed Sec.
706.201(c)(5)(iii)(B)?
Question 39: Should PPSIs be required to provide disclosures
stating that Payment Stablecoins are not legal tender, issued by the
United States, or guaranteed or approved by the United States? If so,
should the NCUA impose any requirements on the manner in which
disclosures are made? For example, should the NCUA require that
disclosures be made on the PPSI's website, at point of direct sale by
the issuer, alongside other types of disclosures, or in some other
manner?
Question 40: Is any further clarity needed regarding the
prohibition on the use of deceptive names, marketing, and
representations in proposed Sec. 706.201(c)(1) through (3)? For
example, should the NCUA specify what kind of images or branding are
likely to violate the prohibition? Should the NCUA require PPSIs to
affirmatively state that Payment Stablecoins are not legal tender,
issued by the United State, or guaranteed or approved by the Government
of the United States? Should the NCUA explicitly require PPSIs to
disclose that Payment Stablecoins are not subject to deposit or share
insurance?
Question 41: Is the proposed prohibition on providing credit to
Customers to purchase Payment Stablecoins appropriate? If so, should
the prohibition be modified in any way? Should it be narrower or
broader? If not, are there alternatives to achieve the intended
objective or ensuring Reserve Assets achieve the intended resiliency?
Are there any other activities that the NCUA should expressly prohibit
as not being permissible and not in direct support of issuance,
redemption, managing reserves, and providing certain safekeeping and
custody services?
2. Sec. 706.202. Reserve Assets
a. Proposed Sec. 706.202
Proposed Sec. 706.202 contains requirements applicable to Reserve
Assets. Section 4(a)(1)(A) of the Act provides that a PPSI must
maintain identifiable reserves backing the outstanding Payment
Stablecoins of the PPSI on an at least one-to-one basis and specifies
the eight permissible Reserve Asset types.\134\ The one-to-one backing
requirement applies at the PPSI level. A PPSI would not comply with
this requirement if it did not maintain Reserve Assets sufficient to
meet the one-to-one backing requirement. A PPSI may maintain Reserve
Assets through a custodian, including an Affiliate acting as a
custodian, as long as the custodian qualifies as an Eligible Financial
Institution.
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\134\ 12 U.S.C. 5903(a)(1)(A).
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Proposed Sec. 706.202(a)(1) would require that an NCUA-Licensed
PPSI maintain Reserve Assets that: (i) are
[[Page 28973]]
identifiable; (ii) are segregated from and not commingled with other
assets owned or held by the NCUA-Licensed PPSI; (iii) at all times have
a total Fair Value that equals or exceeds the Outstanding Issuance
Value of the NCUA-Licensed PPSI; and (iv) are either held directly by
the NCUA-Licensed PPSI or within the custody of an Eligible Financial
Institution. In order to maintain Reserve Assets that are
``identifiable'' and comply with proposed Sec. 706.202(a)(1)(i), NCUA-
Licensed PPSIs must maintain appropriate records to ensure documented
ownership and legal entitlement to individual Reserve Assets.
Similarly, any ownership arrangements, including ownership via
custodians, must comply with applicable laws and regulations, for
example, requirements applicable to Customer securities owned through
the Fedwire Securities Service. The NCUA generally anticipates that
Reserve Assets will be recorded on the NCUA-Licensed PPSI's balance
sheet under GAAP and be included in the quarterly reports required
under proposed Sec. 706.205(i). An NCUA-Licensed PPSI must maintain
the appropriate operational capabilities, internal controls, policies,
and safeguards to ensure that Payment Stablecoins are always backed by
reserves on an at least a one-to-one basis. Among other things,
safeguards may include mechanisms to prevent the issuance of abnormally
large amounts of new Payment Stablecoins without additional
approvals.\135\
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\135\ C.f., Dylan Butts, ``PayPal's crypto partner mints a
whopping $300 trillion worth of stablecoins in `technical error,'''
CNBC (Oct. 16, 2025), https://www.cnbc.com/2025/10/16/paypals-crypto-partner-mints-300-trillion-stablecoins-in-technical-error.html (describing a technical error leading to the minting of a
large amount of new stablecoins).
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To comply with the requirement in proposed Sec.
706.202(a)(1)(iii), an NCUA-Licensed PPSI must ensure that the Fair
Value of Reserve Assets equal or exceed the Outstanding Issuance Value
of the outstanding Payment Stablecoins issued by the NCUA-Licensed PPSI
at all times. Valuing Reserve Assets at Fair Value (i.e., market
value), rather than another measure, such as amortized cost, will help
ensure that the Reserve Assets maintained by the NCUA-Licensed PPSI
reflect current prices and will be monetizable at a value sufficient to
meet any redemption requests at par value. Notably, the Outstanding
Issuance Value is based on the total consolidated par value of all of
an NCUA-Licensed PPSI's Payment Stablecoins rather than on the Fair
Value of the outstanding issued Payment Stablecoin. Thus, if the Fair
Value of the Payment Stablecoin decreased (i.e., if the Payment
Stablecoin de-pegged in the secondary market), the NCUA-Licensed PPSI
would nevertheless be obligated to retain a stock of Reserve Assets,
the Fair Value of which equals or exceeds the par value of outstanding
Payment Stablecoins. This approach is intended to ensure that the NCUA-
Licensed PPSI is able to credibly meet redemption requests, including
in adverse circumstances. To take a contrary approach (e.g., basing the
Outstanding Issuance Value on the Fair Value of Payment Stablecoins)
could allow NCUA-Licensed PPSIs to inappropriately remove assets from
the required stock of Reserve Assets when stablecoins de-peg (as
Reserve Asset requirements decline, along the with the secondary market
price of the Payment Stablecoin), rather than maintaining the Reserve
Assets on behalf of Payment Stablecoin holders, which may in turn
exacerbate run risk for an NCUA-Licensed PPSI.
Proposed Sec. 706.202(a)(1)(iv) provides that the Reserve Assets
must either be held directly by the NCUA-Licensed PPSI or within the
custody of an Eligible Financial Institution, which is defined in
proposed Sec. 706.2.
Proposed Sec. 706.202(a)(2) would require that an NCUA-Licensed
PPSI demonstrate the operational capability to access and monetize the
identifiable Reserve Assets, commensurate with the NCUA-Licensed PPSI's
risk profile and business model. The NCUA-Licensed PPSI must be able to
monetize the Reserve Assets, potentially quickly and at short notice,
in order to meet redemption requests. The inability to quickly monetize
Reserve Assets would undermine the ability of a PPSI to maintain the
stable value of its Payment Stablecoin.
To comply with proposed Sec. 706.202(a)(2), an NCUA-Licensed PPSI
must be able to demonstrate the ability to monetize all types of
Reserve Assets it maintains. Depending on an NCUA-Licensed PPSI's size,
risk profile, business model, activities, and operations, a PPSI may be
able to demonstrate monetization in different ways. For example, it may
be sufficient for some NCUA-Licensed PPSIs to demonstrate the ability
to monetize Treasury bills they hold as Reserve Assets by establishing
that they maintain appropriate repurchase arrangements through which
they can quickly sell Treasury bills and receive liquid funds with
which they can satisfy redemption requests. For other NCUA-Licensed
PPSIs, for example, larger issuers or those with more complicated
operations, additional measures may be appropriate to demonstrate the
operational capability to monetize. It may be appropriate for such
NCUA-Licensed PPSIs to maintain multiple alternative methods of
monetization (for example, multiple repurchase agreement lines or
repurchase agreement lines plus arrangements allowing outright sales of
Treasury securities) in order to satisfactorily demonstrate the ability
to monetize their Reserve Assets. Such redundant arrangements may be
necessary if an NCUA-Licensed PPSI maintains a sufficiently large
Treasury position that it could be difficult to monetize the entire
position through transactions with a single repo counterparty or if an
issuer maintains concentrated positions in particular types of Reserve
Assets. The availability of multiple monetization channels helps ensure
that an NCUA-Licensed PPSI is not required to monetize assets at
reduced or ``fire sale'' prices. Having alternative monetization
channels reduces the risk that an issuer would be obliged to accept
unfavorable pricing when monetizing Reserve Assets under stress.
For certain NCUA-Licensed PPSIs, it may be necessary to
periodically conduct actual monetization transactions (that is, actual
outright sales or repurchase transactions) in order to demonstrate the
ability to monetize. Actual transactions can more fully confirm that
monetization capabilities exist. In the absence of actual test
transactions, potential barriers to monetization may still exist. NCUA-
Licensed PPSIs may lack the procedures and systems to monetize assets
at any time in accordance with standard settlement periods and
processes. For example, borrowing agreements may name authorizing
officials that are unavailable or inappropriate. Actual monetization
transactions may be necessary, for example, for issuers with unusually
complicated operations or organizational structures, or for issuers
that are particularly dependent on certain monetization channels or the
ability to monetize particular assets. Periodic actual monetization
transactions can minimize the risk of negative signaling during
financial stress. If an NCUA-Licensed PPSI begins using a monetization
channel that it has not regularly used in the past, that may spark
concerns about the financial health of the issuer. For example, if an
NCUA-Licensed PPSI has pre-established a repurchase agreement with a
bilateral counterparty but never utilized it, sudden utilization of the
repurchase agreement may generate
[[Page 28974]]
concerns that the issuer is experiencing a run on its Payment
Stablecoins. Periodic test transactions using multiple monetization
channels can mitigate such concerns. NCUA-Licensed PPSIs may be able to
demonstrate the ability to execute actual monetization transactions in
the ordinary course of their business (for example, redeeming Payment
Stablecoins) and would not necessarily be required to engage in
additional test transactions.
Proposed Sec. 706.202(a)(3) would include requirements for when
NCUA-Licensed PPSIs could withdraw Reserve Assets in excess of
Outstanding Issuance Value. In order to ensure that sufficient Reserve
Assets are maintained to back outstanding Payment Stablecoin issuance,
NCUA-Licensed PPSIs would be able to withdraw excess Reserve Assets
only after the monthly examination and certification required by
section 4(a)(3) of the GENIUS Act \136\ and provided for in proposed
Sec. 706.202(e) and (f). Specifically, NCUA-Licensed PPSIs would be
able to withdraw any surplus Reserve Assets in excess of Outstanding
Issuance Value, calculated and reported as of the last day of the
previous month, only upon the publication of that month's public
disclosure, due at the end of the subsequent month. Only permitting an
issuer to withdraw surplus Reserve Assets after examination and
certification will promote public confidence about the integrity of the
handling of Reserve Assets. Permitting withdrawal of excess Reserve
Assets at other intervals would significantly undermine the purpose of
examination and certification. If NCUA-Licensed PPSIs were able to
withdraw excess Reserve Assets at any time, based only upon their own
internal calculations, that could undermine confidence and even create
concerns about misconduct, for example if an issuer might make its own
bad faith and un-validated determination that an excess existed in
order to justify a withdrawal. Proposed Sec. 706.202(a)(3) would also
require that, while withdrawals would be based on calculations as of
the end of the previous month, an NCUA-Licensed PPSI could only make
withdrawals if the remaining Reserve Assets remained at least equal to
the current Outstanding Issuance Value, calculated as of the day of
withdrawal.
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\136\ 12 U.S.C. 5903(a)(3).
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Under proposed Sec. 706.202(b), reserve assets must only comprise:
(1) United States coins and currency (including Federal Reserve notes)
or Money standing to the credit of an account with a Federal Reserve
Bank; (2) funds held as deposits or in Share Accounts \137\ that are
payable upon demand at an IDI (including any foreign branches or
agents, including correspondent banks, of an IDI), subject to any
limitation established by the FDIC and the NCUA, as applicable,
pursuant to section 4(a)(1)(A)(ii) of the GENIUS Act to address safety
and soundness risks of such IDI; \138\ (3) Treasury bills, Treasury
notes, or Treasury bonds with a remaining maturity of 93 days or less;
\139\ (4) Money received under repurchase agreements, with the NCUA-
Licensed PPSI acting as a seller of securities and with a no longer
than overnight maturity, that are backed by Treasury bills with a
maturity of 93 days or less; \140\ (5) reverse repurchase agreements,
with the NCUA-Licensed PPSI acting as a purchaser of securities and
with a no longer than overnight maturity, that are collateralized by
Treasury bills, Treasury notes, or Treasury bonds on a no longer than
overnight basis, subject to overcollateralization in line with standard
market terms, that are: (i) tri-party; (ii) centrally cleared through a
clearing agency registered with the Securities and Exchange Commission;
or (iii) bilateral with a counterparty that the issuer has determined
to be adequately creditworthy even in the event of severe market
stress; (6) securities issued by an investment company registered under
section 8(a) of the Investment Company Act of 1940,\141\ or other
registered Government money market fund, and that are invested solely
in underlying assets described in proposed Sec. 706.202(b)(1) through
(5); \142\ (7) any other similarly liquid Federal Government-issued
asset approved by the NCUA; or (8) any reserve described in proposed
Sec. 706.202(b)(1) through (3), (6), or (7), in tokenized form,
provided that such reserves comply with all applicable laws and
regulations.
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\137\ Section 4(a)(1)(A)(ii) of the GENIUS Act refers to
reserves comprising ``funds held as demand deposits (or other
deposits that may be withdrawn upon request at any time) or insured
shares at an insured depository institution. . . .'' For the reasons
expressed in the sections (section IV.B) of this preamble proposing
the defined terms ``Monetary Value'' and ``Share Account), the NCUA
is proposing to use the defined term ``Share Account.'' The NCUA
believes this approach is clearer than utilizing the undefined term
``insured shares'' from the Act. The proposed rule would also
simplify and clarify the GENIUS Act's text by limiting deposits and
funds in Share Accounts than can be reserves to those that are
``payable upon demand'' at an IDI. The GENIUS Act refers to ``demand
deposits (or other deposits that may be withdrawn upon request at
any time). . . .'' The NCUA believes this construction can be more
simply stated as proposed without any substantive change.
\138\ 12 U.S.C. 5903(a)(1)(A)(ii).
\139\ The GENIUS Act permits the inclusion of Treasury bills,
notes, or bonds ``(I) with a remaining maturity of 93 days or less;
or (II) issued with a maturity of 93 days or less.'' The proposed
rule would combine these categories since the former category
includes the latter, at least for purposes of complying with the
requirements of proposed Sec. 706.202. NCUA-Licensed PPSIs may
choose to categorize these assets separately for other reasons, for
example, accounting or risk management purposes.
\140\ The proposed rule would clarify that a repurchase
agreement or reverse repurchase agreement with an intraday maturity
could qualify as a permitted reserve asset. Section 4(a)(1)(A)(iv)
and (v) of the Act (12 U.S.C. 5903(a)(1)(A(iv) and (v)))
specifically refers to repurchase agreements and reverse repurchase
agreements with an overnight maturity. The NCUA believes that this
provision is intended to permit repurchase agreements and reverse
repurchase agreements with a maturity no longer than overnight.
Thus, the proposed rule would explicitly permit the use of intraday
repurchase agreements and reverse repurchase agreements.
\141\ 15 U.S.C. 80a-8(a).
\142\ A money market fund that invests in any other assets,
including in Treasury securities with a remaining maturity longer
than 93 days, would not be eligible to be held as a Reserve Asset.
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The NCUA encourages any NCUA-Licensed PPSI that seeks clarity on
whether a specific tokenized asset qualifies as a permissible Reserve
Asset under proposed Sec. 706.202(b)(8) to discuss with the NCUA
whether the asset qualifies. To the extent feasible, the NCUA is
considering publishing a list of, or otherwise making public, the
acceptable tokenized Reserve Assets for the sake of transparency. In
determining whether a potential Reserve Asset qualifies as ``any other
similarly liquid Federal Government-issued asset,'' under proposed
Sec. 706.202(b)(7) the NCUA will consider, among other relevant
factors, whether: (i) the asset has liquidity characteristics,
including during times of stress, comparable to the other Reserve
Assets allowed under proposed Sec. 706.202(b); (ii) NCUA-Licensed
PPSIs will be operationally capable of monetizing the asset to meet
redemption requests, including sudden and high-volume requests; (iii)
the asset poses levels of risk comparable to the assets allowed under
proposed Sec. 706.202(b), including interest rate risk and
counterparty credit risk; and (iv) whether the asset introduces
additional risks that may be difficult for NCUA-Licensed PPSIs to
manage.
Section 4(a)(4)(A)(iii) of the GENIUS Act requires the NCUA to
issue regulations implementing Reserve Asset diversification, including
deposit concentration at banking institutions and interest rate risk
management standards that (1) are tailored to the business model and
risk profile of PPSIs and (2) do not exceed standards that are
sufficient to ensure the ongoing operations of PPSIs.\143\ As discussed
[[Page 28975]]
throughout this preamble, the GENIUS Act regularly uses banking-
specific terminology. The NCUA interprets ``deposit concentration at
banking institutions'' to include deposits and funds in Share Accounts
at all IDIs.
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\143\ 12 U.S.C. 5903(a)(4)(A)(iii).
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In proposing regulations to implement the Reserve Asset
diversification requirement, the proposed rule includes two alternative
options in proposed Sec. 706.202(c), only one of which would be
selected in the final rule. ``Option A'' would include a principles-
based general requirement with an optional safe harbor containing
quantitative requirements. ``Option B'' would make the quantitative
requirements mandatory for all NCUA-Licensed PPSIs. Option A's
principle-based general requirement would require an NCUA-Licensed PPSI
to maintain Reserve Assets that are sufficiently diverse to manage
potential credit, liquidity, interest rate, and price risks. In
addition, the principles-based requirement in Option A in proposed
Sec. 706.202(c) would require an NCUA-Licensed PPSI to measure and
manage the risk that concentrating Reserve Assets at one Eligible
Financial Institution or a small number of Eligible Financial
Institutions may impair the ability of an NCUA-Licensed PPSI to satisfy
redemption demands if individual Eligible Financial Institutions are
unable to return, or if there is a delay in returning, Reserve Assets
placed by an NCUA-Licensed PPSI.\144\ The proposed rule's
diversification and concentration requirements would apply to custodial
relationships, including sub-custodial arrangements. NCUA-Licensed
PPSIs would be expected to ``look through'' any sub-custodial
relationships to ensure that Reserve Assets are custodied at the
sufficiently diverse number of Eligible Financial Institutions needed
to comply with the proposed rule's requirements. Without this
requirement, a PPSI might supposedly have its stock of Treasury
securities custodied at multiple Eligible Financial Institutions, but
sub-custodial relationships could result in the entire stock being
custodied at only a single Eligible Financial Institution.
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\144\ Eligible Financial Institutions that hold Reserve Assets
in custody or safekeeping must be subject to supervision and comply
with the requirements set forth in section 10 of the GENIUS Act (12
U.S.C. 5909). Institutions subject to NCUA supervision would need to
comply with the requirements set forth in proposed subpart C of part
706.
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NCUA-Licensed PPSIs with less complex business models and lower
risk profiles may be able to maintain a less diverse stock of Reserve
Assets than NCUA-Licensed PPSIs with more complex business models or
higher risk profiles. However, the NCUA interprets section
4(a)(4)(A)(iii) of the GENIUS Act as mandating some Reserve Asset
diversification for all PPSIs,\145\ both in types of Reserve Assets
maintained and in the number of Eligible Financial Institutions holding
a PPSI's Reserve Assets.\146\ The NCUA expects that it would be
unlikely, for example, that an NCUA-Licensed PPSI, even one with a
simple business model and low risk profile, could satisfy the
requirements in proposed Sec. 706.202(c) by placing all its Reserve
Assets at a single Eligible Financial Institution. Such a reliance on a
single third-party location of Reserve Assets could expose the NCUA-
Licensed PPSI to the unnecessary risk that its Reserve Assets, or some
portion of them, could be unavailable to meet redemption requests.
Similarly, the NCUA expects that all NCUA-Licensed PPSIs will need to
maintain multiple Reserve Asset types, if only to serve as a back-up to
what is otherwise a PPSI's primary Reserve Asset. Some NCUA-Licensed
PPSIs may need to maintain more robustly diverse stocks of Reserve
Assets to satisfy proposed Sec. 706.202(c), depending on their
business model, risk profile, and other relevant factors. For example,
a large NCUA-Licensed PPSI with complex operations may need to maintain
deposits and/or Share Accounts) with multiple Eligible Financial
Institutions, as well as a stock of Treasury bills, potentially
custodied with more than one Eligible Financial Institution in order to
ensure they are capable of being monetized during periods of financial
stress. Factors such as the number of parties that redeem directly with
the NCUA-Licensed PPSI, the volume of redemptions (and volatility with
respect to such volume), and the number and nature of the blockchains
on which a Payment Stablecoin is traded could all increase the
complexity of the PPSI's operations and weigh in favor of maintaining
multiple different pools of Reserve Assets. NCUA-Licensed PPSIs may be
able to comply with this requirement by maintaining multiple deposit
accounts and/or Share Accounts, or through deposit or share placement
services, as they can comply with the requirement in proposed Sec.
706.202(a)(2) to demonstrate the operational capability to access and
monetize the Reserve Assets.
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\145\ 12 U.S.C. 5903(a)(4)(A)(iii).
\146\ An NCUA-Licensed PPSI that maintains ownership and control
of all of its own Reserve Assets, rather than relying on separate
Eligible Financial Institutions, may be able to satisfy the
principles-based general diversification and concentration
requirement in Option A, depending on the PPSI's particular
circumstances. While explicitly requiring all NCUA-Licensed PPSIs to
maintain some Reserve Assets at a third-party Eligible Financial
Institution may help promote confidence that an issuer's Reserve
Assets are diversified across multiple Eligible Financial
Institutions, such a requirement may be unnecessary if the PPSI is
able to establish its own secure control over the Reserve Assets.
Any NCUA-Licensed PPSI maintaining direct ownership and control of
Reserve Assets would still be subject to all requirements in
proposed Sec. 706.202, notably the requirement in proposed Sec.
706.202(a)(2) under which the PPSI must demonstrate the operational
capability to access and monetize Reserve Assets. An NCUA-Licensed
PPSI that maintains ownership and control of its own assets may fail
to satisfy this requirement, or the diversification and
concentration requirements in proposed Sec. 706.202(c), if the
PPSI, for example, relies exclusively on arrangements with a single
Eligible Financial Institution to monetize its Reserve Assets.
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Option A contains a safe harbor under which an NCUA-Licensed PPSI
would be deemed to satisfy proposed Sec. 706.202(c) if the PPSI
maintains on each business day: (i) at least 10 percent of its required
Reserve Assets as deposits and/or funds in Share Accounts payable upon
demand at IDIs or Money standing to the credit of an account with a
Federal Reserve Bank; (ii) at least 30 percent of its Reserve Assets as
deposits and/or funds in Share Accounts payable upon demand at IDIs,
Money standing to the credit of an account with a Federal Reserve Bank,
or amounts receivable and due unconditionally within five business days
on pending sales of Reserve Assets, maturing Reserve Assets, or other
maturing transactions (e.g., reverse repurchase agreements); (iii) no
more than 40 percent of its Reserve Assets at any one Eligible
Financial Institution, whether as deposits and/or funds in Share
Accounts payable upon demand at any one IDI, securities custodied at
any one Eligible Financial Institution, bilateral reverse repurchase
agreements with any counterparty, or through other exposures; (iv) no
more than 50 percent of the amount provided in proposed Sec.
706.202(c)(2)(i) at any one Eligible Financial Institution; and (v)
Reserve Assets with a weighted average maturity of no more than 20
days.
Weighted average maturity is computed as the sum of the product of
each Reserve Asset's (1) remaining maturity and (2) percentage of the
total pool of Reserve Assets (based on principal value). Deposits or
Share Accounts payable upon demand would have a weighted average
maturity of zero. The NCUA invites comments on whether the proposed
rule should include an express definition of weighted average maturity,
particularly whether the NCUA should adopt the same definition used in
SEC Rule 2a-7 (17 CFR 270.2a-7). Paragraph (i) of SEC
[[Page 28976]]
Rule 2a-7 provides that, for certain securities and transactions,
maturity should not necessarily be the time remaining until ultimate
repayment of principal but instead should be based on other
characteristics (for example, the time until an interest rate reset or
until demand repayment options can be exercised). The NCUA invites
comment on whether this proposed rule should include these same
maturity assumptions for certain Reserve Assets. The proposed rule does
not include these maturity assumptions since they should not be
relevant for most or all permissible Reserve Assets. Even if the
maturity assumptions are relevant for certain Reserve Assets that might
be permissible (for example, Floating Rate Treasury Notes), the NCUA
expects that the limited maturity of Reserve Assets (93 days or less)
will diminish the value of applying maturity assumptions. Accordingly,
under the proposed rule, the NCUA expects that the maturity of all
Reserve Assets, for purposes of calculating weighted average maturity,
will be the time remaining until the repayment of principal.
This safe harbor would give NCUA-Licensed PPSIs a transparent and
standardized target for achieving compliance with Reserve Asset
diversification requirements.\147\ However, under Option A, meeting the
safe harbor is not the only means to comply with proposed Sec.
706.202(c). Some issuers, particularly smaller and less complex
issuers, may be able to comply with Sec. 706.202(c) without meeting
the minimum levels in the safe harbor. For example, if a smaller NCUA-
Licensed PPSI with a comparatively simple business model and lower risk
profile finds it commercially useful to maintain more of its Reserve
Assets as deposits and/or funds in Share Accounts payable upon demand,
the PPSI may be able to satisfy proposed Sec. 706.202(c) even if the
PPSI maintains more than 10 percent of its Reserve Assets as Deposits
and/or funds in Share Accounts at one Eligible Financial Institution,
depending on particular facts and circumstances. This flexibility is
consistent with the GENIUS Act's requirements that the proposed asset
diversification requirements be ``tailored to the business model and
risk profile of permitted payment stablecoin issuers.'' \148\
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\147\ The NCUA recognizes that, as an NCUA-Licensed PPSI sells
more liquid assets to meet redemption requests in times of stress,
it may temporarily fail to satisfy the terms of the proposed safe
harbor. An NCUA-Licensed PPSI should appropriately diversify its
Reserve Assets as soon as practicable following such an event.
However, at no point, can an NCUA-Licensed PPSI's Reserve Assets be
less than the Fair Value of the Outstanding Issuance Value of the
PPSI as required in proposed Sec. 706.202(a)(1)(iii).
\148\ 12 U.S.C. 5903(a)(4)(A)(iii)(I).
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The safe harbor's requirement that an NCUA-Licensed PPSI maintain
at least 10 percent of its Reserve Assets as ``daily liquidity'':
deposits and/or funds in Share Accounts payable upon demand or Money
standing to the credit of an account with a Federal Reserve Bank would
help ensure that a PPSI has readily available funds necessary to meet
redemption requests. While all of the proposed Reserve Assets should be
liquid and easily monetizable, the requirement to have some minimum
level of immediately liquid funds is additional protection against the
risk that a PPSI would be unable to meet redemption requests in a
timely manner, which is critical to avoid in order to maintain
confidence in the PPSI and the Payment Stablecoin industry as a whole.
A minimum requirement of 10 percent would be in line with the largest
1-day redemption events experienced by stablecoin issuers.\149\ The
NCUA invites comment on whether an alternate minimum is appropriate.
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\149\ Although the NCUA referenced SEC Rule 2a-7 when drafting
these requirements due to certain similarities between money market
funds and PPSIs, the proposed requirements diverge in certain
respects based on inherent differences between the two (e.g.,
Reserve Asset composition).
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Including a baseline requirement to maintain a minimum percentage
of liquidity that is immediately available (without the need to sell
any assets, even highly liquid assets like Treasury securities) will
help ensure an NCUA-Licensed PPSI's ability to meet redemption
requests. The NCUA invites comments on these and other considerations,
particularly on whether conservative liquidity requirements are
necessary. The proposed rule includes robust liquidity requirements but
does not include capital-based overcollateralization or Reserve Asset
buffer requirements. An alternative possibility would be to remove some
of the proposed liquidity requirements, though this may warrant
increased capital or buffer requirements.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain at least 30 percent of its Reserve Assets as deposits and/or
funds in Share Accounts payable upon demand, Money standing to the
credit of an account with a Federal Reserve Bank, or amounts receivable
and due unconditionally within five business days on pending sales of
Reserve Assets, maturing Reserve Assets, or other maturing
transactions. This ``weekly'' liquidity would help ensure that an NCUA-
Licensed PPSI is able to meet a series of redemption requests that
takes place over multiple days. It will also help prevent issuers from
meeting the ``daily'' liquidity requirement but otherwise maintaining a
stock of assets that are less readily monetizable. A minimum
requirement of 30 percent ``weekly'' liquidity would protect issuers
against redemption runs that take place over multiple days, a
phenomenon experienced by stablecoin issuers in the past, and a 30
percent minimum requirement would exceed the redemption volumes seen
during these redemption runs. In the absence of a minimum ``weekly''
(or other multi-day) requirement, an issuer might only have its stock
of 10 percent immediately available liquidity plus owned securities
that it would have to actually sell in order to monetize and meet
redemption requests. While NCUA-Licensed PPSIs must be prepared to
monetize any such securities, it would be safer to have a stock of
liquid funds that will automatically become available over the next
several days as a first line of defense against multi-day redemption
runs.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain no more than 40 percent of its Reserve Assets at any one
Eligible Financial Institution, whether as Deposits and/or funds in
Share Accounts payable upon demand at any one IDI, securities custodied
at any one Eligible Financial Institution, bilateral reverse repurchase
agreements with any counterparty, or through other exposures. This
requirement would prevent an issuer from being overly exposed to any
One Eligible Financial Institution. While this requirement would not
eliminate the chance of losing Reserve Assets because of distress at an
Eligible Financial Institution holding Reserve Assets--or temporarily
losing access to Reserve Assets--this requirement would ensure that
NCUA-Licensed PPSIs have other stocks of Reserve Assets available to
satisfy redemption requests. This requirement is meant to capture all
potential exposures to a counterparty. An NCUA-Licensed PPSI could
maintain deposits and/or funds in Share Accounts payable upon demand at
an IDI while at the same have an Affiliate of that IDI maintain custody
of the issuer's securities or serve as a counterparty in repurchase or
reverse repurchase transactions. All of these transactions could expose
an NCUA-Licensed PPSI's Reserve Assets to the health of a single
Eligible Financial Institution. Accordingly, this requirement would
aggregate exposures to prevent excessive exposure to any
[[Page 28977]]
one Eligible Financial Institution. The phrase ``or other exposures''
is meant to capture any other exposure that creates a similar risk. The
NCUA invites comments on alternate minimums besides 40 percent; the 40
percent measure would ensure that no one Eligible Financial Institution
would have a majority of an NCUA-Licensed PPSI's Reserve Assets and
that issuers spread relationships and operational capabilities across
multiple Eligible Financial Institutions in a way that prevents a PPSI
coming to rely excessively on one Eligible Financial Institution.
The safe harbor would also require that an NCUA-Licensed PPSI
maintain no more than 50 percent of the required daily liquidity
specified under proposed paragraph (c)(2)(i) at any one Eligible
Financial Institution. This requirement would guard against the risk
that problems at one Eligible Financial Institution prevent a PPSI from
accessing its Reserve Assets. If an NCUA-Licensed PPSI is dependent on
one Eligible Financial Institution to maintain all or a large portion
of its Reserve Assets, the PPSI may be excessively exposed to, for
example, operational concerns at that Eligible Financial Institution or
even the risk of the institution's failure.
Proposed Sec. 706.202(c)(2)(i) is designed to ensure that NCUA-
Licensed PPSIs have a sufficient minimum amount of readily available
funds to meet redemption requests. However, if that entire amount
consists of deposits and/or funds in Share Accounts at one IDI, the
PPSI is exposed to the risk that problems at that IDI could wholly
prevent the PPSI from accessing its readily available funds. Having at
least one other stock of readily available funds as part of a PPSI's
Reserve Assets would help ensure that some readily available funds are
accessible in order to meet redemption requests. Placing deposits and/
or funds in Share Accounts payable upon demand at multiple IDIs,
whether directly or through deposit/share placement services, would
mitigate the risk of over-exposure to one particular IDI.
Proposed Sec. 706.202(c)(2)(v) would also require, to qualify for
the safe harbor, that an NCUA-Licensed PPSI's Reserve Assets have a
weighted average maturity of no more than 20 days. This would serve as
a backstop against potential losses due to interest rate increases.
While PPSIs may permissibly hold Reserve Assets with a maturity of up
to 93 days, holding a portfolio of Reserve Assets concentrated at the
outer end of that maturity limit exposes the issuer's Reserve Assets to
losses due to interest rate increases.\150\ Even small losses could
undermine confidence in a Payment Stablecoin given the importance of
maintaining par and ensuring a stable value. A limit on weighted
average maturity imposed across the entire portfolio of an NCUA-
Licensed PPSI's Reserve Assets would allow the issuer to hold the
entire range of permissible assets while ensuring that the portfolio in
aggregate does not have excess exposure to interest rate risk. A limit
of 20 days would still allow NCUA-Licensed PPSIs the full range of
permissible Reserve Assets (for example, newly issued 3-month Treasury
bills) while ensuring that Reserve Assets are not overly concentrated
in longer-dated issuances. The NCUA invites comment on whether a
weighted average maturity limit of 20 days is appropriate, including
whether it would represent a binding constraint for current stablecoin
issuers and the desirability of higher or lower limits. The NCUA
additionally invites comment on whether the weighted average maturity
requirement for a large issuer should differ from that for a smaller
issuer (e.g., by allowing smaller issuers to have a longer weighted
average maturity such as 30 or 40 days).
---------------------------------------------------------------------------
\150\ During the rapid increases in interest rates in the early
1980s, 3-month Treasury Bill secondary market rates increased from
12.05 percent to 15.37 percent over the period of a month. See Fed.
Reserve Econ. Data, ``Table Data--3-Month Treasury Bill Secondary
Market Rate, Discount Basis,'' https://fred.stlouisfed.org/data/WTB3MS (including Treasury Bill secondary market rates for February
8, 1980, and March 7, 1980). A change of this magnitude would result
in a 90-day security losing approximately 0.79 percent of its value.
---------------------------------------------------------------------------
As an example, an NCUA-Licensed PPSI with $20 billion of
Outstanding Issuance Value could meet the safe harbor by depositing at
least $1 billion each at two IDIs. This would meet the requirement in
proposed Sec. 706.202(c)(2)(i) that the NCUA-Licensed PPSI maintain at
least 10 percent ($2 billion in this example) of its required Reserve
Assets as readily available funds as well as the requirement in
proposed Sec. 706.202(c)(2)(iv) that the NCUA-Licensed PPSI maintain
no more than 50 percent of its readily available funds at any one
Eligible Financial Institution ($1 billion in this example). In order
to qualify for the safe harbor, the NCUA-Licensed PPSI would still need
to satisfy proposed Sec. 706.202(c)(2)(iii), under which an issuer
could not maintain more than 40 percent of its Reserve Assets at any
one Eligible Financial Institution and proposed Sec.
706.202(c)(2)(ii), under which an NCUA-Licensed PPSI must maintain at
least 30 percent of its Reserve Assets as deposits and/or funds in
Share Accounts payable upon demand at IDIs, Money standing to the
credit of an account with a Federal Reserve Bank, or amounts receivable
and due conditionally within five business days on pending sales of
Reserve Assts, maturing Reserve Assets, or other maturing transactions.
In this example, the NCUA-Licensed PPSI could not keep more than $8
billion in Reserve Assets at any one institution (for instance,
invested in a single investment fund) and would also need to maintain
at least $6 billion as deposits and/or funds in Share Accounts payable
upon demand at IDIs, Money standing to the credit of an account with a
Federal Reserve Bank, or amounts receivable and due unconditionally
within five business days on pending sales of Reserve Assets or other
maturing transactions. The issuer would also need to ensure that its
entire stock of Reserve Assets ($20 billion) complied with the
requirement to have a weighted average maturity of no more than 20
days. While compliance with the diversification safe harbor would
establish compliance with proposed Sec. 706.202(c), it would not
relieve an NCUA-Licensed PPSI of its obligations under proposed Sec.
706.202(a). Notably, an NCUA-Licensed PPSI would still be required to
maintain and demonstrate the operational capability to monetize its
Reserve Assets.
Option B would impose the same quantitative standards as mandatory
requirements, rather than an optional safe harbor. Option B would not
include the baseline principles-based requirement. While Option B would
remove flexibility, it would create a more transparent and readily
comprehensible set of requirements. NCUA-Licensed PPSIs, Payment
Stablecoin holders, and other parties would be able to discern what
requirements NCUA-Licensed PPSIs must adhere to with respect to the
Reserve Assets.
Proposed Sec. 706.202(d) would require an NCUA-Licensed PPSI with
an Outstanding Issuance Value of $25 billion or more to, on each
business day, maintain at least 0.5 percent of its Reserve Assets in
the form of deposits and/or funds in Share Accounts at IDIs in amounts
that are fully insured by the FDIC and/or NCUA, up to a cap of $500
million. While it may not be practicable to maintain all deposits and/
or funds in Share Accounts so that they are fully insured by the FDIC
and/or NCUA, having some minimum amount of fully insured deposits and/
or funds in Share Accounts will provide an additional measure of
security for Reserve Assets
[[Page 28978]]
and can promote market and holder confidence about the integrity of
Reserve Assets. Though the required minimum amount is not a large
percentage, it would ensure that large NCUA-Licensed PPSIs have some
stock of extremely safe and liquid assets: deposits and/or funds in
Share Accounts that are fully insured and can be withdrawn freely and
that are not exposed to risks like interest rate risk. Having Reserve
Assets diffused through the banking system (including the credit union
system) may promote confidence by virtue of having at least some
Reserve Assets held in traditional IDIs with which holders are already
familiar (for example, nearby community banks and FICUs). Payment
Stablecoin holders may be reassured by knowing that a minimum portion
of Reserve Assets is maintained as deposits and/or funds in Share
Accounts that are fully insured, and the diffusion of Reserve Assets
may mitigate fears or contagion risks associated with rumors about the
health of particular IDIs.
In theory, it would be ideal from the perspective of the safety and
soundness of the NCUA-Licensed PPSI if PPSIs would be able to place all
deposits and/or funds in Share Accounts, so they are covered by
applicable deposit/share insurance limits. However, current deposit/
share insurance requirements may make this impossible for larger PPSIs.
While NCUA-Licensed PPSIs may use services, such as deposit/share
brokers, to distribute deposits and/or funds in Share Accounts across
Eligible Financial Institutions--as long as NCUA-Licensed PPSIs are
able to maintain the operational capability to access and monetize
these deposits and/or funds in Share Accounts--the finite number of
Eligible Financial Institutions plus deposit/share insurance limits may
render it impossible for larger PPSIs to insure more than a portion of
their deposits and/or funds in Share Accounts. The NCUA may revisit
this issue if deposit/share insurance requirements change, and the NCUA
invites comments about alternative ways to address deposit/share
insurance of Reserve Assets held as deposits and/or funds in Share
Accounts. The NCUA recognizes the additional security that deposit/
share insurance would provide for Payment Stablecoin holders and also
recognizes the value of spreading deposits and/or funds in Share
Accounts around a broad range of IDIs, rather than potentially having
PPSI deposits and/or funds in Share Accounts concentrated at a small
number of IDIs. Holding reserves at a very large number of
institutions, could, however, introduce additional operational risk
that a PPSI would need to manage. The thresholds in proposed Sec.
706.202(d) balance the value and security of spreading Reserve Assets
across multiple Eligible Financial Institutions, the capacity of the
banking system (and the credit union system) to hold deposits and/or
funds in Share Accounts) from any one single depositor, and the
operational complexity numerous depository relationships would entail.
Proposed Sec. 706.202(e) would require the NCUA-Licensed PPSI to
publish on its website by noon on the last day of each month the
composition of the issuer's reserves held pursuant to the GENIUS Act as
of the last day of the prior month, using a format substantially
similar to the template provided in table 1 to proposed Sec.
706.202(e). The report must contain the total number of outstanding
Payment Stablecoins issued by the issuer and the amount (Fair Value)
and composition of the reserves, including the average tenor and
geographic location of custody of each category of reserve instruments.
The information in the report, including the value of Reserve Assets,
should be as of the end of the previous month. This implements the
requirement in section 4(a)(1)(C) of the GENIUS Act.\151\ To satisfy
the geographic location requirement, the NCUA expects that it will
generally be sufficient for NCUA-Licensed PPSIs to disclose the
jurisdiction where Reserve Assets are custodied or located.
---------------------------------------------------------------------------
\151\ 12 U.S.C. 5903(a)(1)(C).
---------------------------------------------------------------------------
Proposed Sec. 706.202(f) implements the applicable requirements of
section 4(a)(3) of the GENIUS Act.\152\ This provision requires PPSIs
to, each month, have the information disclosed in the previous month-
end report examined by a Registered Public Accounting Firm. Proposed
Sec. 706.202(f)(1) would require the examination of the previous
month-end report to occur by noon on the last day of each month and
would require the report to be published on the NCUA-Licensed PPSI's
website at the same time as the monthly report required under proposed
Sec. 706.202(e). Consistent with the GENIUS Act, proposed Sec.
706.202(f)(2) would require the Chief Executive Officer and Chief
Financial Officer (or the Persons performing the equivalent functions)
of the NCUA-Licensed PPSI to submit a certification as to the accuracy
of the monthly report to the NCUA. Under section 4(a)(3)(C) of the
Act,\153\ any Person who submits this required certification knowing
that such certification is false shall be subject to the same criminal
penalties as those set forth under 18 U.S.C. 1350(c).
---------------------------------------------------------------------------
\152\ 12 U.S.C. 5903(a)(3).
\153\ 12 U.S.C. 5903(a)(3)(C).
---------------------------------------------------------------------------
Proposed Sec. 706.202(g) provides for the consequences and
remedial measures if an NCUA-Licensed PPSI does not comply with the
requirements of Sec. 706.202. Proposed Sec. 706.202(g)(1) would
provide that an NCUA-Licensed PPSI must notify the NCUA on any day in
which its Reserve Asset amount has fallen below the required minimum in
proposed Sec. 706.202(a). Proposed Sec. 706.202(g)(2) would provide
that an NCUA-Licensed PPSI falling below the required minimum would be
barred from issuing new Payment Stablecoins until it had remediated the
shortfall except as necessary to facilitate a transfer of Payment
Stablecoins from one Distributed Ledger to another and provided that
the net Outstanding Issuance Value does not increase. Proposed Sec.
706.202(g)(3) would provide that, if an NCUA-Licensed PPSI fails to
meet its Reserve Asset requirement for 15 consecutive business days, it
must begin liquidation of Reserve Assets and redemption of outstanding
Payment Stablecoins consistent with Sec. 706.203 and may not charge
Customers a fee to redeem their Payment Stablecoins at any time during
the liquidation. The NCUA may extend the time period under proposed
Sec. 706.202(g)(3) in its sole discretion. Because of the importance
of maintaining minimum Reserve Asset levels, the proposed rule would
include automatic consequences for any non-compliance intended to
prevent any concerns from developing further. This provision is
intended to prevent chronic non-compliance with minimum Reserve Asset
requirements. The NCUA expects to ensure compliance with other
requirements in the proposed rule using traditional supervisory
methods, namely having examiners identify concerns that can be
escalated into enforcement actions, if necessary. Accordingly, proposed
Sec. 706.202(g)(4) provides that if at any point the NCUA determines
that an NCUA-Licensed PPSI has not demonstrated that it meets the
Reserve Asset requirements in proposed Sec. 706.202(a), (b), (c), or
(d), the NCUA may require the issuer to submit a plan describing how
the PPSI will attain compliance and the timeline for the plan. If the
NCUA determines, either before or after the submission of a plan, that
an NCUA-Licensed PPSI faces a significant risk of being unable to
attain compliance with the reserve requirements in proposed Sec.
706.202(a), (b), (c), or (d) within a reasonable period, the NCUA may
order the issuer
[[Page 28979]]
to initiate redemption of all outstanding Payment Stablecoins. Proposed
Sec. 706.202(g)(4) also states that the NCUA's authority to require a
compliance plan or order redemption does not limit the NCUA's authority
to pursue other measures, including enforcement actions, if
appropriate.
b. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 42: Section 4(a)(1)(A)(vi) of the GENIUS Act includes
``securities issued by an investment company registered under section
8(a) of the Investment Company Act of 1940,\154\ or other registered
Government money market fund, and that are invested solely in
underlying assets described in clauses (i) through (v)'' as eligible
Reserve Assets for Payment Stablecoins issued by PPSIs. However, many
or all Government money market funds are investment companies
registered under section 8(a) of the Investment Company Act of 1940.
Should the provision relating to securities issued by investment
companies registered under section 8(a) of the Investment Company Act,
or other registered Government money market funds, be clarified? Does
section 4(a)(1)(A)(vi) permit securities issued by investment companies
registered under section 8(a) of the Investment Company Act of 1940
that are not Government money market funds to be Reserve Assets for
Payment Stablecoins issued by PPSIs? Are there any registered
Government money market funds that are not investment companies
registered under section 8(a) of the Investment Company Act? Does
section 4(a)(1)(A)(vi) permit securities issued by registered
Government money market funds that are not registered under section
8(a) of the Investment Company Act to be Reserve Assets for Payment
Stablecoins issued by PPSIs?
---------------------------------------------------------------------------
\154\ 15 U.S.C. 80a-8(a).
---------------------------------------------------------------------------
Question 43: Should the provisions relating to repurchase
agreements and reverse repurchase agreements be clarified? For example,
should the NCUA provide that deposits and funds in Share Accounts can
serve as collateral for repurchase agreements? If so, what limitations,
if any, should the NCUA include with respect to the use of deposits and
funds in Share Accounts as collateral?
Question 44: Should the proposed rule require a buffer or impose
haircuts on certain Reserve Assets to ensure that Reserve Asset values
do not fall below Outstanding Issuance Values? The GENIUS Act requires
PPSIs to maintain identifiable reserves ``on an at least 1 to 1
basis.'' What measures should the proposed rule include to ensure that
issuers are able to maintain this minimum? Without a buffer or other
measures, the Fair Value of a PPSI's Reserve Assets could fall below
the required minimum if there are, for example, sudden increases in
interest rates. While proposed Sec. 706.204(a)(3)(i) would include a
requirement to manage interest rate risk, should there be a more
express requirement for a buffer (for example, 1% of Reserve Assets)?
For example, the proposed rule could require PPSIs to maintain an
amount of Reserve Assets sufficient to stay above the Outstanding
Issuance Value in light of risks facing the PPSI, including interest
rate risk and risks associated with the capability to access and
monetize Reserve Assets. Are there other considerations the NCUA should
take into account if it chose to calibrate such a buffer? As an
alternative to requiring such a buffer, should the NCUA provide
guidance on what level of buffer is generally appropriate as a matter
of prudent risk management?
Question 45: Should the NCUA expressly require that a certain
percentage of Reserve Assets be held in custody either at an Affiliate
or at a third party? What are the potential costs and benefits of this
approach, including with respect to operational risk?
Question 46: Is the term ``deposits and/or funds in Share Accounts
payable upon demand'' sufficiently clear? If not, how should the NCUA
clarify the term (i.e., what types of accounts should expressly be
included within the term)?
Question 47: Should the proposed rule define ``reserve in tokenized
form'', to enhance clarity regarding proposed Sec. 706.202(b)(8)? If
so, should the NCUA define ``reserve in tokenized form'' to refer to a
Digital Asset, as defined in proposed Sec. 706.2, that represents
another asset and provides full legal rights to that underlying asset?
What modifications to this definition or the rule's related terminology
would enhance clarity?
Question 48: In the provision in proposed Sec. 706.202(b)(5)
regarding reverse repurchase agreements, is the proposed rule
sufficiently clear in its reference to ``overcollateralization in line
with standard market terms?'' If not, what clarifications would be
appropriate?
Question 49: Should the NCUA provide additional detail on what
securities could be in scope for ``any other similarly liquid Federal
Government-issued asset'' under Sec. 706.202(b)(7)? For example,
should Treasury securities with remaining maturity of two years or less
be permitted under Sec. 706.202(b)(7)? What would be the implications
for liquidity or interest rate risk of allowing these types of
securities to be held as Reserve Assets? If the NCUA were to permit
two-year Treasury securities to be used as Reserve Assets, should the
NCUA impose any additional requirements, such as requiring the weighted
average maturity of Treasury securities held as reserves to be no more
than 93 days (or some shorter timeframe) or requiring additional
Reserve Asset diversification requirements (e.g., minimum amount of
Reserve Assets held as deposits and/or funds in Share Accounts or
minimum number of Eligible Financial Institutions holding the PPSI's
Reserve Assets) for PPSIs that hold Treasury securities with a
remaining maturity between 94 days and two years?
Question 50: Should the proposed rule clarify that Treasury
Floating Rate Notes (FRNs) and Treasury Inflation-Protected Securities
(TIPs) be included as permissible Reserve Assets, assuming they
otherwise meet the requirements of the proposed rule, including
maturity requirements? Is there any reason these securities should be
excluded? Should Treasury Separate Trading of Registered Interest and
Principal of Securities (STRIPS) be included? Are there other
instruments that should be considered as included within the GENIUS
Act's phrase ``Treasury bills, notes, or bonds''? If these securities
are included, should there be additional requirements--for example,
both weighted average life and weighted average maturity limits to
accommodate interest rate resets in FRNs?
Question 51: Should the proposed rule's requirements for Reserve
Assets incorporate requirements to reflect potential interactions with
the larger market for Treasury securities? For example, should the
proposed rule include requirements to prevent any disruptive or
negative effects that the management or liquidation of Treasury Reserve
Assets might have on markets?
Question 52: The proposed rule would, consistent with the GENIUS
Act, allow as Reserve Assets funds held as deposits and/or in Share
Accounts) that are payable upon demand at an IDI (including any foreign
branches or agents, including correspondent banks). Should the proposed
rule add definitions for these terms to make them clearer or impose
restrictions on the use of foreign branches or agents and correspondent
banks? For example, should the proposed rule require that Payment
Stablecoins denominated in United States dollars only be backed by
deposits and/or funds in Share Accounts that are payable upon demand
[[Page 28980]]
at U.S.-based IDIs (i.e., Reserve Assets could not include Eurodollar
deposits)? Should the NCUA include any additional requirements with
respect to Reserve Assets held abroad, such as applying a haircut to
the reserve assets, imposing a capital charge, or including additional
policies and procedures to manage the risks associated with holding
Reserve Assets abroad?
Question 53: Should the NCUA develop a formal process to consider
and approve securities under Sec. 706.202(b)(7)? Should the NCUA allow
PPSIs or other parties to request that the NCUA consider a specific
type of security? Should any determinations on additional securities
approved under this authority be made public?
Question 54: The proposed rule would require a PPSI to maintain
Reserve Assets, the Fair Value of which must equal or exceed the
Outstanding Issuance Value at all times. Should the NCUA impose a
different standard, such as requiring the Fair Value of Reserve Assets
to equal or exceed the Outstanding Issuance Value at the end of each
day or at the end of each business day?
Question 55: The proposed rule's requirements for Reserve Asset
diversification and concentration include two options: (1) a flexible,
principles-based baseline requirement plus a quantitative safe harbor
or (2) quantitative requirements applicable to all PPSIs. Which option
is more appropriate? How should either option, including the
quantitative limits included in each option, be modified? For example,
should the requirement or safe harbor's provision regarding holding
Reserve Assets as deposits and/or funds in Share Accounts payable upon
demand or Money standing to the credit of an account with a Federal
Reserve Bank be set at five percent, 10 percent, 15 percent or 20
percent? Should this requirement be set at a different percentage
(e.g., 10 percent) for small issuers and a larger percentage (e.g., 15
percent) for larger issuers? Should the requirement or safe harbor's
provision regarding maintaining Reserve Assets as deposits and/or funds
in Share Accounts payable upon demand, Money standing to the credit of
an account with a Federal Reserve Bank, or amounts receivable and due
unconditionally within five business days on pending sales of Reserve
Assets or other maturing transactions be set at 20 percent, 25 percent,
or 30 percent? Are the proposed maxima for various types of Reserve
Assets that may be held at an Eligible Financial Institution
appropriately calibrated? Would a shorter or longer weighted average
maturity be appropriate? Should larger issuers have a shorter weighted
average maturity requirement than smaller issuers? If the final rule
includes quantitative requirements for all PPSIs, should there be
additional risk management requirements to ensure that PPSIs
appropriately manage diversification and concentration risk? In
particular, the risk management requirements could include a
requirement that PPSIs must measure and manage the risk that their
gross exposure to any one institution or a small number of institutions
may impair their ability to satisfy redemption demands.
Question 56: The Reserve Asset diversification and concentration
limits in proposed Sec. 706.202(c) would not distinguish reserve
assets held at Federal Reserve Banks and would therefore include
requirements (or conditions of a safe harbor) that would limit the
reserve assets held at any one Federal Reserve Bank. In light of the
low credit risk associated with Federal Reserve Banks, should the final
rule eliminate these requirements or conditions? Specifically, should
the NCUA exempt reserve assets held at a Federal Reserve Bank from the
conditions in Sec. 706.202(c)(2)(iii) and Sec. 706.202(c)(2)(iv) of
Option A and the requirements in Sec. 706.202(c)(3) and Sec.
706.202(c)(4) of option B?
Question 57: The Reserve Asset diversification and concentration
limits in proposed Sec. 706.202(c) would limit the Reserve Assets,
including deposits and/or funds in Share Accounts payable upon demand,
at any one Eligible Financial Institution. Should there be an exception
to some or all of these requirements for a subsidiary of an NCUA-
regulated FICU approved to be a PPSI if the NCUA-regulated FICU has
less than a certain amount of total assets? Should the exception be
limited to or tailored for Reserve Assets at a Parent Company FICU? For
example, should a PPSI that is a subsidiary of an NCUA-regulated FICU
Parent Company with less than a certain amount of total assets be
permitted to hold a larger percentage, or all, of its Reserve Assets as
deposits and/or funds in Share Accounts at the NCUA-regulated FICU
Parent Company? Should any such exception be subject to any conditions?
For example, should it only be available if the NCUA-regulated FICU is
well-capitalized?
Question 58: Option A for proposed Sec. 706.202(c) would require
that a PPSI must maintain Reserve Assets that are sufficiently diverse
to manage potential credit, liquidity, interest rate, or price risks.
Are there other risks that should be added to this list, or removed
from it? If the final rule adopts mandatory quantitative
diversification and concentration requirements, should the requirement
to monitor and manage these risks be codified as a separate risk
management requirement?
Question 59: The NCUA invites comment on the extent to which
additional diversification requirements are necessary. Is it necessary
to require that PPSIs maintain more than one type of Reserve Asset?
Would it be sufficient for the NCUA to require that PPSIs maintain only
one secondary, backup Reserve Asset?
Question 60: To diversify the maturity profile of Reserve Assets,
should PPSIs be required to maintain a minimum amount of their Reserve
Assets in cash or equivalents or assets that can be converted more
readily into short-term liquidity, for example within a daily or weekly
timeframe, akin to the requirements for money market funds in SEC Rule
2a-7?
Question 61: Should the proposed rule include other measures to
encourage Reserve Assets to be held in the form of fully insured
deposits and/or Share Accounts? Proposed Sec. 706.202(d) would include
a requirement for larger PPSIs to maintain a minimum percentage of
assets as fully insured deposits and/or Share Accounts. While it may be
difficult for larger PPSIs to hold reserve assets as fully insured
deposits and/or Share Accounts due to deposit and share insurance
limits and the finite number of IDIs in the United States, should PPSIs
be required to hold some minimum amount of reserves as fully insured
deposits and/or Share Accounts) in order to provide extra protection
for Payment Stablecoin holders? Should the thresholds in proposed Sec.
706.202(d) be set at different levels: for example, apply to issuers
with an Outstanding Issuance Value of $1 billion, $10 billion, $50
billion, or $100 billion or more? Should covered larger issuers be
required to maintain a smaller or larger percentage of Reserve Assets
as fully insured deposits and/or Share Accounts (for example, 0.1
percent, 0.25 percent, 1 percent, or 2 percent)? Should the cap be
higher or lower (for example, $100 million, $250 million, or $1
billion)?
Question 62: How should the NCUA calibrate the fully insured
deposit and/or Share Account) requirement for PPSIs? Should it be as a
percentage of assets or an absolute number? If a percentage, what
percentage should that be? If an absolute number, what should that be?
Should there be a cutoff for PPSIs above or below a certain size
[[Page 28981]]
threshold that should be required to place fully insured deposits and/
or Share Accounts? If so, why? What would be the implications of such a
cutoff? What is the total amount of fully insured Payment Stablecoin
deposits and/or funds in Share Accounts that the banking system in the
United States can or should reasonably absorb? What is the total amount
of fully insured deposits and/or funds in Share Accounts that an
individual community bank or FICU is likely to hold?
Question 63: There are approximately 4,380 total insured banks and
4,287 FICUs in the United States. Should the proposed rule include
other measures to spread insured Payment Stablecoin deposits and Share
Accounts throughout the banking and credit union systems? If so, how
broadly should insured deposits and funds in Share Accounts from PPSIs
be distributed? For example, should the final rule be calibrated to
maximize the number of banks and FICUs in the United States that could
hold some amount of insured Deposits and Share Accounts from PPSIs if
consistent with their risk appetite and risk management abilities? If
so, why? If not, why not?
Question 64: Deposit/share placement services could be used to
facilitate compliance with these diversification requirements, as long
as PPSIs are able to maintain the operational ability to access the
deposits and/or funds in Share Accounts, consistent with proposed Sec.
706.202(a). Please describe any risks associated with using such
services or other intermediaries and how PPSIs could best mitigate
these risks.
Question 65: Could Reserve Asset diversification requirements that
encourage diffusion of deposits and funds in Share Accounts cause risks
to the banking and credit union systems (for example, increasing run
risks at banks and FICUs or replacing more stable deposits and funds in
Share Accounts with deposits and funds in Share Accounts that are more
likely to be withdrawn quickly and in large volumes)? Could such
diversification requirements raise operational risks for PPSIs, FICUs,
or banks? How difficult would it be for PPSIs to liquidate such
deposits and funds in Share Accounts in a stressed environment? If
deposit and share insurance rules change, so that even larger PPSIs
could be able to hold all their required deposits and or funds in Share
Accounts as fully insured, should all deposits and funds in Share
Accounts held as Reserve Assets be required to be insured?
Question 66: Should the proposed safe harbor (or alternatively, the
liquidity requirements directly) require a PPSI to maintain at least 20
percent of required Reserve Assets at IDIs with less than $30 billion
in total assets (either directly or indirectly through a deposit/share
broker)? Would such an approach help ensure appropriate Reserve Asset
diversification, particularly as these smaller IDIs are unlikely to be
counterparties to the PPSI in repurchase agreements or reverse
repurchase agreements?
Question 67: How would the proposed rule affect the amount of
deposits and funds in Share Accounts maintained in the United States
banking and credit union systems? Would the proposed rule reduce the
number of deposits and funds in Share Accounts maintained in the United
States banking and credit union system and therefore affect the ability
of United States banks and credit unions to lend? What, if any,
measures should the proposed rule include to mitigate such concerns?
Should the proposed rule include a minimum percent of Reserve Assets as
deposits and/or funds in Share Accounts in order to offset potential
reductions in overall levels of deposits and funds in Share Accounts?
Question 68: One option in the proposed rule would include flexible
baseline diversification and concentration requirements, coupled with
an optional quantitative safe harbor. Should the default requirement
for PPSIs include quantitative limits for Reserve Asset
diversification? For example, the NCUA could impose quantitative limits
on the maximum amount of uninsured deposits and/or uninsured funds in
Share Accounts payable upon demand that PPSIs can maintain with a
single IDI, in addition to any restrictions imposed by the FDIC and
NCUA pursuant to separate authority under the GENIUS Act. PPSIs might
be required to maintain no more than a specified percentage (for
example, one percent, five percent, or 10 percent) as uninsured
deposits and/or uninsured funds in Share Accounts payable upon demand
at a single IDI. Examples of other quantitative limits could include
the following.
Minimum cash limits, such as a minimum amount of Money
standing to the credit of an account of a Federal Reserve bank plus
deposits and/or funds in Share Accounts payable upon demand as a
percentage of operating expenses for a specific period, as a percentage
of total Reserve Assets, or as a percentage of modeled stress cash
outflows (for example, 10 percent or 15 percent);
Minimum amount of assets maturing daily, weekly, or over
some other time period (for example, assets available on demand or
maturing weekly must constitute 20 percent of Reserve Assets);
Counterparty diversification limits, such as maximum
credit exposure to repo or reverse repo counterparties; and
Limitations on tokenized forms of Reserve Assets under
proposed Sec. 706.202(b)(8), such as limiting the amount to no more
than a certain percentage (e.g., 20 percent) of a PPSI's total Reserve
Assets.
What other limits should be considered? Such requirements could be
tailored according to size; for example, larger and more complex PPSIs
may be required to adhere to more stringent diversification and
concentration requirements.
Question 69: Should the NCUA adopt the proposed safe harbor option
(Option A) for proposed Sec. 706.202(c)? Does the proposed safe harbor
adequately address differences in business models, while addressing
risks associated with asset concentration? Should the proposed safe
harbor include different quantitative thresholds? What other features
should the safe harbor incorporate, if adopted?
Question 70: Should the NCUA adopt any other restrictions on
Reserve Asset concentration? If so, should they be based on gross
exposures to particular counterparties? Or should the restrictions be
more prescriptive? For example, should the rule prohibit a PPSI from
entering into a reverse repurchase agreement with any counterparty that
holds deposits and/or funds in Share Accounts that serve as Reserve
Assets for the PPSI? Are the Reserve Asset concentration requirements
appropriately calibrated? Should the NCUA require that no more than 5,
10, or 15 percent of a PPSI's Reserve Assets may be deposits or funds
in Share Accounts at a single IDI?
Question 71: Should the NCUA's concentration requirements include
requirements to not have more than a specified portion of Reserve
Assets at a single custodian? Would this requirement impose undue
burden? For example, would requiring the use of more than one Eligible
Financial Institution as custodian of Treasury securities and
collateral for reverse repurchase agreements impose undue burden or
complexity on the management of Reserve Assets? What are the costs and
benefits of such an approach, including from an operational risk
perspective?
Question 72: Should the proposed rule include measures to ensure
that a PPSI is not overly reliant on short-term lending transactions to
meet immediate
[[Page 28982]]
liquidity needs? In the absence of such a restriction, a PPSI
hypothetically might maintain a Reserve Asset portfolio entirely of
Treasury securities and rely on overnight repo transactions to generate
the daily liquidity amounts required by the proposed rule. This
arrangement could leave the PPSI vulnerable to disruptions in repo
markets. Should the proposed rule require excluding short-term
repayment obligations from daily and weekly liquidity? For example, the
proposed rule could require, for daily liquidity, deducting payments
due on overnight borrowings and, for weekly liquidity, deducting any
payments due within the next five business days? If such a restriction
is included, should repayment deductions be offset by any expected
inflows?
Question 73: Consistent with the GENIUS Act, the proposed rule
would allow physical currency, including coins, to serve as Reserve
Assets. Nevertheless, given the limitations on transferring physical
currency, particularly difficulties that may arise in deploying
physical currency quickly to meet sudden demands for redemptions,
should the proposed rule impose limits on how much physical currency
can serve as Reserve Assets? For example, the proposed rule could
require that physical currency constitute no more than 5 percent or 10
percent of a PPSI's Reserve Assets. Should the proposed rule impose
special requirements to make sure that physical currency is safeguarded
(for example, against theft or fire)? For example, should there be
periodic verification or inspection requirements for physical currency
used as Reserve Assets?
Question 74: The proposed rule would generally require Reserve
Assets to be valued at Fair Value for the purpose of determining
compliance with the proposed rule's Reserve Asset requirements. Should
United States coins and currency be required to be valued at par for
purposes of the proposed rule's Reserve Asset requirements?
Question 75: Should the proposed rule include special limits on
Treasury bonds and notes that may be more thinly traded and therefore
more likely to sell at a discount? The GENIUS Act would allow PPSIs to
hold as Reserve Assets Treasury notes and bonds so long as they have a
maturity of 93 days or less. Older and off-the-run Treasury securities
may be more difficult to sell and may only be marketable at a
discount.\155\ Should the proposed rule limit the portion of Reserve
Assets that Treasury bonds and notes can comprise--for example, 20
percent of total Reserve Assets?
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\155\ See Dimitri Vayanos & Jiang Wang, ``Market Liquidity--
Theory and Empirical Evidence,'' National Bureau of Economic
Research Working Paper 18251 (July 2012), available at https://www.nber.org/system/files/working_papers/w18251/w18251.pdf.
---------------------------------------------------------------------------
Question 76: Should the final rule specify the manner in which
PPSIs must ``measure and manage'' credit, liquidity, interest rate,
price risk, and concentration risk under proposed Sec. 706.202(c)? For
example, should the NCUA adopt related record retention or other
requirements?
Question 77: Should the proposed rule include special measures to
ensure that reverse repurchase agreements are appropriately
overcollateralized? Proposed Sec. 706.202(b)(5) would permit the
inclusion, as Reserve Assets, of reverse repurchase agreements
``subject to overcollateralization in line with standard market
terms.'' As one possibility, the proposed rule could include no special
measures, and the examination and supervision process could be used to
evaluate if particular PPSIs are failing to overcollateralize their
reverse repurchase agreements in line with standard market terms. As
another possibility, the proposed rule could include more express
requirements, for example, that overcollateralization haircuts cannot
be less than 0.5 percent.
Question 78: Should PPSIs be required to conduct stress tests,
including stress tests to manage liquidity and interest rate risks? The
GENIUS Act permits the inclusion of bilateral reverse repurchase
agreements as Reserve Assets ``with [counterparties] that the issuer
has determined to be adequately creditworthy even in the event of
severe market stress.'' How should issuers evaluate the impact of
``severe market stress''? Should diversification requirements be based
on the outcome of any stress tests? For example, PPSIs could be
required to maintain a minimum amount of readily available Reserve
Assets (for example, deposits and/or funds in Share Accounts that are
payable upon demand and reserve balances) based on the results of
liquidity stress tests? In particular, PPSIs could be required to
maintain--or could elect to maintain as part of the proposed safe
harbor--an amount of readily available Reserve Assets at least
sufficient to meet outflow levels predicted by an internal liquidity
stress test.
Question 79: Should PPSIs be required to adopt written plans or
policies and procedures related to liquidity planning? For example,
should PPSIs be required to adopt their own concentration restrictions,
including limits on deposit and Share Account concentrations at IDIs,
that are tailored to their own business model, operations, and risk
profile? Similarly, should PPSIs be required to adopt liquidity
management plans, which would include provisions to assign
responsibility for liquidity risk management and address contingency
funding needs?
Question 80: Subclause 4(a)(1)(A)(i) of the GENIUS Act provides
that reserve assets can include ``money standing to the credit of an
account with a Federal Reserve Bank.'' \156\ Should diversification
requirements include special measures for reserve bank balances if
PPSIs are able to maintain them?
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\156\ 12 U.S.C. 5903(a)(1)(A)(i).
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Question 81: Should the liquidity management standards in proposed
part 706 change depending on the standards for timely redemption? For
example, should the rule require less stringent liquidity standards
(for example, less readily available funds required) if PPSIs have a
longer time to redeem tendered Payment Stablecoins?
Question 82: Should the proposed rule include additional measures
to address de-pegging in the secondary market? For example, should the
proposed rule bar a PPSI from issuing new Payment Stablecoins if a
PPSI's Payment Stablecoins trade in secondary markets at some price
that is a set amount less than par (e.g., trading at or below $0.99,
$0.80 or some other amount) for some sustained period of time (e.g., 24
hours)?
Question 83: For purposes of incorporating ``average tenor and
geographic location of custody of each category of reserve
instruments'' in the composition report required under Sec.
706.202(e), what, if any, specific content and structure should the
NCUA require? For example, should the report include information about
deposit and Share Account concentration and CUSIPs of securities?
Should the required content include the composition of the Reserve
Assets by type of assets and maturities and by counterparty issuer? For
purposes of stating the geographic location of custody, should it
suffice to state the country of custody? Or should more granular
information be required? Should the NCUA require that the composition
report conform to the specified template? Are there specific methods
for calculating tenor that the rule should require or explicitly
permit?
[[Page 28983]]
For example, should the rule define average tenor as the weighted
average maturity or life of the asset? Should the monthly composition
report require the issuer to distinguish between insured and uninsured
deposits and funds in Share Accounts?
Question 84: Are there any additional steps that the NCUA should
take to encourage transparency while minimizing burden with respect to
the Reserve Asset composition report?
Question 85: What modifications to the reporting requirements,
including the Reserve Asset composition report, would be appropriate
for arrangements where one issuer issues multiple Payment Stablecoins
under different brands (e.g., white label arrangements), if that
arrangement is permitted in the final rule? Are there any additional
disclosures that the issuer should provide in order to ensure that the
report is not misleading?
Question 86: Should the report be required to list and name any
IDIs holding Reserve Assets? Should the report be required to list and
name other Eligible Financial Institutions holding Reserve Assets?
Should the proposed rule include additional measures to ensure that
Reserve Assets are appropriately traceable and linked to their
corresponding Payment Stablecoin so as to avoid any difficulties in
resolving claims to Reserve Assets?
Question 87: For purposes of the composition report and reserves in
tokenized form, should the PPSI be required to disclose the location of
custody of both the reserve instrument in tokenized form on a ledger
and any real-world asset that the reserve in tokenized form represents?
What related reporting requirements would be appropriate?
Question 88: Should the values and information in the monthly
report be required to be as of a particular date or time?
Alternatively, should PPSIs publish on their websites a report showing
the real-time values of the items required in the monthly composition
report? Having the most recent information will make the more report
more useful, and the NCUA invites comment on how much real-time
reporting is feasible and whether it may only be feasible for certain
items. Should the monthly report be required to include both month-end
figures (for the previous month) and some information that can be
presented in real-time (for example, the value of reserves or
Outstanding Issuance Value)? Are there potential challenges in
providing assurance over real-time information presented in a monthly
report?
Question 89: Should the NCUA require PPSIs to publish the monthly
certification on their websites, in addition to publishing the monthly
Reserve Asset composition report? Should the NCUA specify the content
and form of the certification?
Question 90: Should the monthly composition report be published at
some point before the examination by a Registered Public Accounting
Firm? For example, a PPSI could publish the report five days after the
end of the previous month and have the report examined 30 days after
the end of the previous month and disclose any discrepancies uncovered
by the examination. Would the benefits of more timely availability of
these reports outweigh the potential costs associated with the risk of
subsequent changes as a result of the examination that would be
completed at a later date?
Question 91: Is the requirement in proposed Sec. 706.202(f) to
have information disclosed in the previous month-end report examined by
a Registered Public Accounting Firm sufficiently clear? If not, what
additional clarity should the NCUA provide with respect to the
examination by a Registered Public Accounting Firm? Should the
examination be performed at the ``reasonable assurance'' level or at
some other standard? What additional standards, if any, should the NCUA
apply to ensure that the examination is accurate and appropriate?
Should the engagement letter between the PPSI and the Registered Public
Accounting Firm require the Registered Public Accounting Firm to attest
to whether the PPSI is in compliance with the Reserve Asset
requirements in Sec. 706.202 (or a subset thereof), based on the
information available to the Registered Public Accounting Firm? What
criteria should be used for the examination? Would assurances from the
management of the PPSI regarding the information in the issuer's weekly
or monthly report be sufficient? If not, what other criteria should be
included?
Question 92: Should PPSIs be required to monitor the financial
condition of Eligible Financial Institutions holding Reserve Assets?
Should the financial condition of an Eligible Financial Institution
holding an issuer's Reserve Assets be considered in whether issuers
have met their deposit and/or funds in Share Account concentration
obligations?
Question 93: Are there additional considerations that the NCUA
should take into account with respect to proposed Sec. 706.202(g)(1),
including whether it is appropriate that the PPSI must not issue new
Payment Stablecoins until it remediates a shortfall in Reserve Assets?
For example, should there be some period of time (e.g., one or two
days) where an issuer should be able to issue Payment Stablecoins
despite a shortfall? Is the requirement in Sec. 706.202(g)(3) set
appropriately at 15 days or should the period be longer or shorter
(e.g., 5 days, 10 days, 20 days, 25 days, 30 days)?
Question 94: Should the proposed rule include restrictions on
expenses that may be charged against Reserve Assets? Is it worth making
clear that PPSIs may not charge general corporate expenses against
Reserve Assets? While there may be a narrow set of expenses that can be
paid from Reserve Assets (for example, interest on a repurchase
agreement or fees paid to an investment company holding Reserve
Assets), the NCUA expects that paying most other expenses from Reserve
Assets would be inconsistent with the requirement for PPSIs to maintain
identifiable Reserve Assets backing Outstanding Issuance Value on a 1
to 1 basis and the rehypothecation prohibitions.
3. Sec. 706.203. Redemption
a. Proposed Sec. 706.203
Section 706.203 of the proposed rule addresses redemption
requirements imposed by section 4(a)(1)(B) of the GENIUS Act.\157\
Consistent with the statute, under proposed Sec. 706.203(a), an NCUA-
Licensed PPSI must publicly disclose its current redemption
policy.\158\ The NCUA proposes that in disclosing its redemption
policy, the NCUA-Licensed PPSI must include, at a minimum, certain
information. Specifically, proposed Sec. 706.203(a)(1) provides that
the NCUA-Licensed PPSI must include a timeframe in which the PPSI will
redeem Payment Stablecoins and the timeframe under which the issuer is
required to redeem Payment Stablecoins (which, under proposed paragraph
Sec. 706.203(b)(1)(i) may not exceed two business days following the
date of the requested redemption). In proposed Sec. 706.203(a)(2), the
NCUA proposes to require the issuer to include a statement consistent
with proposed Sec. 706.203(b)(1)(ii) that any discretionary
limitations on timely redemptions can only be imposed by the NCUA.
Proposed Sec. 706.203(a)(3) requires that NCUA-Licensed PPSIs include
in their redemption disclosures a statement
[[Page 28984]]
explaining the scenarios when the redemption period may be extended as
provided for in proposed Sec. 706.203(c). Proposed Sec. 706.203(a)(4)
provides that the NCUA-Licensed PPSI must provide a statement with
clear instructions on how a Payment Stablecoin holder can redeem a
Payment Stablecoin, including a link to the website(s) where a Customer
can redeem the Payment Stablecoin. Proposed Sec. 706.203(a)(5) would
require the issuer to specify the minimum number of Payment
Stablecoins, if any, that the NCUA-Licensed PPSI will redeem, provided
that the issuer must redeem any number greater than or equal to one
Payment Stablecoin, subject to appropriate Customer screening and
onboarding. In setting the requirement that an NCUA-Licensed PPSI must
redeem any number greater than or equal to one Payment Stablecoin, the
NCUA is relying on a natural reading of the definition of ``payment
stablecoin.'' Specifically, section 2(22) of the GENIUS Act defines
``payment stablecoin'' as a Digital Asset that an issuer ``is obligated
to convert, redeem, or repurchase for a fixed amount of monetary
value.'' \159\ Since ``payment stablecoin'' is singular, the statutory
language suggests that while an issuer could set a minimum redemption
threshold at a fraction of a Payment Stablecoin, an issuer must redeem
any number greater than or equal to one Payment Stablecoin to comply
with the GENIUS Act. Otherwise, the Payment Stablecoin would not be
redeemable for a fixed amount of Monetary Value.
---------------------------------------------------------------------------
\157\ 12 U.S.C. 5903(a)(1)(B).
\158\ Under section 2(22) of the GENIUS Act (12 U.S.C.
5901(22)), the issuer of a Payment Stablecoin must be obligated to
convert, redeem, or repurchase a Payment Stablecoin for a fixed
amount of Monetary Value, not including a Digital Asset denominated
in a fixed amount of Monetary Value.
\159\ 12 U.S.C. 5901(22).
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Proposed Sec. 706.203(b)(1) provides that an NCUA-Licensed PPSI's
redemption policy must provide clear and conspicuous procedures for
timely redemption of outstanding Payment Stablecoins. In proposed Sec.
706.203(b)(1)(i), the NCUA is proposing to define ``timely'' to mean
that the NCUA-Licensed PPSI would have to redeem a Payment Stablecoin
no later than two business days following the date of the requested
redemption. The NCUA is proposing this two-business day time frame as
an outer limit on when an NCUA-Licensed PPSI must redeem a Payment
Stablecoin and understands that many issuers may choose a time frame
that is less than two business days. The NCUA believes this time frame
provides sufficient responsiveness to Payment Stablecoin holders who
seek to redeem their Payment Stablecoins, while also ensuring that
PPSIs can appropriately manage liquidity demands. Proposed Sec.
706.203(b)(1)(ii), consistent with the statute, provides that
discretionary limitations on timely redemptions can only be imposed by
the NCUA.\160\
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\160\ The NCUA notes that section 4(a) of the GENIUS Act (12
U.S.C. 5903(a)) establishes standards for the issuance of Payment
Stablecoins applicable to all PPSIs. Section 4(a)(1)(B) requires all
PPSIs to publicly disclose their redemption policy. Section
4(a)(1)(B)(i) requires that that redemption policy ``establish clear
and conspicuous procedures for timely redemption of outstanding
payment stablecoins[.]'' Section 4(a)(1)(B)(i) further provides that
``any discretionary limitations on timely redemptions can only be
imposed by a State qualified payment stablecoin regulator, the
Corporation, the Comptroller, or the Board, consistent with section
5906 of this title[.]'' The NCUA is not expressly listed in this
list of regulators that can impose discretionary limitations on
timely redemption. However, based on the structure of section 4, and
4(a)(1) in particular, the NCUA believes that a PPSI subject to the
NCUA's jurisdiction must also be subject to any discretionary
limitations on timely redemptions imposed by the NCUA. Further,
section 5(c)(4) requires the NCUA to evaluate ``whether the
redemption policy of the applicant meets the standards under section
[4(a)(1)(B)] section 5903(a)(1)(B)'' in granting an NCUA PPSI
license to an issuer. Finally, the NCUA also believes the NCUA's
authority to impose such discretionary limitations on redemptions is
inherently provided for by the NCUA's authority as a primary Federal
payment stablecoin regulator of PPSIs that are FICU subsidiaries
under section 2(25)(B) of the GENIUS Act (12 U.S.C. 5901(25)(B)) and
the NCUA's supervision and enforcement authority over PPSIs that are
FICU subsidiaries provided in section 6 of the GENIUS Act (12 U.S.C.
5905).
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Proposed Sec. 706.203(c)(1) would provide that the period for
timely redemption is extended to seven calendar days if an NCUA-
Licensed PPSI faces redemption demands in excess of 10 percent of its
Outstanding Issuance Value in a single 24-hour period. The NCUA
proposes to use a 24-hour period for this requirement in recognition of
the likelihood that there may be significant demands to redeem Payment
Stablecoins outside of normal business hours and outside of the hours
when many Reserve Assets could be liquidated. As provided for in
proposed Sec. 706.203(c)(2), the extended redemption period applies to
all redemption requests that are outstanding at the time the 10 percent
threshold is met as well as any subsequent redemption requests
following the time the threshold is met. Proposed Sec. 706.203(c)(3)
clarifies that the extension is non-discretionary and that an NCUA-
Licensed PPSI may only redeem any of the outstanding or subsequent
redemption requests prior to the seven calendar day period if the NCUA
determines that the issuer has the ability to redeem sooner in an
orderly fashion and through a fair and transparent process or the NCUA
otherwise provides notice to the NCUA-Licensed PPSI that the extended
redemption period no longer applies. The NCUA expects that the NCUA-
Licensed PPSI seeking to redeem sooner than the seven calendar day
period will engage with the NCUA to provide evidence that it can redeem
in an orderly fashion and through a fair and transparent process that
does not unfairly advantage some Payment Stablecoin holders relative to
other Payment Stablecoin holders. Under proposed Sec. 706.203(c)(4),
an NCUA-Licensed PPSI that exceeds that 10 percent threshold would be
required to provide notice to the NCUA within 24 hours. Using this 24-
hour time period will provide appropriate notice to the NCUA and allow
an appropriate amount of time to facilitate the orderly liquidation of
Reserve Assets. These provisions are intended to facilitate the orderly
liquidation of sufficient Reserve Assets in the event of a spike in
redemption requests and would help ensure financial stability by
lowering the potential price impact of a sudden liquidation of Reserve
Assets. Proposed Sec. 706.203(c)(5) provides that the NCUA, may in its
discretion, extend timely redemption described in proposed Sec.
706.203(b)(1) or (c)(1), as applicable, if the NCUA determines that the
NCUA-Licensed PPSI poses a threat to safety and soundness, financial
stability, or such an extension is otherwise in the public interest.
The requirements of this section apply only to the redemption of a
Payment Stablecoin by the NCUA-Licensed PPSI (and any entity acting on
behalf of the PPSI) and would not apply to secondary market trading.
This section is not intended to prevent NCUA-Licensed PPSIs from
establishing criteria related to the participants with which PPSIs will
interact.
Proposed Sec. 706.203(d)(1) provides that an NCUA-Licensed PPSI
must also publicly, clearly, and conspicuously disclose in plain
language and in format that is readily noticeable to Customers, readily
understandable by Customers, and segregated from other information: (i)
the name of the NCUA-Licensed PPSI that issues the Payment Stablecoin;
(ii) that the NCUA-Licensed PPSI is the entity that is obligated to
convert, redeem, or repurchase the Payment Stablecoin for a fixed
amount of Monetary Value; (iii) the link to the monthly composition
report of the relevant NCUA-Licensed PPSI's reserves as required under
proposed Sec. 706.202(e); and (iv) all fees associated with purchasing
or redeeming Payment Stablecoins. The NCUA is including a requirement
that the disclosures under proposed Sec. 706.203(d)(1) are readily
noticeable by Customers, readily understandable by Customers, and
segregated from other information to
[[Page 28985]]
provide more certainty on what it means to ``publicly, clearly, and
conspicuously disclose [the information] in plain language.'' \161\ The
NCUA is proposing to include the requirement that the disclosures be
segregated from other information to ensure that the information in the
disclosures is not combined with other non-relevant information that
could obscure the importance of these disclosures. Although the NCUA-
Licensed PPSI may include additional information beyond what is
required in proposed Sec. 706.203(d)(1) in the same disclosure, the
information required under proposed Sec. 706.203(d)(1) should be
sufficiently separate and must meet the other requirements outlined,
including that the information is readily noticeable and readily
understandable by Customers. The NCUA believes that the disclosures
required under proposed Sec. 706.203(d)(1) are consistent with section
4(a)(1)(B) of the GENIUS Act \162\ and are particularly important in
the situation where an NCUA-Licensed PPSI issues more than one brand of
Payment Stablecoin either directly or through an Affiliate (if the NCUA
limits NCUA-Licensed PPSIs to issuing a single brand of Payment
Stablecoin). The NCUA believes that these disclosures are necessary to
prevent confusion and ensure that Payment Stablecoin holders understand
who has the ultimate obligation to redeem their Payment Stablecoin.
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\161\ 12 U.S.C. 5903(a)(1)(B)(ii).
\162\ 12 U.S.C. 5903(a)(1)(B).
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Proposed Sec. 706.203(d)(2) provides that an NCUA-Licensed PPSI
must update the disclosures in proposed Sec. 706.203(d)(1)(iv) if
there are any changes in the fees associated with purchasing or
redeeming Payment Stablecoins and provide Customers at least seven
calendar days' prior notice of the change, including by securely
delivering the notice to current Customers. Proposed Sec.
706.203(d)(3) provides that an NCUA-Licensed PPSI must publish the
disclosures in proposed Sec. 706.203(d)(1) and any updates made in
accordance with proposed Sec. 706.203(d)(2) on the NCUA-Licensed
PPSI's website. Proposed Sec. 706.203(d)(4) provides that an NCUA-
Licensed PPSI must include the disclosures in proposed Sec.
706.203(d)(1) and any updates made in accordance with proposed Sec.
706.203(d)(2) in any Customer agreements that it provides.
b. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 95: Has the NCUA appropriately defined ``timely'' for
purposes of redemption in proposed Sec. 706.203(b)(1)(i) as not
exceeding two business days? If not, what may be a more appropriate
time frame? For example, should the NCUA consider other time frames
ranging from one calendar day to seven calendar days timely? Should the
NCUA consider some timeframe longer than seven calendar days timely?
Should the NCUA define ``timely'' in a manner that scales with the
liquidity of the underlying Reserve Assets or other factors? How should
any definition of ``timely'' appropriately balance considerations of
price stability and run risk?
Question 96: Should the NCUA include a safe harbor for failing to
timely redeem a Payment Stablecoin in certain circumstances that may be
outside of the PPSI's control (e.g., disruptions to payment or banking
systems for which the PPSI is not responsible)?
Question 97: Should the NCUA consider a longer redemption period
``timely'' in times of stress? If so, how long should the NCUA extend
the redemption period and what metrics and data should the NCUA look to
in order to determine whether an extension is warranted? For example,
in the proposed rule, if a PPSI faced redemption demands in excess of
10 percent of its Outstanding Issuance Value over one day, the time
period for timely redemption is generally extended to seven calendar
days. Would other metrics be more appropriate? Should the NCUA
automatically extend the time period for timely redemption in the event
of a spike in redemption requests? Should the issuer be required to
notify the NCUA if it exceeds the threshold for extending the
redemption period, as proposed? Should the issuer be required to inform
the public upon automatic extension of the time period? Should the
extension of the time period to seven calendar days be such that
notwithstanding a PPSI being able to demonstrate that it can redeem
requests in an orderly fashion and through a fair and transparent
process, the PPSI would not be able to redeem sooner than seven
calendar days? Should the PPSI be able to make the determination that
it can redeem through a fair and transparent process on its own without
NCUA approval or should the standard otherwise be changed? Should the
extended redemption time period apply to outstanding and subsequent
redemption requests as proposed?
Question 98: Should the NCUA define ``redemption'' for purposes of
the proposed rule? If so, should it be defined broadly to mean that,
for example, the PPSI has initiated payment to the Payment Stablecoin
holder in return for a tendered Payment Stablecoin? Are there reasons
to define ``redemption'' more narrowly? For example, should the NCUA
define redemption to mean that the PPSI's payment to a Payment
Stablecoin holder in exchange for Payment Stablecoin has settled?
Question 99: Are there limitations that the NCUA should impose on
redemption fees, e.g., to discourage run risk or to encourage price
stability?
Question 100: Should the NCUA require PPSIs to deliver notice to
current Customers whenever they change fees, as proposed? Are there any
specific methods or modes of communication that the NCUA should
require? If so, which modes of communication would be most effective
and appropriate? Should the notice be waived if the change is a
decrease in fees?
Question 101: Should the NCUA include specific additional
provisions regarding fee disclosures in the regulation text? If so,
what additional requirements should be included? Should the NCUA
specify how section 5 of the FTC Act relating to unfair or deceptive
acts or practices could apply to how the NCUA evaluates the
disclosures? \163\ To whom should issuers have a responsibility to
deliver disclosures regarding changes in fees? Should it be all Payment
Stablecoin holders (e.g., include retail holders who purchased from an
exchange or secondary market), or should it be a narrower subset of
holders (e.g., only holders who purchased directly from the Payment
Stablecoin issuer)? Are there obstacles that would make it impractical
to deliver change in fee notices to all Payment Stablecoin holders?
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\163\ 15 U.S.C. 45.
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Question 102: The NCUA has proposed several categories of
disclosure in the proposed rule and requested comment as to whether it
should propose additional categories. Taken collectively, would these
disclosures provide potential Customers of PPSIs with the appropriate
information to inform their use of Payment Stablecoins? Are there any
steps the NCUA should take to ensure that potential Customers are not
confused or overwhelmed by these disclosures, especially in light of
the relative unfamiliarity many potential Customers may have with
Payment Stablecoins? For example, should the NCUA take any steps to
unify required
[[Page 28986]]
disclosures so that they are all provided to Customers at a specific
point during the relationship? If so, how should the NCUA ensure that
the most pertinent information is sufficiently emphasized? Is there
anything else the NCUA should do to ensure that potential Customers are
appropriately informed in regard to Payment Stablecoins issued by
PPSIs? Are there any technical aspects of Distributed Ledgers or
blockchain the NCUA should take advantage of in relation to
disclosures? For example, should certain disclosures be automated
through smart contracts, such as with wrappers or other techniques?
Question 103: Currently, many stablecoin issuers have issuance
policies that may limit direct interaction with retail stablecoin
holders. What are the potential impacts of these policies on retail
stablecoin holders during a liquidity event? Should the NCUA explicitly
require PPSIs to redeem Payment Stablecoins presented by any Payment
Stablecoin holder that has undergone appropriate on-boarding including
Customer screening, as proposed? Should the NCUA require PPSIs to
redeem Payment Stablecoins presented by a Payment Stablecoin holder
that has an account relationship at a regulated financial institution?
Is additional clarity needed as to for whom a PPSI is obligated to
redeem a permitted Payment Stablecoin? Should the NCUA impose any
additional rules addressing minimum amounts for redemption? For
example, should the NCUA prohibit redemption minimums or set the
minimum at some point other than one Payment Stablecoin?
4. Sec. 706.204. Risk Management
a. Proposed Sec. 706.204
Section 4(a)(4)(A)(iv) of the GENIUS Act provides that the NCUA
must issue regulations implementing appropriate operational,
compliance, and information technology risk management principles-based
requirements and standards, including Bank Secrecy Act and sanctions
compliance standards, that are tailored to the business model and risk
profile of NCUA-Licensed PPSIs and are consistent with applicable
law.\164\ Proposed Sec. 706.204 addresses the requirements and
standards required under section 4(a)(4)(A)(iv) of the GENIUS Act.
Proposed Sec. 706.204 also addresses interest rate risk management
standards under section 4(a)(4)(A)(iii) of the GENIUS Act.\165\
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\164\ 12 U.S.C. 5903(a)(4)(A)(iv).
\165\ 12 U.S.C. 5903(a)(4)(A)(iii).
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The GENIUS Act requires that the regulation's requirements and
standards be ``principles-based.'' Accordingly, the NCUA is proposing
flexible standards in Sec. 706.204 that scale based on the nature,
scope, and risk of an NCUA-Licensed PPSI's activities. Most of the
standards in proposed Sec. 706.204 mirror the standards in the OCC
Proposal. The standards in the OCC Proposal are adapted from relevant
provisions of 12 CFR part 30, appendices A and B, which in turn
implement 12 U.S.C. 1831p-1.\166\ The OCC Proposal identified standards
from appendices A and B of part 30 that fit the requirements of section
4(a)(4)(A)(iii) or 4(a)(4)(A)(iv) of the GENIUS Act and then,
consistent with the statute, adapted and tailored those standards to
the business models of PPSIs, as appropriate. The OCC Proposal also
noted that the OCC issued a joint statement, together with the Federal
Reserve and FDIC, on Risk Management Considerations for Crypto-Asset
Safekeeping,\167\ and that the standards in the OCC Proposal are
consistent with the considerations described in the joint
statement.\168\ As noted throughout this preamble, the NCUA believes it
is important to, where possible, provide consistent standards across
the various primary Federal payment stablecoin regulators. The NCUA
agrees with the approach taken in the OCC Proposal and feels that it
appropriately implements the requirements and standards required under
sections 4(a)(4)(A)(iii) and (iv) of the GENIUS Act.\169\ As discussed
more thoroughly below, the NCUA is proposing to largely mirror the
OCC's approach.
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\166\ The standards listed in 12 U.S.C. 1831p-1 provide a useful
reference point for standards that may be applicable to PPSIs.
However, 12 U.S.C. 1831p-1 is not a source of authority for issuing
these risk management requirements.
\167\ See OCC, ``Agencies Issue Joint Statement on Risk-
Management Considerations For Crypto-Asset Safekeeping'' (July 14,
2025), available at https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68.html.
\168\ Consistent with the recommendations in the Digital
Financial Technology Report, the NCUA intends to continue to work to
provide additional clarity with respect to Digital Asset activities
undertaken by NCUA-supervised entities.
\169\ 12 U.S.C. 5903(a)(4)(A)(iii)-(iv).
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Proposed Sec. 706.204(a)(1) requires that an NCUA-Licensed PPSI
have internal controls and information systems that are appropriate for
the size and complexity of the PPSI and the nature, scope, and risk of
its activities and that provide for: (i) an organizational structure
with appropriate segregation of duties and an internal control
structure that establishes clear lines of authority and responsibility
for monitoring adherence to established policies; (ii) effective risk
assessment; (iii) timely and accurate financial, operational, and
regulatory reporting, including with respect to reports required under
proposed part 706; (iv) adequate procedures to safeguard, manage,
control, and monetize assets, including Reserve Assets; and (v)
compliance with applicable laws and regulations. Internal controls
refer to the systems, policies, procedures, and processes effected by
the board of directors and other personnel to safeguard PPSI assets,
limit or control risks, achieve PPSI objectives, and ensure compliance
with applicable laws and regulations. Effective internal controls help
the board of directors and management safeguard the NCUA-Licensed
PPSI's resources and comply with laws and regulations, as well as
reduce the possibility of significant errors and irregularities, and
assist in their timely detection when errors and irregularities do
occur. Internal controls must also include an effective risk assessment
since a PPSI cannot effectively manage its risks without an
understanding of its risk profile. The internal controls standards in
proposed Sec. 706.204(a)(1) align with those proposed in the OCC
Proposal, which are modeled on the internal controls standards in 12
CFR part 30, with some adjustments to accommodate the particular
activities and risks of PPSIs. For example, the procedures to
safeguard, manage, control, and monetize assets will be expected to
include measures to monitor and ensure the deposit and funds in Share
Account concentration and diversification requirements are met on a
daily basis.\170\ Likewise, procedures will be expected to address
potential vulnerabilities related to fraud and the theft of Payment
Stablecoins or other assets.
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\170\ In spring 2023, interest rate increases contributed to the
failure of Silicon Valley Bank, which in turn caused the value of
one stablecoin, USDC, to fall below $1 in the secondary market when
it became evident that much of USDC's reserves were held at Silicon
Valley Bank. This event illustrates the potential knock-on effects
of changes in interest rates and the importance of continuous
monitoring for Payment Stablecoins, particularly if acute stress
creates situations where issuers are unable to access reserve
assets.
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The NCUA proposes that Sec. 706.204(a)(2) requires NCUA-Licensed
PPSIs have an internal audit system that is appropriate to the size and
complexity of the PPSI and the nature, scope, and risk of its
activities and that the audit system provides for (i) adequate
monitoring of the system of internal controls through an internal audit
function, or for an NCUA-Licensed PPSI whose size, complexity or scope
of operations does not warrant a full scale internal audit function, a
[[Page 28987]]
system of independent reviews of key internal controls; (ii)
independence and objectivity; (iii) qualified Persons responsible for
the audit function; (iv) adequate independent testing and review of
internal controls and information systems, verification of published
information available to Customers, calculations for required reserves,
and regulatory filings; (v) adequate documentation of tests and
findings and any corrective actions; (vi) verification and review of
management actions to address deficiencies; and (vii) review by the
institution's audit committee or board of directors of the
effectiveness of the internal audit system. Internal audit systems
provide objective, independent reviews of PPSI activities, internal
controls, and information systems to help the board of directors and
management monitor and evaluate internal control adequacy and
effectiveness. An internal audit system, among other items, is expected
to independently test and review systems, as appropriate, related to
(1) an NCUA-Licensed PPSI's compliance with the GENIUS Act and
requirements in any final rules implementing the GENIUS Act; (2)
payment systems; and (3) third-party risk management. Well-planned,
properly structured audit programs are essential to effective risk
management and internal control systems. Effective internal audit
programs are a critical defense against fraud and provide vital
information to the board of directors about the effectiveness of
internal controls systems. An internal audit program's responsibilities
include evaluating compliance systems, safeguards around use of payment
systems, and risks posed by relationships with and dependence on third
parties. While it is important that internal audit functions be
conducted by qualified Persons with an appropriate level of
independence from other business lines, the proposed rule would not
mandate a particular organizational structure (for example, three lines
of defense). Proposed Sec. 706.204(a)(2) would not prescribe a one-
size-fits-all approach to risk management. Smaller NCUA-Licensed PPSIs
with a lower risk profile may be able to comply using a simpler, less
delineated, organizational structure, or may be able to outsource
certain functions such as the internal audit function, while larger
NCUA-Licensed PPSIs, with higher risk-profiles, may require
organizational structures with more clearly delineated risk management
functions, including internal audit personnel.
Proposed Sec. 706.204(a)(3) addresses interest rate risk and would
require an NCUA-Licensed PPSI to (i) manage interest rate risk in a
manner that is appropriate to the size and complexity of the PPSI and
the complexity of its assets and liabilities and (ii) provide for
periodic reporting to management and the board of directors regarding
interest rate risk with adequate information for management and the
board of directors to assess the level of risk. While PPSIs will hold
Reserve Assets that may, depending on their type, have limited or no
duration (e.g., in the case of deposits and funds in Share Accounts
that are payable upon demand), it is still important for NCUA-Licensed
PPSIs to be mindful of this risk, particularly in light of the role of
interest rate risk in the failures of previous money market funds,
whose investments, like those of PPSIs, were supposed to be limited to
short-duration safe assets.\171\ Increases in interest rates,
particularly in short time periods, can reduce the value of interest-
sensitive Reserve Assets, potentially impacting their marketability and
liquidity as well as their Fair Value. Similarly, changes in interest
rates can affect the earnings of PPSIs since their earnings may rely in
substantial part on interest earned on Reserve Assets. Likewise,
increases in interest rates may reduce the demand for Payment
Stablecoins, particularly since PPSIs are prohibited from paying
interest to Payment Stablecoin holders solely in connection with the
holding, use, or retention of Payment Stablecoins under proposed Sec.
706.201(c)(4). The GENIUS Act explicitly authorizes interest rate risk
management standards under section 4(a)(4)(A)(iii) \172\ whereas
section 4(a)(4)(A)(iv) \173\ authorizes the other requirements and
standards proposed in Sec. 706.204. The NCUA proposes that interest
rate risk management standards be included under proposed Sec. 706.204
since it is a risk management standard like the other standards already
included in proposed Sec. 706.204.
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\171\ Mismanagement of interest rate risk was a leading cause of
failure in two of the three money market funds in the United States
in which the net asset value of the fund fell below $1 (also
referred to as ``breaking the buck''), ultimately leading to
liquidation. See In the Matter of John E. Backlund, et al.,
Investment Company Act Release No. 23639 (January 11, 1999) (SEC
administrative order involving the Community Bankers U.S. Government
Money Market Fund liquidated in 1994); In the Matter of First
Multifund Advisory Corp. and Milton Mound, Initial Decision, File
No. 3-5881 (December 29, 1982) (SEC initial decision involving the
First Multifund for Daily Income liquidated in 1978).
\172\ 12 U.S.C. 5903(a)(4)(A)(iii).
\173\ 12 U.S.C. 5903(a)(4)(A)(iv).
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The NCUA proposes that Sec. 706.204(a)(4) require an NCUA-Licensed
PPSI's asset growth to be prudent and commensurate with an NCUA-
Licensed PPSI's risk management capabilities, operational capacity, and
staffing. While there are no hard limits to how quickly NCUA-Licensed
PPSIs may grow, NCUA-Licensed PPSIs must ensure that growth does not
undercut the issuer's capabilities to comply with the requirements of
this rule and other applicable law. For example, rapid issuance of new
Payment Stablecoins would require rapid increase in reserves, and NCUA-
Licensed PPSIs must ensure that they maintain the capabilities to
maintain these reserves in compliance with proposed Sec. 706.202 and
maintain the ability to access and monetize the reserves in order to
meet redemption requests.
The NCUA proposes that Sec. 706.204(a)(5) requires that an NCUA-
Licensed PPSI establish and maintain a risk management system that is
commensurate with the PPSI's size and complexity and the nature and
scope of its operations to evaluate and monitor earnings and ensure
that earnings are sufficient to support operations and maintain the
capital levels that would be required under subpart D of proposed part
706. To reflect the distinct characteristics of PPSIs as compared to
other types of entities, the proposed standards on earnings in proposed
Sec. 706.204(a)(5) do not include all the listed elements in paragraph
II.H in appendix A to 12 CFR part 30, from which the earnings standard
in the OCC's Proposal (proposed Sec. 15.13(a)(5)) and this proposal
(proposed Sec. 706.204(a)(5)) were adapted. Nevertheless, under this
proposed rule, NCUA-Licensed PPSIs would be expected to comply with the
overarching requirement to evaluate and monitor earnings. It may be
particularly important for PPSIs to evaluate the volatility and
sustainability of earnings, since changes in short-term interest rates
could have sudden impacts on PPSI earnings.
Proposed Sec. 706.204(a)(6) addresses Insider and Affiliate
transactions and is intended to protect an NCUA-Licensed PPSI from
entering into detrimental transactions with Insiders or Affiliates.
Under proposed paragraph (a)(6)(i), an NCUA-Licensed PPSI would be
required to ensure that transactions between the PPSI and Insiders or
Affiliates: (1) are not excessive and do not pose significant risks of
material financial loss; (2) are conducted on terms that are the same
or at least as favorable to the PPSI as those prevailing at the time
for
[[Page 28988]]
comparable transactions with or involving non-Insiders or non-
Affiliates (or in the absence of comparable transactions, are offered
on terms and under circumstances that, in good faith would be offered
to, or would apply to non-Affiliates or non-Insiders); and (3) are
appropriately documented and reviewed by the board of directors.
Proposed paragraph (a)(6)(ii) would require an NCUA-Licensed PPSI to
appropriately monitor and validate compliance with these requirements.
Proposed Sec. 706.204(a)(7) would provide requirements for
overseeing third-party service provider arrangements. Specifically, an
NCUA-Licensed PPSI must (i) exercise appropriate due diligence in
selecting its service providers; (ii) require its service providers by
contract to implement appropriate measures designed to meet the
requirements of part 706; and (iii) as appropriate, monitor its service
providers to confirm they have satisfied their obligations under
proposed part 706. As part of this monitoring, NCUA-Licensed PPSIs
should review audits, summaries of test results, or other equivalent
evaluations of its service providers.
Proposed Sec. 706.204(a)(8) would require an NCUA-Licensed PPSI to
(i) appropriately monitor and validate compliance with the requirements
of Sec. 706.202 and (ii) manage liquidity and concentration risk in a
manner that is appropriate to the business model and risk profile of
the PPSI.
Proposed Sec. 706.204(b)(1) provides that an NCUA-Licensed PPSI
must implement a comprehensive written information security risk and
control framework, including a program that assesses and manages
information technology and information security risks.
Under proposed Sec. 706.204(b)(2), the board of directors of the
NCUA-Licensed PPSI, or an appropriate board committee, must approve the
information technology and security program. The board must oversee the
development, implementation, and maintenance of the program, including
the appointment of a qualified Information Technology and Security
Officer. The oversight required of the board or committee includes
assigning specific responsibility for program implementation and review
of program-related reports.
Under proposed Sec. 706.204(b)(3), an NCUA-Licensed PPSI's
information technology and security program must include (i) an
inventory and classification of assets, processes, and sensitivity of
data; (ii) controls supporting and safeguarding sensitive information
and processes; (iii) evaluation, validation, and reporting processes to
ensure that key information technology systems and controls, including
smart contracts, are operating as intended; (iv) periodic independent
testing; and (v) a comprehensive and effective incident identification
and assessment process and incident response program.
Under proposed Sec. 706.204(b)(4), an NCUA-Licensed PPSI's
information technology and security program must include
administrative, technical, and physical safeguards designed to (i)
ensure the security and confidentiality of records containing Nonpublic
Personal Information about a Customer; (ii) protect against any
anticipated threats or hazards to the security or integrity of such
records; (iii) protect against unauthorized access to or use of such
records that could result in substantial harm or inconvenience to any
Customer; and (iv) ensure the proper disposal of such records.
Proposed Sec. 706.204(b)(5) provides that an NCUA-Licensed PPSI
must develop, implement, and maintain appropriate measures to ensure
secure handling of Digital Assets, including Private Key management,
backup, and recovery incorporating: (i) relevant technical,
operational, strategic, market, legal, and compliance considerations
relating to each Digital Asset and its underlying Distributed Ledger;
and (ii) material developments specifically related to supported
Digital Assets and their underlying Distributed Ledgers.\174\
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\174\ If an NCUA-Licensed PPSI holds Digital Assets on a
Customer's behalf, the PPSI's risk management practices must reflect
this activity. Consistent with the July 14, 2025 Joint Statement on
Risk-Management Considerations for Crypto-Asset Safekeeping issued
by the FDIC, Federal Reserve, and OCC, an NCUA-Licensed PPSI holding
Digital Assets on a Customer's behalf would be required to maintain
risk management practices, and information security practices in
particular, that reflect the PPSI's capacity to understand a complex
and evolving asset class, ability to ensure a strong control
environment, and appropriate contingency plans to address
unanticipated challenges in effectively providing services to
Customers.
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Proposed Sec. 706.204(b)(6) would require that an NCUA-Licensed
PPSI monitor, evaluate, and adjust, as appropriate the information
technology and security program in light of any relevant changes in
technology, the sensitivity of its Customer information, internal or
external threats, and the PPSI's own changing business arrangements,
such as mergers and acquisitions, alliances and joint ventures, third-
party arrangements, and changes to applicable information systems.
Proposed Sec. 706.204(b)(7) would provide that an NCUA-Licensed
PPSI must conduct a reasonable investigation when it becomes aware of
an incident of unauthorized access to sensitive Customer information,
including a Customer's Private Key, to determine the likelihood that
the information has been or will be misused. The requirements in
proposed Sec. 706.204(b)(7) mirror those in the OCC Proposal (proposed
Sec. 15.13(b)(7)), which are similar to the OCC's supplement A to
appendix B to part 30\175\ and the guidance for FICUs, currently
located in NCUA's appendix B to part 748.\176\ If the NCUA-Licensed
PPSI determines that misuse of Customer information has occurred or is
reasonably possible, the PPSI must notify the Customer or Customers
affected or possibly affected as well as the NCUA as soon as possible.
Customer notice must be delayed if an appropriate law enforcement
agency determines that notification will interfere with a criminal
investigation and provides the NCUA-Licensed PPSI with a written
request for the delay. If delayed by investigation, the NCUA-Licensed
PPSI must notify its Customers of the misuse or possible misuse of
Customer information as soon as law enforcement notifies the PPSI that
notification will no longer interfere with the investigation. Proposed
Sec. 706.204(b)(7)(ii) recognizes that there may be situations where
the NCUA-Licensed PPSI determines that a group of files has been
accessed improperly but is unable to identify which specific Customers'
information has been accessed. If the circumstances of the unauthorized
access lead the NCUA-Licensed PPSI to determine that misuse of the
information is reasonably possible, it must notify all Customers in the
group.
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\175\ 12 CFR part 30, Appendix B.
\176\ 12 CFR part 748, Appendix B.
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Proposed Sec. 706.204(b)(8) would provide that an NCUA-Licensed
PPSI's information technology and security program must include
measures to ensure continuity of operations and recover critical
functions in the face of disruptions, including by business impact
analyses, testing of vulnerabilities, and testing with critical service
providers. Recent corporate information technology system failures have
demonstrated the importance of measures to maintain operational
resilience. NCUA-Licensed PPSIs should ensure that they have sufficient
controls to reliably address operational issues that may arise with
burning and minting new Payment Stablecoins and should conduct
appropriate due
[[Page 28989]]
diligence before supporting any new Distributed Ledger. Operational
resilience will be particularly important for PPSIs, who will depend on
Customer confidence in the stable value and availability of their
Payment Stablecoins.
Proposed paragraph Sec. 706.204(c) would implement the GENIUS
Act's requirement for the NCUA to issue regulations implementing
appropriate Bank Secrecy Act and sanctions compliance standards by
providing that, in order to ensure compliance with Bank Secrecy Act and
sanctions compliance requirements, each NCUA-Licensed PPSI must comply
with the Bank Secrecy Act, sections 4(a)(5) and 4(a)(6) of the GENIUS
Act,\177\ and applicable regulations at 31 CFR Chapter V and 31 CFR
Chapter X, including any AML/CFT program, sanctions program, and
reporting requirements. The Department of Treasury's Financial Crimes
Enforcement Network (FinCEN) and the Office of Foreign Assets Control
(OFAC) recently issued a separate proposed rule that would implement
the GENIUS Act's directive to treat PPSIs as financial institutions
under the Bank Secrecy Act, as well as imposing several unique
obligations required by the GENIUS Act.\178\ The FinCEN and OFAC
proposed rule would also implement the GENIUS Act's directive to
require PPSIs to maintain effective sanctions compliance programs. In
the interests of reducing burden and promoting consistent requirements,
the proposed rule would not contain additional requirements beyond
those contained in these proposed rules at this time. Instead,
compliance with regulations at 31 CFR Chapter V and 31 CFR Chapter X
would constitute compliance with proposed paragraph Sec. 706.204(c).
Proposed Sec. 706.204(c) would also specifically reference subpart E
of this part, which would provide the NCUA's supervision and
enforcement policy for AML/CFT program requirements for NCUA-Licensed
PPSIs.
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\177\ 12 U.S.C. 5903(a)(5) and (6).
\178\ 91 FR 18582 (Apr. 10, 2026).
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b. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 104: How should the NCUA ensure that the standards in
proposed Sec. 706.204 are ``principles-based'' while providing
sufficient clarity to PPSIs? Should the requirements in proposed Sec.
706.204 be more high level or more detailed?
Question 105: Should certain of the risk management requirements
only apply to large PPSIs? If so, which requirements should only apply
to large PPSIs, and what would be the appropriate threshold for
determining that a PPSI is a large issuer (e.g., $10 billion in
Outstanding Issuance Value)?
Question 106: Which standards from 12 U.S.C. 1831p-1 and 12 CFR
part 30 appendices A and B should or should not apply to PPSIs? Are
there other standards not in 12 U.S.C. 1831p-1 and 12 CFR part 30
appendices A and B that should apply PPSIs? Commenters are directed to
these sources even though they do not apply to FICUs because they serve
as a basis for the OCC Proposal.
Question 107: Do the proposed risk management requirements
appropriately provide for clear management roles, responsibilities, and
accountability? If not, how should the proposed risk management
requirements be revised?
Question 108: Should PPSIs be required to adopt and adhere to a
risk appetite statement?
Question 109: Should PPSIs be required to regularly (e.g., on at
least an annual basis), review their risk management framework and make
any changes to appropriately align risk management activities with
their business objectives and strategies?
Question 110: Should the proposed rule's requirements with respect
to interest rate risk management be modified? If so, how? For example,
should PPSIs have in place the appropriate policies, procedures and
internal controls for their interest rate risk management programs?
Should PPSIs develop appropriate measurement of interest rate risk as
part of their interest rate risk management programs? Should PPSIs
establish risk appetite and limit structure as part of interest rate
risk management programs? Should PPSIs incorporate stress testing as
part of their interest risk management programs? Should PPSIs be
allowed to use assets that do not qualify as Reserve Assets as part of
an interest rate risk hedging program? If so, should there be
restrictions on the types of instruments used for hedging purpose?
Additionally, should the maturities of the hedging instruments be
matched with the maturities of the qualified Reserve Assets?
Question 111: What types of credit risk may PPSIs face, and how
should PPSIs manage these risks? Should the proposed rule include
specific requirements or standards related to management of credit
risk? If so, what specific requirements or standards should the NCUA
consider including?
Question 112: Are the risk management requirements in proposed
Sec. 706.204(a)(8) necessary in light of the requirements in proposed
Sec. 706.202?
Question 113: Are there areas that fall under the categories of
technological, operational, compliance, or other risk management
principles-based requirements and standards that should be included in
Sec. 706.204 but were omitted from the proposed rule? Should proposed
Sec. 706.204(b) expressly address risks relating to smart contracts,
encryption, tokenized assets, or any other technology or procedure? Are
there standards which were included but are not applicable to PPSIs?
The proposed rule would require the appointment of a qualified
Information Technology and Security Officer. Should the rule also
require the appointment of a qualified Chief Risk Officer and Chief
Audit Executive? The NCUA is considering all possible combinations of
the standards in proposed Sec. 706.204 and invites comments on which
combination of standards is appropriate as well as whether to remove
any of the individual standards in proposed Sec. 706.204.
Question 114: Should the NCUA consider operational risk management
principles-based requirements and standards to address the situation
where an issuer needs to transfer Payment Stablecoins across different
blockchains to satisfy a redemption demand? If so, what kind of
requirements and standards should the NCUA consider to address this
situation? For example, should there be specific requirements relating
to locking, minting, or burning Payment Stablecoins to facilitate a
transfer?
Question 115: Should the NCUA include consumer protection-related
compliance risk management principles-based requirements and standards
in Sec. 706.204? If so, are there specific standards the NCUA should
institute?
Question 116: Are there additional requirements concerning data
privacy that would be appropriate for the NCUA to include in proposed
part 706? Please describe in detail any such standards.
Question 117: Are there particular measures necessary to manage
compensation-related concerns at PPSIs, notably risks associated with
compensating any party with Payment Stablecoins issued by a PPSI?
Question 118: Should the NCUA include additional requirements
concerning PPSIs' management of their ability to satisfy redemption
requests and to monetize Reserve Assets, including by analyzing
reasonably anticipated redemption scenarios?
Question 119: Should the NCUA include additional requirements
relating
[[Page 28990]]
to the maintenance of safeguards to prevent the payment of
compensation, fees, and benefits that are excessive or that could lead
to material financial loss to the PPSI?
Question 120: Are the proposed requirements with respect to Insider
and Affiliate transactions appropriately tailored? If not, how should
they be modified? Should the NCUA consider more prescriptive
quantitative or qualitative requirements related to Insider and
Affiliate transactions?
Question 121: Should the NCUA include any requirements relating to
the concentration of management at unaffiliated PPSIs? For example,
should the NCUA include limits on the number of unaffiliated PPSIs for
which an individual may serve as an Officer or senior management
official? Should any such limits be tied to the Outstanding Issuance
Value of the PPSI?
Question 122: Should the NCUA require PPSIs to acquire insurance
against certain risks? For example, should PPSIs be required to hold
cyber insurance policies? If so, what should be the minimum coverage
requirements? Should the NCUA require some minimum level of property
and casualty insurance? If so, what should the minimum level of
coverage be? What disclosures, if any, would it be appropriate for a
PPSI to make with respect to its insurance coverage and to whom should
those disclosures be directed (e.g., investors or Payment Stablecoin
holders)? What implications with respect to other applicable disclosure
regimes should the NCUA consider when deciding whether to impose any
disclosure requirements with respect to insurance coverage? To what
extent are the terms and conditions for property and casualty (or other
types of) insurance coverage for PPSIs becoming more standardized? What
steps, if any, should the NCUA take to encourage standardization to
increase certainty and consistency with respect to insurance coverage
across jurisdictions?
5. Sec. 706.205. Audits, Reports, and Supervision
a. Examinations
Section 6(a)(1) of the GENIUS Act authorizes primary Federal
payment stablecoin regulators, including the NCUA, to supervise PPSIs,
as defined in the statute.\179\ Section 6(a)(3) of the GENIUS Act
authorizes the NCUA to examine PPSIs to assess the nature of their
operations and the financial condition of the PPSI; the financial,
operational, technological, compliance, and other risks associated
within the PPSI that may pose a threat to the safety and soundness of
the PPSI or the stability of the financial system of the United States;
and the systems of the PPSI for monitoring and controlling the
risks.\180\ Pursuant to section 6(a)(4)(C) of the GENIUS Act, the NCUA
may only request examinations at a cadence and in a format that is
similar to that required for similarly situated entities regulated by
the NCUA.\181\
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\179\ 12 U.S.C. 5905(a)(1).
\180\ 12 U.S.C. 5905(a)(3).
\181\ 12 U.S.C. 5905(a)(4)(C).
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NCUA's current examination program for FCUs requires a 12-month
examination unless certain criteria are met.\182\ FCUs can qualify for
an examination every 14 to 24 months based on capital levels, asset
size, supervisory ratings, and status of any enforcement actions.\183\
The NCUA is proposing to apply this same examination framework to its
examination authority over PPSIs. Proposed Sec. 706.205(a) provides
that the NCUA will conduct a full-scope examination of every PPSI
subject to its supervision at least once during each 12-month period,
unless otherwise specified in proposed Sec. 706.205(d). A full-scope
examination refers to the comprehensive review of a PPSI's financial
condition, risk management practices, compliance with laws and
regulations, and overall safety and soundness.
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\182\ See NCUA's Examination Flexibility Initiative web page at
available at https://ncua.gov/regulation-supervision/examination-modernization-initiatives/exam-flexibility-initiative for the
eligibility criteria
\183\ Id.
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Proposed Sec. 706.205(d) would provide the NCUA with the option to
examine some PPSIs on a 14- to 24-month cycle, as determined by the
NCUA in its sole discretion, if the issuers satisfy the following
conditions: (1) the PPSI currently is not subject to a formal
enforcement proceeding or order; (2) no Person became a Parent Company
or acquired Control, as specified in Sec. Sec. 706.111 and 706.205(m),
of the PPSI during the preceding 12-month period in which a full-scope
examination would have been required but for proposed Sec. 706.205(d);
(3) the PPSI has an Outstanding Issuance Value of less than $1 billion
or less than $25 billion in total monthly Trading Volume; and (4) the
PPSI is in compliance with all of the reserve requirements set forth in
proposed Sec. 706.202 and the reporting requirements in proposed Sec.
706.205.
Consistent with the NCUA's statutory authority under the GENIUS Act
and the NCUA's supervisory authority over FICUs, proposed Sec.
706.205(e) allows the NCUA to conduct examinations of PPSIs as
frequently as the agency deems necessary, including examinations of a
limited scope. The NCUA has proposed this provision to ensure the
agency has clear authority to conduct ad hoc examinations when
emergencies or risks to the safety and soundness of a PPSI or the FICU
investors require the agency to deviate from its routine examination
cycle.
Proposed Sec. 706.205(b) requires that, upon request, PPSIs must
grant NCUA examiners prompt and complete access to all Officers,
Directors, employees, agents, and relevant books, records, or documents
of any type. The NCUA, through its examination authority over
FICUs,\184\ and the examination authority the GENIUS Act provides it
over PPSIs that are FICU subsidiaries,\185\ has authority to access the
Officers, agents, and books and records of these institutions. The
books and records of a PPSI include, but are not limited to,
information retained on Distributed Ledgers. Additionally, proposed
Sec. 706.205(c) clarifies that the NCUA may conduct examinations
either on site, remotely, or in some combination. Proposed Sec.
706.205(f) provides that all PPSIs must maintain a complete set of
books and records in English and in compliance with GAAP. Proposed
Sec. 706.205(g) requires all PPSIs to develop and implement a records
retention policy that ensures the PPSI can demonstrate compliance with
the GENIUS Act, this part, and all applicable laws and regulations.
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\184\ 12 U.S.C. 1756 and 1784.
\185\ See 12 U.S.C. 5905.
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b. Reports
Section 6(a)(2) of the GENIUS Act requires that each PPSI shall,
upon request, submit to the appropriate Federal payment stablecoin
regulator a report on: the financial condition of the PPSI; the systems
of the PPSI for monitoring and controlling financial and operating
risks; compliance by the PPSI (and any subsidiary thereof) with the
GENIUS Act; and the compliance of the Federal qualified nonbank payment
stablecoin issuer with the Bank Secrecy Act and with laws authorizing
the imposition of sanctions and implemented by the Secretary of the
Treasury.\186\
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\186\ 12 U.S.C. 5905(a)(2).
---------------------------------------------------------------------------
Section 6(a)(4) of the GENIUS Act requires the NCUA to take certain
actions to promote efficiency in the supervision and examination of
PPSIs. The NCUA, in supervising and examining PPSIs, to the fullest
extent
[[Page 28991]]
possible, must use existing supervisory reports and other supervisory
information and avoid duplication of examination activities, reporting
requirements, and requests for information.\187\ Proposed Sec.
706.205(j) implements section 6(a)(2) of the GENIUS Act by requiring
each PPSI subject to the requirements of section 6(a)(1) of the Act to,
upon request, submit to the NCUA a report on: (1) the financial
condition of the PPSI; (2) the systems of the PPSI for monitoring and
controlling financial and operating risks; (3) compliance by the PPSI
(and any subsidiary thereof) with the GENIUS Act and proposed part 706;
and (4) compliance of the PPSI with the Bank Secrecy Act and with laws
authorizing the imposition of sanctions and implemented by the
Secretary of the Treasury. In an effort to clarify the GENIUS Act's
requirements, the NCUA has proposed in Sec. 706.205(j)(4) expanding
the requirement that Federal qualified nonbank payment stablecoin
issuers produce reports of compliance with the requirements of the Bank
Secrecy Act and with laws authorizing the imposition of sanctions and
implemented by the Secretary of the Treasury to all PPSIs.\188\
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\187\ 12 U.S.C. 5905(a)(4).
\188\ The NCUA notes that section 6(a)(2) of the GENIUS Act (12
U.S.C. 5905(a)(2)) requires all PPSIs to provide the subsequent list
of reports in section 6(a)(2)(A) through (D) to the NCUA upon
request, whereas section 6(a)(2)(D) refers to the compliance of
``the Federal qualified nonbank payment stablecoin issuer with the
requirements of the Bank Secrecy Act.'' Based on the structure of
section 6(a)(2), the NCUA believes all PPSIs must, upon request,
produce each of the listed reports and that the NCUA could request
the report required in section 6(a)(2)(D) from a PPSI. Additionally,
section 6(a)(1) of the GENIUS Act (12 U.S.C. 5905(a)(1)) gives the
NCUA supervisory authority over all PPSIs that are FICU
subsidiaries, which provides the NCUA with further authority to
request the report in section 6(a)(2)(D).
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In addition to the regulations codifying the reporting requirements
in section 6(a)(2) of the GENIUS Act,\189\ pursuant to its supervisory
authority in section 6(a)(1) of the GENIUS Act,\190\ the NCUA is
proposing in Sec. 706.205(h) to require PPSIs to submit certain
information on a weekly basis, in the manner and form specified by the
NCUA to assist in ongoing supervision of the PPSI. At a high level, the
NCUA is requesting a PPSI provide information regarding the issuance
and redemption, Trading Volume, and Reserve Assets for each Payment
Stablecoins it issues. The report would include information relating to
the blockchains the Payment Stablecoin is listed on, Outstanding
Issuance Value, secondary market activity and price movement,
redemption volume and times, detailed information regarding Reserve
Assets, and other relevant information. NCUA will provide more
information about the specific information requested on a web page that
will be available from NCUA's homepage at www.ncua.gov. The NCUA
believes that requiring a PPSI to provide a confidential set of data on
a weekly basis for each Payment Stablecoin it issues will allow the
NCUA to understand the PPSI's operations and the risks unique to its
business model. This regular data reporting will allow the NCUA to
tailor its examinations to be risk-based, which will reduce the burden
of examinations by focusing the scope of examinations. Further, the
NCUA believes that this regular reporting framework will allow the NCUA
to identify and respond more quickly to emerging novel and financial
stability risks. The NCUA also believes the information request is
currently tracked on a regular basis by stablecoin issuers.
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\189\ 12 U.S.C. 5905(a)(2). With regards to reporting by a PPSI
as to its assets under custody, section 10(d) of the GENIUS Act (12
U.S.C. 5909(d)) provides an additional statutory grant of authority.
\190\ 12 U.S.C. 5905(a)(1).
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The NCUA is proposing in Sec. 706.205(i) a separate provision that
requires PPSIs to submit quarterly reports of financial condition to
the NCUA, including, but not limited to income statement, expenses,
balance sheet, reserves, changes in equity, investments, capital,
Outstanding Issuance Value, and assets under custody, in a standardized
format as prescribed by the NCUA within 30 days of the end of the prior
quarter. This provision is similar to the quarterly statements of
financial condition that FICUs provide through their quarterly Call
Report and Profile. The NCUA proposes this provision to ensure that
PPSIs provide consistent, standardized statements of financial
condition to the NCUA and will include additional information beyond
the composition report required under Sec. 706.202(e) and different
information than what would be requested in the confidential weekly
reporting required under proposed Sec. 706.205(h). Receiving
standardized data on a quarterly basis will enhance the NCUA's ability
to supervise PPSIs and provide another source of information that can
be used to tailor examinations and identify emerging risks.
The information required to be reported under this section will be
streamlined substantially relative to the Call Reports filed by FICUs.
Standardizing these reporting requirements will enhance the NCUA's
ability to supervise PPSIs and provide clarity as to the information a
PPSI must report. Similar to FICU financial data, the NCUA intends to
publish the information provided in the quarterly report to ensure
transparency and provide the public with an understanding of a PPSI's
financial condition on an ongoing basis. The NCUA also proposes to
require that each quarterly report of financial condition includes a
declaration from the PPSI's Chief Financial Officer, or the individual
performing an equivalent function, that the report is true and correct
to the best of their knowledge and belief. The correctness of the
quarterly report of condition shall also be attested to by the
signatures of the Directors and senior management of the PPSI other
than the Officer making such declaration, with the attestation stating
that the report has been examined by them and to the best of their
knowledge and belief is true and correct. The NCUA proposes requiring
these declarations and attestations to ensure that PPSI's Officers and
Directors are accountable for the accuracy of the PPSI's reports of
financial condition, similar to existing standards for FICUs.
Proposed Sec. 706.205(k) implements section 5(i) of the GENIUS Act
.\191\ Consistent with the statute, under the proposed rule, not later
than 180 days after the approval of an application under proposed
subpart A, and on an annual basis thereafter, a PPSI must submit to the
NCUA a certification that the PPSI has implemented anti-money
laundering and economic sanctions compliance programs that are
reasonably designed to prevent the PPSI from facilitating money
laundering, in particular, facilitating money laundering for cartels
and organizations designated as foreign terrorist organizations under
section 219 of the Immigration and Nationality Act (8 U.S.C. 1189) and
the financing of terrorist activities, consistent with the requirements
of the GENIUS Act.
---------------------------------------------------------------------------
\191\ 12 U.S.C. 5904(i).
---------------------------------------------------------------------------
c. Audits
Section 4(a)(10) of the GENIUS Act requires that a PPSI with more
than $50 billion in consolidated total Outstanding Issuance Value that
is not subject to certain reporting requirements under Federal
securities laws prepare an annual financial statement.\192\ Section
4(a)(10) further provides that a Registered Public Accounting Firm must
perform an audit of the annual financial statement. The audited annual
financial statement must be made publicly available on the PPSI's
website and be
[[Page 28992]]
submitted annually to the primary Federal payment stablecoin regulator.
---------------------------------------------------------------------------
\192\ 12 U.S.C. 5903(a)(10).
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Proposed Sec. 706.205(l) implements the requirements of section
4(a)(10) of the GENIUS Act. Under the proposed rule, each PPSI with
more than $50 billion in Outstanding Issuance Value that is not subject
to the reporting requirements under section 13(a) or 15(d) of the
Securities and Exchange Act of 1934 \193\ must prepare, in accordance
with GAAP, an annual financial statement that must include the
disclosure of any related party transactions, as defined by GAAP.
Proposed Sec. 706.205(l)(1) requires that a Registered Public
Accounting Firm must conduct an audit of the financial statements in
accordance with all applicable auditing standards established by the
Public Company Accounting Oversight Board. Section 4(a)(10)(A)(iii) of
the GENIUS Act describes ``applicable auditing standards'' \194\ as
those that would apply if the PPSI were subject to the reporting
requirements under section 13(a) or 15(d) of the Securities and
Exchange Act of 1934.\195\ The standards would be enforced by the NCUA
for PPSIs subject to the audit requirement under section
4(a)(10)(A)(iii) of the GENIUS Act.\196\ Consistent with this
framework, the NCUA may at any time request that a Registered Public
Accounting Firm provide to the NCUA certain additional information or
documents relating to information provided by the PPSI. The Registered
Public Accounting Firm must agree to provide copies of any working
papers, policies, and procedures relating to services in connection
with the audit required under section 4(a)(10)(A)(iii) of the GENIUS
Act.\197\
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\193\ 15 U.S.C. 78m(a) or 78o(d).
\194\ 12 U.S.C. 5903(a)(10)(A)(iii).
\195\ 15 U.S.C. 78m or 78o(d).
\196\ 12 U.S.C. 5903(a)(10)(A)(iii).
\197\ 12 U.S.C. 5903(a)(10)(A)(iii).
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Proposed Sec. 706.205(l)(2) requires the PPSI to: (1) make the
audited financial statement publicly available on its website, and (2)
submit the audited financial statement annually to the NCUA, in
accordance with the GENIUS Act. Under proposed Sec. 706.205(l)(2)(ii),
a PPSI would be required to submit to the NCUA annually, within 120
days of the end of its fiscal year, an audited financial statement. If
a PPSI is unable to timely file all or any portion of its financial
statements, proposed Sec. 706.205(l)(2)(iii) would require the PPSI to
submit a written notice of late filing to the NCUA that would: (A)
disclose the PPSI's inability to file all, or specified portions, of
its annual financial statement and the reasons therefore in reasonable
detail; (B) include the date by which the financial statement will be
filed; and (C) be filed on or before the deadline for filing the
financial statement.
d. Changes in Control
Proposed Sec. 706.205(m) would address changes in Control of an
NCUA-Licensed PPSI. Proposed Sec. 706.205(m) would require a Person
seeking to acquire Control, as those terms are defined in this part, of
a PPSI to follow the requirements of proposed 12 CFR 706.111 in Subpart
A as if the Person were a FICU seeking to become a new Parent Company
of an NCUA-Licensed PPSI. Thus, consistent with Sec. 706.111, a Person
seeking to acquire Control would need to provide 60 days' prior notice
to the NCUA. The NCUA could inform the filer that the acquisition has
been disapproved, has not been disapproved, or that the review period
has been extended.
The NCUA is considering including additional provisions detailing
the consequences of failing to follow the procedures under Sec.
706.111 both for new potential FICU Parent Companies and Persons
acquiring Control of an NCUA-Licensed PPSI. For example, the NCUA is
considering including language stating that, if a Person acquires
Control of an NCUA-Licensed PPSI without following the requirements of
Sec. 706.111 before the time for the NCUA's review as provided in
Sec. 706.111 has expired or after the NCUA has disapproved the
acquisition of control, the PPSI: (i) must, within 15 calendar days of
the acquisition of Control, provide all information required under
Sec. 706.111; and (ii) may be subject to supervisory or enforcement
actions relating to any concerns arising from the change in Control,
consistent with applicable law. The NCUA welcomes any comments related
to proposed Sec. 706.205(m) as well as the additional language the
NCUA is considering including in proposed Sec. 706.205(m).
The NCUA proposes requiring this notice to facilitate the NCUA's
ongoing examination and supervision of NCUA-Licensed PPSIs. Requiring
notice of changes in Control will assist the NCUA in carrying out its
mandate to examine PPSIs and is consistent with the NCUA's authority to
supervise, request reports, and conduct examinations pursuant to
section 6(a) of the GENIUS Act.\198\ In addition, requiring notice
regarding changes in Control will help the NCUA monitor for and address
evasion of the requirements of the GENIUS Act. For example, there may
be instances where changes in Control implicate the risk management
requirements of the GENIUS Act, Bank Secrecy Act/Anti-Money Laundering
(BSA/AML) or sanctions evasion. Similarly, section 5(c) of the GENIUS
Act includes requirements designed to prevent an individual that has
been convicted of a felony offense involving insider trading,
embezzlement, cybercrime, money laundering, financing of terrorism, or
financial fraud from serving as an Officer or Director for an
applicant.\199\ The same section of the GENIUS Act includes provisions
addressing the competence, experience, integrity of the Officers,
Directors, and Principal Shareholders of the applicant. Absent a
requirement to submit a notice regarding a change in Control, an
applicant could become licensed with a set of Officers, Directors, and
Principal Shareholders that do not raise concerns under section 5(c) of
the GENIUS Act and then transfer Control to Persons that do implicate
concerns under section 5(c) of the Act or that otherwise raise concerns
regarding the ability of the PPSI to comply with the Act and its
implementing regulations.\200\
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\198\ 12 U.S.C. 5905(a).
\199\ 12 U.S.C. 5904(c).
\200\ 12 U.S.C. 5904(c).
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e. Use of Existing Reports and Avoidance of Duplication
Section 6(a)(4) of the GENIUS Act requires the NCUA to take certain
actions to promote efficiency in the supervision and examination of
PPSIs.\201\ The NCUA, in supervising and examining PPSIs, to the
fullest extent possible, must use existing supervisory reports and
other supervisory information and avoid duplication of examination
activities, reporting requirements, and requests for information.
Proposed Sec. 706.205(n) and (o) implement the requirements of section
6(a)(4)(A) and (B) of the GENIUS Act by mirroring the statutory
requirements and stating that, as a part of its supervision and
examination of PPSIs, the NCUA, to the fullest extent possible, will
use existing supervisory reports and other supervisory information and
avoid duplication of examination activities, reporting requirements,
and requests for information.\202\ The NCUA will follow this approach,
including in developing and issuing related examination policies and
processes. The NCUA believes this is the optimal approach because it
will allow the NCUA to quickly adapt its supervisory and examination
policies to maximize both efficiency and burden
[[Page 28993]]
reduction. This approach is also consistent with the approach that the
NCUA takes for other entities under its jurisdiction.
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\201\ 12 U.S.C. 5905(a)(4).
\202\ 12 U.S.C. 5905(a)(4)(A)-(B).
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Proposed Sec. 706.205(o) would generally state that the NCUA will,
to the fullest extent possible, avoid duplication of examination
activities, reporting requirements, and requests for information. The
Board understands that FICUs may seek to invest in PPSIs that meet the
PPSI definition because they are a subsidiary of a non-FICU IDI, are a
Federal qualified payment stablecoin issuer, or a State qualified
payment stablecoin issuer. The Board is also aware that these
investments may create ambiguity regarding designation of the primary
Federal payment stablecoin regulator and requests comment on how such
institutions should be treated for purposes of licensing, regulation,
supervision, examination, and enforcement. The NCUA and the other
primary Federal payment stablecoin regulators may address such
potential interjurisdictional issues in the future.
f. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 123: Should the NCUA alter the proposed reporting or
examination requirements? If so, how? Is there additional information
that should be included in the required reports or information that is
not included in the proposed rule? Is there information included in the
required reports or information that should not be included in the
rule?
Question 124: Proposed Sec. 706.205(d) sets forth criteria under
which a PPSI could qualify for an extended examination cycle. Are those
criteria properly calibrated? Is the timeframe for an extended
examination cycle appropriate? Should the NCUA consider decreasing or
increasing the range for an extended examination cycle? Should the NCUA
consider both monthly Trading Volume and Outstanding Issuance Value
when determining whether to employ an extended examination cycle?
Should the NCUA consider increasing or decreasing the Outstanding
Issuance Value and total monthly Trading Volume limits for eligibility
for an extended examination cycle? Are there other factors that should
be included, such as redemption rates, asset composition, or
creditworthiness? If so, how should the NCUA consider those factors?
Question 125: In proposed Sec. 706.205(h), the NCUA proposes to
collect confidential weekly data from PPSIs to minimize the examination
burden on PPSIs. The weekly data would include information relating to:
(1) Outstanding Issuance Value, (2) Reserve Assets, (3) redemptions,
(4) minting and issuance, (5) exchanges on which the Payment Stablecoin
trades, (6) the 100 Persons that hold or trade the Payment Stablecoin
the most, (7) data concerning securities held as Reserve Assets
(including information regarding Reserve Assets' CUSIPs, yield,
weighted average maturity and weighted average life), and (8)
information regarding repurchase agreements and reverse repurchase
agreements (including information regarding the counterparty, clearing
agency, collateral, and interest). Are these the appropriate data
fields and categories of information to collect from a PPSI on a weekly
basis to understand the operations and risks unique to its business
model? If not, are there data fields that the NCUA should not request
on a weekly basis and are there any additional data fields beyond those
proposed that the NCUA should collect on a weekly basis from a PPSI to
better assist in understanding the operations and risks unique to its
business model? Should the NCUA collect secondary market transaction
data (e.g., trading price and volume)? Or should the NCUA only collect
primary market transaction data? Would it be too burdensome for PPSIs
to provide the proposed weekly data to the NCUA electronically on a
daily or real-time basis? Should the NCUA collect additional data
regarding the custody of Reserve Assets (or other Covered Assets)?
Should the data collected be made public? If, so, on what timeframe
should the data be made public? To what extent, if any, would a PPSI be
anticipated to track the information required under the form referred
to in proposed Sec. 706.205(h) on a regular or real-time basis for its
own use in the absence of a requirement to report it? To what extent
would the proposed weekly and quarterly reporting requirements tend to
reduce the frequency at which the NCUA would need to examine PPSIs? Are
there other reporting requirements that the NCUA could request that
might reduce the frequency at which the NCUA would need to examine
PPSIs?
Question 126: In proposed Sec. 706.205(i), the NCUA requires all
PPSIs to submit a quarterly report of financial condition. Should the
NCUA tailor this requirement for PPSIs under a certain threshold? If
so, what should the threshold be? For PPSIs under the threshold, should
the NCUA require less frequent reporting (e.g., every six months) and/
or change the data issuers under the threshold are required to submit
(e.g., require less data)? Should FICU Parent Companies be required to
submit the quarterly report required under proposed Sec. 706.205(i)?
If so, why? If not, why not? Should the quarterly report under proposed
Sec. 706.205(i) be attached to the Call Report as an appendix as
opposed to a separate filing? If so, why? If not, why not? Are there
changes that should be made to the Call Report to ensure appropriate
reporting while limiting duplicative reporting requirements? Should
reports required under proposed Sec. 706.205(i) and proposed part 706
more generally be coordinated and developed on an interagency basis
across the primary Federal payment stablecoin regulators? Should any
financial information included in the filings be required to be
reviewed by a Registered Public Accounting Firm. If so, why? If not,
why not?
Question 127: In addition to requiring a monthly report of a PPSI's
Reserve Asset composition, should the NCUA also require a PPSI to
publish a report of the Reserve Asset composition as of a day randomly
selected each month by the PPSI's Registered Public Accounting Firm?
Question 128: How can the NCUA best minimize duplication of
reports, including for PPSIs subject to the audit requirement contained
in proposed Sec. 706.205(l)? Should the NCUA include in the rule text
its interpretation of ``applicable auditing standards'' under section
4(a)(10)(A)(iii) of the GENIUS Act \203\ to mean those that would apply
if the PPSI were subject to the reporting requirements under section
13(a) or 15(d) of the Securities and Exchange Act of 1934? \204\ Should
the NCUA also include in the rule text that the standards would be
enforced by the NCUA for PPSIs subject to the audit requirement under
section 4(a)(10)(A)(iii) of the GENIUS Act? \205\ Should the NCUA also
include in the rule text that it may at any time request that a
Registered Public Accounting Firm provide to the NCUA certain
additional information or documents relating to information provided by
the PPSI and that the Registered Public Accounting Firm must agree to
provide copies of any working papers, policies, and procedures relating
to services in connection with the audit required under section
4(a)(10)(A)(iii) of the GENIUS Act? \206\
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\203\ 12 U.S.C. 5903(a)(10)(A)(iii).
\204\ 15 U.S.C. 78m, 78o(d).
\205\ 12 U.S.C. 5903(a)(10)(A)(iii).
\206\ Id.
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[[Page 28994]]
Question 129: The NCUA is proposing that PPSIs report to the NCUA
the total aggregate value of their assets under custody (as part of the
quarterly report described in Sec. 706.205(i) of the proposal). For
purposes of this calculation, the NCUA is proposing that the Private
Keys used to issue Payment Stablecoins, as discussed in section 10 of
the GENIUS Act, should be valued at a nominal $1.00 valuation. This
reporting convention would prevent double counting of the Private Key
and the associated Payment Stablecoin reserves. What are the advantages
and disadvantages of this approach? Are there specific risks or
information gaps related to the custody of these Private Keys that
would not be identified by this reporting convention, including for
example, where the Covered Custodian of the Private Key used to issue
Payment Stablecoins is not also the custodian of all of the associate
Payment Stablecoin reserves? Are there alternative methods to avoid
double-counting? For example, what are the advantages and disadvantages
of valuing the Private Key used to issue a Payment Stablecoin at the
par-value of issuance of the associated Payment Stablecoin less the
fair market value of any associated Payment Stablecoin reserves that
the Covered Custodian holds under custody?
Question 130: Is the change in Control requirement in proposed
Sec. 706.205(m) and Sec. 706.111 appropriately calibrated for PPSIs?
If not, what changes should the NCUA incorporate into this provision?
Should the regulation explicitly provide the consequences for failing
to meet the requirements of proposed Sec. 706.205(m) and Sec.
706.111? For example, should the NCUA include a paragraph that would
provide that, if a Person acquires Control of a PPSI without following
the requirements of Sec. 706.205(m) and Sec. 706.111 before the time
for the NCUA's review as provided in Sec. 706.111 has expired or after
the NCUA has disapproved the acquisition of Control, the PPSI: (i)
must, within 15 calendar days of the acquisition of Control, provide
all information required under Sec. 706.111; and (ii) may be subject
to supervisory or enforcement actions relating to any concerns arising
from the change in Control, consistent with applicable law?
Question 131: What approach should the NCUA and other PPSI
regulators take to licensing, examining, and regulating PPSIs that may
be considered subsidiaries of multiple types of Insured Depository
Institutions or a subsidiary of one or more types of Insured Depository
Institutions and also a Federal qualified payment stablecoin issuer?
Specifically, should PPSIs be required to obtain multiple licenses in
some instances? If multiple licenses are required, should NCUA provide
a process for expedited licensure of a PPSI or rather than require
multiple licenses, rely on the licensure of another Primary Federal
payment stablecoin regulator, if the PPSI has already been licensed or
approved by another regulator? Should proposed Sec. 706.205(o)
expressly provide for avoidance of duplication of examination
activities, reporting requirements, and requests for information to
address the prospect of a PPSI having an ownership structure that
subjects the issuer to the jurisdiction of both the NCUA and another
primary Federal payment stablecoin regulator? If so, what should be the
scope of NCUA examination, reporting, and supervision? If it is not
appropriate to address the prospect of a PPSI having an ownership
structure that subjects the issuer to the jurisdiction of both the NCUA
and another primary Federal payment stablecoin regulator, why is it not
appropriate? Should such ownership structures be addressed through
separate guidance or agreements? Should such ownership structures be
impermissible? Or are they unlikely to occur in practice?
E. Subpart C--Custody
Section 10 of the GENIUS Act imposes requirements on any Person
seeking to provide custodial or safekeeping services for Payment
Stablecoin reserves, Payment Stablecoins used as collateral, or the
Private Keys used to issue Payment Stablecoins.\207\ Among other
things, section 10 of the GENIUS Act requires such Persons to be
subject to supervision or regulation by a Federal or State supervisor,
to treat covered assets as Customer property, to separately account for
and not commingle covered assets unless permitted under a listed
exception, and to provide their supervisor with certain regulatory
information as determined by that supervisor. Section 10 also provides
claims of Payment Stablecoin holders priority over other claims on
Persons providing custody and exempts certain Persons providing
hardware or software services from the requirements of section 10.
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\207\ 12 U.S.C. 5909.
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The proposal would (1) establish relevant defined terms for
purposes of subpart C to clarify the scope of custodial services to
which subpart C would apply; (2) set minimum principles-based
requirements for NCUA-supervised institutions related to their
provision of custodial or safekeeping services to the assets described
in Section 10 of the GENIUS Act that are appropriate to protect such
custodied assets from the claims of creditors of the institution; and
(3) implement other requirements and exclusions of the GENIUS Act.
1. Sec. 706.301. Definitions
The NCUA is proposing to define the assets for which the provision
of custodial or safekeeping services trigger the requirements of the
GENIUS Act as ``Covered Assets.'' This term would include the assets
described in section 10(a) of the GENIUS Act that compose the Payment
Stablecoin reserves (discussed above), any Payment Stablecoin used as
collateral, and the Private Keys used to issue Payment
Stablecoins.\208\
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\208\ 12 U.S.C. 5909(a).
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The NCUA is also proposing to include in the definition of Covered
Assets any cash or other property of a PPSI, as defined in the GENIUS
Act, received by the custodian in the course of provision of custodial
or safekeeping services contemplated under the GENIUS Act. Sections
10(b) and (c) of the GENIUS Act each apply the GENIUS Act's custodial
requirements not only to the custody of Payment Stablecoin reserves,
Payment Stablecoins used as collateral, and the Private Keys used to
issue Payment Stablecoins but also to ``cash[ ] and other property'' of
a custody Customer of one of those assets.\209\
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\209\ 12 U.S.C. 5909(b)-(c).
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``Cash [ ] and other property,'' as used in section 10 of the
GENIUS Act, appears to refer to cash and other property that a Covered
Custodian (defined and discussed below) may receive as custodial
property of its Customers, but only to the extent such cash or other
property is received in connection with the provision of custodial
services for Payment Stablecoin reserves, Payment Stablecoins used as
collateral, and the Private Keys used to issue Payment Stablecoins. For
example, any interest on Payment Stablecoin Reserve Assets held in
custody in a deposit account or Share Account and credited to a
Customer's (i.e., a PPSI) custodial account would be the type of cash
and other property subject to the custody requirements of the GENIUS
Act.
Thus, under the proposed rule, ``Covered Assets'' would mean
Payment Stablecoin reserves, Payment Stablecoins used as collateral,
and Private Keys used to issue Payment Stablecoins, as well as cash and
other
[[Page 28995]]
property received in the course of the provision of custodial or
safekeeping services for such assets.
Separately, the NCUA is proposing to define the entities to which
the proposed custody requirements would apply as ``Covered
Custodians.'' This term would mean a FICU or NCUA-Licensed PPSI to the
extent of such Person's provision of custodial or safekeeping services
to Covered Customers (as such term is described below) for Covered
Assets.
The NCUA is proposing to define the custodial Customers to which
the GENIUS Act's protections apply as ``Covered Customers.'' This term
would mean a Person for or on whose behalf a Covered Custodian
receives, acquires, or holds Covered Assets.
The NCUA is also proposing to define certain other concepts
relative to Covered Asset custodial activities. The proposal would
define ``Applicable Law'' for purposes of subpart C as the law of a
State or other jurisdiction governing a Covered Custodian's custody
relationships, any applicable Federal law governing those
relationships, the terms of the Custody Agreement, and any applicable
court order. The proposal would define ``Custody Agreement'' as a
legally binding contractual agreement between a Covered Customer, as
the principal, and the custodian, as the agent, that establishes the
custodian's duties and responsibilities in providing safekeeping and
ancillary services to the Covered Customer. The proposal would define
``Digital Wallet'' as a software program or hardware device that stores
and manages the Private Keys associated with a particular unit of a
Digital Asset. The proposal would define ``Sub-Custodian'' as a Person
that provides custody and safekeeping services to a Covered Custodian,
including through a Digital Wallet for which such Person controls the
associated Private Keys, with respect to the Covered Assets of a
Covered Customer for which the Covered Custodian otherwise serves as a
custodian under this subpart.\210\
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\210\ A sub-custodian would be subject to the requirements
applicable to a custodian under the GENIUS Act, including the
requirements under section 10 of the Act (12 U.S.C. 5909).
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2. Sec. 706.302. Covered Asset Custodial Property Requirements
Proposed Sec. 706.302 would implement certain minimum principles-
based requirements applicable to a Covered Custodian's provision of
custodial and safekeeping services for Covered Assets to ensure that
such Covered Assets are treated and dealt with as belonging to the
Covered Customers and protected from claims of the Covered Custodian's
creditors, as well as the creditors of any Sub-Custodian, as
applicable, or the claims of any Customer's creditors. Under proposed
Sec. 706.302(a), a Covered Custodian must separately account for the
Covered Assets of each Covered Customer and must treat and deal with
those Covered Assets as belonging to such Covered Customer and not as
the property of the Covered Custodian. Under proposed Sec. 706.302(b),
a Covered Custodian must take appropriate steps to protect the Covered
Assets of Covered Customers from the claims of creditors of the Covered
Custodian and any Sub-Custodian, as applicable, including through
adopting, implementing, and maintaining written policies, procedures,
and internal controls that are adequate to comply with Applicable Law
and that are commensurate with the Covered Custodian's size,
complexity, and risk profile and with the nature of the applicable
Covered Assets for which it provides custodial or safekeeping services.
The NCUA believes that setting certain minimum principles-based
requirements for the provision of these custody services, regardless of
the use of omnibus accounts, is consistent with section 10(b)(2) of the
GENIUS Act,\211\ which requires that applicable custodians ``take such
steps as are appropriate to protect the [Covered Assets] of a customer
from the claims of creditors of the [custodian]'' and section 13 of the
GENIUS Act,\212\ which grants the NCUA broad rulemaking authority to
implement the GENIUS Act. In considering minimum, principles-based
requirements, the NCUA is proposing to require Covered Custodians to
take such steps that would typically be expected of a supervised
institution as part of sound custodial practices necessary to protect
custodied assets from claims of the custodian's creditors.\213\
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\211\ 12 U.S.C. 5909(b)(2).
\212\ 12 U.S.C. 5913.
\213\ To the extent that a Covered Custodian, as an
accommodation to a Covered Customer, documents in an account
statement or other similar document any additional assets of that
Customer for which the Covered Custodian does not provide custodial
or safekeeping services, including through use of a Sub-Custodian of
the Covered Custodian (commonly referred to as ``accommodation
assets'' or ``below the line assets''), the NCUA would not expect
such assets to be subject to the requirements of subpart C.
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The NCUA is also proposing in Sec. 706.302(b) to require that a
Covered Custodian maintain possession or control of Covered Assets of a
Covered Customer that are held directly, including in a Digital Wallet
for which the Covered Custodian controls the associated Private Keys.
Under the proposal, a Covered Custodian may maintain the Covered Assets
of a Covered Customer through the use of a Sub-Custodian if consistent
with Applicable Law, provided the Covered Custodian maintains adequate
safeguards and internal controls reasonably designed to provide the
Covered Custodian with oversight of such Sub-Custodian's compliance
with the requirements of this proposed subpart C. Under the proposal,
with regards to any Payment Stablecoin or Payment Stablecoin reserve in
the form of a tokenized asset held in safekeeping under proposed
subpart C, a Covered Custodian, or Sub-Custodian, as applicable,
maintains control for purposes of the proposed requirement if it can
reasonably demonstrate, consistent with the standard of care
established by Applicable Law, that no other party, including the
Covered Customer, can transfer the Payment Stablecoin or tokenized
asset using a Distributed Ledger without the consent of the custodian
or Sub-Custodian, as applicable. This requirement is consistent with
past guidance from the other banking agencies on the control of crypto-
assets for purposes of safekeeping.\214\
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\214\ See OCC, ``Agencies Issue Joint Statement on Risk-
Management Considerations For Crypto-Asset Safekeeping,'' (Jul. 14,
2025), available at https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68.html.
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The NCUA intends these principles-based, minimum requirements to be
in line with sound custodial management practices that the agency
understands are industry standard. An FCU that is a Covered Custodian
may not act in a fiduciary capacity. FISCUs' ability to act in a
fiduciary capacity will depend upon State law.
The NCUA proposes codifying in proposed Sec. 706.302(c) the
exception in section 10(c) of the GENIUS Act to the customer property
requirements described in section 10(b).\215\ This exception permits a
Covered Custodian to withdraw and apply such share of the Covered
Assets of a Covered Customer necessary to transfer, adjust, or settle a
transaction or transfer of assets applicable to that Covered Customer,
including the payment of commissions, taxes, storage, and other charges
lawfully accruing in connection with the provision of services to that
Covered Customer by the Covered Custodian. The NCUA proposes to specify
that any such withdrawal must be consistent with any Applicable Law.
For example, the NCUA would expect any such withdrawal to be undertaken
only in
[[Page 28996]]
compliance with the terms of a Covered Customer's written Custody
Agreement and that any withdrawal of funds from an omnibus account
would be properly recorded as to not implicate the custodial assets of
any other Covered Customer.
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\215\ 12 U.S.C. 5909(c).
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Finally, proposed Sec. 706.302(d) would clarify, consistent with
section 10(c)(2)(D) of the GENIUS Act,\216\ that a FICU that provides
custodial or safekeeping services for Covered Assets may hold Covered
Assets that are in the form of cash on deposit (including funds
deposited in Share Accounts), provided such treatment is consistent
with Federal law.
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\216\ 12 U.S.C. 5909(c)(2)(D).
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3. Sec. 706.303. Use of Omnibus Accounts
Proposed Sec. 706.303(a) would implement the GENIUS Act's
requirement in section 10(c) of the Act that a Covered Custodian
segregate all Covered Assets of Covered Customers and not commingle
them with the assets of the Covered Custodian.\217\ As discussed above,
the proposal clarifies that this requirement does not apply in the case
of a FICU that provides custodial or safekeeping services for covered
assets that are in the form of cash to the extent the FICU holds such
cash in the form of cash on deposit (including funds deposited in Share
Accounts), provided such treatment is consistent with Federal law.
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\217\ 12 U.S.C. 5909(c).
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Proposed Sec. 706.303(b) sets the terms by which Covered
Custodians may use omnibus accounts consistent with the GENIUS Act's
requirements to separately account for, treat as, and deal with
custodied Covered Assets as belonging to Covered Customers. The NCUA is
proposing to allow any Covered Custodian to commingle the Covered
Assets of multiple Covered Customers in one or more omnibus accounts,
to the extent that the steps it has taken pursuant to proposed Sec.
706.302(b) are adequate to maintain safe and sound practices for the
use of omnibus accounts, and to the extent that the use of omnibus
accounts is consistent with Applicable Law.
4. Reporting
The NCUA is considering how to implement any additional reporting
requirements in subpart C pursuant to section 10(d) of the GENIUS Act,
which requires that a Covered Custodian submit to the NCUA certain
information ``in such form and manner as [the NCUA] shall determine.''
\218\ For Covered Custodians that are FICUs, the NCUA plans to issue
updates to the NCUA Form 5300, Call Report, or NCUA Form 4501A,
Profile, to collect information on FICUs' custodial businesses.\219\
For Covered Custodians that are NCUA-Licensed PPSIs, the NCUA proposes
to rely on such entities' reporting pursuant to section 6(a)(2) of the
GENIUS Act's reporting requirements \220\ as part of the PPSIs'
quarterly report on financial condition discussed in proposed Sec.
706.205.\221\ The NCUA seeks comment on whether this is the most
efficient and effective way to collect such information concerning a
Covered Custodian's business operations as well as their processes to
protect Customer assets.\222\
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\218\ 12 U.S.C. 5909(d).
\219\ Sections 106 and 202 of the Federal Credit Union Act
require federally insured credit unions (FICUs) to make financial
and other reports to the NCUA. Section 741.5 describes the
submission method FICUs must use to provide information to NCUA.
NCUA Form 5300, Call Report, is used to file quarterly financial and
statistical data through NCUA's online portal, CUOnline. NCUA Form
4501A, Profile, is used to collect non-financial information on
credit union operations through NCUA's online portal, CUOnline.
\220\ 12 U.S.C. 5905(a)(2).
\221\ As noted above, section 10(d) of the GENIUS Act (12 U.S.C.
5909(d)) provides an additional statutory grant of authority for
this reporting requirement.
\222\ Consistent with the OCC Proposal, the NCUA believes that
reporting the Private Key used to issue a Payment Stablecoin held in
custody at a $1.00 book value would be consistent with industry
practice unless the methodology for determining market value is
otherwise set by applicable law. See, e.g., OCC, Letter from Kerri
Corn, Director for Credit and Market Risk (June 20, 2007), available
at https://www.occ.treas.gov/topics/supervision-and-examination/capital-markets/asset-management/corporate-trust/memo-misc-schedule-rc-t.pdf (letter to the American Bankers Association regarding owner
trustee fiduciary accounts reported on Schedule RC-T).
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Nonetheless, requiring Covered Custodian-specific reporting outside
of the context of a Call Report may be appropriate. Specifically, the
NCUA is considering requiring Covered Custodians to report on a
separate form maintained by the NCUA the following information: (1)
total Covered Assets under custody, and (2) total Payment Stablecoin
reserves under custody. For Payment Stablecoin reserves under custody,
the NCUA is further considering requiring Covered Custodians to report
the following: (a) total Payment Stablecoin reserves under custody for
(i) an Affiliate and (ii) third parties; (b) total Payment Stablecoin
reserves held in a deposit account or Share Account at (i) the Covered
Custodian and (ii) a third-party IDI; (c) total Payment Stablecoin
reserves held in a deposit account or Share Account that are not
covered by FDIC or NCUA insurance at (i) the Covered Custodian and (ii)
a third party IDI; and (d) total Payment Stablecoin reserves held in
each of the categories listed in section 4(a)(1)(A)(i)-(viii) of the
GENIUS Act.\223\
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\223\ 12 U.S.C. 5903(a)(1)(A)(i)-(viii).
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5. Sec. 706.304. Self-Custody Hardware and Software Exclusion
The proposal implements section 10(e) of the GENIUS Act, which
provides that the requirements of section 10 of the Act do not apply to
any Person solely on the basis that such Person engages in the business
of providing hardware or software to facilitate a Customer's own
custody or safekeeping of the Customer's Payment Stablecoins or Private
Keys.\224\ In proposed Sec. 706.304, the NCUA proposes to clarify that
the requirements of this proposed subpart C do not apply to any FICU or
NCUA-Licensed PPSI solely on the basis that such entity engages in the
business of providing hardware or software to facilitate a Person's or
entity's self-custody of their Payment Stablecoins or Private Keys. The
requirements could nonetheless apply if, for example, an entity
controls or holds itself out as controlling such Payment Stablecoins or
Private Keys, or provides, or holds itself out as providing safekeeping
or custodial services, including services that are ancillary or
incidental to its custodial powers, for such Payment Stablecoins or
Private Keys.
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\224\ 12 U.S.C. 5909(e).
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6. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 132: Are the proposed definitions for terms relevant to
this section appropriate and sufficiently clear? Would it be helpful to
define any other terms?
Question 133: The NCUA has interpreted ``cash and other property''
to refer to the cash and other property that a Covered Custodian may
receive as custodial property of its Customers, but only to the extent
such cash or other property is received in connection with the
provision of custodial services for the GENIUS Act's three core custody
assets. Is this the appropriate approach? Should the NCUA take a
broader view of what constitutes ``cash and other property''? What are
the costs and benefits of such an approach? Does the proposal
appropriately address the different requirements for noncash Covered
Assets and ``cash on deposit'' Covered Assets held at an IDI?
Question 134: The NCUA is proposing to define Covered Assets in
such a way that the requirements of sections 10(a), (b), and (c) of the
GENIUS Act would
[[Page 28997]]
apply to all Covered Assets and is proposing to apply the substantive
requirements of those sections as a connected set of requirements.\225\
However, sections 10(a), (b), and (c) of the Act use slightly different
wording when describing the assets to which each subsection applies and
some of the substantive requirements that apply.\226\ The NCUA believes
that the provisions should be read together to cover the same set of
assets and to provide a cogent and harmonized set of requirements for
Covered Custodians.\227\ Instead of the proposed approach, should the
NCUA use the precise statutory language regarding the scope of assets
covered separately in paragraphs (a), (b), and (c)? What are the
advantages or disadvantages of doing so?
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\225\ 12 U.S.C. 5909(a)-(c).
\226\ For example, Section 10(a) of the Act refers to ``the
payment stablecoin reserve, the payment stablecoins used as
collateral, or the private keys.'' 12 U.S.C. 5909(a). Section 10(b)
refers to ``the payment stablecoins, private keys, cash, and other
property.'' 12 U.S.C. 5909(b). Section 10(c) refers to ``[p]ayment
stablecoin reserves, payment stablecoins, cash, and other
property.'' 12 U.S.C. 5909(c).
\227\ For example, sections 10(b) and (c) of the Act refer to
section 10(a), suggesting that the provisions are meant to be read
together to cover the same set of assets.
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Question 135: Proposed subpart C would implement section 10 of the
GENIUS Act with respect to entities that are regulated by the
NCUA.\228\ Are there issues that the NCUA should bear in mind if an
NCUA-regulated entity holds reserve assets on behalf of a PPSI that is
not regulated by the NCUA and may not be familiar with the NCUA's
implementation of section 10 of the GENIUS Act?
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\228\ 12 U.S.C. 5909.
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Question 136: The NCUA is proposing applying these principles-based
requirements on Covered Custodians subject to NCUA supervision, rather
than requiring NCUA-supervised institutions that seek to custody a
Covered Asset to only custody such assets with a custodian that can
demonstrate it complies with certain minimum requirements. What are the
costs and benefits of this approach, including with regards to
administrability, jurisdiction, and the promotion of fair competition?
Question 137: The NCUA proposes principles-based requirements in
line with sound custodial management practices that the agency
understands are industry standard. Does the proposal accurately capture
sound custodial management practices that are industry standard?
Question 138: Does the proposal provide enough detail regarding
what steps are appropriate for a Covered Custodian to protect the
Covered Assets of Covered Customers from the claims of creditors of the
Covered Custodian? Would more prescriptive or specific requirements be
appropriate to implement the requirements of the GENIUS Act? For
example, should the NCUA require a Covered Custodian to take
appropriate steps to protect the Covered Assets of Covered Customers
from the claims of creditors of the Covered Custodian, including
through adopting, implementing, and maintaining written policies,
procedures, and internal controls adequate for (A) the safekeeping of
Covered Assets of Covered Customers; (B) the documentation of Covered
Customer relationships through one or more written Custody Agreements;
(C) recording and verifying the Covered Assets of Covered Customers;
and (D) the conducting of due diligence in the selection of and
periodic monitoring of Sub-Custodians, in each case commensurate with
the Covered Custodian's size, complexity, and risk profile and with the
nature of the applicable Covered Assets in its Covered Customer
relationships? What are the costs and benefits of prescriptive versus a
principles-based approach?
Question 139: Is it sufficiently clear in a custodial relationship
when and for what assets the minimum, principles-based requirements of
subpart C would apply? For example, are there circumstances where a
custodian may be unaware that Payment Stablecoin assets held in an
account are being used as collateral and potentially subject to the
requirements of subpart C?
Question 140: The proposed rule describes how a custodian maintains
control of a Payment Stablecoin or tokenized Payment Stablecoin Reserve
Assets. Is this description appropriately calibrated? Are there other
means by which a custodian should be deemed to have demonstrated
control over these types of assets?
Question 141: Are there additional considerations the NCUA should
take into account regarding a Covered Custodian's use of an omnibus
account? For example, should the NCUA consider a high-level principals-
based approach to apply generally to a Covered Custodian's provision of
custodial or safekeeping services to Covered Customers for Covered
Assets while utilizing a more detailed regulatory framework regarding a
Covered Custodian's use of omnibus accounts?
Question 142: Regarding the proposed rule governing the withdrawal
of custodial Covered Assets to pay certain commissions, taxes, storage,
and other charges, should the NCUA require any more prescriptive
Customer protection requirements, such as those designed to ensure that
such withdrawals do not cause any reserve to fall below any minimum
coverage of a Payment Stablecoin? What are the costs and benefits of
these or any similar approach? For example, in order to implement an
effective compliance system, would such a requirement impose undue
burdens on a custodian from withdrawing any permitted funds from a
custodial account that contains Payment Stablecoin reserves?
Question 143: Section 10(c)(3) of the GENIUS Act provides a
priority regime regarding the claims of Covered Customers against a
Covered Custodian with regards to any Payment Stablecoins used as
collateral. The section also allows Covered Customers to expressly
waive this priority. What are the potential benefits and drawbacks of
such a priority regime, including with regards to whether it may
amplify losses to Payment Stablecoin issuers on Payment Stablecoin
reserves that are custodied by a Covered Custodian that provides a
diversified custodial business should there be a shortfall in a Covered
Custodian's custodied assets? What market practices do commenters
believe are likely to arise regarding the use of the contractual
provisions that waive a Covered Customer's priority regarding Payment
Stablecoins used as collateral that are held in custody? To what extent
should the NCUA consider either providing guidance on the use of such
contractual provisions or requiring Covered Custodians to use such
contractual provisions in their Custody Agreements? How are Customer
waivers in relation to Covered Custodians likely to impact the
resolution of PPSIs? For example, would they lead to additional
complications in determining the priority of claims?
Question 144: The GENIUS Act provides an exclusion from the
custodial requirements to any Person solely on the basis that such
Person engages in the business of providing hardware or software to
facilitate a Customer's own custody or safekeeping of the Customer's
Payment Stablecoins or Private Keys. The NCUA proposes to clarify that
it would not consider certain activities to constitute ``solely''
providing hardware or software to facilitate custody or safekeeping of
Payment Stablecoins or Private Keys. Should the NCUA consider
implementing any other language to prevent the exception from being
used to evade the custodial requirements of
[[Page 28998]]
the GENIUS Act? Alternatively, could an NCUA-supervised institution
provide ancillary custodial services to a user of such hardware or
software (e.g., facilitating the Customer's crypto-asset and fiat
currency exchange transactions, transaction settlement, trade
execution, recordkeeping, valuation, tax services, reporting, or other
appropriate services) while avoiding the minimum, principles-based
requirements of the proposal?
Question 145: Are there particular circumstances for which the NCUA
should provide additional clarification as to the application of
subpart C or the applicability of any exception (e.g., regarding
Payment Stablecoins locked in a smart contract for purposes of
``wrapping'' the Payment Stablecoin for use on an unsupported
blockchain)?
Question 146: In order to help ensure that a PPSI is able to meet
redemptions on a timely basis, should the NCUA require that any Custody
Agreement a Covered Custodian enters into with a PPSI provide for
prompt release of any custodied Covered Assets to the Covered
Customer's control? For example, should a Custody Agreement require
that a Covered Custodian have the ability to transfer control of
Covered Assets comprising Payment Stablecoin reserves, or execute and
settle at the Covered Customer's direction any such assets, within a
specific timeframe? What are the costs and benefits of any such
approach?
Question 147: To what extent are the portions of the reports
required under proposed Sec. 706.205 relevant to custodial activities
appropriate to ensure that the NCUA possesses the information necessary
to supervise Covered Custodians? If other forms of reporting would be
helpful, what are they? If other types of information would be helpful,
what are they? What are the costs and benefits of more detailed
reporting requirements?
Question 148: Does the proposed approach regarding custody of
Covered Assets proposed in subpart C, or any alternative approach
discussed in comments or suggested by commenters, pose any concerns
regarding fair competition between Covered Custodians and entities that
are otherwise permissible custodians under section 10(a) of the GENIUS
Act but which are not supervised by the NCUA?
F. Subpart D--Capital and Operational Backstop
Section 4(a)(4)(A)(i) of the GENIUS Act requires the Board to
establish capital requirements for PPSIs.\229\ The capital requirements
must be tailored to the business model and risk profile of PPSIs and
not exceed requirements sufficient to ensure the ongoing operations of
PPSIs. Consistent with the statutory requirement, and the capital
requirements proposed by the OCC, the NCUA is proposing a minimum
capital requirement that will be tailored to the business model and
risk profile of an NCUA-Licensed PPSI. The NCUA's proposed approach for
capital focuses primarily on the operational risk of Payment Stablecoin
issuers.
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\229\ 12 U.S.C. 5903(a)(4)(A)(i).
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Because of the novelty of Payment Stablecoins and various business
models for PPSIs being discussed among industry participants, the NCUA
believes that setting capital requirements based on individual
evaluations of prospective PPSIs would be most appropriate at this
time. Therefore, the overall approach in the proposed rule would
provide for an individualized evaluation of each prospective PPSI. The
NCUA would consider quantitative and qualitative factors including, but
not limited to, financial projections, fixed and variable expenses, the
nature of fiduciary products and services being proposed, and
discussions with organizers when considering the appropriate capital
amount for each PPSI.
In addition to establishing the initial capital requirement at
licensing, all PPSIs must develop a process to assess and meet their
capital requirements,\230\ with evaluation by the NCUA through the
examination process. As the NCUA gains additional experience and data
from reviewing applications for prospective PPSIs and assessments
performed by established PPSIs with varying business models and risk
profiles, the NCUA may revise its licensing procedures or this rule to
incorporate more standardized, objective capital requirements. The NCUA
discusses potential options in the following sections and questions and
invites feedback on how these options could be revised or incorporated
into a final rule, either as elements of a capital requirement,
liquidity requirement, or otherwise, because of the intertwined nature
of capital and liquidity. For example, capital is generally used to
support an entity's risk profile, business strategies, future growth
prospects, and provide a cushion against unexpected losses, while
liquidity is used to meet an entity's obligations when they come due.
An entity that experiences unexpected losses that reduce the holdings
of its liquid assets will have less liquidity to satisfy current
liabilities, while an entity that needs to use liquidity to satisfy
current liabilities may be more limited in its business strategies or
future growth prospects.
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\230\ See, proposed Sec. 706.401(a)(2)(ii).
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1. Sec. 706.400. Capital Elements
Under the proposed rule, regulatory capital for PPSIs would consist
of two capital elements, common equity tier 1 capital and additional
tier 1 capital. These two elements are generally consistent with the
capital elements for banking organizations under their respective
capital requirements, however they are different than regulatory
capital requirements for FICUs.\231\ As mutuals, FICUs do not issue
stock instruments and therefore must primarily rely on retained
earnings to accumulate capital. PPSIs, however, will not likely be
structured as mutual institutions, and instead will likely have
ownership through stock certificates. Therefore, the NCUA believes it
is appropriate to structure PPSI minimum capital requirements similarly
to banking organizations and not analogous to FICU capital
requirements.
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\231\ See, 12 CFR part 3 (OCC); 12 CFR part 217 (FRB); and 12
CFR part 324 (FDIC).
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The proposed PPSI capital elements primarily consist of common
equity, retained earnings, and noncumulative perpetual preferred stock
that meet certain terms designed to ensure significant loss-absorbing
capabilities. For example, the proposed terms include provisions that
require that the paid-in amount is equity under GAAP, that limit
dividends, and that prohibit a PPSI from funding its own equity
instruments to ensure that there is a source of external capital to
support the PPSI's operations.
Common equity tier 1 capital would consist of common stock
instruments (par value, if any, and related surplus), retained
earnings, and any accumulated other comprehensive income (AOCI), all as
reported under GAAP. Common stock instruments would need to meet
various proposed criteria, including being the most subordinated claim
on the PPSI's assets, being fully paid-in, having no maturity date, and
not being redeemable except with prior NCUA approval. Any dividends
must be fully discretionary, paid out only after fulfillment of any
other legal or contractual obligations, and from positive retained
earnings. In addition, the holders of the instruments must bear losses
equally, proportionally, and simultaneously with other holders of
common stock instruments. As the most subordinated tier of regulatory
capital, common equity tier 1 exhibits the most loss absorbency, as any
dividends are discretionary and there is
[[Page 28999]]
no expectation of redemption or repurchase of the instrument, ensuring
any operating funds generated can be used for any other business need
of the issuer.
The NCUA also is proposing to include AOCI as a component of common
equity tier 1 capital. This treatment is not consistent with the NCUA's
capital framework in 12 CFR part 702, however, the NCUA is not
proposing to permit any neutralization of AOCI. The NCUA permits
neutralization of components of AOCI under part 702 in part to reduce
regulatory capital volatility associated with changes in value of
available-for-sale fixed income securities due to changes in interest
rates. These changes in value due to interest rate movements are
generally more pronounced the longer the remaining maturity of the
securities. As PPSIs can only hold securities with remaining maturities
of 93 days or less as reserve assets, the change in value of these
securities due to interest rate movements likely would generate
immaterial amounts of AOCI and therefore neutralization is not
warranted to reduce volatility.
Additional tier 1 capital would consist of instruments that meet a
different set of proposed criteria, generally consistent with
noncumulative perpetual preferred stock issuances that are classified
as equity under GAAP. Generally, these instruments would be
subordinated to all claims except those of common shareholders. The
instruments could not have a maturity date but may be callable after at
least five years with prior approval of the NCUA. To provide additional
flexibility to the issuer when needed, the terms of the instrument must
provide for the payment of dividends only if and when declared by the
PPSI board of directors. This feature provides the PPSI the ability to
retain earnings and capital if needed. These provisions all help ensure
that the instrument provides significant loss absorbency by limiting
the PPSI's obligations to holders.
The NCUA's capital framework also permits inclusion of subordinated
debt instruments in certain circumstances \232\ and certain allowances
for credit losses. The banking agencies also permit the inclusion of
subordinated debt instruments as tier 2 capital instruments. However,
the NCUA is not proposing to adopt subordinated debt as a capital
component for PPSIs. Allowing a PPSI to employ subordinated debt
instruments as capital may incentivize a PPSI to take on additional
leverage with a stated repayment obligation, which increases the
pressure and risk on the PPSI to generate enough income to repay that
obligation instead of increasing the ability of the stablecoin issuer
to absorb losses. Separately, as PPSIs would not be providing loans or
other credit to Customers, they likely would not have any allowance for
credit losses.
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\232\ All complex FICUs may include subordinated debt
instruments in risk-based capital under 12 CFR 702.104(b)(1)(vii).
Low-income FICUs may include subordinated debt instruments as a
component of net worth under 12 CFR 702.2 (definition of net worth).
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The proposed rule would not require any specific ratio between the
regulatory capital elements or minimum amounts of any capital element.
The NCUA does not believe such a structure for minimum capital is
necessary for PPSIs based on their variety of business models. The
proposed rule also would not require any specific deductions from
regulatory capital instruments for PPSIs. The NCUA's current rules in
12 CFR part 702 require deductions from the definition of capital for
purposes of the risk-based capital framework, but does not require
deductions from the calculation of net worth. In general, the risk-
based capital rule requires deductions because the potentially volatile
valuation of those assets reduces their ability to absorb losses. While
goodwill and other intangible assets may exhibit similar valuation
volatility on the balance sheets of PPSIs, these risks may be addressed
though the backstop requirement and proposed requirements around risk
management, capital adequacy assessments, and liquidity. For example, a
PPSI that holds a significant amount of goodwill from the acquisition
of another entity would be expected to appropriately incorporate in its
capital adequacy assessment the risk that the goodwill may become
impaired and reduce retained earnings.
However, the NCUA is also considering a deduction framework, which
could be more limited than the deductions required for FICUs under the
risk-based capital framework. A more limited framework may focus
deductions on goodwill and other intangible assets, which may be
difficult to value and would be unavailable to satisfy redemption
claims of Payment Stablecoin holders or support the PPSI during a
business disruption. Alternately, the NCUA is considering a simplified
capital instrument framework for PPSIs. Under this framework, any
balance sheet account that qualifies as equity under GAAP would qualify
as a capital element, including common stock, retained earnings, AOCI,
and certain preferred stock. This alternative could be easier to
implement as it relies on the GAAP definitions of equity without
layering on additional requirements. However, those additional
requirements reduce the risk to Payment Stablecoin holders and ensure
that the equity instruments are sufficiently loss absorbing. For
example, the additional proposed requirements help ensure a PPSI does
not aggressively redeem equity instruments with funds that are
necessary to support the liquidity or operations of the Payment
Stablecoin and associated reserves, or make loans to potential
shareholders to purchase stock, which provides no loss absorbency. The
NCUA could also consider a framework based on tangible capital, which
could start with GAAP equity, but deduct any intangible assets from
that amount. This approach could address the risk that a PPSI invests
material amounts of capital in generally illiquid and potentially
volatile or difficult to value intangible assets. These assets would
likely be difficult to liquidate if needed to address business
disruptions. However, the proposed backstop may be sufficient to
address these risks.
2. Sec. 706.401. Minimum Capital Calculation
The NCUA is proposing to establish a minimum capital requirement
framework based on the lifecycle of the PPSI. Under this framework, the
NCUA will establish the minimum capital requirement for a PPSI as part
of the licensing process that will apply for a minimum timeframe,
generally three years. The NCUA intends to establish a monetary capital
amount for each PPSI that must be maintained and a portion of which
must be maintained in certain liquid assets. Under this approach, the
NCUA would consider factors such as projected revenues and expenses,
cash burn rates, and expenditures necessary to implement the proposed
business plan and activities of the applicant. This analysis may
include various scenarios based on projected Payment Stablecoin
issuance volumes, planned composition of reserves, and projected
returns on those reserves in different interest rate environments.
During this time, and afterward, the PPSI also would be required to
assess its capital adequacy and maintain an amount of capital that is
commensurate with its business model and risk profile, subject to
review by the NCUA.
a. De Novo Capital Requirement
Under proposed Sec. 706.401, the initial minimum capital
requirement would apply during the ``de novo period,'' generally the
three-year period following licensing by the NCUA of the
[[Page 29000]]
PPSI to issue Payment Stablecoins. This timeframe may be extended or
shortened by the NCUA. Generally, the NCUA would expect to lengthen the
de novo period based on changes to the business model or activities of
the issuer, excessive volatility in issuance and redemptions of the
Payment Stablecoin, unexpected operating losses, weak earnings, poor
risk management, or violations of the GENIUS Act or implementing rules.
The NCUA would expect to shorten the de novo period for an entity that
has a history of operating a stablecoin business prior to the effective
date of the NCUA's final rule implementing the GENIUS Act or for a PPSI
that converts to an NCUA-Licensed PPSI charter from another primary
Federal payment stablecoin regulator.
During the de novo period, the requirements may be adjusted by the
NCUA based on the actual operations of the PPSI compared to projections
or as part of the licensing conditions. The NCUA would expect to
consider the proposed PPSI's risk profile, business strategy, future
growth prospects, and cushions for unexpected losses when evaluating
the appropriate capital amount during the de novo period. At licensing
and during the de novo period, the NCUA would consider factors
including: the composition, stability, and direction of revenue; the
level and composition of expenses; the level of retained earnings; the
quantity and direction of strategic risk; the quality of management
processes, including the adequacy of internal and external audit,
internal controls, and compliance management; the quantity of
transaction risk from delivery and administration of asset management
products and services; and the impact of external factors, including
economic conditions and evolving technology.
Under proposed Sec. 706.401(a)(1)(i)(B), the NCUA is also
proposing a floor of $5 million on the minimum capital requirement
during the de novo period. This floor is primarily intended to ensure
that every PPSI has sufficient resources to support initial operations,
particularly to cover the losses that are expected to occur early in
the startup phase of a new stablecoin. The $5 million floor is
consistent with the OCC's proposed rule and the OCC's experience with
chartering de novo national trust banks seeking to provide stablecoin
programs.\233\
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\233\ 91 FR 10202 (Mar. 2, 2026).
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b. Ongoing Capital Requirement
The proposed rule would require all PPSIs to calculate a minimum
capital requirement based on an evaluation of the risks associated with
its business model and risk profile. This amount would be based on
estimates submitted during the application phase, and after approval,
this amount must incorporate the operating history of the PPSI and loss
experienced from all sources, including operational risk. The NCUA will
review and monitor this requirement and the amount of capital held by
the PPSI as part of the examination process. The amount of capital held
by the PPSI must appropriately incorporate the operating history and
operational risk of the PPSI, consistent with the standards described
above that the NCUA uses to determine the capital requirement for de
novo Payment Stablecoin issuers. The NCUA is not currently proposing
any floors on the minimum capital requirement or frameworks for
determining a minimum capital requirement for those risks in the rule
text, but has asked questions on possible options the NCUA could
consider adopting in a final rule or as part of a future rulemaking.
For the final rule, the NCUA may consider implementing a framework for
determining more objective capital requirements as the industry evolves
and PPSIs establish longer operating histories.
c. Operational Backstop
The NCUA is proposing that a PPSI hold a designated pool of highly
liquid assets to maintain the ongoing operations of the PPSI during a
business disruption, referred to as the operational backstop. This
proposed backstop assets would be independent of the de novo or ongoing
capital requirements and from any assets held as Reserve Assets. The
purpose of the operational backstop is to help ensure that during a
business disruption that impacts operations of the PPSI, a liquid pool
of identifiable assets exists to allow the PPSI to meet short-term
liquidity needs, stabilize the issuer after the disruption, and
continue or resume normal operations. The operational backstop would be
calculated based on the actual total expenses of the PPSI over the past
12 months. These expenses, including for utilities, data processing,
and salaries, are highly correlated with the PPSI's ability to maintain
the operations of its Payment Stablecoin and stabilize from a business
disruption. At a minimum, the operational backstop provides a runway
for the PPSI to evaluate the source of the disruption and potential
responses without needing to take urgent action due to lack of funds.
The amount of the operational backstop would be calculated each
quarter, based on the PPSI's total expenses as reported in the four
most recent quarterly reports filed. For de novo PPSIs, the initial
requirement would be based on reasonable expense projections and
adjusted each quarter based on actual amounts for that quarter.
The operational backstop amount would need to be held as readily
available liquid assets to ensure that funds are available quickly
during a business disruption. Specifically, this amount would need to
be held in U.S. currency directly or at a Federal Reserve Bank, as
deposits and/or funds in Share Accounts that are payable on demand at a
U.S. IDI, with those deposits and/or funds in Share Accounts fully
insured by the FDIC or NCUA, or in U.S. Treasuries that meet the
requirements to qualify as Reserve Assets, which could be readily
liquidated. The assets associated with the operational backstop would
need to be separately identified in the reports filed under proposed
Sec. 706.205, and in any other financial statements of the PPSI, from
any Reserve Assets required to support the Payment Stablecoin and any
other assets of the PPSI on any reports filed under proposed Sec.
706.205.
While the NCUA considered adjusting the operational backstop to
more specifically identify and categorize expenses used in calculating
the amount, this approach would create additional burden for PPSIs to
track specific expenses, as well as increase the risk of gaming the
backstop by PPSIs attempting to reclassify ongoing operating expenses
as one-time items. The NCUA also does not want to create incentives or
disincentives for different business decisions, such as to purchase or
lease assets, by excluding non-cash expenses like depreciation from
total expenses.
The proposed minimum capital amount, the capital held by the PPSI,
and the operational backstop would be calculated as of the last day of
each quarter and disclosed in the reports required under Sec. 706.205
of the proposed rule. Under the proposal, if a PPSI does not meet the
minimum capital requirement or have sufficient liquid assets to meet
the operational backstop at the end of a quarter, it must make efforts
to satisfy the capital requirement and backstop by the end of the
following quarter. These efforts may include raising additional
capital, reducing the size of the operations or risk profile of the
issuer, or converting less-liquid assets into highly liquid assets to
satisfy the backstop. Until the capital and backstop requirements are
satisfied, the PPSI would be restricted from issuing any new Payment
Stablecoins, except as necessary to
[[Page 29001]]
facilitate a transfer of Payment Stablecoins from one Distributed
Ledger to another and provided that the Net Outstanding Issuance Value
does not increase so that the PPSIs can use their liquidity to address
any issues in times of stress instead of further growing the risk by
increasing the size of the Payment Stablecoin. If a PPSI fails to meet
its capital or backstop requirements for two consecutive quarters, it
must begin liquidating Reserve Assets and redeeming outstanding Payment
Stablecoins at the start of the following month and can no longer issue
any new Payment Stablecoins going forward. A PPSI that is required to
redeem its Payment Stablecoins due to a shortage of capital or liquid
assets for the backstop would be prohibited from charging Customers a
fee for redeeming those Payment Stablecoins. For example, if a PPSI did
not have sufficient capital as of June 30, it would be prevented from
issuing new Payment Stablecoins, on a net basis, starting in July. If
the PPSI increased its capital to meet the minimum requirement on July
8, it could resume issuing stablecoins on July 8. In contrast, if the
PPSI did not satisfy its capital or backstop requirements at any time
during the quarter and did not meet these requirements again on
September 30, it would need to begin redemption of its Payment
Stablecoins starting on October 1, regardless of whether it raises
additional capital or meets the operational backstop requirements going
forward. Due to the nature of PPSIs and the potential for rapid inflows
or outflows of funds to issue or redeem Payment Stablecoins, the NCUA
believes a timely response is warranted when there is a failure to meet
minimum capital and backstop requirements to ensure that a growing
Outstanding Issuance Value is appropriately backed by sufficient
capital to address the risks associated with the PPSI and any business
disruptions. The provisions to limit issuance of new Payment
Stablecoins, and potentially redeem outstanding Payment Stablecoins,
are intended to ensure that a PPSI maintains an adequate capital base
and operational backstop relative to its risks and operations. The
proposed quarterly calculation and assessment aligns with the proposed
frequency of reporting under proposed Sec. 706.205(i). However, more
frequent capital calculations and assessments may be appropriate due to
potential fluctuations in stablecoin demand or other factors.
3. Sec. 706.402. Individual Additional Capital or Backstop Requirement
The NCUA expects that a PPSI will appropriately calculate a capital
requirement under proposed Sec. 706.401(a) and (b) and would expect to
resolve any concerns with the capital adequacy assessment through the
examination process. However, in cases where the PPSI's internal
capital adequacy assessment is significantly deficient in addressing
the capital needs of the PPSI to ensure ongoing operations, the NCUA is
proposing a process to impose an individual additional capital or
backstop requirement on the PPSI. This process is permitted by section
4(a)(4)(B)(i) of the GENIUS Act.\234\
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\234\ 12 U.S. 5903(a)(4)(B)(i).
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The proposed rule includes a list of illustrative examples of when
the NCUA may consider imposing an individual additional capital or
backstop requirement, such as when a PPSI is facing a significant
increase in operational risks, excessive volatility in stablecoin
issuance or redemptions and the PPSI's management lacks a robust plan
to address that volatility, or for additional risks that the PPSI is
not appropriately managing or reflecting in the ongoing capital
calculation.
Under the proposal, the NCUA would notify the PPSI of the proposed
individual additional capital or backstop requirement, including a
justification for that requirement and a target achievement date. The
board and management of the PPSI generally would have 30 days to
respond to that notice. The NCUA may change this time period, as
appropriate, based on the condition of the PPSI. For example, the time
period may be shortened due to the severity of the underlying issues
and need for additional capital or backstop. After the response period,
the NCUA would issue a final decision establishing an individual
additional capital or backstop requirement for that PPSI, which would
remain in effect until modified or rescinded by the NCUA. The decision
may require the PPSI to develop and submit to the NCUA, within a
specified time period, an acceptable plan to reach the additional
capital or backstop requirement established for the PPSI. If, after the
NCUA renders its decision, there is a significant change in the
circumstances that materially affects the PPSI's capital adequacy or
its ability to reach the required capital or backstop requirement, the
PPSI may request, or the NCUA may propose to the PPSI, a change in the
additional capital or backstop requirement for the PPSI, the date when
the minimum must be achieved, or the PPSI's plan (if applicable). The
NCUA may decline to consider proposals that are not based on a
significant change in circumstances or that are repetitive or
frivolous. Pending a decision on reconsideration, the NCUA's original
decision and any plan required under that decision shall continue in
full force and effect.
4. Proposed Adjustments to the NCUA's Capital Rule (12 CFR Part 702 and
704)
Section 4(a)(4)(C)(iii) of the GENIUS Act specifies that for
stablecoin issuers owned by IDIs, the appropriate Federal banking
agency (as defined in 12 U.S.C. 1813(q)), which does not include the
NCUA, cannot require an IDI that is consolidated with a PPSI to hold
any amount of regulatory capital with respect to such PPSI and its
assets and operations in excess of the capital that such PPSI must
maintain under the capital regulations promulgated under the GENIUS
Act.\235\ While the NCUA is not an appropriate Federal banking agency
under the Federal Deposit Insurance Act, the NCUA is issuing similar
proposed rules as the OCC regarding deconsolidation of PPSI
subsidiaries for consistency. Therefore, for regulatory capital
purposes, the NCUA is proposing to amend 12 CFR parts 702 (natural
person FICUs) and 704 (corporate FICUs) to specify that a FICU that
owns a consolidated PPSI under GAAP must deconsolidate the PPSI for
regulatory capital purposes.
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\235\ 12 U.S.C. 5903(a)(4)(C)(iii).
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The FICU must deduct any interest in retained earnings of the PPSI
from its net worth and, for complex credit unions calculating their
capital under the risk-based capital framework, from the capital
elements for the risk-based capital numerator.\236\ This amount would
also be deducted from total assets or total risk-weighted assets for
the denominator. This interest reflects the FICU's share of retained
earnings of the PPSI that have not been paid out as dividends, and the
deduction ensures that the same amount would not count as capital at
both the PPSI and its parent FICU. Once earnings from the subsidiary
are paid as dividends to the parent FICU, those funds are available for
general uses of the FICU and no longer count as capital of the PPSI.
Finally, any remaining assets associated
[[Page 29002]]
with the PPSI (after deducting its share of retained earnings), such as
investments in or intercompany receivables from a PPSI, would be
excluded when calculating the FICU's total assets or risk-weighted
assets, as applicable.
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\236\ The OCC's proposal requires deduction from common equity
tier 1 capital. FICUs, however, as mutual institutions do not have
common equity (stock certificates) and instead would deduct
consolidated interests in the PPSI from the numerator, either net
worth or its risk-based capital numerator, as applicable.
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To the extent that a subsidiary PPSI incurs net losses, there would
be no adjustment to increase its parent FICU's assets or retained
earnings to offset those losses, so as to not overstate the resources
and financial condition of the parent. As proposed, this
deconsolidation and deduction approach would ensure that any assets and
capital associated with the PPSI are not double-counted when included
in risk-based or net worth ratio calculations at the parent FICU, and
that any retained earnings of the PPSI are not double-counted as
capital that can be used by the parent FICU.
5. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 149: The OCC did not provide a specific treatment for
unconsolidated equity interests in PPSIs. The other banking agencies'
capital treatment for non-consolidated equities is generally more
conservative than the NCUA's treatment for non-consolidated equities.
Banking organizations' unconsolidated investments may be subject to
deduction in certain circumstances and are generally subject to higher
risk weights than under part 702. The NCUA solicits comment on whether
the current treatment under part 702 and NCUA's risk-based capital
requirements for unconsolidated CUSO equities is appropriate for
unconsolidated PPSI exposures.
Question 150: Are the proposed requirements for capital elements
appropriate and sufficiently clear? Should the NCUA consider permitting
tier 2 capital in the form of subordinated debt, similar to the
permitted capital element under 702, Subpart D? Should the NCUA
consider establishing limits on how much capital of each tier should be
required or allowed? Alternately, should the NCUA adopt a simpler
measure of capital, such as anything that qualifies as equity under
GAAP, instead of importing the bank framework for capital instruments?
Should the NCUA use tangible equity (retained earnings, stock, and
preferred stock, net of tangible assets) as the measure of capital for
a PPSI?
Question 151: Should the NCUA require deductions from regulatory
capital for goodwill, certain deferred tax assets, or other illiquid or
intangible assets, recognizing that these assets may not provide
sufficient loss absorbency during a business disruption, and may
experience volatility in value or writedowns that could deplete
retained earnings? Please provide any data supporting your views.
Question 152: Are the proposed components and determination of the
minimum capital and backstop requirements appropriate for PPSIs? Which
alternatives, if any, should the NCUA consider and why? Should the
requirements include any adjustments in recognition of newly acquired
or divested businesses, or any other adjustments when calculating total
expenses for purposes of the proposed backstop? Please provide any data
supporting your views.
Question 153: Is the $5 million minimum capital requirement for a
de novo PPSI appropriate?
Question 154: The NCUA is considering a variable capital component
based on a percentage of Outstanding Issuance Value. This component
could address operational risks associated with maintaining the Reserve
Assets and issuing Payment Stablecoins to Customers. This component may
vary directly with the Outstanding Issuance Value. It could also
address price and liquidity risks associated with Payment Stablecoin
Reserve Assets when those assets may need to be liquidated at below-
market value to meet redemption demands. This component could also
address price and credit risk associated with certain Payment
Stablecoin Reserve Assets, such as uninsured deposits and/or funds in
Share Accounts and certain reverse repurchase agreements. As the size
of the Outstanding Issuance Value and corresponding Reserve Assets
increase, the operational risk may increase. A larger pool of
underlying Reserve Assets may increase the number and severity of
hacking attempts, while a larger outstanding issuance may encourage
attempts to create fraudulent Payment Stablecoins. Similarly, a larger
pool of Reserve Assets that may need to be liquidated in a short
timeframe to satisfy a run on the Payment Stablecoin would increase the
risk that Reserve Assets would need to be liquidated at prices below
fair value. However, the risk may not grow as quickly as the growth of
Reserve Assets. Larger PPSIs may have more resources to spend on
cybersecurity and other risk mitigation strategies. One possible
calibration for such a requirement could be 1.0 percent for Payment
Stablecoin reserves or Outstanding Issuance Value up to $10 billion,
0.40 percent for Payment Stablecoin reserves or Outstanding Issuance
Value between $10 billion and $50 billion, and 0.20 percent for Payment
Stablecoin reserves or Outstanding Issuance Value greater than $50
billion. However, the NCUA also recognizes that a PPSI could manage
these risks through application of Reserve Asset diversification and
liquidity measures. These measures could reduce the risk of
unanticipated loss and thus the need for a significant amount of
capital. Requirements to mitigate those risks are included elsewhere in
this proposal. Moreover, including a variable component for operational
risk based on Outstanding Issuance Value may disincentivize growth
among PPSIs and prevent their Payment Stablecoins from obtaining
economies of scale. Should the NCUA impose a minimum capital
requirement based on a set percentage of Outstanding Issuance Value? If
so, are the minimum capital requirements and thresholds discussed
appropriately calibrated? Please provide any data supporting your
views.
Question 155: While the capital requirement in the proposed rule
text is the NCUA's preferred approach, the NCUA is also considering a
variable capital component tied more directly to price and interest
rate risk of Payment Stablecoin Reserve Assets. Under this approach, a
capital charge would apply to Reserve Assets that consist of U.S.
Treasuries, repurchase agreements, and tokenized versions of those
assets. As a PPSI grows larger, there may be increased risk that a run
on the Payment Stablecoin will require liquidation of a significant
amount of underlying Reserve Assets over a short time. This may result
in the PPSI receiving less than Fair Value for certain Reserve Assets.
While the proposed rule's Reserve Asset provisions require
consideration of the Fair Value of Reserve Assets, for certain assets
such as U.S. Treasuries, a PPSI may need to sell those assets into the
market and accept whatever price the market will offer at that time. A
similar risk also arises with reverse repurchase agreements entered
into by the PPSI, as the counterparty may decline to roll over the
repurchase agreement, thus leaving the PPSI with additional Treasuries.
In contrast, cash, deposits and funds in Share Accounts, and money
market funds likely could be redeemed at par value with no interest
rate risk loss to the PPSI. The NCUA could consider calibrating this
variable capital component using the market price volatility haircuts
used by banking organizations to calculate exposure amounts for repo-
style transactions in
[[Page 29003]]
12 CFR 324.37.\237\ This approach establishes a haircut of 0.5 percent
for Treasuries and Treasury collateral posted or received under
repurchase agreements with maturities up to one year, but the NCUA
could consider more tailored and granular haircuts, such as 0.05
percent to 0.25 percent, which could vary based on the remaining time
to maturity for these reserve assets. However, imposing a capital
requirement on only certain Payment Stablecoin Reserve Assets may
incentivize PPSIs to focus on other Reserve Assets. This approach may
also introduce unnecessary complexity into the rule. The NCUA welcomes
comment on the proposed approach in the regulatory text and all
alternatives. The NCUA also solicits comments on a variable capital
component tied to the credit risk of certain Payment Stablecoin Reserve
Assets, specifically uninsured deposits and funds in Share Accounts,
reverse repurchase agreements, and money market funds. Proposed Sec.
706.202(c) includes provisions (whether as a requirement or safe
harbor) that would encourage a PPSI to spread its deposits and funds in
Share Accounts among multiple institutions. Moreover, proposed Sec.
706.202(d) would require certain large PPSIs to hold a minimum amount
of insured deposits and/or insured funds in Share Accounts. These
provisions would help mitigate the counterparty credit risk that a PPSI
would face with respect to uninsured Deposits and uninsured funds in
Share Accounts. Thus, it may be unnecessary to impose a variable
capital component tied to uninsured Deposits. Currently, the FDIC and
NCUA deposit and share insurance limits are $250,000 per depositor per
account ownership category at each insured bank or credit union.\238\
Even if a PPSI attempted to split its deposits and funds in Share
Accounts among multiple insured institutions, the total amount of
insured deposits and insured funds in Share Accounts would likely be a
small proportion of total Reserve Assets. For example, a Payment
Stablecoin with $1 billion of Reserve Assets that kept 10 percent of
reserves in bank deposits or FICU Share Accounts would need to spread
those funds among 400 accounts to ensure all of those deposits and/or
Share Accounts remained fully insured. It is more likely a PPSI would
choose a much smaller group of IDIs and deposit a larger amount of
reserves at each, resulting in a significant amount of uninsured
deposits and/or uninsured funds in Share Accounts. These deposits and
funds in Share Accounts would be subject to loss in the event of a
failure of an IDI. To address this risk, the NCUA could consider a
capital charge of 0.40 percent applied to uninsured deposits and/or
uninsured funds in Share Accounts, or some other amount, that could be
calibrated based on the number of IDIs or size of the uninsured deposit
and/or uninsured funds in Share Accounts amount at each IDI.
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\237\ Complex FICUs may also use this approach when calculating
off-balance sheet assets under 12 CFR 702.104(c)(4)(viii) and (ix).
\238\ All shares placed by a member in a particular ownership
category--whether in one account or multiple share accounts or at
different branches or offices of the same FICU--are aggregated and
insured up to the standard maximum share insurance amount for that
ownership category. 12 CFR part 745.
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Under section 4(a)(1)(A)(v) of the GENIUS Act, a reverse repurchase
agreement may be entered into by PPSIs on a cleared basis, tri-party
basis, or bilateral basis to satisfy Reserve Asset requirements.\239\
For cleared reverse repurchase agreements, the transaction occurs
through a central clearinghouse that fully backs the transaction,
resulting in negligible counterparty credit risk. Under a tri-party
repurchase agreement, the collateral for the transaction is held by a
third party, reducing the credit risk to the counterparty. However, in
bilateral reverse repurchase agreements, the PPSI would rely solely on
the collateral provided by its counterparty. Under section
4(a)(1)(A)(v) of the GENIUS Act, acceptable collateral for reverse
repurchase agreements could consist of U.S. Treasury bills, notes, or
bonds, with no restrictions on original or remaining maturity.
Therefore, in a counterparty default, a PPSI could receive long-dated
Treasury securities with an extended time to maturity. Even if the
reverse repurchase agreement was significantly overcollateralized, the
price volatility of long-dated Treasuries could significantly increase
the risk of loss to the PPSI on the default of its counterparty. To
address this risk, the NCUA could consider imposing a capital
requirement equivalent to the market price volatility haircut applied
to collateral for repo-style transactions under the banking agencies
capital rules in 12 CFR 324.37. The capital requirement could vary
based on the remaining maturity of the collateral and the credit risk
of the PPSI's counterparty. With respect to Reserve Assets in the form
of money market funds, section 4(a)(1)(A)(vi) of the GENIUS Act
requires that a PPSI only hold money market funds that invest in
certain other eligible reserve assets; however, these include deposits,
funds in Share Accounts, and reverse repurchase agreements that give
rise to the same risks as if held directly by the PPSI.\240\ Therefore,
the NCUA could consider a capital charge that would require the PPSI to
look through to the underlying assets of the money market fund, similar
to the capital requirement for an equity exposure to an investment fund
in Appendix A to Part 702--Gross-Up Approach, and Look-Through
Approaches.
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\239\ 12 U.S.C. 5903(a)(1)(A)(v).
\240\ 12 U.S.C. 5903(a)(1)(A)(vi).
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However, the NCUA considered that imposing a capital charge on
these types of Reserve Assets could incentivize PPSIs to hold reserves
in other types of assets that could be subject to lower or no specific
capital charge. The NCUA does not want to discourage PPSIs from
investing Reserve Assets in certain permissible categories,
particularly in Share Accounts at FICUs. In addition, the proposed
asset diversification and liquidity requirements would help mitigate
the risk of loss on Reserve Assets without imposing a financial capital
requirement. Should the NCUA adopt a capital requirement based on price
risk, credit risk, operational risk, or interest rate risk, including
variations on any of the proposals discussed above? Please provide any
data supporting your views. For example, should the NCUA impose a
charge for credit risk, such as a 2 percent capital charge for
uninsured deposits and uninsured funds in Share Accounts? Should the
NCUA impose a capital charge to reflect the interest rate risk of
certain Reserve Assets, such as Treasury securities? Should the NCUA
impose a minimum operational risk capital charge that scales with the
size of the issuer, as discussed above (i.e., with a charge of 1
percent for small issuers with a smaller additional marginal charge
applying at certain thresholds)? Should any such operational charge be
based, in part, on the PPSI's recent losses?
Question 156: While the capital requirement in the proposed rule is
the NCUA's preferred approach, for PPSIs that also provide custody
services to Customers, the NCUA is also soliciting comment about the
potential for a variable capital component based on the Fair Value of
assets held in custody. Operating a custody business generates a
separate set of risks from operating a Payment Stablecoin business, and
the risk is potentially increased compared with a standalone custody
business, as any loss of the assets in custody could also impact
operations of the custody business. This capital component could
[[Page 29004]]
reflect costs associated with providing for ongoing operation of a
PPSI's custody business, irrespective of the success or failure of the
associated Payment Stablecoin issuance. This approach of assessing a
capital charge based on the size and scope of a custodian's business is
consistent with the GENIUS Act requirement that a PPSI's capital
requirements be tailored based on the risk profile of the issuer.\241\
The NCUA believes that the risks, in particular the operational risks,
associated with providing custody services can be adequately addressed
through the de novo and ongoing capital requirements in proposed Sec.
706.401(a)(1) and (2). Proposed Sec. 706.401(a)(2)(i) expressly states
that the capital maintained by the PPSI must be commensurate with the
level and nature of all risks to which the PPSI is exposed, including
risks for off-balance sheet activities. Because the risks associated
with operating a custody business would be addressed through a holistic
assessment of the PPSI's risks in the proposal, the NCUA does not
propose to include a variable capital component relating to assets
under custody. The NCUA generally expects that entities engaged in
custody businesses will require additional capital to address the
operational risk associated with this activity. However, the NCUA
solicit comments on whether it should adopt a capital requirement based
on assets held in custody by the PPSI? If so, how should that
requirement be calibrated? Please provide any data supporting your
views.
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\241\ See 12 U.S.C. 5903(a)(4)(A)(i).
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Question 157: Should the NCUA adopt a capital requirement expressly
designed to address costs of litigation, legal risk, or legal costs
during insolvency that a PPSI may face? If so, how should such a
requirement be calibrated?
Question 158: Should the capital and backstop requirements be
calculated based as of the last day of a given quarter, as proposed?
Should the amount instead be calculated across some other period of
time, such as an average on a monthly, bi-monthly, biannually, or
yearly basis?
Question 159: Is the timing for the PPSI to meet capital and
backstop requirements appropriate? Are the resulting activity
limitations for failing to meet those requirements appropriate? Should
any activity limitations be imposed by NCUA on a discretionary basis?
For example, should the PPSI be required to notify the NCUA in writing
if it fails to meet its capital or operational backstop requirements
and include a written contingency plan with measures to be taken by it
to restore compliance? The rule could also provide that the NCUA may
take certain discretionary actions if necessary, including directing
the PPSI to issue capital instruments or acquire additional operational
backstop assets; directing the PPSI to suspend or reduce issuance of
Payment Stablecoins; or executing an orderly redemption of all
outstanding Payment Stablecoins.
Question 160: Are there any advantages or disadvantages to setting
capital requirements for PPSIs consistent with or different from those
set by non-United States regulators? The proposed approach to
determining capital requirements is less prescriptive than approaches
adopted or proposed in certain foreign jurisdictions. Are there any
advantages or disadvantages to setting capital requirements for PPSIs
consistent with the approaches adopted by those jurisdictions?
Question 161: Are the proposed criteria for imposing an individual
additional capital or backstop requirements appropriate and
sufficiently clear? For example, should the NCUA define what
constitutes ``excessive volatility?''
G. Subpart E--Supervision and Enforcement Policy for Anti-Money
Laundering/Countering the Financing of Terrorism Program Requirements
for NCUA-Licensed PPSIs
Proposed subpart E of part 706 would articulate the supervision and
enforcement frameworks for NCUA-Licensed PPSI's anti-money laundering/
countering the financing of terrorism (AML/CFT) programs, which PPSIs
are required to maintain under the GENIUS Act \242\ and proposed Sec.
706.204(c). The proposed rule defines key terms, describes the NCUA's
enforcement and supervision policy with respect to AML/CFT program
implementation failures, and establishes a consultation process between
FinCEN and the NCUA relating to AML/CFT enforcement actions or
significant AML/CFT supervisory actions.
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\242\ 12 U.S.C. 5903(a)(5) and (6).
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1. Sec. 706.501. Definitions
Proposed Sec. 706.501 would define several terms used throughout
the subpart.
The term ``AML/CFT enforcement action'' would mean any formal or
informal action taken by the NCUA under authority of 12 U.S.C. 5905 or
other applicable law that seeks to penalize, remedy, prevent, or
respond to noncompliance with past or ongoing violations of, or past or
ongoing deficiencies relating to, an AML/CFT requirement. The term
includes a cease-and-desist order, written agreement, consent order, or
memorandum of understanding, or the assessment of a civil money
penalty. It does not include criminal enforcement.
The term ``AML/CFT requirement'' would mean: (1) a requirement of
the Bank Secrecy Act (as that term is defined in proposed part 706)) or
of the regulations in title 31, chapter X applicable to PPSIs; (2) a
requirement of 12 U.S.C. 5903(a)(5)(A)(i)-(v), 12 U.S.C. 5903(a)(6)(B),
or 12 U.S.C. 5903(f)(1)(A); or (3) a requirement prescribed under 12
U.S.C. 1786(q) or this section.
The term ``significant AML/CFT supervisory action'' would mean any
written communication or other formal supervisory determination issued
by the NCUA that identifies one or more alleged deficiencies,
weaknesses, violations of law, or unsafe or unsound practices or
conditions relating to an AML/CFT requirement; communicates supervisory
expectations to a PPSI regarding actions or remedial measures required
to correct the deficiency, weakness, violation, or practice or
condition; and contemplates significant or programmatic actions or
remedial measures to be taken by the PPSI. The term does not include
examiner observations, suggestions, or other informal comments.
2. Sec. 706.502. Supervision and Enforcement Policy
Proposed Sec. 706.502 would articulate the NCUA's enforcement and
supervision policy as it relates to AML/CFT requirements. Except with
respect to a significant or systemic failure to implement an effective
AML/CFT program in accordance with applicable regulations at 31 CFR
Chapter X issued by FinCEN, a PPSI that has properly established an
AML/CFT program would not be subject to an AML/CFT enforcement action
or to a significant AML/CFT supervisory action based on the program
requirements issued by FinCEN or proposed Sec. 706.204(c). At the same
time, the proposed rule would clarify that nothing in this policy would
restrict an AML/CFT enforcement action or a significant AML/CFT
supervisory action with respect to a failure to properly establish an
AML/CFT program. The NCUA's proposed enforcement and supervisory
approach is not intended to affect criminal enforcement liability under
the BSA.
3. Sec. 706.503. Consultation
The proposed rule would establish a notice and consultation
framework
[[Page 29005]]
applicable when the NCUA intends to initiate an AML/CFT enforcement
action or a significant AML/CFT supervisory action, as those terms are
defined in the proposed regulation. Under such a consultation
framework, before initiating such an action, the NCUA would provide the
Director of FinCEN with an opportunity to review the action and would
consider any input offered by the Director of FinCEN, which may include
any view as to the effectiveness of the PPSI's AML/CFT program. To
facilitate that review, the NCUA would be required to provide written
notice to the Director of FinCEN of the NCUA's intent to take the
action at least 30 days in advance of the proposed action, unless a
shorter period is necessary, at the sole discretion of the NCUA, to
remedy, prevent, or respond to an unsafe or unsound practice or
condition.
Such a notice would be accompanied by the relevant AML/CFT
information underlying the proposed action. Relevant AML/CFT
information may include, but is not limited to, relevant portions of
draft report of examination; relevant portions of a draft enforcement
action; examination workpapers supporting the proposed action; and the
relevant AML/CFT information submitted by the PPSI to the NCUA. The
NCUA would not be obligated to provide information over which the PPSI
may claim privilege under Federal or State law. The NCUA would also
respond, to the extent reasonably practicable, to requests for
additional AML/CFT information from the Director of FinCEN regarding
the proposed action. The NCUA seeks comments on such a consultation
framework.
4. Sec. 706.504. Disclosure of Supervisory Information
The NCUA has issued regulations that generally prohibit the
disclosure of the NCUA's non-public information, except as provided
under such regulations.\243\ This prohibition generally applies to
disclosure of any portion of a report of examination, supervisory
correspondence, and any representations concerning such reports or
supervisory correspondence, or their findings, including conclusions
regarding compliance with AML/CFT compliance program requirements. The
proposed rule would clarify that PPSIs may share any information with
the FinCEN Director that relates to an existing or potential AML/CFT
enforcement action or significant AML/CFT supervisory action.
---------------------------------------------------------------------------
\243\ See 12 CFR part 792.
---------------------------------------------------------------------------
This proposed rule specifically provides that this authorization to
share information includes information that would ordinarily be
considered non-public information under the NCUA's rules. To qualify
for this information sharing, the information at issue must have an
appropriate nexus to an existing or potential AML/CFT enforcement
action or significant AML/CFT supervisory action. The NCUA proposes
this clarification to ensure that PPSIs can share appropriate
information with the FinCEN Director, including in the context of
actions subject to the newly established consultation requirement.
Otherwise, PPSIs may be unable to provide thorough information to the
FinCEN Director, whether proactively or in response to the Director's
requests.
While the proposed rule intends to permit such sharing, the NCUA is
proposing two alternative methods for permitting such information
sharing with the FinCEN Director. Under the first approach, referred to
as Option A in the amendatory text below, the NCUA would authorize the
disclosure of covered information on the NCUA's behalf to the FinCEN
Director and separately permit the FinCEN Director to use such
information. This phrasing is intended to mirror the permissible scope
of information sharing by the NCUA under 12 U.S.C. 1821(t), which
provides that a ``covered agency, in any capacity, shall not be deemed
to have waived any privilege applicable to any information by
transferring that information to or permitting that information to be
used by'' another Federal agency.
Under the alternative approach, referred to as Option B in the
amendatory text below, the NCUA would similarly authorize the
disclosure of covered information on the NCUA's behalf, as well as
similarly authorize the use of such information by the FinCEN Director.
The NCUA, however, would expressly require that any such information
shared on the NCUA's behalf be contemporaneously disclosed by the PPSI
to the NCUA. While the NCUA will necessarily already have access to its
own non-public information, this additional requirement is potentially
more consistent with the retention of privilege contemplated under 12
U.S.C. 1821(t) and, therefore, potentially provides a greater safeguard
against the unintended destruction of privilege. The NCUA also
recognizes that PPSIs' willingness to share timely, fulsome information
with the FinCEN Director is essential to the success of the
consultation framework. Requiring PPSIs to contemporaneously disclose
to the NCUA the same non-public information they provide to FinCEN is
likely to discourage proactive reporting--particularly where a PPSI
perceives the NCUA's proposed action as inconsistent with the AML/CFT
priorities or FinCEN policy--and thereby undermine the rule's objective
of enhancing FinCEN's role.
Regardless, the proposed rule would include additional clarifying
text intended to preserve all applicable privileges. The destruction of
privilege over non-public supervisory information could prove harmful
both to the NCUA and a PPSI, so the additional language is intended to
prevent such consequences.
The NCUA invites comment on these options for permitting greater
information sharing with the FinCEN Director regarding existing or
potential AML/CFT enforcement actions or significant AML/CFT
supervisory actions, including possible alternative methods of
accomplishing the rule's objectives without unintentionally impeding
applicable privileges.
5. Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 162: Should the NCUA further refine or clarify any of the
concepts or definitions outlined in this proposed supervision and
enforcement framework?
Question 163: Do any aspects of the GENIUS Act framework with
regards to supervision, examination, and enforcement need to be better
accounted for if the supervision and enforcement framework were
extended to PPSIs, including a consultation framework when the NCUA
intends to take an AML/CFT enforcement action or significant AML/CFT
supervisory action? For example, should revocation of approval to issue
a Payment Stablecoin, if based in whole or in part on AML/CFT
deficiencies, be accounted for in, including in the definition of AML/
CFT enforcement action?
Question 164: Should the proposed consultation process include an
asset threshold--e.g., consultation is required for any significant
AML/CFT supervisory actions involving PPSIs with $10 billion or more in
assets? In addition, or as an alternative, should the proposed rule not
require but instead provide the option for PPSIs to request that the
NCUA consult with FinCEN prior to initiating a significant AML/CFT
supervisory action?
Question 165: Notwithstanding the benefits of the proposed
consultation described above, the proposal may result in additional
review during an examination. How can the consultation
[[Page 29006]]
process be streamlined and prevent logistical burdens for financial
institutions or delays in exam report issuance?
Disclosure of Supervisory Information
Question 166: The NCUA invites comment on the two options for
permitting greater information sharing with the FinCEN Director
regarding AML/CFT enforcement actions or significant AML/CFT
supervisory actions. In particular, would the disclosure of
confidential supervisory information to FinCEN compromise attorney-
client privilege, other applicable privileges, or otherwise undermine
the preservation of privilege in 12 U.S.C. 1821(t)?
H. Assessments
In the OCC Proposal, the OCC determined that collecting assessments
in connection with the GENIUS Act activities of OCC-supervised
institutions is necessary and appropriate to facilitate the OCC's
functions under the GENIUS Act and conforms with its assessment
authorities. The OCC found that its expanded supervisory
responsibilities under the GENIUS Act include licensing and
registration decisions for certain PPSIs, and monitoring compliance
with reserve requirements and other applicable laws and regulations
relating to Payment Stablecoin activities warranted the assessments.
Similar to the OCC, the NCUA would also be responsible for expanded
oversight functions related to FICU Payment Stablecoin activities and
activities of NCUA-Licensed PPSIs. As discussed in the NCUA Standards
Proposal, proposed Sec. 706.103 would state that the NCUA may require
filing fees to accompany certain filings made under Subpart A. The NCUA
also sought comment regarding the pros and cons of recovering the costs
of administering the Payment Stablecoin program by imposing charges on
individual FICUs or NCUA-Licensed PPSIs, including through an
examination fee. The NCUA continues to consider the potential for
imposing a licensing fee or examination fee to offset the NCUA's
additional costs and seeks comments on how the NCUA should account for
the additional expense. The NCUA believes that because Payment
Stablecoin activities and investments are optional and based on each
FICU's business judgment; and that because it is likely that, at least
initially, only a minority of FICUs participate in Payment Stablecoin
activities and investments, commenters may consider it more equitable
to not pay these costs out of the general FCU operating fee and
National Credit Union Share Insurance Fund (NCUSIF) overhead transfer.
The NCUA notes that the intent for any charges would not be to act
as a deterrent, but rather as an equitable way of assessing the cost of
Payment Stablecoin activities and the NCUA's expanded supervision
requirements.
I. Proposed Amendments to Part 747
The NCUA is proposing several revisions to the rules of practice
and procedure for adjudicatory proceedings part 747 of the NCUA's
regulations to incorporate the GENIUS Act's procedural requirements
with respect to PPSIs.\244\
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\244\ 12 CFR part 747.
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Section 6(b) of the GENIUS Act \245\ requires the NCUA to follow
certain procedures when bringing an enforcement action or imposing
civil money penalties against a PPSI for violations of the GENIUS Act,
any regulation or order issued under the Act, or any condition imposed
in writing between the NCUA and PPSI.
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\245\ 12 U.S.C. 5905(b).
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Specifically, section 6(b)(4)(A) of the GENIUS Act \246\ requires
the NCUA to comply with the procedures set forth in paragraphs (e) and
(g) of section 206 of the FCU Act \247\ if the NCUA identifies a
violation or attempted violation of the GENIUS Act or makes a
determination with respect to the enforcement authorities enumerated at
sections 6(b)(1) through (3) of the Act.\248\ Similarly, section
6(b)(4)(D) of the GENIUS Act \249\ permits the NCUA to follow the
procedures in section 206(f) of the FCU Act when the NCUA issues a
temporary cease-and-desist order.
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\246\ 12 U.S.C. 5905(b)(4)(A).
\247\ 12 U.S.C. 1786.
\248\ Section 6(b)(1) through (3) of the GENIUS Act give the
NCUA authority to suspend or revoke the registration of a PPSI,
initiate cease-and-desist proceedings, and remove and prohibit
institution-affiliated parties.
\249\ 12 U.S.C. 5905(b)(4)(D).
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Section 6(b)(5)(D) of the GENIUS Act clarifies that any civil money
penalty imposed under the GENIUS Act may be assessed and collected by
the NCUA pursuant to the procedures set forth in section 206(k)(2) of
the FCU Act.\250\
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\250\ 12 U.S.C. 5905(b)(5)(D).
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Consistent with the GENIUS Act, the NCUA proposes to revise Sec.
747.1 to clarify that the rules of practice and procedure in part 747
apply to the following proceedings: suspension or revocation of
registration, cease-and-desist, temporary cease-and-desist, removal and
prohibition, or civil money penalties under section 6 of the GENIUS
Act.\251\ Additionally, the NCUA proposes to revise Sec. 747.703(a) to
clarify that the part 747 procedures for formal investigations apply to
formal investigations initiated by the NCUA pursuant to section 6 of
the GENIUS Act.\252\
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\251\ 12 U.S.C. 5905.
\252\ Id.
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The NCUA also proposes several technical revisions. Specifically,
the NCUA proposes to revise the definitions of ``institution'' and
``institution-affiliated party'' in Sec. 747.3 to incorporate PPSIs
and actions brought pursuant to the Act.
J. Proposed Amendments to Part 745
Reserve assets backing Payment Stablecoins are an important
component of the statutory framework established by the GENIUS Act.
Through this proposal, the NCUA is seeking to clarify the treatment for
such reserves for share insurance purposes. In particular, the NCUA is
proposing to amend its share insurance rules, found in part 745 of the
NCUA's regulations, to provide that funds held in Share Accounts at
FICUs as reserves for a Payment Stablecoin would be insured to the PPSI
under the NCUA's coverage rules for corporate accounts, but would not
be insured to Payment Stablecoin holders on a pass-through basis. As
corporate accounts of the PPSI, such accounts would be aggregated with
other corporate accounts maintained by the PPSI at the same FICU and
insured for up to the Standard Maximum Share Insurance Amount (SMSIA),
currently $250,000. The NCUA is seeking comment on whether this is the
appropriate approach and reflects the appropriate interpretation of the
GENIUS Act and FCU Act.
1. General Principles of Share Insurance Coverage
The NCUA only insures ``accounts,'' as that term is defined in
section 101(5) of the FCU Act (12 U.S.C. 1752(5)). ``Share Accounts,''
as defined in Part 706, funds in ''accounts'' (as defined by the FCU
Act) at FICUs, which the GENIUS Act provides may comprise a portion of
a PPSI's reserves backing its Payment Stablecoins.\253\
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\253\ The NCUA's share insurance coverage does not apply to
other types of Reserve Assets that a PPSI may maintain at a FICU
pursuant to the GENIUS Act.
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The FCU Act establishes the key parameters of share insurance
coverage, including the SMSIA, and provides share insurance coverage up
to the SMSIA at each separately chartered FICU where accounts are
maintained.\254\ The FCU Act also provides separate insurance coverage
for accounts
[[Page 29007]]
maintained in different classifications (also known as ownership
categories) at the same FICU.\255\ In other words, the SMSIA is
$250,000 per accountholder, per FICU, for accounts held in each
ownership category.
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\254\ See 12 U.S.C. 1787(k).
\255\ See 12 U.S.C. 1787(k)(1)(C).
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Today, some Share Accounts are eligible for pass-through share
insurance. Pass-through share insurance coverage is a mechanism that
allows account funds placed at a FICU by a third party on behalf of one
or more owners to be insured as if deposited directly at the FICU by
the owner(s). Certain regulatory requirements must be satisfied for
pass-through share insurance to apply: (1) the account records of the
FICU must expressly disclose a basis for pass-through coverage, such as
a custodial or agency relationship; (2) the identities and interests of
the owners must be ascertainable either from the records of the FICU or
records maintained in good faith and in the regular course of business
by the account owner or another party that maintains such records for
the account owner; and (3) the relationship that provides the basis for
pass-through share insurance coverage must be genuine, with the
deposited funds actually owned by the named owners.\256\
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\256\ 12 CFR 745.2(c)(1)-(2).
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The NCUA insures ``member accounts''/``accounts'' as defined by
section 101(5) of the FCU Act, at all FICUs.\257\ Importantly, these
terms are not limited to those persons enumerated in the credit union's
field of membership who have become members. They also includes certain
nonmembers, such as other nonmember credit unions; nonmember public
units and political subdivisions; and, in the case of credit unions
serving predominantly low-income members, deposits of nonmembers
generally. In other words, the NCUA provides share insurance coverage
to members and those otherwise eligible to maintain insured accounts at
FICU. In general, the NCUA looks to the actual owner of the funds in
the ``account'' to satisfy the membership or otherwise be eligible to
maintain an insured account requirement.
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\257\ See 12 U.S.C. 1752(5). Proposed part 706 would cross
reference this definition when defining ``Share Account.''
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2. GENIUS Act Provisions Concerning Share Insurance
The GENIUS Act expressly provides that Payment Stablecoins ``shall
not be backed by the full faith and credit of the United States,
guaranteed by the United States Government, subject to deposit
insurance by the Federal Deposit Insurance Corporation, or subject to
share insurance by the National Credit Union Administration,'' and it
is unlawful to make contrary representations.\258\
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\258\ 12 U.S.C. 5903(e)(1), (2).
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These provisions appear to be inconsistent with providing share
insurance to Payment Stablecoin holders on a pass-through basis. When
the NCUA insures accounts on a pass-through basis, it treats end
Customers as accountholders. Treating Payment Stablecoin holders as the
insured accountholders on a pass-through basis seems inconsistent with
the GENIUS Act's prohibition on Payment Stablecoins being ``subject to
share insurance.'' Additionally, third parties that establish pass-
through insurance arrangements often market the availability of NCUA
share insurance to their customers, which is consistent with the
principle that a third party offering pass-through insurance is
effectively offering an access mechanism to an NCUA-insured Share
Account. The GENIUS Act's firm prohibition on marketing Payment
Stablecoins as subject to share insurance seems inconsistent with the
concept of Payment Stablecoins serving as an access mechanism for NCUA-
insured Share Accounts. Moreover, the fact that a Payment Stablecoin
holder would generally engage in transactions by transferring Payment
Stablecoins, without funds ever leaving the NCUA-insured Share Account,
further differentiates Payment Stablecoin arrangements from existing
pass-through arrangements, in which funds generally are withdrawn from
the Share Account when transactions are made.
3. Proposed Amendments to Sec. 745.6(b)
For reasons just discussed, the NCUA proposes to amend its share
insurance rules, found in part 745 of the NCUA's regulations, to
clarify that Share Accounts held as reserves for a Payment Stablecoin
are not insured to Payment Stablecoin holders on a pass-through basis.
Under the proposed rule, such accounts would be insured as corporate
accounts of their owner, the PPSI. The NCUA proposes to amend its share
insurance rules for corporate accounts, found at 12 CFR 745.6, to
expressly include within their scope funds in Share Accounts held as
reserves backing Payment Stablecoins.
The proposed rule would split current 745.6 into two subparagraphs.
Paragraph (a) would contain existing 745.6 with no changes. Current
745.6 (and proposed paragraph (a)) provides that Share Accounts of a
corporation engaged in any independent activity are added together and
insured up to the SMSIA, currently $250,000, in the aggregate.\259\
Proposed paragraph (b) would provide that notwithstanding any other
provision of part 745, accounts at a FICU held as reserves for a
Payment Stablecoin, as defined in the GENIUS Act, are accounts of the
PPSI's and insured as corporate accounts. Under the proposed rule, all
Share Accounts maintained by a PPSI at a FICU would be added together
for purposes of the share insurance limit, regardless of whether those
Share Accounts consist of reserves backing Payment Stablecoins or serve
some other purpose (such as paying the PPSI's operating expenses). The
PPSI's Share Accounts would not be insured to Payment Stablecoin
holders on a pass-through basis.
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\259\ The share insurance regulations define being engaged in an
``independent activity'' to mean an activity other than one directed
solely at increasing insurance coverage. 12 CFR. 745.6. The NCUA has
historically interpreted ``corporation'' broadly for purposes of
section 745.6 to include similar forms of organizations established
under State law, such as limited liability companies.
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4. Request for Comment on Share Insurance Coverage Proposal
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 167: Is the NCUA's proposed treatment of Share Accounts
that compose reserves for a Payment Stablecoin under section 4 of the
GENIUS Act appropriate? \260\ Is this the best reading of the GENIUS
Act and FCU Act?
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\260\ 12 U.S.C. 5903(a)(1)(A)(ii).
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Question 168: If Payment Stablecoin reserves were eligible for
pass-through share insurance, to what extent would PPSIs satisfy pass-
through requirements, either today or in the future? Should the
requirements be tailored for PPSIs in any way, and if so, how?
Question 169: If Payment Stablecoin reserves are or are not
eligible for pass-through share insurance, what impact would this have
on the market demand for Payment Stablecoins? What impact would it have
on the composition of Reserve Assets of PPSIs?
Question 170: If Payment Stablecoin reserves are eligible for pass-
through share insurance, what impact would that have on the NCUSIF?
Question 171: If Payment Stablecoin reserves are eligible for pass-
through share insurance, how would that impact the risk of a PPSI's
risk of failure?
Question 172: Should the availability of pass-through insurance or
lack thereof have an impact on any of the
[[Page 29008]]
other requirements in the proposed rule?
5. Treatment of Shares in Tokenized Form
The GENIUS Act establishes a Federal regulatory framework for the
issuance of Payment Stablecoins and related Payment Stablecoins
activities; the GENIUS Act does not specifically address tokenized
deposits or tokenized shares in Share Accounts), other than to provide
that the definition of ``payment stablecoin'' does not include, among
other things, a deposit, including a deposit recorded using Distributed
Ledger technology,\261\ and to provide that nothing in the GENIUS Act
may be construed to limit the authority of an IDI (including a FICU) to
engage in activities permissible pursuant to applicable State and
Federal law, including accepting or receiving deposits or shares (in
the case of a credit union), and issuing digital assets that represent
those deposits or shares.\262\ Although Payment Stablecoins and
tokenized shares \263\ can both be used as a means of payment and can
use the same underlying technological components and characteristics,
Payment Stablecoins and tokenized shares are economically and legally
distinct. Payment Stablecoins generally represent a PPSI's liability
where the promise to redeem and to maintain a stable value is backed by
highly liquid, short-term, and safe assets (including deposits and
funds in Share Accounts at IDIs) held in reserve to mitigate concerns
of counterparty risk.
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\261\ See 12 U.S.C. 5901(22).
\262\ See 12 U.S.C. 5915(a)(1).
\263\ For purposes of this discussion, the NCUA is using the
term ``tokenized shares'' to refer to tokenized forms of funds
deposited in in Share Accounts, as defined by proposed Part 706, and
``accounts,'' or ``member accounts'' as defined by section 101(5) of
the FCU Act. 12 U.S.C. 1752(5).
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A tokenized share, on the other hand, is a FICU's share liability
represented in a particular way: in tokenized form and recorded on a
Distributed Ledger technology. Like other shares, tokenized shares fund
a FICU's extensions of credit and represent an integral part of the
maturity and liquidity transformation services provided by credit
unions. FICUs are subject to extensive regulatory and supervisory
requirements, and maintain Federal share insurance.
The NCUA is using this proposed rule as a vehicle to clarify the
treatment of tokenized shares under the FCU Act. Whether or not a
particular tokenized financial product is considered a tokenized share
for purposes of the FCU Act is relevant, among other things, to: (1)
the applicability of share insurance,\264\ (2) distribution of assets
in the event of an institution's failure and liquidation,\265\ (3)
regulatory reporting purposes,\266\ and (4) whether it would not be
subject to the GENIUS Act.\267\ Accordingly, the NCUA is proposing to
amend its share insurance rules under part 745 to clarify that the
application of share insurance to share accounts does not depend upon
the technology or recordkeeping used to record a FICU's share
liabilities.
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\264\ See 12 U.S.C. 1781(a).
\265\ See 12 U.S.C. 1787(b)(11).
\266\ See 12 U.S.C. 12 U.S.C. 1756, 1766, 1781, and 1782; 12 CFR
part 741.
\267\ See 12 U.S.C. 5901(22)(B)(ii) (stating the GENIUS Act's
definition of ``payment stablecoin'' expressly does not include a
digital asset that ``is a deposit (as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813)), including a deposit
recorded using distributed ledger technology.''). Consistent with
the GENIUS Act's rules of construction, which provide that
``[n]othing in this chapter may be construed to limit the authority
of a . . . Federal credit union [or] State credit union . . . to
engage in activities permissible pursuant to applicable State and
Federal law, including--(1) accepting or receiving deposits or
shares (in the case of a credit union), and issuing digital assets
that represent those deposits or shares,'' the NCUA believes that
tokenized shares are not covered by the GENIUS Act's definition of
``payment stablecoin.''
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The FCU Act's definition of an ``account''/``member account'' is
technology neutral, and therefore, tokenized forms of shares in Share
Accounts are not a separate category of accounts under the statute. For
a FICU's tokenized financial product to be considered an account, it
must meet the statutory definition of ``account''/``member account''
under section 101(5) of the FCU Act (12 U.S.C. 1752(5)). The technology
used in crediting an account, evidencing a share liability, or
recording or transferring a share, is not a factor in applying the
statutory definition. A tokenized product that meets the statutory
definition of ``account''/``member account'' is a share account, and as
such, is treated no differently under the FCU Act than other forms of
share accounts. Accordingly, a FICU member or accountholder using
tokenized shares is afforded the same Federal share insurance coverage
under the FCU Act as a FICU member or accountholder using non-tokenized
shares.
The proposed rule would amend the NCUA's share insurance
regulations to expressly include the general principle that the
technology or recordkeeping utilized by a FICU to record its account
liabilities does not affect whether those liabilities constitute
insurable ``accounts.'' The proposed amendment is intended to codify
this principle. Thus, a FICU's tokenization of its share ``account''
liabilities would not alter the legal status of those liabilities as
insurable share ``accounts.'' Under the proposed rule, members and
accountholders with tokenized shares in accounts would be entitled to
the same benefits as members and accountholders with more traditional
forms of accounts, including the NCUA's share insurance coverage.
Although a tokenized share is an insurable share ``account,'' there
may be tokenized FICU liabilities that are not insurable share
accounts, irrespective of an intention or representation that such
constitute an insurable share account. If a product does not meet the
statutory definition of an ``account,'' will not be an insurable share
account. FICUs should also be mindful of the evolving characteristics
and capabilities of tokenized shares that may lead to any material
changes to the underlying nature throughout a product or transaction
lifecycle to ensure ongoing alignment of the underlying tokenized share
with the FCU Act's statutory definition of account.
As noted above, under the NCUA's regulations, for pass-through
share insurance to apply, certain recordkeeping and ownership
requirements must be met.\268\ The NCUA seeks comment on whether any
amendments to the share insurance rules, including the rules related to
pass-through coverage, are needed to address tokenized shares.\269\ For
example, the pass-through insurance rules require that a FICU's account
records expressly indicate a relationship, such as a fiduciary or agent
relationship, that provides a basis for pass-through coverage.\270\
Parties often satisfy this requirement today through account titling.
To the extent tokenized Share Account arrangements may involve
different approaches to account titling or recordkeeping, the NCUA
seeks comment on what clarifications to the NCUA's pass-through rules
would be appropriate.
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\268\ See 12 CFR 745.2(c).
\269\ The NCUA's pass-through insurance rules support the
agency's ability to carry out its statutory obligation to aggregate
and insure accounts of each eligible accountholder up to the
insurance limit, regardless of whether funds are held in the name of
the accountholder or another party. See 12 U.S.C. 1787(k)(1)(A)-(B);
see also 12 U.S.C. 1787(d)(1) (requiring the NCUA to pay share
insurance as soon as possible following a FICU's failure).
\270\ 12 CFR 745.2(c)(1).
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6. Request for Comment on Treatment of Share Accounts in Tokenized Form
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 173: Is the NCUA's proposed amendment to part 745
[[Page 29009]]
clarifying that the application of share insurance to share
``accounts'' does not depend upon the technology or recordkeeping used
to record a FICU's share liabilities appropriate? Should the NCUA
consider a more narrow amendment specifically focused on tokenized
shares?
Question 174: Should the NCUA provide additional clarity regarding
the treatment of tokenized shares outside of the share insurance
context?
Question 175: Would it be helpful for the NCUA to consider defining
relevant terms related to tokenized shares for purposes of the FCU Act,
and, if so, what defined terms should be considered?
Question 176: What key characteristics of tokenized shares might be
considered in the context of whether a particular product would be
considered an ``account'' under the FCU Act? Do such products,
including those that represent tokenized shares in accounts, function
similarly or dissimilarly to the types of instruments considered an
account for purposes of the FCU Act (e.g., share certificates and other
similar official instruments)?
Question 177: Although the statutory definition of ``account'' is
technology neutral, how might technology and the evolving capabilities
of tokenized share account products, including through application of
smart contracts, alter the underlying nature of a FICU's liability?
Question 178: Should NCUA's rules and regulations be further
updated to reflect reporting and recordkeeping considerations that are
unique to blockchain and Distributed Ledger-based systems, and if so,
how?
Question 179: The NCUA determines share insurance coverage at the
time of the failure of a FICU, based on the FICU's account records and
in accordance with share insurance coverage rules. A FICU's account
records are evidence of its share account obligations. What challenges,
if any, do tokenized shares in accounts present as to blockchain and
Distributed Ledger recordkeeping, particularly as it relates to
identifying owners of the accounts and aggregating tokenized shares in
accounts with other traditional share accounts?
Question 180: How should the NCUA view a Digital Asset that only
represents an interest in or claim on a Share Account at a FICU rather
than being the tokenized share in an account itself? Under what
circumstances could such a product be viewed as a tokenized share in an
account of a FICU, and under what circumstances could such a product be
viewed as a Payment Stablecoin backed by tokenized shares in Share
Accounts? In what other manner could such a product be characterized
for purposes of the GENIUS Act and other applicable law (e.g., banking,
credit union, and securities laws)? How would Digital Assets that
represent tokenized shares in accounts but are not themselves share
accounts be treated for accounting purposes; for example as an
intangible asset or as cash and cash equivalents?
Question 181: What additional clarifications of existing pass-
through rules are needed, if any, to address tokenized share
arrangements? Should the NCUA's approach to tokenized shares differ in
any respect from the approach to other share accounts? To what extent
should the NCUA consider modifications with respect to expectations
around account titling and recordkeeping? Are there particular
considerations for any specific type of third-party arrangement?
V. General Request for Comment
The NCUA requests feedback on all aspects of the proposed rule,
including:
Question 182: A PPSI must be obligated to convert, redeem, or
repurchase its issued Payment Stablecoins for a fixed amount of
Monetary Value, not including a Digital Asset denominated in a fixed
amount of Monetary Value. Is additional guidance needed on the
accounting treatment for issued Payment Stablecoins and the associated
Reserve Assets? If so, what considerations should factor into any such
guidance (e.g., what legal structures would be relevant to the
accounting treatment)?
Question 183: What impact would the proposed rule have on credit
creation? How can the NCUA minimize any negative impact to credit
creation?
Question 184: Should any additional aspects of the proposed rule be
adjusted based on the size of the PPSI? For example, are there
additional aspects of the proposed rule that should be applied
exclusively to issuers with outstanding issuance above a certain
amount? Should the NCUA measure the ``size'' of a PPSI by its
outstanding Payment Stablecoin issuance or is there a better
measurement?
Question 185: Are there any aspects of the proposed rule that the
NCUA should adjust to promote fair competition between FICUs and non-
FICUs?
Question 186: Are there any other technical developments in
Distributed Ledger Protocols, Digital Assets, or related technologies
that the proposed rule should address to ensure the purposes of the
GENIUS Act are being met? For example, should the NCUA consider
automating aspects of reporting or oversight? Should the NCUA
incorporate additional provisions concerning the use of smart contracts
when considering compliance with aspects of the proposed rule, such as
risk management? Are there dynamics relevant to particular blockchains
that could affect liquidity, redemption, operating risk, or run risk
that the NCUA should consider and incorporate into any final rule?
Question 187: Are there any particular considerations that the NCUA
should bear in mind or changes that the NCUA should make with respect
to PPSIs that are owned or operated by a consortium of other entities
subject to the jurisdiction of various primary Federal payment
stablecoin regulators and/or State payment stablecoin regulators?
Question 188: Should the NCUA adopt any new rules or change any
existing rules to implement the insolvency provisions of the GENIUS
Act? Should the NCUA require PPSIs to establish resolution plans?
Question 189: Section 12 of the GENIUS Act provides that the
primary Federal payment stablecoin regulators, in consultation with the
National Institute of Standards and Technology, and other relevant
standard-setting organizations, and State bank and credit union
regulators, shall assess and, if necessary, prescribe standards for
PPSIs to promote compatibility and interoperability with other PPSIs
and the broader digital finance ecosystem. What efforts are issuers
currently taking to address challenges posed by interoperability? What
considerations should the regulators take into account in determining
whether standards are necessary? Would the promulgation of standards
help to broaden adoption of Payment Stablecoins?
Question 190: What are risks posed by different types of
interoperability solutions and how might issuers and regulators manage
those risks? How can interoperability solutions aid in addressing risks
facing issuers? What risks are introduced by cross-chain bridges and
other interoperability solutions and how do these risks interact with
BSA/AML and sanctions requirements? What steps can be taken to address
such BSA/AML and sanctions concerns?
Question 191: Is there anything else the NCUA should do to address
potential fraud concerns in the context of a final rule? For example, a
bad actor may create fraudulent tokens intended to mimic a Payment
Stablecoin. Are there technical or other requirements the NCUA should
impose to mitigate the potential for such fraudulent tokens to harm
consumers? For example, should authentic Payment Stablecoins be
[[Page 29010]]
required to have an electronic signature that can be verified by a
recipient? Are there other areas of potential fraud that the NCUA
should be aware of and should attempt to mitigate in the final rule?
Question 192: What changes to existing rules should be made in
recognition of the GENIUS Act?
Question 193: Should the NCUA establish minimum standards for
customer service and dispute resolution for retail holders of Payment
Stablecoins, including requirements for response timelines and
escalation procedures?
Question 194: Should the NCUA require NCUA-Licensed PPSIs above a
certain size to conduct periodic ``stress tests'' or run simulations
modeled on historical stablecoin de-pegging events? If so, how should
stress scenarios be designed and should results be made public?
Question 195: Should the NCUA standardize the disclosures that
NCUA-Licensed PPSIs are required to provide to Customers similar to how
the Truth in Savings Act standardizes disclosures for share accounts,
so that Customers can easily compare Payment Stablecoin products,
redemption terms, and fee structures across issuers?
Question 196: Should the NCUA establish any guardrails on the use
of artificial intelligence or automated-decision making systems by
NCUA-Licensed PPSIs in the context of risk management, redemption
processing, or reserve asset management? Are there particular AI-
related operational risks unique to Payment Stablecoin issuance that
the proposed rule does not adequately address?
Question 197: Many stablecoins are heavily concentrated on one or
two public blockchains. Should the NCUA require NCUA-Licensed PPSIs to
assess and disclose the risks of dependence on a single blockchain
protocol, including the risk that a protocol upgrade, fork, or failure
could impair redemption?
Question 198: Should the NCUA establish requirements for the
treatment of ``lost'' or unclaimed Payment Stablecoins (e.g., due to
lost Private Keys or dormant accounts), including escheatment
procedures or Customer notification requirements?
Question 199: Should the NCUA require independent audits of smart
contracts used in Payment Stablecoin issuance and redemption, and
should audit results be made public to enhance transparency and
Customer trust?
VI. Regulatory Procedures
A. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking
include the internet address of a summary of not more than 100 words in
length of a proposed rule, in plain language, that shall be posted on
the internet website under section 206(d) of the E-Government Act of
2002 (44 U.S.C. 3501 note) (commonly known as regulations.gov).
In summary, the proposed rule would supplement the NCUA's February
2026 proposal for approval and licensure of permitted payment
stablecoin issuers (PPSIs) subject to the NCUA's jurisdiction by
providing standards for PPSIs subject to the NCUA's jurisdiction, as
required by the Guiding and Establishing National Innovation for U.S.
Stablecoins Act (GENIUS Act). This proposal would also make amendments
to address share insurance coverage, tokenized shares, and other
conforming and clarifying amendments.
The proposal and the required summary can be found at https://www.regulations.gov.
B. Executive Orders 12866, 13563, and 14192
Pursuant to Executive Order 12866 (``Regulatory Planning and
Review''), as amended by Executive Order 14215, a determination must be
made whether a regulatory action is significant and therefore subject
to review by the Office of Management and Budget (OMB) in accordance
with the requirements of the Executive Order.\271\ Executive Order
13563 (``Improving Regulation and Regulatory Review'') supplements and
reaffirms the principles, structures, and definitions governing
contemporary regulatory review established in Executive Order
12866.\272\ This proposed rule was drafted and reviewed in accordance
with Executive Order 12866 and Executive Order 13563. OMB has
determined that this proposed rule is an economically significant
regulatory action under Section 3(f)(1) of Executive Order 12866 and,
therefore, is subject to review under Executive Order 12866.
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\271\ 58 FR 51735 (Oct. 4, 1993).
\272\ 76 FR 3821 (Jan. 21, 2011).
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Executive Order 14192 (``Unleashing Prosperity Through
Deregulation'') requires that any new incremental costs associated with
new regulations shall, to the extent permitted by law, be offset by the
elimination of existing costs associated with at least 10 prior
regulations.\273\ This proposed rule, if finalized as proposed, is
expected to be a deregulatory action under Executive Order 14192. NCUA
estimates this rule generates $112.6 million in annualized cost savings
at a 7% discount rate, discounted relative to year 2024, over a
perpetual time horizon.
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\273\ 90 FR 9065 (Feb. 6, 2025).
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Scope of Affected Entities
For the purposes of this analysis and Paperwork Reduction Act
estimates, NCUA estimates 10 applicants would apply for and be approved
as an NCUA-Licensed PPSI in the first few years after the enactment of
the proposed rule. Based on current CUSO ownership data, approximately
70 percent are wholly owned. Applying this to the estimated number of
PPSIs assumes seven of the ten are wholly owned for consolidation
purposes.
To estimate the impact of the proposal, NCUA estimated the total
expected issuance per NCUA-Licensed PPSI, using private sector
forecasts of aggregate stablecoin issuance, which put the upper bounds
at $500 billion in 2026. However, considering the smaller market share
credit union's hold in the financial services space, NCUA
conservatively assumed a much lower issuance level for NCUA-Licensed
PPSIs of $10 billion.
Beyond the direct issuance of Payment Stablecoins under section 4
of the GENIUS Act, the proposed rule would also encompass FICUs that
participate in Payment Stablecoin-related activities, as Parent
Companies or custodians, consistent with the GENIUS Act. As with
estimating the number of NCUA-Licensed PPSIs, the NCUA recognizes
significant uncertainty regarding the number of FICUs that would
participate in these activities. For the purposes of providing a
conservative estimate, the NCUA assumes that approximately 15 FICUs
would perform one or more of the activities authorized under the
proposed rule.\274\
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\274\ This number is consistent with the number of FICUs that
report offering digital asset services as of December 31, 2025.
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These estimates establish numbers that serve as the basis for
evaluating the costs, benefits, and economic effects of the proposed
rule, while acknowledging the inherent uncertainty resulting from a
lack of historical precedent.
Baseline
The baseline for this analysis assumes no statutory requirement to
establish a consistent framework for PPSIs. Without the statute, and
codifying rule, there
[[Page 29011]]
would be a lack of clarity about which entities could issue Payment
Stablecoins and general requirements for Payment Stablecoin issuer
applicants. This could potentially result in lower consumer adoption
because of uncertainty with the safety of Payment Stablecoins and
potentially dampen the market for entities to engage in this activity.
Persons are more likely to invest in infrastructure and technology to
facilitate stablecoin usage when there is regulatory certainty
surrounding the activity. Additionally, the requirement for a
consistent framework for all PPSIs helps to ensure that a certain
category of issuers do not have a competitive advantage over others.
The baseline for this analysis assumes no statutory requirement to
establish a consistent framework for PPSIs. To calculate estimated
costs, the agency assumes that in the baseline, with no established
framework, fewer FICU subsidiaries will issue Payment Stablecoins and
estimate that only four FICU subsidiaries would become Payment
Stablecoin issuers.
Costs and Benefits to Credit Union System
Ideally, a cost-benefit analysis would identify and monetize, with
confidence, all costs and benefits of a regulation. Many financial
regulations, however, generate costs and/or benefits that cannot be
measured with any degree of precision. In this analysis NCUA has
included an evaluation of non-quantified benefits and costs as well as
quantified benefits and costs.
The main effect of the proposed rule will be to boost aggregate
market capitalization of Payment Stablecoins (the likely response to
increased demand for stablecoins with greater adoption) in both the
credit union system and the broader financial services industry.
If finalized, the proposed rule would establish a new regulatory
framework for Payment Stablecoins issued by subsidiaries of FICUs. The
new framework could encourage FICU subsidiaries to issue Payment
Stablecoins and lead to an expansion of the Payment Stablecoin market.
The expansion would provide the general public with more choices for
making payments and engaging in transactions and provide regulatory
clarity for FICUs seeking to engage in Payment Stablecoin activities.
Costs and benefits are categorized as follows: (a) reporting,
recordkeeping, and compliance; (b) capital requirements; and c) custody
authority.
Reporting, Recordkeeping, and Compliance
The requirements established by the proposed rule, consistent with
the GENIUS Act, would benefit the industry by promoting safety and
soundness of NCUA-Licensed PPSIs. The proposed rule includes a number
of safeguards to protect Payment Stablecoin holders, such as the
standards related to minimum reserve requirements, composition of
reserves, and redemption policies, among others.
The proposed rule would also benefit Customers by providing a more
secure environment, relative to the baseline, for activities related to
Payment Stablecoins. The proposed rule would provide Customers
increased assurance that their Payment Stablecoins are subject to
elevated regulatory and supervisory standards. By codifying
requirements and standards for reserves, redemption policies, and
operational and compliance standards, among others, the proposed rule
would require that Payment Stablecoin holders are able to redeem
Payment Stablecoins issued by an NCUA-Licensed PPSI at par, including
during periods of market stress.
Compliance with the Bank Secrecy Act under the proposed rule, as
required by the GENIUS Act, would promote maintaining AML/CFT
principles as the financial system integrates new payment technologies,
and reduce the frequency and severity of harm caused by criminal
activity facilitated through a fragmented digital asset regulatory
framework.
For purposes of fulfilling the requirements of the Paperwork
Reduction Act (PRA), the NCUA has estimated the average costs
associated with the recordkeeping, reporting, and disclosure
requirements in the proposed rule.\275\ While these costs only
represent a portion of the total burden costs imposed by the proposed
rule, these costs can help estimate a minimum level of the expected
costs incurred by the affected populations.
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\275\ These requirements are described fully in Section VI.D.
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NCUA-Licensed PPSIs would be required under the proposed rule to
create and maintain systems of records related to reserve management
and internal audits, establish contingency and restoration plans, and
maintain AML/CFT and sanctions compliance programs. The proposed rule
mandates submission of quarterly reports, annual audited financial
statements, and weekly reports to the NCUA. In addition, PPSIs would be
required to provide certain reporting to the board of directors on
interest rate risk and certify compliance with AML and sanctions
compliance programs annually. These efforts will require various
reporting, training, and auditing expenses. The following narrative
describes the most material costs expected as a result of the proposed
rule, based on PRA analysis. This includes the estimated costs to
comply with referenced rules related to AML/CFT and the sanctions
compliance program. For a complete listing of PRA burden estimates,
please see Section VI D.
Weekly reporting is estimated to require one hour per
week. The total weekly burden for 10 NCUA-licensed PPSIs annually is
520 hours.
Submission of quarterly reports is estimated to be a total
of 640 hours annually (16 hours each quarter, per PPSI).
Submission of audited financial statement audits each year
is estimated to take 704 hours annually, totaling 7,040 for 10 PPSIs.
Regular reporting to the board of directors on interest
rate risk management is estimated to average 40 hours each month for a
total of 4,800 burden hours.
The burden for publishing the monthly Reserve Asset
composition report is estimated at 48 hours a month, for a total of
4,800 hours in aggregate.
The proposed rule mandates annual certification that anti-
money laundering and economic sanctions programs have been implemented.
NCUA estimates the average annual burden of these activities as 80
hours a year for a total of 800 hours for 10 PPSIs.
NCUA estimates that NCUA-Licensed PPSIs would incur an average of
13,800 hours of burden for these activities. The results in a total of
$1.73 million using an estimated hourly labor compensation rate of
$92.85.\276\ In addition, it is estimated that each PPSI will incur
costs of $24,983 in the first year to comply with AML/CFT and sanctions
compliance requirements, totaling $249,830 for the 10 estimated NCUA-
Licensed PPSIs.\277\ In total, NCUA-licensed PPSIs would incur an
aggregate $1.98 million in estimated costs to comply with the proposed
rule's implementation requirements.
---------------------------------------------------------------------------
\276\ Estimated hourly compensation rate is based on the total
compensation cost for the Financial Activities Industry, Management,
business, and financial occupations series from the Bureau of Labor
and Statistics (Table 4. Private industry workers by occupational
and industry group--2025 Q04 Results).
\277\ See 91 FR 18582 (Apr. 10, 2026).
---------------------------------------------------------------------------
Capital
To estimate the monetary cost of the capital requirements in the
proposed
[[Page 29012]]
rule NCUA assumes an average cost of capital for each issuer and makes
other assumptions regarding the inputs to the cost calculations. To
calculate the cost of equity capital requirements, NCUA assume that all
issuers will initially be required to maintain the minimum amount of
capital which includes the $5M requirement for de novo PPSIs and the
ongoing 12-month-operating-expense backstop.
For the cost-of-capital calculation, NCUA assumes 10 NCUA-Licensed
PPSIs in year one and the upper-bound for market size, measured by the
value of outstanding payment stablecoins, will be $10 billion per NCUA-
Licensed PPSI. Additionally, it is assumed that seven NCUA-Licensed
PPSIs will be wholly owned and therefore consolidated with the parent
FICU.
The cost of capital is the ongoing yearly required return on
capital that is expected issuers will pay to obtain equity to satisfy
capital requirements. The current estimate of the cost of capital in
the banking industry ranges from 5-9 percent. For conservative
calculations, NCUA is using 5.73% to account for the lower opportunity
cost for credit unions and their subsidiaries due to investment
limitations.\278\
---------------------------------------------------------------------------
\278\ The cost of capital is based on the Bank (Regional)
measure found at https://pages.stern.nyu.edu/~adamodar/
New_Home_Page/datafile/wacc.html.
---------------------------------------------------------------------------
This estimate assumes that the 12-month operating expense amount
for each issuer to be 0.40% of outstanding payment stablecoins. This
cost estimate is a conservative estimate of operating costs of
government money market mutual funds and the stablecoin issuer Circle
(CLCR)'s 10-Qs as reported pursuant to the Securities Exchange Act of
1934.
The first step calculates the total minimum required capital under
the proposal for all expected NCUA-Licensed PPSIs. This includes the
fixed $5 million capital requirement and the backstop.
To determine the fixed capital cost, NCUA multiplied the $5 million
requirement by 10 to arrive at an aggregate capital requirement of $50
million. The cost of the aggregate $50 million of equity capital
multiplied by 5.73% equals $2.87 million.
The estimate for the backstop, which is a capital requirement equal
to 12 months of operating costs is 0.40% times the expected $100
billion in outstanding stablecoin issuance ($10 billion estimated
issuance times 10 estimated NCUA-Licensed PPSIs) which amounts to $400
million. The cost of this $400 million of required capital is the
amount of capital times the cost of equity capital (5.73%), which
totals $22.9 million.
The total cost of minimum capital requirements for the proposed
rule is $25.79 million, the sum of the cost of capital for the backstop
($22.9 million) and the fixed capital requirement ($2.87 million).
Under the baseline, we assume fewer FICU subsidiaries will issue
Payment Stablecoins and for those that do, payment stablecoins issued
would have been treated as standard balance sheet assets when
consolidated with the parent FICU. Therefore, all stablecoin reserve
assets would have been subject to the FICU leverage ratio. We assume
that all stablecoin reserve assets would have counted toward the
leverage requirement for all FICU subsidiaries. We use a capital
requirement of 7%, which equals the capital requirement under the
leverage ratio to be well capitalized.
Using the above estimate of $10 billion in issuances per issuer and
an estimate of only four FICU subsidiary Payment Stablecoin issuers,
assumes a total of $40 billion in issuances among the four wholly owned
subsidiaries. With $40 billion in stablecoin issuance in the first
year, NCUA estimates that these issuers would have $40 billion in
stablecoin reserve assets subject to the capital requirement. Given
these assumptions, these four wholly owned subsidiaries would need $2.8
billion in additional capital to cover the stablecoin reserves under
the leverage ratio. The cost of this capital under the baseline is
estimated to be $160.4 million ($2.8 billion x 5.73%). Therefore, after
accounting for the regulatory baseline, we estimate the capital
requirements under the proposed rule to result in a net savings of
approximately $134.6 million in capital relative to the regulatory
baseline.\279\
---------------------------------------------------------------------------
\279\ This is an estimate of the impact to capital based on the
assumptions provided. Actual net savings or costs may vary based on
a variety of factors, but illustrates the expected outcome based on
the qualitative and quantitative costs and benefits of the rule.
---------------------------------------------------------------------------
Therefore, we estimate that the proposed rule creates deregulatory
cost savings relative to the baseline by allowing NCUA-Licensed PPSIs
to hold capital against reserve assets only as required under the
proposed rule, rather than applying the leverage ratio applicable to
FICUs.
Custody
The proposed rule will likely result in FICUs offering new fee-
based income streams from digital asset custody, settlement services,
and other related payment stablecoin activities. The ability to settle
obligations on-chain using a regulated instrument could provide
operational efficiencies and lower costs associated with a FICU's
internal accounting functions. By establishing a definitive set of
requirements and standards associated with Payment Stablecoins, the
proposed rule would benefit FICUs by providing additional opportunities
to leverage their existing membership base, payment system networks,
risk management, and compliance infrastructures to compete effectively
in the digital payments market.
The proposed rule imposes mandates governing certain custodial
activities of FICUs and NCUA-Licensed PPSIs.\280\ Because this is
largely a new activity for FICUs and their subsidiaries, engaging in
custody and safekeeping services will likely result in additional costs
under the proposed rule. For example, under the proposed rule, these
entities would be required to establish and maintain policies,
procedures, and systems to protect customer payment stablecoin
reserves, payment stablecoins, private keys, cash, and other property.
---------------------------------------------------------------------------
\280\ Specifically, the proposed rule imposes requirements
relating to the custody of ``covered assets'' which are payment
stablecoin reserves, payment stablecoins used as collateral, and
private keys used to issue payment stablecoins, as well as cash and
other property received in the course of the provision of custody
services for such assets.
---------------------------------------------------------------------------
The NCUA does not have the data necessary to fully quantify these
costs, but expects they would generally be mitigated by the ability of
a covered custodian to generate additional revenue through custody and
safekeeping services.
Total Estimated Costs/Savings
Based on the analysis above, NCUA estimates the total annual cost
savings of the proposed rule to be $132.6 million, driven mainly by the
capital relief in the proposed rule for capital that would otherwise
have had to been held when consolidating the FICU subsidiaries. This
considers the $1.98 million annual cost for reporting, recordkeeping,
and compliance; the $25.8 million annual cost of capital for NCUA-
Licensed PPSIs; and the $160.4 million in annual savings from the
capital relief when consolidating subsidiaries.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act \281\ generally requires an agency
to conduct a regulatory flexibility analysis of any rule subject to
notice and comment
[[Page 29013]]
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities. If the agency makes such a certification, it shall publish
the certification at the time of publication of either the proposed
rule or the final rule, along with a statement providing the factual
basis for such certification.\282\ For purposes of this analysis, the
NCUA considers small credit unions to be those having under $100
million in assets.\283\ The NCUA fully considered the potential
economic impacts of the regulatory amendments on small credit unions.
---------------------------------------------------------------------------
\281\ 5 U.S.C. 601 et seq.
\282\ 5 U.S.C. 605(b).
\283\ 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
This rule will only apply to FICUs that wish to invest in NCUA-
approved PPSIs, which are generally CUSOs for purposes of this rule,
and provide permissible safekeeping and custody services. The NCUA does
not anticipate a significant number of small credit unions will invest
in PPSIs or work with a subsidiary (CUSO) to apply to become a PPSI. As
of June 30, 2025, only 19 percent of small credit unions have invested
in a CUSO, compared to 71 percent of credit unions with assets over
$100 million supporting that the majority of NCUA-licensed PPSI
applicants will be subsidiaries of larger FICUs. However, to establish
the upper limit of estimated small credit unions that would have
subsidiaries that become NCUA-licensed PPSIs, we can compare the total
number of estimated NCUA-licensed PPSIs used for regulatory analysis
(10) in this rulemaking to the total number of small credit unions
(2,514 as of December 31, 2025) .If all 10 of the estimated NCUA-
licensed PPSIs were subsidiaries of small credit unions, this would
equate to 0.40 percent of small entities, which is not considered
substnatial. Similarly NCUA does not anticipate a substantial number of
small credit unions will provide the safekeeping and custody services
provided for in the GENIUS Act due to the sophisticated infrastructure
necessary for such activities.
Accordingly, the NCUA certifies the proposed rule would not have a
significant economic impact on a substantial number of small credit
unions.
D. Paperwork Reduction Act
This notice of proposed rulemaking has been reviewed for compliance
with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.). In accordance with the PRA, the NCUA may not conduct or sponsor,
and an organization is not required to respond to, an information
collection unless the information collection displays a currently valid
Office of Management and Budget (OMB) control number. The NCUA has
reviewed the notice of proposed rulemaking and determined that it would
introduce new information collection requirements pursuant to the PRA.
The NCUA is seeking a new control number for these information
collection requirements and will submit them to OMB for review and
approval.
Proposed Information Collection
Title of Information Collection: Requirements and Standards
Associated with the Guiding and Establishing National Innovation for
U.S. Stablecoins (GENIUS) Act for the Issuance of Stablecoins by
Entities Subject to the Jurisdiction of the National Credit Union
Administration.
OMB Control Number: 3133-NEW.
Type of Review: Regular.
Affected Public: Private Sector: Not-for-profit institutions.
Description: The proposed rule would establish regulatory
requirements for NCUA-supervised permitted payment stablecoins issuers
as mandated by the GENIUS Act, as well as provide further clarity for
NCUA-supervised custodians.
The information collection requirements in the proposed rule are as
follows:
NCUA Summary of Estimated Annual Burden (3133-NEW)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
Number of Average estimated
12 CFR Information Collection Type of burden Number of responses per time per annual
(IC) activity respondents respondent response burden
(frequency) (hours) (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Implementation Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
706.108(a)............................... Written request to NCUA Reporting.................. 10 1 1 10
Board for opportunity to
appeal application denial.
706.110(a)............................... Certification of AML Reporting.................. 10 1 4 40
program.
706.201(c)(4)(iii)....................... Rebut the presumption Reporting.................. 10 1 1 10
described in
706.201(c)(4)(i), by
submitting written
materials that demonstrate
that the contract,
agreement, or other
arrangement is not
prohibited under
706.201(c)(4).
706.201(c)(5)(iii)(B).................... Allows PPSIs to address Reporting.................. 10 1 4 40
liquidity needs by selling
reserves held as Treasury
bills with maturities of
93 days or less through
repurchase agreements,
provided they first obtain
approval from the NCUA.
706.202(a)(2)............................ Demonstrate the capability Reporting.................. 10 1 4 40
to access and monetize
identifiable reserve
assets.
706.202(g)(1)............................ Notify the NCUA whenever Reporting.................. 10 1 1 10
their reserve assets fall
below the minimum required
level.
706.203(c)(4)............................ Notify the NCUA within 24 Reporting.................. 10 1 0.5 5
hours if redemption
requests for a PPSI exceed
10% of its total
outstanding issuance value
within a single day.
706.204(a)(3)............................ Requires PPSIs to Reporting.................. 10 1 160 1,600
periodically regularly
report on interest rate
risk to management and the
board of directors.
706.204(b)(7)(i)......................... Investigate unauthorized Reporting.................. 10 1 4 40
access to sensitive
customer data and, if
misuse is confirmed or
likely, notify affected
customers and the NCUA
promptly.
[[Page 29014]]
706.204(b)(7)(ii)........................ If a PPSI determines that a Reporting.................. 10 1 4 40
group of files has been
accessed improperly but is
unable to identify which
specific customers'
information has been
accessed and the PPSI
determines that misuse of
the information is
reasonably possible, it
would be required to
notify all customers in
the group.
706.205(h)............................... Submit a confidential Reporting.................. 10 1 16 160
weekly report to the NCUA
in a specified format,
with the necessary
information as outlined in
forms made available on
the NCUA website.
706.205(i)............................... Submit quarterly reports on Reporting.................. 10 1 80 800
financial condition within
30 days after each quarter
ends.
706.205(j)............................... Submit other reports on Reporting.................. 10 1 16 160
financial condition
requested by the NCUA upon
request.
706.205(k)............................... Submit ongoing compliance Reporting.................. 10 1 80 800
reports to the NCUA.
Specifically, within 180
days of application
approval and then
annually, the PPSIs Board
of Directors must certify
that anti-money laundering
and economic sanctions
compliance programs have
been implemented.
706.205(l)(2)(ii)........................ Submit audited financial Reporting.................. 10 1 480 4,800
statements annually,
within 120 days after the
end of its fiscal year to
the NCUA.
706.205(l)(2)(iii)....................... Submit a written notice of Reporting.................. 10 1 8 80
late filing to NCUA.
706.205(m)............................... Any person intending to Reporting.................. 10 1 2 20
acquire control of an
licensed PPSI must comply
with the procedures
outlined in proposed 12
CFR Sec. 706.111 of
Subpart A, including
providing a 60-day advance
notice to the NCUA.
706.400(b)(1)(iii)....................... Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA to
redeem discretionary
repurchases.
706.400(c)(v)(A)......................... Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA to
exercise a call option.
706.400(c)(1)(vi)........................ Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA for
redemption or repurchase
of the instrument.
706.402(c)(2)(i)......................... Respond in writing, within Reporting.................. 10 1 40 400
30 days when notified by
the NCUA about proposed
additional capital or
backstop requirements.
706.402(c)(4)............................ Submit an acceptable plan Reporting.................. 10 1 40 400
to reach the additional
capital or backstop
requirements.
706.202(a)(1)............................ Maintain records that are Recordkeeping.............. 10 1 40 400
identifiable and
segregated from other
assets owned or held by
the PPSI and calculate the
fair value of reserve
assets.
706.202(f)(2)............................ Requires the CEO and CFO Recordkeeping.............. 10 1 8 80
(or their equivalents) to
submit to NCUA a
certification of accuracy.
706.203(b)............................... Establish a redemption Recordkeeping.............. 10 1 8 80
policy.
706.204(a)(1)............................ Establish internal controls Recordkeeping.............. 10 1 80 800
and information systems
that are suitable for
their size, complexity,
and activity risk.
706.204(a)(2)............................ Develop an internal audit Recordkeeping.............. 10 1 80 800
system tailored to their
size, complexity, and risk
profile.
706.204(a)(5)............................ Create and maintain a Recordkeeping.............. 10 1 80 800
system, appropriate to
size and operational
complexity, for evaluating
and monitoring earnings.
706.204(a)(6)(i)(C)...................... Document transactions with Recordkeeping.............. 10 1 8 80
insiders or affiliates and
have these transactions
reviewed by the board of
directors.
706.204(b)(1)(2)(3)(4)(6) and (8)........ Establish requirements for Recordkeeping.............. 10 1 160 1,600
information technology and
security programs for
PPSIs and implement a
comprehensive written
information security risk
control framework,
including a program that
assesses and managements
IT and information
security risks.
706.204(b)(5)............................ Establish and maintain Recordkeeping.............. 10 1 80 800
security measures for the
handling of digital assets.
706.205(f)............................... Maintain a complete set of Recordkeeping.............. 10 1 40 400
books and records in
English.
706.205(g)............................... Develop a records retention Recordkeeping.............. 10 1 40 400
policy that ensures that
can demonstrate compliance
with the GENIUS Act 12 CFR
part 15, and all
applicable laws and
regulations.
706.205(1)............................... PPSIs with over $50 billion Recordkeeping.............. 10 1 160 1,600
in outstanding issuance
value, must prepare annual
financial statements in
accordance with GAAP.
[[Page 29015]]
706.302(b)(1)............................ Requires covered custodians Recordkeeping.............. s10 1 8 80
to have written controls
to protect customer assets
from creditor claims,
including those of sub-
custodians, in compliance
with applicable laws and
suited to their business
size and risk.
706.202(e)............................... Publish monthly composition Disclosure................. 10 1 40 400
report on their website
detailing reserve assets.
706.203(a)............................... Publicly disclose a Disclosure................. 10 1 1 10
redemption policy.
706.203(d)(1)............................ Publicly disclose certain Disclosure................. 10 1 8 80
information related to the
PPSI, the payment
stablecoin, and fees.
706.205(1)(2)(i)......................... Disclose audited financial Disclosure................. 10 1 16 160
statements on PPSIs
website.
706.504.................................. Disclose to the NCUA the Disclosure................. 10 1 1 10
same non-public
information provided to
FinCEN.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
706.201(c)(4)(iii)....................... Rebut the presumption Reporting.................. 10 1 1 10
described in
706.201(c)(4)(i), by
submitting written
materials that demonstrate
that the contract,
agreement, or other
arrangement is not
prohibited under
706.201(c)(4).
706.201(c)(5)(iii)(B).................... Allows PPSIs to address Reporting.................. 10 1 1 10
liquidity needs by selling
reserves held as Treasury
bills with maturities of
93 days or less through
repurchase agreements,
provided they first obtain
approval from the NCUA.
706.202(a)(2)............................ Demonstrate the capability Reporting.................. 10 1 16 160
to access and monetize
identifiable reserve
assets.
706.202(g)(1)............................ Notify the NCUA whenever Reporting.................. 10 1 1 10
their reserve assets fall
below the minimum required
level.
706.203(c)(4)............................ Notify the NCUA within 24 Reporting.................. 10 1 0.5 5
hours if redemption
requests for a PPSI exceed
10% of its total
outstanding issuance value
within a single day.
706.204(a)(3)............................ Requires PPSIs to Reporting.................. 10 12 40 4,800
periodically regularly
report on interest rate
risk to management and the
board of directors.
706.204(b)(7)(i)......................... Investigate unauthorized Reporting.................. 10 1 1 10
access to sensitive
customer data and, if
misuse is confirmed or
likely, notify affected
customers and the NCUA
promptly.
706.204(b)(7)(ii)........................ If a PPSI determines that a Reporting.................. 10 1 1 10
group of files has been
accessed improperly but is
unable to identify which
specific customers'
information has been
accessed and the PPSI
determines that misuse of
the information is
reasonably possible, it
would be required to
notify all customers in
the group.
706.205(h)............................... Submit a confidential Reporting.................. 10 52 1 520
weekly report to the NCUA
in a specified format,
with the necessary
information as outlined in
forms made available on
the NCUA website.
706.205(i)............................... Submit quarterly reports on Reporting.................. 10 4 16 640
financial condition within
30 days after each quarter
ends.
706.205(j)............................... Submit other reports on Reporting.................. 10 1 40 400
financial condition
requested by the NCUA upon
request.
706.205(k)............................... Submit ongoing compliance Reporting.................. 10 1 8 80
reports to the NCUA.
Specifically, within 180
days of application
approval and then
annually, the PPSIs Board
of Directors must certify
that anti-money laundering
and economic sanctions
compliance programs have
been implemented.
706.205(l)(2)(ii)........................ Submit audited financial Reporting.................. 10 1 40 400
statements annually,
within 120 days after the
end of its fiscal year to
the NCUA.
706.205(l)(2)(iii)....................... Submit a written notice of Reporting.................. 10 1 16 160
late filing to NCUA.
706.205(m)............................... Any person intending to Reporting.................. 10 1 2 20
acquire control of an
licensed PPSI must comply
with the procedures
outlined in proposed 12
CFR Sec. 706.111 of
Subpart A, including
providing a 60-day advance
notice to the NCUA.
706.400(b)(1)(iii)....................... Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA to
redeem discretionary
repurchases.
706.400(c)(v)(A)......................... Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA to
exercise a call option.
706.400(c)(1)(vi)........................ Submit request for prior Reporting.................. 10 1 1 10
approval from the NCUA for
redemption or repurchase
of the instrument.
[[Page 29016]]
706.402(c)(2)(i)......................... Respond in writing, within Reporting.................. 10 1 1 10
30 days when notified by
the NCUA about proposed
additional capital or
backstop requirements.
706.402(c)(4)............................ Submit an acceptable plan Reporting.................. 10 1 1 10
to reach the additional
capital or backstop
requirements.
706.202(a)(1)............................ Maintain records that are Recordkeeping.............. 10 1 4 40
identifiable and
segregated from other
assets owned or held by
the PPSI and calculate the
fair value of reserve
assets.
706.202(f)(2)............................ Requires the CEO and CFO Recordkeeping.............. 10 12 0.5 60
(or their equivalents) to
submit to NCUA a
certification of accuracy.
706.203(b)............................... Maintain a redemption Recordkeeping.............. 10 1 1 10
policy.
706.204(a)(1)............................ Maintain internal controls Recordkeeping.............. 10 1 1 10
and information systems
that are suitable for
their size, complexity,
and activity risk.
706.204(a)(2)............................ Maintain an internal audit Recordkeeping.............. 10 1 1 10
system tailored to their
size, complexity, and risk
profile. not warranted.
706.204(a)(5)............................ Create and maintain a Recordkeeping.............. 10 1 1 10
system, appropriate to
size and operational
complexity, for evaluating
and monitoring earnings.
706.204(a)(6)(i)(C)...................... Document transactions with Recordkeeping.............. 10 1 1 10
insiders or affiliates and
have these transactions
reviewed by the board of
directors.
706.204(b)(1)(2)(3)(4)(6) and (8)........ Maintain requirements for Recordkeeping.............. 10 1 1 10
information technology and
security programs for
PPSIs and implement a
comprehensive written
information security risk
control framework,
including a program that
assesses and managements
IT and information
security risks.
706.204(b)(5)............................ Maintain security measures Recordkeeping.............. 10 1 1 10
for the handling of
digital assets.
706.205(f)............................... Maintain a complete set of Recordkeeping.............. 10 1 8 80
books and records in
English.
706.205(g)............................... Maintain a records Recordkeeping.............. 10 1 1 10
retention policy that
ensures that can
demonstrate compliance
with the GENIUS Act 12 CFR
part 15, and all
applicable laws and
regulations.
706.205(1)............................... PPSIs with over $50 billion Recordkeeping.............. 10 1 1 10
in outstanding issuance
value, must prepare annual
financial statements in
accordance with GAAP.
706.302(b)(1)............................ Requires covered custodians Recordkeeping.............. 10 1 8 80
to have written controls
to protect customer assets
from creditor claims,
including those of sub-
custodians, in compliance
with applicable laws and
suited to their business
size and risk.
706.202(e)............................... Publish monthly composition Disclosure................. 10 12 8 960
report on their website
detailing reserve assets.
706.203(a)............................... Publicly disclose a Disclosure................. 10 1 1 10
redemption policy.
706.203(d)(1)............................ Publicly disclose certain Disclosure................. 10 1 1 10
information related to the
PPSI, the payment
stablecoin, and fees.
706.205(1)(2)(i)......................... Disclose audited financial Disclosure................. 10 1 8 80
statements on PPSIs
website.
706.504.................................. Disclose to the NCUA the Disclosure................. 10 1 1 10
same non-public
information provided to
FinCEN.
----------------------------------------------------
Total Estimated Annual Burden (Hours) ........................... ........................... ............ .............. ......... 26,770
--------------------------------------------------------------------------------------------------------------------------------------------------------
The NCUA invites comments on: (a) Whether the proposed collection
of information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the collection of information on those who
are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology; and (e) estimates of capital or
start-up costs and cost of operation, maintenance, and purchase of
services to provide information.
All comments are a matter of public record. Interested persons are
invited to submit written comments via email to (1)
[email protected] or (2) visit www.reginfo.gov/public/do/PRAMain
(find this particular information collection by selecting the tab
titled ``Information Collection Review'' and click on to the section
titled ``Currently under Review--Open for Public comment'').
E. Executive Order 13132 on Federalism
Executive Order 13132 encourages regulatory agencies to consider
the impact of their actions on State and local interests. The NCUA, an
agency as defined in 44 U.S.C. 3502(5), complies with the executive
order to adhere to
[[Page 29017]]
fundamental federalism principles. As required by the GENIUS Act, the
proposed rule would require that all FICU subsidiaries, including
subsidiaries of FISCUs, seeking to become PPSIs apply to the NCUA for
licensure. It would also impose standards on NCUA-Licensed PPSIs. As
any subsidiary of a FISCU cannot be licensed a permitted State payment
stablecoin regulator, the rulemaking would not have direct effect on
the states, the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government.
F. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule would not affect
family well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\284\ While the proposed
rule could contribute to an expansion in access to Payment Stablecoin
services, the effect would be indirect and not easily quantifiable.
---------------------------------------------------------------------------
\284\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
List of Subjects
12 CFR Part 702
Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 704
Credit unions, Reporting and recordkeeping requirements, Surety
bonds.
12 CFR Part 706
Accounting, Advertising, Anti-Money Laundering, Appeals,
Applications, Control, Credit unions, Credit union service
organizations, Deadlines, Denials, Federal Credit Union Act, Filings,
Guiding and Establishing National Innovation for U.S. Stablecoins Act,
Hearings, Investigations, Investments, Jurisdiction, Licensing, Payment
stablecoins, Permitted payment stablecoin issuers, Reports,
Requirements, Safe harbor, Sanctions, Shareholders, Subsidiaries,
Technology.
12 CFR Part 745
Credit, Credit Unions, Share Insurance.
12 CFR Part 747
Administrative practice and procedure, Claims, Credit unions,
Crime, Equal access to justice, Investigations, Lawyers, Penalties,
Share insurance.
By the National Credit Union Administration Board, this 14th day
of May, 2026.
Ji Kwon,
Acting Secretary of the Board.
For the reasons stated in the preamble, the NCUA Board proposes to
amend chapter VII of title 12 of the Code of Federal Regulations as
follows:
PART 702--CAPITAL ADEQUACY
0
1. The authority citation for part 702 continues to read as follows:
Authority: 12 U.S.C. 1757(9), 1766(a), 1784(a), 1786(e), 1790d.
* * * * *
0
2. Amend the definition of net worth in Sec. 702.2 by adding paragraph
(5) to read as follows:
Sec. 702.2 Definitions.
* * * * *
(5) Permitted Payment Stablecoin Issuers. An Insured Credit Union
that is consolidated with a permitted payment stablecoin issuer, as
defined in Sec. 706.2 of this chapter, must make the following
adjustments when calculating its net worth:
(i) Deconsolidate any permitted payment stablecoin issuer from the
insured credit union's balance sheet, removing applicable assets,
liabilities and equity;
(ii) Deduct from net worth any amount of positive retained earnings
that originated from the permitted payment stablecoin issuer to the
extent not paid out as dividends to the insured credit union; and
(iii) Exclude any investment in (to the extent not deducted under
paragraph (5)(i) of this section) and receivable from the permitted
payment stablecoin issuer when calculating total assets, as applicable.
(iv) Any amounts deducted from net worth under paragraph (5) are
also deducted from total assets, to the extent not already deducted.
* * * * *
0
3. Amend Sec. 702.104(b)(2) by:
0
i. In subparagraph (iv), removing ``; and''
0
ii. Adding a new paragraph (v); and
0
iii. Renumbering current paragraph (v) as paragraph (vi) to read as
follows:
Sec. 702.104 Risk-based capital ratio.
* * * * *
(b) * * *
(2) * * *
(iv) Identified losses not reflected in the risk-based capital
ratio numerator.
(v) Permitted Payment Stablecoin Issuers. For an Insured Credit
Union with a consolidated permitted payment stablecoin issuer, the
deductions and deconsolidation required under paragraph (5) of the
definition of net worth; and
(vi) Mortgage servicing assets that exceed 25 percent of the sum of
the capital elements in paragraph (b)(1) of this section, less
deductions required under paragraphs (b)(2)(i) thorough (v) of this
section.
* * * * *
PART 704--CORPORATE CREDIT UNIONS
0
4. The authority citation for part 704 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1781, 1789.
0
5. Amend Sec. 704.2 by amending the definitions of Retained Earnings
and Tier 1 capital to read as follows.
Sec. 704.2 Definitions.
* * * * *
Retained earnings means undivided earnings, regular reserve,
reserve for contingencies, supplemental reserves, reserve for losses,
GAAP equity acquired in a merger, and other appropriations from
undivided earnings as designated by management or the NCUA. Retained
earnings does not include any amount of positive retained earnings that
originated from a consolidated permitted payment stablecoin issuer to
the extent not paid out as dividends to the insured credit union;
* * * * *
Tier 1 capital means the sum of items in paragraphs (1) and (2) of
this definition from which items in paragraphs (3) through (8) of this
definition are deducted or adjusted:
(1) Retained earnings;
(2) Perpetual contributed capital;
(3) Deduct the amount of the corporate credit union's intangible
assets that exceed one half percent of its moving daily average net
assets (however, the NCUA may direct the corporate credit union to add
back some of these assets on the NCUA's own initiative, or the NCUA's
approval of petition from the applicable State regulator or application
from the corporate credit union);
(4) Deduct investments, both equity and debt, in unconsolidated
CUSOs;
(5) Deduct an amount equal to any PCC or NCA that the corporate
credit union maintains at another corporate credit union;
(6) Deduct any amount of PCC received from federally insured credit
unions that causes PCC minus retained earnings, all divided by moving
daily average net assets, to exceed two percent when a corporate credit
union's
[[Page 29018]]
retained earnings ratio is less than two and a half percent.
(7) Deduct any natural person credit union subordinated debt
instrument held by the corporate credit union; and
(8) An Insured Credit Union that is consolidated with a permitted
payment stablecoin issuer, as defined in Sec. 706.2 of this chapter,
must make the following adjustments when calculating its net worth:
(i) Deconsolidate any permitted payment stablecoin issuer from the
insured credit union's balance sheet; and
(ii) Exclude any investment in (to the extent not deducted under
paragraph (5)(i) of this section) and receivable from the permitted
payment stablecoin issuer when calculating total assets, as applicable;
and
(9) Mortgage servicing assets that exceed 25 percent of the sum of
the capital elements in paragraphs (1) and (2) of this definition, less
deductions required under paragraphs (3) thorough (8) of this section.
0
6. Add reserved part 706 to Subchapter A to read as follows:
CHAPTER VII--NATIONAL CREDIT UNION ADMINISTRATION
SUBCHAPTER A--REGULATIONS AFFECTING CREDIT UNIONS
PART 706--PAYMENT STABLECOINS
706.1 Authority, Purpose and Scope.
706.2 Definitions.
706.3 Severability.
Subpart A--Investment in and Approval of Issuers That Are Subsidiaries
of Insured Credit Unions
706.101 Scope.
706.102 Rules of General Applicability.
706.103 Filing Required.
706.104 Investigations.
706.105 Evaluation of Applications and Factors to be Considered.
706.106 Timing for Decision on Applications.
706.107 Denial.
706.108 Opportunity for Hearing; Final Determination.
706.109 Right to Reapply.
706.110 Certification of Anti-Money Laundering and Economic
Sanctions Compliance Programs.
706.111 Change in Parent Company.
706.112 Investment Limitation.
Subpart B--NCUA-Licensed Permitted Payment Stablecoin Issuers and
706.201 Activities.
706.202 Reserve Assets.
706.203 Redemption.
706.204 Risk management.
706.205 Audits, Reports, and Supervision.
Subpart C--Custody
706.301 Definitions.
706.302 Covered Asset Custodial Property Requirements.
706.303 Use of Omnibus Accounts.
706.304 Self-custody hardware and software exclusion.
Subpart D--Capital and Operational Backstop
706.401 Capital Elements.
706.402 Minimum Capital and Backstop.
706.403 Individual Additional Capital or Backstop Requirement.
Subpart E--Supervision and Enforcement Policy for Anti-Money
Laundering/Countering the Financing of Terrorism Program Requirements
for NCUA-Licensed Permitted Payment Stablecoin Issuers
706.501 Definitions.
Sec. 706.502 NCUA Supervision and Enforcement Policy.
Sec. 706.503 FinCEN Consultation.
Sec. 706.504 Disclosure of Supervisory Information to FinCEN.
Authority: 12 U.S.C. 5901 et seq.; 12 U.S.C. 1766(a), 1786, and
1789(a)(11).
Sec. 706.1 Authority, purpose, and scope.
(a) Authority and purpose. The NCUA is issuing this part pursuant
to its authority under the Guiding and Establishing National Innovation
for U.S. Stablecoins Act or GENIUS Act (12 U.S.C. 5901 et seq.).
(b) Scope. This part applies to insured credit unions and all
payment stablecoin issuers with investment or loans from insured credit
unions and sets forth the requirements for NCUA-issued licenses.
(c) No limitation of authority. Nothing in this part shall be read
to limit the authority of the NCUA to take action under other law,
including action to address unsafe or unsound practices or conditions,
or violations of law or regulation, under section 206 of the FCU Act.
Sec. 706.2 Definitions.
Unless otherwise provided in this part, the terms used in this part
have the same meanings as set forth in 12 U.S.C. 1752 and 5901. All
accounting terms not otherwise defined in this section have meanings
consistent with the commonly accepted meanings under United States
generally accepted accounting principles (U.S. GAAP). The following
definitions apply to this part:
Affiliate means a Person that controls, is controlled by, or is
under common Control with another Person.
Applying Issuer means any entity applying to the NCUA for an NCUA
permitted payment stablecoin issuer license.
Bank Secrecy Act means:
(1) Section 21 of the Federal Deposit Insurance Act (12 U.S.C.
1829b);
(2) Chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951 et
seq.); and
(3) Subchapter II of chapter 53 of title 31, United States Code and
notes thereto (31 U.S.C. 5311 et seq.).
Control. A Person controls another Person if:
(1) The Person directly or indirectly or acting through one or more
other Persons owns, controls, or has power to vote 25 percent or more
of any class of voting securities of the other Person;
(2) The Person controls in any manner the election of a majority of
the Directors or trustees of the other Person; or
(3) The NCUA determines, after notice and opportunity for hearing,
that the Person directly or indirectly exercises a controlling
influence over the management or policies of the other Person.
Customer means a Person that purchases (through any consideration)
the products or services of another person.
Digital Asset means any digital representation of value that is
recorded on a cryptographically secured Distributed Ledger.
Director, as used in this part:
(1) Means an individual who serves on the board of directors of:
(a) An Applying Issuer;
(b) An NCUA-Licensed Permitted Payment Stablecoin Issuer;
(c) A Parent Company of an Applying Issuer or an NCUA-Licensed
Permitted Payment Stablecoin Issuer; or
(d) A Principal Shareholder of the Applying Issuer or NCUA-Licensed
Permitted Payment Stablecoin Issuer; and
(2) Does not include an advisory director who does not have the
authority to vote on matters before the board of directors or any
committee of the board of directors and provides solely general policy
advice to the board of directors or any committee.
Distributed Ledger means technology in which:
(1) Data is shared across a network that creates a public digital
ledger of verified transactions or information among network
participants; and
(2) Cryptography is used to link the data to maintain the integrity
of the public ledger and execute other functions.
Distributed Ledger Protocol means publicly available and accessible
executable software deployed to a Distributed Ledger, including smart
contracts or networks of smart contracts.
Eligible Financial Institution means
(1) A Person that:
(a) Is eligible to hold Reserve Assets in custody under section
10(a) of the GENIUS Act (12 U.S.C. 5909(a));
(b) Complies with the applicable requirements in section 10(b),
(c), and
[[Page 29019]]
(d) of the GENIUS Act (12 U.S.C. 5909(b), (c), and (d)), including with
applicable implementing regulations issued by a relevant primary
Federal payment stablecoin regulator as defined in 12 U.S.C. 5901(25),
primary financial regulatory agency described in 12 U.S.C. 5301(12)(B)
or (C), State bank supervisor, or State credit union supervisor; and
(c) If applicable, enters into a custody agreement with an NCUA-
Licensed Permitted Payment Stablecoin Issuer documenting the Person's
compliance with section 10(b), (c), and (d) of the GENIUS Act (12
U.S.C. 5909(b), (c), and (d)) as well as policies and procedures to
ensure compliance; or
(2) A Federal Reserve Bank.
Fair Value means fair value as determined under GAAP.
FDIC means the Federal Deposit Insurance Corporation.
GAAP means generally accepted accounting principles as used in the
United States.
Immediate Family means the spouse of an individual, the
individual's minor children, and any of the individual's children
(including adults) residing in the individual's home.
Insider means:
(1) An Officer or Director of an NCUA-Licensed Permitted Payment
Stablecoin Issuer;
(2) Any Parent Company, and the Officers and Directors of the
Parent Company, of an NCUA-Licensed Permitted Payment Stablecoin
Issuer;
(3) Any Principal Shareholder, and Officers and Directors of the
Principal Shareholder, of an NCUA-Licensed Permitted Payment Stablecoin
Issuer; and
(4) A Related Interest of or the Immediate Family of any of these
Persons.
Insured Credit Union has the meaning given to that term in section
101 of the Federal Credit Union Act (12 U.S.C. 1752).
Insured Depository Institution means:
(1) An insured depository institution, as defined in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)); and
(2) An Insured Credit Union.
Issuing Group means the Applying Issuer or NCUA-Licensed Permitted
Payment Stablecoin Issuer and its Parent Company(ies), and the
Officers, Directors, and Principal Shareholders, if applicable, of the
Applying Issuer or NCUA-Licensed Permitted Payment Stablecoin Issuer,
its subsidiaries, and Parent Company(ies).
Monetary Value means a National Currency or deposit (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(l))
denominated in a National Currency.
Money means
(1) Monetary Value; and
(2) Any other medium of exchange that the NCUA has determined is
currently authorized or adopted by a domestic or foreign government,
including a monetary unit of account established by an
intergovernmental organization or by agreement between two or more
countries.
National Currency means--
(1) A Federal Reserve note (as the term is used in the first
undesignated paragraph of section 16 of the Federal Reserve Act (12
U.S.C. 411));
(2) Money standing to the credit of an account with a Federal
Reserve Bank;
(3) Money issued by a foreign central bank; or
(4) Money issued by an intergovernmental organization pursuant to
an agreement by two or more governments.
NCUA-Licensed Permitted Payment Stablecoin Issuer means a Person
formed in the United States that is a Subsidiary of an Insured Credit
Union that has been approved and licensed by the NCUA under subpart A
to issue Payment Stablecoins.
Nonpublic Personal Information, as used in this part:
(1) Means information--
(i) Provided by a Customer to an NCUA-Licensed Permitted Payment
Stablecoin Issuer to obtain a financial product or service;
(ii) About a Customer resulting from any transaction involving a
financial product or service between the NCUA-Licensed Permitted
Payment Stablecoin Issuer and a Customer; or
(iii) Otherwise obtained by the NCUA-Licensed Permitted Payment
Stablecoin Issuer in connection with providing a financial product or
service to a Customer; and
(2) Does not include Publicly Available Information, unless such
Publicly Available Information, when combined with other information,
would reveal the identity of a Customer or would enable access to the
Customer's account.
Officer means the president, chief executive officer, chief
operating officer, chief financial officer, chief technology officer,
chief lending officer, chief investment officer, chief risk officer,
Bank Secrecy Act officer, and any other individual the NCUA identifies
in writing to the Issuing Group who exercises significant influence
over, or participates in, major policy making decisions of the Issuing
Group without regard to title, salary, or compensation. The term also
includes employees of entities retained by an Issuing Group to perform
such functions in lieu of directly hiring the individuals.
Outstanding Issuance Value means the total consolidated par value
of all of an NCUA-Licensed Permitted Payment Stablecoin Issuer's
Payment Stablecoins.
Parent Company means an insured credit union(s) that will own,
control or hold the power to vote 10 percent or more of any class of
voting securities, or has the ability to direct the management or
policies, of a Permitted Payment Stablecoin Issuer. If no Insured
Credit Union will own, control or hold the power to vote 10 percent or
more of any class of voting securities, the Insured Credit Union with
the largest percentage of voting securities in relation to all other
insured credit unions is considered the Parent Company.
Payment Stablecoin, as used in this part:
(1) Means a Digital Asset--
(i) That is, or is designed to be, used as a means of payment or
settlement; and
(ii) The issuer of which--
(A) Is obligated to convert, redeem, or repurchase for a fixed
amount of Monetary Value, not including a Digital Asset denominated in
a fixed amount of Monetary Value; and
(B) Represents that such issuer will maintain, or creates the
reasonable expectation that it will maintain, a stable value relative
to the value of a fixed amount of Monetary Value; and
(2) Does not include a Digital Asset that is a--
(i) National Currency;
(ii) deposit (as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(l)), including a deposit recorded using
Distributed Ledger technology; or
(iii) Security, as defined in section 2 of the Securities Act of
1933 (15 U.S.C. 77b), section 3 of the Securities Exchange Act of 1934
(15 U.S.C. 78c), or section 2 of the Investment Company Act of 1940 (15
U.S.C. 80a-2).
Person means an individual, partnership, company, corporation,
association, trust, estate, cooperative organization, or other business
entity, incorporated or unincorporated.
Principal Shareholder means a Person other than an Insured Credit
Union that directly or indirectly or acting in concert with one or more
Persons or companies, or together with members of their immediate
family, will own, control, or hold the power to vote 10 percent or more
of any class of voting securities.
Private Key means the unique alphanumeric sequence that allows an
individual to transfer a particular unit of
[[Page 29020]]
a Digital Asset using a Distributed Ledger.
Publicly Available Information means any information that a Person
has a reasonable basis to believe is lawfully made available to the
general public from:
(1) Federal, State, or local government records;
(2) Widely distributed media;
(3) Disclosures to the general public that are required to be made
by Federal, State, or local law; or
(4) A Distributed Ledger.
Registered Public Accounting Firm has the meaning set forth in
section 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(12)).
Related Interest of a Person means:
(1) A company that is controlled by that Person; or
(2) A political or campaign committee that is controlled by that
Person or the funds or services of which will benefit that Person.
Reserve Asset means an asset maintained by an NCUA-Licensed
Permitted Payment Stablecoin Issuer of a type enumerated in Sec.
706.202 (b).
Share Account means an ``account'' as defined in section 101 of the
FCU Act (12 U.S.C. 1752(5).
State means each of the several States of the United States, the
District of Columbia, and each territory of the United States.
Subsidiary of an Insured Credit Union means--
(1) An organization providing services to the Insured Credit Union
that are associated with the routine operations of credit unions, as
described in section 107(7)(I) of the Federal Credit Union Act (12
U.S.C. 1757(7)(I));
(2) A credit union service organization, as such term is used under
part 712 of this title, with respect to which the Insured Credit Union
has an ownership interest or to which the Insured Credit Union has
extended a loan;
(3) A subsidiary of a State chartered Insured Credit Union
authorized under State law; and
(4) A subsidiary of any entity that meets the definition of a
Subsidiary of an Insured Credit Union. All tiers or levels of a
Subsidiary of an Insured Credit Union are included as a Subsidiary of
an Insured Credit Union.
Trading Volume means the aggregate number of Payment Stablecoins
issued by an NCUA-Licensed Permitted Payment Stablecoin Issuer that
were purchased or sold on exchanges during a specified period of time.
Sec. 706.3 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the NCUA's intention that the remaining provisions shall continue in
effect.
Subpart A--Investment in and Approval of Issuers That Are
Subsidiaries of Insured Credit Unions
Sec. 706.101 Scope.
This subpart establishes the NCUA rules and procedures for Insured
Credit Unions seeking to invest in Payment Stablecoin issuers and for
Insured Credit Unions and their subsidiaries to jointly apply for an
NCUA permitted payment stablecoin issuer license. It contains
information on rules of applicability, where and how to file, and
requirements and policies applicable to filings.
Sec. 706.102 Rules of general applicability.
(a) NCUA's Permitted Stablecoin Issuer Licensing Manual. The NCUA's
``Permitted Stablecoin Issuer Licensing Manual'' (Payment Stablecoin
Issuer Manual) provides additional filing guidance, including policies
and procedures. This Manual and sample forms are available at
www.ncua.gov.
(b) Electronic filing. The NCUA encourages electronic filing for
all filings. The NCUA's Payment Stablecoin Issuer Manual describes the
NCUA's electronic filing procedures.
(c) Reservation of authority. The rules in this subpart apply to
all sections in this part unless otherwise stated. The NCUA may adopt
materially different procedures for a particular filing, or class of
filings as it deems necessary, for example, in exceptional
circumstances or for unusual transactions, after providing notice of
the change to the filer and to any other party that the NCUA determines
should receive notice.
(d) Computation of time. In computing the period of days under this
subpart, the NCUA does not include the day of the act or event (e.g.,
the date a filing is received by the NCUA) from which the period begins
to run. When the last day of a period is a Saturday, Sunday, or Federal
holiday, the period runs until the end of the next day that is not a
Saturday, Sunday or Federal holiday.
Sec. 706.103 Filing required.
(a) Filing. A Subsidiary of an Insured Credit Union who seeks to
issue Payment Stablecoins must apply to the NCUA for an NCUA permitted
payment stablecoin issuer license and receive approval before issuing
Payment Stablecoins. This application must be filed jointly with any
Insured Credit Union Parent Company(ies).
(b) Where to file. Any submission under this part should be
submitted as provided in the NCUA's Payment Stablecoin Issuer Manual.
(c) Prefiling meeting. Before submitting a filing to the NCUA, a
potential filer may contact the NCUA to discuss whether a prefiling
meeting would be beneficial. The NCUA may grant a prefiling meeting on
a case-by-case basis. Submission of a draft business plan or other
relevant information before any prefiling meeting may expedite the
filing review process. A potential filer considering a novel, complex,
or unique proposal is encouraged to contact the NCUA to request a
prefiling meeting early in the development of its proposal for the
early identification and consideration of policy issues. Information on
model business plans can be found in the NCUA's Payment Stablecoin
Issuer Manual.
(d) Certification. An Applying Issuer, and all of its Parent
Companies and any Principal Shareholders, must certify in writing that
any filing or supporting material submitted to the NCUA contains no
material misrepresentations or omissions. The NCUA may review and
verify any information filed in connection with a notice or an
application. Any Person responsible for any material misrepresentation
or omission in a filing or supporting materials may be subject to
enforcement action and other penalties, including criminal penalties
provided in 18 U.S.C. 1001.
(e) Filing fees.
(1) The NCUA may require filing fees to accompany certain filings
made under this subpart before it will accept those filings. If the
NCUA requires the aforementioned filing fee, the NCUA will publish an
applicable fee schedule on its website at http://www.NCUA.gov.
(2) Filing fees must be paid to the NCUA by electronic transfer.
Sec. 706.104 Investigations.
(a) Authority. The NCUA may examine or investigate and evaluate
facts related to a filing to the extent necessary to reach an informed
decision.
(b) Fingerprints. For certain filings, the NCUA requires
fingerprints for a biometric based criminal history search.
Sec. 706.105 Evaluation of applications and factors to be considered.
(a) Scope. This section describes the procedures and requirements
governing NCUA evaluation of an application to be an NCUA-Licensed
Permitted Payment Stablecoin Issuer. The NCUA will evaluate each
substantially complete
[[Page 29021]]
application to determine whether approval would be consistent with the
safety and soundness of the Applying Issuer based on the statutory
evaluation factors set forth in this section. An applicant should
consult the NCUA's Payment Stablecoin Issuer Manual to determine what
other information is necessary for the NCUA to evaluate an application
using the statutory evaluation factors described in this section.
(b) Statutory evaluation factors. The NCUA grants permitted payment
stablecoin licenses under the authority of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act, 12 U.S.C. 5901 et seq.,
which requires the NCUA to evaluate:
(1) The ability of the Applying Issuer, based on financial
condition and resources, to meet the requirements set forth under 12
U.S.C. 5903 and incorporated in subpart B of part 706;
(2) Whether an individual who has been convicted of a felony
offense involving insider trading, embezzlement, cybercrime, money
laundering, financing of terrorism, or financial fraud is serving as an
Officer or Director of the Applying Issuer;
(3) The competence, experience, and integrity of the Officers,
Directors, and Principal Shareholders of the Applying Issuer, its
subsidiaries, and Parent Company, including:
(i) the record of those Officers, Directors, and Principal
Shareholders of compliance with laws and regulations; and
(ii) the ability of those Officers, Directors, and Principal
Shareholders to fulfill any commitments to, and any conditions imposed
by, the NCUA in connection with the application at issue and any prior
applications;
(4) Whether the redemption policy of the Applying Issuer meets the
standards under 12 U.S.C. 5903(a)(1)(B) and incorporated in subpart B
of part 706; and
(5) Any other factors established by the NCUA that are necessary to
ensure the safety and soundness of the Applying Issuer.
(c) Policy--
(1) In general. In determining whether to approve an application to
be an NCUA-Licensed Permitted Payment Stablecoin Issuer based on the
statutory evaluation criteria in paragraph (c), the NCUA is guided by
the following policy considerations as they relate to the Applying
Issuer:
(i) Whether an Issuing Group has a record of compliance with laws
and regulations and whether the Issuing Group is familiar with the laws
and regulations applicable to NCUA-Licensed Permitted Payment
Stablecoin Issuers and digital asset service providers;
(ii) Whether an Issuing Group has the ability to fulfill any
commitments to, and any conditions imposed by, the NCUA in connection
with the application at issue and any prior applications;
(iii) Whether an Issuing Group has competent management, including
a board of directors, with ability and experience relevant to the types
of services to be provided;
(iv) Whether an applicant has capital, liquidity, and capital and
liquidity plans sufficient to support the projected volume and type of
business;
(v) Whether an applicant has a redemption policy that meets all
requirements in subpart B of this part;
(vi) Whether an applicant can reasonably be expected to achieve and
maintain profitability; and
(vii) Whether an applicant can be operated in a safe and sound
manner by evaluating criteria including, but not limited to, the
following:
(A) the ability to meet the operational, compliance, and
information technology risk management requirements and standards
outlined in subparts B of this part; and
(B) the ability to maintain sufficient technological capabilities
to comply with the terms of any lawful order and all applicable laws
and regulations.
(2) NCUA evaluation. The NCUA evaluates an Issuing Group and its
business plan together. The NCUA's judgment concerning one may affect
the evaluation of the other. An Issuing Group and its business plan
must be stronger in markets where economic conditions are marginal,
competition is intense, or the services to be provided have greater or
unknown risk.
(d) Issuing Group--
(1) In general. An Issuing Group must have the competence,
experience, and integrity to be active in directing the Applying
Issuer's affairs in a safe and sound manner. The business plan and
other information supplied in the application, including the completed
NCUA Biographical and Financial Report forms, must demonstrate an
Issuing Group's collective ability to establish and operate a
successful permitted payment stablecoin issuer in the economic and
competitive conditions of the market to be served. This collective
ability must be demonstrated with consideration of the activities to be
engaged in by the Applying Issuer and the services it intends to
provide. Each member of the Issuing Group must be knowledgeable about
the business plan. An inadequate business plan may be a reason for the
NCUA to deny an application because it reflects adversely on the
Issuing Group's qualifications.
(2) Management selection. The initial board of directors must
select competent Officers before the NCUA grants an NCUA permitted
payment stablecoin license. Early selection of Officers, especially the
chief executive officer, contributes favorably to the preparation and
review of a business plan that is accurate, complete, and appropriate
for the activities the proposed permitted payment stablecoin issuer
intends to engage in, and is necessary for a substantially complete
application.
(3) Financial resources.
(i) Each member of the Issuing Group must have a history of
responsibility, personal honesty, and integrity.
(ii) The Issuing Group must have a realistic plan to enable the
Applying Issuer to obtain capital and liquidity when needed.
(iii) Any financial or other business arrangement, direct or
indirect, between the Issuing Group or other Insiders and the Applying
Issuer must be on nonpreferential terms.
(e) Business plan--
(1) In general.
(i) An Applying Issuer must submit a business plan that adequately
addresses the statutory and related policy considerations set forth in
paragraphs (b) and (c) of this section. The plan must reflect sound
business and financial principles and demonstrate realistic assessments
of risk in light of economic and competitive conditions in the market
to be served and the services to be provided.
(ii) The NCUA may offset deficiencies in one factor by strengths in
one or more other factors. However, deficiencies in some factors, such
as unrealistic earnings prospects, may have a negative influence on the
evaluation of other factors, such as capital adequacy, or may be
serious enough by themselves to result in denial. The NCUA considers
inadequacies in a business plan to reflect negatively on the Issuing
Group's ability to operate a successful NCUA-Licensed Permitted Payment
Stablecoin Issuer.
(2) Earnings prospects and financial condition. An Applying Issuer
must submit balance sheets and income statements that demonstrate
financial stability and earnings prospects as part of the business
plan. This would include both actual and pro forma balance sheets and
income statements, as applicable based on the availability of actual
financial statements. The NCUA reviews all pro forma projections for
[[Page 29022]]
reasonableness of assumptions and consistency with the business plan.
(3) Management.
(i) The Applying Issuer must include in the business plan
information sufficient to permit the NCUA to evaluate the overall
management ability of the Issuing Group. If the Issuing Group has
limited relevant experience, the Officers of the Applying Issuer must
be able to compensate for such deficiencies.
(ii) The Applying Issuer may not hire an Officer or elect or
appoint a Director if the NCUA objects to that Person at any time prior
to the date the Applying Issuer commences business.
(iii) All Issuing Group Officers, Directors, and any Principal
Shareholders must also submit the Biographical and Financial Report
information described in paragraph (f)(3) of this section to allow the
NCUA to evaluate the competence, experience, and integrity of the
Officers, Directors, and Principal Shareholders of the Applying Issuer,
its subsidiaries, and Parent Company or Parent Companies as described
in paragraph (b)(3).
(4) Capital. An Applying Issuer must have sufficient initial
capital, net of any organizational expenses that will be charged to the
Applying Issuer's capital after it begins operations, to support the
Applying Issuer's projected volume and type of business as outlined in
the business plan. An Applying Issuer also must have a longer-term
capital plan that is sufficient to support the future projected volume
and type of business and is consistent with the capital requirements in
subpart B of this part.
(5) Liquidity and Reserve Asset diversification. An Applying
Issuer's business plan must address its liquidity and Reserve Asset
diversification practice. Issuers must have liquidity and Reserve Asset
diversification policies that meet the requirements of subpart B of
this part.
(6) Safety and soundness. The business plan must demonstrate that
the Applying Issuer is aware of, and understands, applicable laws and
regulations, and how to conduct safe and sound operations and
practices.
(f) Procedures--
(1) Prefiling meeting. The Issuing Group of an Applying Issuer may
request a prefiling meeting with the NCUA before the Applying Issuer
files an application. The prefiling meeting normally is held virtually.
(2) Business plan. An Applying Issuer must file a business plan
that addresses the subjects discussed in paragraph (e) of this section.
(3) Biographical and financial reports.
(i) Each Director or Officer or proposed Director or Officer of a
member of the Issuing Group or Principal Shareholder must submit to the
NCUA the information prescribed in the NCUA's Biographical and
Financial Report, available at www.ncua.gov;
(ii) Each Director or Officer or proposed Director or Officer of
the Applying Issuer must submit legible fingerprints for a biometric
based criminal history search; and
(iii) The NCUA may request additional information about any
Director or Officer, or proposed Director or Officer, or any Principal
Shareholder, if appropriate. The NCUA may waive any of the information
requirements of this paragraph if the NCUA determines that it is in the
public interest.
(4) Contact person. The Applying Issuer must designate a contact
person to represent the Issuing Group in all contacts with the NCUA.
(5) Decision notification. The NCUA notifies the contact person and
other relevant parties in writing of its decision on an application.
(6) Activities. Before the NCUA grants a license to an Applying
Issuer, the Applying Issuer must be established as a legal entity under
State law.
Sec. 706.106 Timing for decision on applications.
(a) In general. Not later than 120 days after receiving a
substantially complete application for license as an NCUA-Licensed
Permitted Payment Stablecoin Issuer, the NCUA will render a decision on
the application. If the NCUA fails to render a decision on a complete
application within this period, the application shall be deemed
approved.
(b) Substantially complete applications.
(1) An application is considered substantially complete if the
application contains sufficient information for the NCUA to render a
decision on whether the Applying Issuer satisfies the factors described
in 706.105.
(2) Not later than 30 days after receiving an application, the NCUA
will notify the Applying Issuer as to whether the NCUA determined the
application to be substantially complete and, if the application is not
substantially complete, the additional information the Applying Issuer
must provide for the application to be considered substantially
complete.
(3) Material Change in Circumstances. An application considered
substantially complete under this section will remain substantially
complete unless there is a material change in circumstances that
requires the NCUA to treat the application as a new application.
Sec. 706.107 Denial.
(a) Grounds for denial.
(1) In general. The NCUA will only deny a substantially complete
application received under this subpart if the NCUA determines that the
activities of the Applying Issuer would be unsafe or unsound based on
the statutory evaluation factors described in Sec. 706.105.
(2) Issuance on open, public, or decentralized network not grounds
for denial. The issuance of a Payment Stablecoin on an open, public, or
decentralized network is not a valid ground for denial of an
application received under this subpart.
(b) Explanation required. If the NCUA denies a substantially
complete application received under this subpart, not later than 30
days after the date of such denial, the NCUA shall provide the Applying
Issuer with written notice explaining the denial with specificity,
including all findings made with respect to all identified material
shortcomings in the application and actionable recommendations on how
the Applying Issuer could address the identified material shortcomings.
Sec. 706.108 Opportunity for hearing; final determination.
(a) In general. Not later than 30 days after the date of receipt of
any notice of the denial of an application under this subpart, the
Applying Issuer may request, in writing, an opportunity for a written
or oral hearing before the NCUA Board to appeal the denial.
(b) Timing. Upon receipt of a timely hearing request, the NCUA will
notice a time not later than 30 days after the date of receipt of the
request and place at which the Applying Issuer may appear, personally
or through counsel, to submit written materials or provide oral
testimony and oral argument.
(c) Final determination. Not later than 60 days after the date of a
hearing under this section, the NCUA will notify the Applying Issuer of
a final determination, which will contain a statement of the basis for
that determination, with specific findings.
(d) Notice if no hearing. If an applicant does not make a timely
request for a hearing under this section, the NCUA will notify the
Applying Issuer, not later than 10 days after the date by which the
Applying Issuer may request a hearing under this subparagraph, in
writing, that the denial of the application is a final determination of
the NCUA.
Sec. 706.109 Right to reapply
The denial of an application under this subpart does not prohibit
the
[[Page 29023]]
Applying Issuer from filing a subsequent application.
Sec. 706.110 Certification of anti-money laundering and economic
sanctions compliance programs.
(a) In general. Not later than 180 days after the approval of an
application, and on an annual basis thereafter, each NCUA-Licensed
Permitted Payment Stablecoin Issuer must submit to the NCUA written
certification that the NCUA-Licensed Permitted Payment Stablecoin
Issuer has implemented anti-money laundering and economic sanctions
compliance programs that are reasonably designed to prevent the NCUA-
Licensed Permitted Payment Stablecoin Issuer from facilitating money
laundering, in particular, facilitating money laundering for cartels
and organizations designated as foreign terrorist organizations under
section 219 of the Immigration and Nationality Act (8 U.S.C. 1189), and
the financing of terrorist activities, consistent with the requirements
of this Act.
(b) Failure to submit certification. The failure by an NCUA-
Licensed Permitted Payment Stablecoin Issuer to submit the
certification required under paragraph (a) constitutes cause for the
NCUA to revoke the approval and license of the NCUA-Licensed Permitted
Payment Stablecoin Issuer.
Sec. 706.111 Change in Parent Company.
(a) Change in Parent Company. An Insured Credit Union must provide
the NCUA with sixty days' prior written notice of a proposed
acquisition that would cause it to become a Parent Company of an NCUA-
Licensed Permitted Payment Stablecoin Issuer.
(b) Notice. The notice must include:
(1) Biographical and financial report information described in
Sec. 706.105(f)(3) of this part sufficient to allow the NCUA to
(i) Evaluate the competence, experience, and integrity of the
proposed Parent Company's Officers and Directors related to Payment
Stablecoins; and
(ii) Evaluate the record of the proposed Parent Company's Officer
and Directors with compliance with laws and regulations; and
(2) A certification that the proposed Parent Company will fulfill
any commitments to, any conditions imposed by, the NCUA in connection
with its proposed investment.
(c) Timing. The Insured Credit Union may complete its proposed
investment to become a Parent Company of an NCUA-Licensed Permitted
Payment Stablecoin Issuer at the end of the sixty-day period unless the
NCUA issues a notice disapproving the proposed acquisition.
(d) Notice of disapproval. The NCUA may disapprove of an insured
credit union's proposed investment to become a Parent Company of an
NCUA-Licensed Permitted Payment Stablecoin Issuer if it finds that the
competence, experience, or integrity of the insured credit union's
Officers and Directors indicates the investment would not be in the
best interests of the NCUA-Licensed Permitted Payment Stablecoin Issuer
or of the public.
(e) Appeal. Not later than 30 days after the date of receipt of the
notice of disapproval, the notificant may request, in writing, an
opportunity for a written or oral hearing before the NCUA to appeal the
denial.
Sec. 706.112 Investment limitation.
An Insured Credit Union cannot invest in a Payment Stablecoin
issuer unless it is an NCUA-Licensed Permitted Payment Stablecoin
Issuer.
Subpart B--NCUA-Licensed Permitted Payment Stablecoin Issuers
Sec. 706.201 Activities.
(a) Permitted activities. An NCUA-Licensed Permitted Payment
Stablecoin Issuer may only:
(1) Issue Payment Stablecoins;
(2) Redeem Payment Stablecoins;
(3) Manage reserves related to the issuance or redemption of
Payment Stablecoins, including purchasing, selling, and holding Reserve
Assets or providing custodial services for Reserve Assets, consistent
with applicable State and Federal law;
(4) Provide custodial or safekeeping services for Payment
Stablecoins, required reserves, or Private Keys of Payment Stablecoins,
consistent with subpart C of this part;
(5) Assess fees associated with purchasing or redeeming Payment
Stablecoins;
(6) Act as principal or agent with respect to any Payment
Stablecoin;
(7) Pay fees to facilitate Customer transactions; and
(8) Undertake any other activities that directly support any of the
activities described in paragraphs (a)(1) through (4) of this section.
(b) Rule of construction. Nothing in paragraph (a) of this section
may be construed to limit the authority of an Insured Credit Union to
engage in activities permissible pursuant to applicable State and
Federal law.
(c) Prohibitions. An NCUA-Licensed Permitted Payment Stablecoin
Issuer must not:
(1) Use a deceptive name by using any combination of terms relating
to the United States Government, including ``United States,'' ``United
States Government,'' and ``USG,'' in the name of the Payment
Stablecoin. This prohibition does not apply to abbreviations relating
directly to the currency to which the Payment Stablecoin is pegged,
such as ``USD''.
(2) Market a Payment Stablecoin in such a way that a reasonable
person would perceive the Payment Stablecoin to be:
(i) Legal tender as described in 31 U.S.C. 5103;
(ii) Issued by the United States; or
(iii) Guaranteed or approved by the Government of the United
States.
(3) Directly or through implication represent that Payment
Stablecoins are backed by the full faith and credit of the United
States, guaranteed by the United States Government, or subject to
Federal deposit insurance or Federal share insurance.
(4) Pay the holder of any Payment Stablecoin any form of interest
or yield (whether in cash, tokens, or other consideration) solely in
connection with the holding, use, or retention of such Payment
Stablecoin.
(i) The NCUA presumes that an NCUA-Licensed Permitted Payment
Stablecoin Issuer is paying interest or yield (whether in cash, tokens,
or other consideration) to the holder of a Payment Stablecoin solely in
connection with the holding, use, or retention of such Payment
Stablecoin if:
(A) The NCUA-Licensed Permitted Payment Stablecoin Issuer has a
contract, agreement, or other arrangement with an Affiliate of the
issuer or related third party to pay interest or yield to the Affiliate
or related third party;
(B) The Affiliate or related third party identified in paragraph
(c)(4)(i)(A) of this section or, if the Person is a related third
party, an Affiliate of such related third party has a contract,
agreement, or other arrangement to pay interest or yield (whether in
cash, tokens, or other consideration) to a holder of any Payment
Stablecoin issued by the NCUA-Licensed Permitted Payment Stablecoin
Issuer solely in connection with the holding, use, or retention of such
Payment Stablecoin; and
(C) To the extent the Person, or an Affiliate of the Person,
identified in paragraph (c)(4)(i)(A) is a related third party of the
NCUA-Licensed Permitted Payment Stablecoin Issuer because the NCUA-
Licensed Permitted Payment Stablecoin Issuer issues Payment Stablecoins
on the related third party's behalf or under the related third party's
branding, the arrangement identified in paragraph (c)(4)(i)(B) of this
section
[[Page 29024]]
considers the holder of the Payment Stablecoin to be the holder of a
Payment Stablecoin issued by the NCUA-Licensed Permitted Payment
Stablecoin Issuer on the related third party's behalf or under the
related third party's branding.
(ii) For purposes of paragraph (c)(4)(i) of this section, a related
third party means:
(A) A Person offering to pay interest or yield to Payment
Stablecoin holders as a service; and
(B) Any Person that the issuer issues Payment Stablecoins on the
Person's behalf or under the Person's branding.
(iii) An NCUA-Licensed Permitted Payment Stablecoin Issuer may
rebut the presumption in paragraph (c)(4)(i) of this section by
submitting written materials that, in the NCUA's judgment, demonstrate
that the contract, agreement, or other arrangement is not prohibited
under paragraph (c)(4) of this section and is not an attempt to evade
the prohibition.
(5) Pledge, rehypothecate, or reuse any Reserve Assets required
under Sec. 706.202 either directly or indirectly (e.g., through a
third-party custodian of the Reserve Assets) except for the purpose of:
(i) Satisfying margin obligations in connection with investments in
permitted reserves under Sec. 706.202(b)(4) or (5);
(ii) Satisfying obligations associated with the use, receipt, or
provision of standard custodial services; or
(iii) Creating liquidity to meet reasonable expectations of
requests to redeem Payment Stablecoins, such that reserves in the form
of Treasury bills with a maturity of 93 days or less may be sold as
purchased securities in repurchase agreements, provided that either:
(A) The repurchase agreements are cleared by a clearing agency
registered with the Securities and Exchange Commission; or
(B) The NCUA-Licensed Permitted Payment Stablecoin Issuer receives
prior approval from the NCUA. All repurchase agreements under this
paragraph (c)(5) wherein the Treasury bills that are sold as purchased
securities have a maturity of 93 days or less are approved by the NCUA.
(6) Engage in any activity that the NCUA determines is an evasion
of the requirements of section 4 of the GENIUS Act (12 U.S.C. 5903) or
this part.
(7) Provide a Customer credit, directly or indirectly, to enable
the Customer to purchase or otherwise acquire Payment Stablecoins from
the NCUA-Licensed Permitted Payment Stablecoin Issuer.
Sec. 706.202 Reserve Assets.
(a) Reserve requirement. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must:
(1) Maintain Reserve Assets that:
(i) Are identifiable;
(ii) Are segregated from and not commingled with other assets owned
or held by the NCUA-Licensed Permitted Payment Stablecoin Issuer;
(iii) At all times have a total Fair Value that equals or exceeds
the Outstanding Issuance Value of the NCUA-Licensed Permitted Payment
Stablecoin Issuer; and
(iv) Are either held directly by the NCUA-Licensed Permitted
Payment Stablecoin Issuer or within the custody of an Eligible
Financial Institution.
(2) Demonstrate the operational capability to access and monetize
the identifiable Reserve Assets, commensurate with the NCUA-Licensed
Permitted Payment Stablecoin Issuer's risk profile and business model.
(3) Only withdraw any surplus Reserve Assets in excess of
Outstanding Issuance Value once per month, upon the publication of the
composition report required by paragraph (e) of this section. An NCUA-
Licensed Permitted Payment Stablecoin Issuer may withdraw any surplus
Reserve Assets, calculated and reported as of the last day of the
previous month, after the information in the month-end report is
examined and certified pursuant to paragraph (f) of this section,
provided that an NCUA-Licensed Permitted Payment Stablecoin Issuer may
not withdraw any Reserve Assets if the withdrawal would cause the
current Fair Value of Reserve Assets to fall below the current
Outstanding Issuance Value, calculated as of the day of withdrawal.
(b) Composition. The Reserve Assets required under paragraph (a) of
this section must comprise exclusively:
(1) United States coins and currency (including Federal Reserve
notes) or money standing to the credit of an account with a Federal
Reserve Bank;
(2) Funds held as deposits or in Share Accounts that are payable
upon demand at an Insured Depository Institution (including any foreign
branches or agents, including correspondent banks, of an insured
depository institution), subject to any limitation established by the
FDIC and the NCUA, as applicable, pursuant to section 4(a)(1)(A)(ii) of
the GENIUS Act (12 U.S.C. 5903(a)(1)(A)(ii)) to address safety and
soundness risks of such insured depository institution;
(3) Treasury bills, Treasury notes, or Treasury bonds with a
remaining maturity of 93 days or less;
(4) Money received under repurchase agreements, with the NCUA-
Licensed Permitted Payment Stablecoin Issuer acting as a seller of
securities and with a no longer than overnight maturity, that are
backed by Treasury bills with a maturity of 93 days or less;
(5) Reverse repurchase agreements, with the NCUA-Licensed Permitted
Payment Stablecoin Issuer acting as a purchaser of securities and with
a no longer than overnight maturity, that are collateralized by
Treasury bills, Treasury notes, Treasury bonds on a no longer than
overnight basis, subject to overcollateralization in line with standard
market terms, that are:
(i) Tri-party;
(ii) Centrally cleared through a clearing agency registered with
the Securities and Exchange Commission; or
(iii) Bilateral with a counterparty that the issuer has determined
to be adequately creditworthy even in the event of severe market
stress;
(6) Securities issued by an investment company registered under
section 8(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
8(a)), or other registered Government money market fund, and that are
invested solely in underlying assets described in paragraphs (b)(1)
through (5) of this section;
(7) Any other similarly liquid Federal Government-issued asset
approved by the NCUA. In determining whether a potential Reserve Asset
qualifies as ``any other similarly liquid Federal Government-issued
asset,'' the NCUA will consider, among other relevant factors, whether:
(i) The asset has liquidity characteristics, including during times
of stress, comparable to the other Reserve Assets allowed under this
paragraph (b);
(ii) NCUA-Licensed Permitted Payment Stablecoin Issuers will be
operationally capable of monetizing the asset to meet redemption
requests, including sudden and high-volume requests;
(iii) The asset poses levels of risk comparable to those of the
assets allowed under this paragraph (b) including interest rate risk
and counterparty credit risk; and
(iv) Whether the asset introduces additional risks that may be
difficult for NCUA-Licensed Permitted Payment Stablecoin Issuers to
manage; or
(8) Any reserve described in paragraphs (b)(1) through (3) or
paragraph (b)(6) or (7) of this section in tokenized form, provided
that such reserves comply with all applicable laws and regulations.
[[Page 29025]]
Option A for Paragraph (c)
(c) Asset diversification and concentration.
(1) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
maintain Reserve Assets that are sufficiently diverse to manage
potential credit, liquidity, interest rate, and price risks. An NCUA-
Licensed Permitted Payment Stablecoin Issuer must measure and manage
the risk that concentrating Reserve Assets at one Eligible Financial
Institution or a small number of Eligible Financial Institutions may
impair the ability of an NCUA-Licensed Permitted Payment Stablecoin
Issuer to satisfy redemption demands if individual Eligible Financial
Institutions are unable to return, or if there is a delay in returning,
Reserve Assets placed by an NCUA-Licensed Permitted Payment Stablecoin
Issuer.
(2) An NCUA-Licensed Permitted Payment Stablecoin Issuer will be
deemed to satisfy the requirements of paragraph (c)(1) of this section
if on each business day:
(i) The NCUA-Licensed Permitted Payment Stablecoin Issuer maintains
at least 10 percent of its Reserve Assets as deposits or funds in Share
Accounts that are payable upon demand or Money standing to the credit
of an account with a Federal Reserve Bank;
(ii) The NCUA-Licensed Permitted Payment Stablecoin Issuer
maintains at least 30 percent of its Reserve Assets as deposits or
funds in Share Accounts that are payable upon demand, Money standing to
the credit of an account with a Federal Reserve Bank, or amounts
receivable and due unconditionally within five business days on pending
sales of Reserve Assets, maturing Reserve Assets, or other maturing
transactions;
(iii) The NCUA-Licensed Permitted Payment Stablecoin Issuer
maintains no more than 40 percent of its Reserve Assets at any one
Eligible Financial Institution, whether as deposits or funds in Share
Accounts at any one Insured Depository Institution, securities
custodied at any one Eligible Financial Institution, bilateral reverse
repurchase agreements with any counterparty, or through other
exposures;
(iv) The NCUA-Licensed Permitted Payment Stablecoin Issuer
maintains no more than 50 percent of the amount required in paragraph
(c)(2)(i) of this section at any one Eligible Financial Institution;
and
(v) The NCUA-Licensed Permitted Payment Stablecoin Issuer's total
stock of Reserve Assets have a weighted average maturity of no more
than 20 days.
Option B for Paragraph (c)
(c) Asset diversification and concentration. An NCUA-Licensed
Permitted Payment Stablecoin Issuer must on each business day:
(1) Maintain at least 10 percent of its Reserve Assets as deposits
or funds in Share Accounts that are payable upon demand or Money
standing to the credit of an account with a Federal Reserve Bank;
(2) Maintain at least 30 percent of its Reserve Assets as deposits
or funds in Share Accounts that are payable upon demand, Money standing
to the credit of an account with a Federal Reserve Bank, or amounts
receivable and due unconditionally within five business days on pending
sales of Reserve Assets, maturing Reserve Assets, or other maturing
transactions;
(3) Maintain no more than 40 percent of its Reserve Assets at any
one Eligible Financial Institution, whether as deposits or funds in
Share Accounts at any one Insured Depository Institution, securities
custodied at any one Eligible Financial Institution, bilateral reverse
repurchase agreements with any counterparty, or through other
exposures;
(4) Maintain no more than 50 percent of the amount required in
paragraph (c)(1) of this section at any one Eligible Financial
Institution; and
(5) Maintain Reserve Assets with a weighted average maturity of no
more than 20 days.
(d) Minimum insured amount. An NCUA-Licensed Permitted Payment
Stablecoin Issuer with an Outstanding Issuance Value of $25 billion or
more must, on each business day, maintain at least 0.5 percent of its
Reserve Assets, up to a cap of $500 million, in the form of deposits or
funds in Share Accounts at Insured Depository Institutions that are
fully insured by the FDIC and/or NCUA.
(e) Composition report. By noon on the last day of each month, an
NCUA-Licensed Permitted Payment Stablecoin Issuer must publish the
monthly composition of the issuer's Reserve Assets as of the last day
of the previous month on the website of the issuer, using a format
substantially similar to the template provided in table 1 to this
paragraph (e), containing:
(1) The total number of outstanding Payment Stablecoins issued by
the issuer; and
(2) The amount and composition of the reserves described in
paragraph (a) of this section, including the average tenor and
geographic location of custody of each category of reserve instruments.
Table 1 to Paragraph (e)--Monthly Composition Template
Table 1 to Paragraph (e)--Monthly Composition Template
----------------------------------------------------------------------------------------------------------------
As of YY/YY/YYYY (In
thousands of U.S. Amount Geographic location Average tenor
dollars)
----------------------------------------------------------------------------------------------------------------
Number of Outstanding Payment Stablecoins
----------------------------------------------------------------------------------------------------------------
1 \1\ .................... ................... ...................
2 .................... ................... ...................
3 .................... ................... ...................
4 TOTAL OUTSTANDING PAYMENT .................... ................... ...................
STABLECOINS.
----------------------------------------------------------------------------------------------------------------
Fair Value of Reserve Assets
----------------------------------------------------------------------------------------------------------------
5 Deposits or funds in .................... ................... ...................
Share Accounts:.
6 Insured deposits or .................... ................... ...................
insured funds in Share
Accounts.
7 Uninsured deposits or .................... ................... ...................
uninsured funds in Share
Accounts.
8 Treasury bills, Treasury .................... ................... ...................
notes, or Treasury bonds.
9 Other similarly liquid .................... ................... ...................
Federal Government-
issued assets approved
by NCUA.
10 Money received under .................... ................... ...................
repurchase agreements.
[[Page 29026]]
11 Reverse repurchase .................... ................... ...................
agreements.
12 Securities issued by an .................... ................... ...................
investment company
solely invested in
qualifying reserve
assets.
13 Reserves in tokenized .................... ................... ...................
form \2\.
14 Total Reserve Assets \3\. .................... ................... ...................
15 Outstanding repurchase .................... ................... ...................
agreement liabilities.
16 Total Reserve Assets net .................... ................... ...................
of Outstanding
Repurchase Agreement
Liabilities.
----------------------------------------------------------------------------------------------------------------
\1\ List different classes of Payment Stablecoin separately, if applicable. To the extent that different classes
of Payment Stablecoins are secured by distinct pools of reserve assets, NCUA-Licensed Permitted Payment
Stablecoin Issuers should publish a composition table for each class of Payment Stablecoin and describe the
legal mechanism for how the assets are separately secured.
\2\ NCUA-Licensed Permitted Payment Stablecoin Issuers must separately list any reserves in tokenized form by
category of reserve asset, using multiple rows if appropriate.
\3\ Do not double count any reserve assets that may be listed in more than one row for purposes of computing the
total.
(f) Monthly certification; examination of reports by Registered
Public Accounting Firm.
(1) By noon on the last day of each month, an NCUA-Licensed
Permitted Payment Stablecoin Issuer must have the information disclosed
in the previous month-end report required under paragraph (e) of this
section examined by a Registered Public Accounting Firm. The Registered
Public Accounting Firm's examination report must be published on the
website of the issuer at the same time as the month-end report required
under paragraph (e).
(2) Each month, the Chief Executive Officer and Chief Financial
Officer (or the Persons performing the equivalent functions) of an
NCUA-Licensed Permitted Payment Stablecoin Issuer must submit a
certification as to the accuracy of the monthly report required under
paragraph (e) of this section to the NCUA.
(g) Failure to meet minimum Reserve Assets requirement.
(1) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
notify the NCUA on any day in which its Reserve Asset amount has fallen
below the required minimum in paragraph (a) of this section.
(2) An NCUA-Licensed Permitted Payment Stablecoin Issuer that fails
to satisfy the minimum Reserve Asset requirement in paragraph (a) of
this section at any time:
(i) Is prohibited from issuing any new Payment Stablecoins
immediately except as necessary to facilitate a transfer of Payment
Stablecoins from one Distributed Ledger to another and provided that
the net Outstanding Issuance Value does not increase; and
(ii) May not resume issuance until the NCUA-Licensed Permitted
Payment Stablecoin Issuer satisfies its minimum Reserve Asset
requirement.
(3) If an NCUA-Licensed Permitted Payment Stablecoin Issuer fails
to meet its minimum Reserve Asset requirement for 15 consecutive
business days (which may be extended in the NCUA's sole discretion), it
must:
(i) Begin liquidation of Reserve Assets and redemption of
outstanding Payment Stablecoins, consistent with Sec. 706.203; and
(ii) Not charge Customers a fee to redeem their Payment Stablecoins
at any time during the liquidation.
(4) If at any point the NCUA determines that an NCUA-Licensed
Permitted Payment Stablecoin Issuer has not demonstrated that it meets
the Reserve Asset requirements in paragraph (a), (b), (c), or (d) of
this section, the NCUA may require the issuer to submit a plan
describing how the NCUA-Licensed Permitted Payment Stablecoin Issuer
will attain compliance and the timeline for the plan. If the NCUA
determines, either before or after the submission of a plan, that an
NCUA-Licensed Permitted Payment Stablecoin Issuer faces a significant
risk of being unable to attain compliance with the reserve requirements
in paragraph (a), (b), (c), or (d) within a reasonable period, the NCUA
may order the issuer to initiate redemption of all outstanding Payment
Stablecoins. The NCUA's authority to require a compliance plan or order
redemption does not limit the NCUA's authority to pursue other
measures, including enforcement actions, if appropriate.
Sec. 706.203 Redemption.
(a) Redemption policy. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must publicly disclose its current redemption policy
and include, at a minimum, the following information:
(1) The timeframe in which the issuer will redeem Payment
Stablecoins and the timeframe under which the issuer is required to
redeem Payment Stablecoins under paragraph (b)(1)(i) of this section;
(2) A statement explaining the limitation in paragraph (b)(1)(ii)
of this section;
(3) A statement explaining the scenarios under which the redemption
period may be extended as described in paragraph (c) of this section;
(4) A statement with clear instructions on how a Payment Stablecoin
holder can redeem a Payment Stablecoin, including a link to the
website(s) where a Customer can redeem the Payment Stablecoin; and
(5) The minimum number of Payment Stablecoins, if any, that the
NCUA-Licensed Permitted Payment Stablecoin Issuer will redeem, provided
that the issuer must redeem any number greater than or equal to one
Payment Stablecoin, subject to appropriate Customer screening and
onboarding.
(b) Redemption policy requirements. An NCUA-Licensed Permitted
Payment Stablecoin Issuer's redemption policy must provide:
(1) Clear and conspicuous procedures for timely redemption of
outstanding Payment Stablecoins:
(i) That timely redemption may not exceed two business days
following the date of the requested redemption; and
(ii) That any discretionary limitations on timely redemptions can
only be imposed by the NCUA.
(2) [Reserved]
(c) Timeliness extended in certain scenarios.
(1) If an NCUA-Licensed Permitted Payment Stablecoin Issuer faces
redemption demands in excess of 10
[[Page 29027]]
percent of its Outstanding Issuance Value in a single 24-hour period,
the period for timely redemption described in paragraph (b)(1) of this
section is immediately extended to seven calendar days by operation of
this paragraph (c)(1).
(2) The extended redemption period in paragraph (c)(1) of this
section applies to all redemption requests that are outstanding at the
time the 10 percent threshold is met as well as any subsequent
redemption requests.
(3) An NCUA-Licensed Permitted Payment Stablecoin Issuer may only
redeem any of the outstanding or subsequent redemption requests
described in paragraph (c)(2) of this section prior to the seven-
calendar day period if the NCUA determines that the issuer has the
ability to redeem sooner in an orderly fashion and through a fair and
transparent process or the NCUA otherwise provides notice to the NCUA-
Licensed Permitted Payment Stablecoin Issuer that the extended
redemption period no longer applies.
(4) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
provide notice to the NCUA within 24 hours if its redemption requests
exceed 10 percent of its Outstanding Issuance Value in a single 24-hour
period.
(5) The NCUA may also, in its discretion, extend timely redemption
described in paragraph (b)(1) or (c)(1) of this section, as applicable,
if the NCUA determines that the NCUA-Licensed Permitted Payment
Stablecoin Issuer poses a threat to safety and soundness, financial
stability, or such an extension is otherwise in the public interest.
(d) Disclosures and fees associated with purchase and redemption.
An NCUA-Licensed Permitted Payment Stablecoin Issuer must:
(1) Publicly, clearly, and conspicuously disclose in plain language
and in a format that is readily noticeable to Customers, readily
understandable by Customers, and segregated from other information:
(i) The name of the NCUA-Licensed Permitted Payment Stablecoin
Issuer that issues the Payment Stablecoin;
(ii) That the NCUA-Licensed Permitted Payment Stablecoin Issuer is
the entity that is obligated to convert, redeem, or repurchase the
Payment Stablecoin for a fixed amount of Monetary Value;
(iii) The link to the monthly composition report of the relevant
NCUA-Licensed Permitted Payment Stablecoin Issuer's reserves required
under Sec. 706.202(e); and
(iv) All fees associated with purchasing or redeeming Payment
Stablecoins.
(2) Update the disclosures in paragraph (d)(1)(iv) of this section
if there are any changes in fees associated with purchasing or
redeeming Payment Stablecoins and provide Customers at least seven
calendar days' prior notice of the change, including by securely
delivering the notice to current Customers;
(3) Publish the disclosures in paragraph (d)(1) of this section and
any updates made in accordance with paragraph (d)(2) of this section on
the NCUA-Licensed Permitted Payment Stablecoin Issuer's website; and
(4) Include the disclosures in paragraph (d)(1) of this section and
any updates made in accordance with paragraph (d)(2) of this section in
any Customer agreements that it provides.
Sec. 706.204 Risk management.
(a) General operational and managerial standards--
(1) Internal controls and information systems. An NCUA-Licensed
Permitted Payment Stablecoin Issuer must have internal controls and
information systems to support effective risk management that are
appropriate for the size and complexity of the NCUA-Licensed Permitted
Payment Stablecoin Issuer and the nature, scope, and risk of its
activities and that provide for:
(i) An organizational structure with appropriate segregation of
duties and an internal control structure that establishes clear lines
of authority and responsibility for monitoring adherence to established
policies;
(ii) Effective risk assessment;
(iii) Timely and accurate financial, operational, and regulatory
reporting, including with respect to the reports required under this
part;
(iv) Adequate procedures to monitor, safeguard, manage, control,
and monetize assets, including Reserve Assets; and
(v) Compliance with applicable laws and regulations.
(2) Internal audit system. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must have an internal audit system that is
appropriate to the size and complexity of the NCUA-Licensed Permitted
Payment Stablecoin Issuer and the nature, scope, and risk of its
activities and that provides for:
(i) Adequate monitoring of the system of internal controls through
an internal audit function, or for an NCUA-Licensed Permitted Payment
Stablecoin Issuer whose size, complexity or scope of operations does
not warrant a full-scale internal audit function, a system of
independent reviews of key internal controls;
(ii) Independence and objectivity;
(iii) Qualified Persons responsible for the audit function;
(iv) Adequate independent testing and review of internal controls
and information systems, verification of published information
available to Customers, calculations for required reserves, and
regulatory filings;
(v) Adequate documentation of tests and findings and any corrective
actions;
(vi) Verification and review of management actions to address
deficiencies; and
(vii) Review by the NCUA-Licensed Permitted Payment Stablecoin
Issuer's audit committee or board of Directors of the effectiveness of
the internal audit systems.
(3) Interest rate exposure. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must:
(i) Manage interest rate risk in a manner that is appropriate to
the size and complexity of the NCUA-Licensed Permitted Payment
Stablecoin Issuer and the complexity of its assets and liabilities; and
(ii) Provide for periodic reporting to the NCUA-Licensed Permitted
Payment Stablecoin Issuer's management and board of Directors regarding
interest rate risk with adequate information for management and the
board of Directors to assess the level of risk.
(4) Asset growth. An NCUA-Licensed Permitted Payment Stablecoin
Issuer's asset growth must be prudent and commensurate with an NCUA-
Licensed Permitted Payment Stablecoin Issuer's risk management
capabilities, operational capacity, and staffing.
(5) Earnings. An NCUA-Licensed Permitted Payment Stablecoin Issuer
must establish and maintain a system that is commensurate with the
NCUA-Licensed Permitted Payment Stablecoin Issuer's size and complexity
and the nature and scope of its operations to evaluate and monitor
earnings and ensure that earnings are sufficient to support operations
and maintain the capital levels required by subpart D of this part.
(6) Insider and Affiliate transactions.
(i) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
ensure that transactions between the NCUA-Licensed Permitted Payment
Stablecoin Issuer and Insiders or Affiliates:
(A) Are not excessive and do not pose significant risks of material
financial loss;
(B)
(1) Are conducted on terms that are the same or at least as
favorable to the NCUA-Licensed Permitted Payment Stablecoin Issuer as
those prevailing at the time for comparable transactions
[[Page 29028]]
with or involving non-Insiders or non-Affiliates; or
(2) In the absence of comparable transactions, are offered on terms
and under circumstances that, in good faith would be offered to, or
would apply to non-Affiliates or non-Insiders; and
(C) Are appropriately documented and reviewed by the NCUA-Licensed
Permitted Payment Stablecoin Issuer's board of Directors.
(ii) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
appropriately monitor and validate compliance with the requirements of
paragraph (a)(6)(i) of this section.
(7) Oversee service provider arrangements. An NCUA-Licensed
Permitted Payment Stablecoin Issuer must:
(i) Exercise appropriate due diligence in selecting its service
providers;
(ii) Require its service providers by contract to implement
appropriate measures designed to meet the applicable requirements of
this part; and
(iii) As appropriate, monitor its service providers to confirm they
have satisfied their obligations under this section. As part of this
monitoring, NCUA-Licensed Permitted Payment Stablecoin Issuers must
review audits, summaries of test results, or other equivalent
evaluations of its service providers.
(8) Liquidity, diversification, and concentration. An NCUA-Licensed
Permitted Payment Stablecoin Issuer must:
(i) Appropriately monitor and validate compliance with the
requirements of Sec. 706.202; and
(ii) Manage liquidity and concentration risk in a manner that is
appropriate to the business model and risk profile of the NCUA-Licensed
Permitted Payment Stablecoin Issuer.
(b) Information technology and security--
(1) Information technology and security program. An NCUA-Licensed
Permitted Payment Stablecoin Issuer must implement a comprehensive
written information security risk and control framework, including a
program that assesses and manages information technology and
information security risks.
(2) Board of Directors approval. The NCUA-Licensed Permitted
Payment Stablecoin Issuer's board of Directors or an appropriate board
committee must approve the information technology and security program
described in paragraph (b)(1) of this section and oversee the
development, implementation, and maintenance of the program, including
the appointment of a qualified Information Technology and Security
Officer. Such oversight includes assigning specific responsibility for
program implementation and review of program-related reports.
(3) Required elements of program. An NCUA-Licensed Permitted
Payment Stablecoin Issuer's information technology and security program
must include:
(i) An inventory and classification of assets, processes, and
sensitivity of data;
(ii) Controls supporting and safeguarding sensitive information and
processes;
(iii) Evaluation, validation, and reporting processes to ensure
that key information technology systems and controls, including smart
contracts, are operating as intended;
(iv) Periodic independent testing; and
(v) A comprehensive and effective incident identification and
assessment process and incident response program.
(4) Security of Customer information. An NCUA-Licensed Permitted
Payment Stablecoin Issuer's information technology and security program
must include administrative, technical, and physical safeguards
designed to:
(i) Ensure the security and confidentiality of records containing
Nonpublic Personal Information about a Customer;
(ii) Protect against any anticipated threats or hazards to the
security or integrity of such records;
(iii) Protect against unauthorized access to or use of such records
that could result in substantial harm or inconvenience to any Customer;
and
(iv) Ensure the proper disposal of such records.
(5) Safe handling of Digital Assets. An NCUA-Licensed Permitted
Payment Stablecoin Issuer must develop, implement, and maintain
appropriate measures to ensure secure handling of Digital Assets,
including Private Key management, backup, and recovery incorporating:
(i) Relevant technical, operational, strategic, market, legal, and
compliance considerations relating to each Digital Asset and its
underlying Digital Ledger; and
(ii) Material developments specifically related to supported
Digital Assets and their underlying Digital Ledgers.
(6) Adjust the program. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must monitor, evaluate, and adjust, as appropriate,
the information technology and security program in light of any
relevant changes in technology, the sensitivity of its Customer
information, internal or external threats, and the NCUA-Licensed
Permitted Payment Stablecoin Issuer's own changing business
arrangements, such as mergers and acquisitions, alliances and joint
ventures, third-party arrangements, and changes to applicable
information systems.
(7) Notification of unauthorized access--
(i) Notification to Customers. When an NCUA-Licensed Permitted
Payment Stablecoin Issuer becomes aware of an incident of unauthorized
access to sensitive Customer information, including a Customer's
Private Key, the NCUA-Licensed Permitted Payment Stablecoin Issuer must
conduct a reasonable investigation to promptly determine the likelihood
that the information has been or will be misused. If the NCUA-Licensed
Permitted Payment Stablecoin Issuer determines that misuse of its
information about a Customer has occurred or is reasonably possible, it
must notify the affected or possibly affected Customer and the NCUA as
soon as possible. Customer notice must be delayed if an appropriate law
enforcement agency determines that notification will interfere with a
criminal investigation and provides the NCUA-Licensed Permitted Payment
Stablecoin Issuer with a written request for the delay. The NCUA-
Licensed Permitted Payment Stablecoin Issuer must notify its Customers
of the misuse or possible misuse of Customer information as soon as law
enforcement notifies the NCUA-Licensed Permitted Payment Stablecoin
Issuer that notification will no longer interfere with the
investigation.
(ii) Notification to group of Customers. If an NCUA-Licensed
Permitted Payment Stablecoin Issuer determines that a group of files
has been accessed improperly but is unable to identify which specific
Customers' information has been accessed and the circumstances of the
unauthorized access lead the NCUA-Licensed Permitted Payment Stablecoin
Issuer to determine that misuse of the information is reasonably
possible, it must notify all Customers in the group.
(8) Information technology resilience. An NCUA-Licensed Permitted
Payment Stablecoin Issuer's information technology and security program
must include measures to ensure continuity of operations and recovery
of critical functions in the face of disruptions, including by business
impact analyses, testing of vulnerabilities, and testing with critical
service providers.
(c) In order to ensure compliance with Bank Secrecy Act and
economic sanctions requirements, each NCUA-Licensed Permitted Payment
Stablecoin
[[Page 29029]]
Issuer must comply with the Bank Secrecy Act, sections 4(a)(5) and
4(a)(6) of the GENIUS Act (12 U.S.C. 5903(a)(5) and (6), and applicable
regulations at 31 CFR Chapter V and 31 CFR Chapter X, including any
Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT)
program, economic sanctions program, and reporting requirements.
Subpart E of this part provides the NCUA's supervision and enforcement
policy for AML/CFT program requirements for NCUA-Licensed Permitted
Payment Stablecoin Issuers.
Sec. 706.205 Audits, reports, and supervision.
(a) General. The NCUA will conduct a full-scope examination of
every NCUA-Licensed Permitted Payment Stablecoin Issuer subject to its
supervision at least once during each 12-month period, unless otherwise
specified in paragraph (d) of this section.
(b) Access to books and records. Upon request by the NCUA, NCUA-
Licensed Permitted Payment Stablecoin Issuers must grant the NCUA
prompt and complete access to all Officers, Directors, employees,
agents, and relevant books, records, or documents of any type.
(c) Location of examinations. The NCUA may conduct examinations of
every NCUA-Licensed Permitted Payment Stablecoin Issuer subject to its
supervision, as specified in paragraph (a) of this section, on-site,
remotely, or in some combination.
(d) Extended exam cycle for certain issuers. Notwithstanding
paragraph (a) of this section, the NCUA may conduct a full-scope
examination of an NCUA-Licensed Permitted Payment Stablecoin Issuer
subject to its supervision at least once during each 14- to 24-month
period, as determined by the NCUA in its sole discretion, if the
following conditions are satisfied:
(1) The NCUA-Licensed Permitted Payment Stablecoin Issuer currently
is not subject to a formal enforcement proceeding or order;
(2) No Person became a Parent Company or acquired Control, as
specified in Sec. Sec. 706.111 and 706.205(m) of this part, of the
NCUA-Licensed Permitted Payment Stablecoin Issuer during the preceding
12-month period in which a full-scope examination would have been
required but for this paragraph (d);
(3) The NCUA-Licensed Permitted Payment Stablecoin Issuer has an
Outstanding Issuance Value of less than $1 billion or less than $25
billion in total monthly Trading Volume; and
(4) The NCUA-Licensed Permitted Payment Stablecoin Issuer is in
compliance with all of the reserve requirements set forth in Sec.
706.202 and the reporting requirements of this section.
(e) Authority to conduct more frequent examinations. This section
does not limit the authority of the NCUA to examine any NCUA-Licensed
Permitted Payment Stablecoin Issuer as frequently as the NCUA deems
necessary, including examinations of a limited scope.
(f) Recordkeeping requirements. All NCUA-Licensed Permitted Payment
Stablecoin Issuers must maintain a complete set of books and records in
English and in accordance with GAAP.
(g) Records retention policy. All NCUA-Licensed Permitted Payment
Stablecoin Issuers must develop and implement a records retention
policy that ensures the NCUA-Licensed Permitted Payment Stablecoin
Issuer can demonstrate compliance with the GENIUS Act, this part, and
all applicable laws and regulations.
(h) Confidential weekly reporting. All NCUA-Licensed Permitted
Payment Stablecoin Issuers must submit to the NCUA, on a weekly basis,
in the manner and form specified by the NCUA, a confidential report
containing the information requested in the form available at
www.ncua.gov.
(i) Reports of financial condition. All NCUA-Licensed Permitted
Payment Stablecoin Issuers must submit to the NCUA a quarterly report
on the financial condition of the NCUA-Licensed Permitted Payment
Stablecoin Issuer, including, but not limited to, income statement,
expenses, balance sheet, reserves, changes in equity, investments,
capital, outstanding issuance value, and assets under custody, in a
standardized format as prescribed by the NCUA within 30 days of the end
of the prior quarter. Forms and instructions are available at
www.ncua.gov. Each report of financial condition must contain a
declaration by the NCUA-Licensed Permitted Payment Stablecoin Issuer's
Chief Financial Officer, or the individual performing an equivalent
function, that the report is true and correct to the best of their
knowledge and belief. The correctness of the report of financial
condition must be attested to by the signatures of the Directors and
senior management of the NCUA-Licensed Permitted Payment Stablecoin
Issuer other than the Officer, or the individual performing an
equivalent function, making such declaration, with the attestation
stating that the report has been examined by them and to the best of
their knowledge and belief is true and correct.
(j) Submission of other reports. All NCUA-Licensed Permitted
Payment Stablecoin Issuers must, upon request, submit to the NCUA a
report on:
(1) The financial condition of the NCUA-Licensed Permitted Payment
Stablecoin Issuer;
(2) The systems of the NCUA-Licensed Permitted Payment Stablecoin
Issuer for monitoring and controlling financial and operational risks;
(3) Compliance of the NCUA-Licensed Permitted Payment Stablecoin
Issuer and any subsidiary thereof with the GENIUS Act, and this part;
and
(4) Compliance of the NCUA-Licensed Permitted Payment Stablecoin
Issuer with the requirements of the Bank Secrecy Act and with laws
authorizing the imposition of sanctions and implemented by the
Secretary of the Treasury.
(k) Ongoing compliance reporting. Not later than 180 days after the
approval of an application under subpart A, and on an annual basis
thereafter, an NCUA-Licensed Permitted Payment Stablecoin Issuer must
submit to the NCUA a certification by its board of Directors that the
NCUA-Licensed Permitted Payment Stablecoin Issuer has implemented anti-
money laundering and economic sanctions compliance programs that are
reasonably designed to prevent the NCUA-Licensed Permitted Payment
Stablecoin Issuer from facilitating money laundering, in particular,
facilitating money laundering for cartels and organizations designated
as foreign terrorist organizations under section 219 of the Immigration
and Nationality Act (8 U.S.C. 1189) and the financing of terrorist
activities, consistent with the requirements of the GENIUS Act.
(l) Audits. An NCUA-Licensed Permitted Payment Stablecoin Issuer
with more than $50 billion in Outstanding Issuance Value that is not
subject to the reporting requirements under section 13(a) or 15(d) of
the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d))
must prepare in accordance with GAAP an annual financial statement that
must include the disclosure of any related party transactions, as
defined by GAAP.
(1) A Registered Public Accounting Firm must perform an audit of
the financial statements described in this paragraph (l). The audit
must be conducted in accordance with all applicable auditing standards
established by the Public Company Accounting Oversight Board, including
those relating to auditor independence,
[[Page 29030]]
internal controls, and related party transactions.
(2) An NCUA-Licensed Permitted Payment Stablecoin Issuer required
to prepare an audited annual financial statement under this paragraph
(l) must:
(i) Make the audited financial statements publicly available on the
NCUA-Licensed Permitted Payment Stablecoin Issuer's website; and
(ii) Submit the audited financial statements annually, within 120
days after the end of its fiscal year, to the NCUA.
(iii) If an NCUA-Licensed Permitted Payment Stablecoin Issuer is
unable to timely file all or any portion of the financial statement
described in paragraph (l)(2)(ii) of this section, it must submit a
written notice of late filing to the NCUA. The notice must:
(A) Disclose the NCUA-Licensed Permitted Payment Stablecoin
Issuer's inability to timely file all, or specified portions, of its
annual financial statement and the reasons therefore in reasonable
detail;
(B) Include the date by which the financial statement will be
filed; and
(C) Be filed on or before the deadline for filing the financial
statement.
(m) Changes in Control. A Person seeking to acquire Control of an
NCUA-Licensed Permitted Payment Stablecoin Issuer must follow the
requirements of Sec. 706.111 as though that Person were a Parent
Company.
(n) Use of existing reports. In supervising and examining an NCUA-
Licensed Permitted Payment Stablecoin Issuer, the NCUA will, to the
fullest extent possible, use existing reports and other supervisory
information.
(o) Avoidance of duplication. The NCUA will, to the fullest extent
possible, avoid duplication of examination activities, reporting
requirements, and requests for information.
Subpart C--Custody
Sec. 706.301 Definitions.
For the purposes of this subpart, the following definitions apply:
Applicable Law means the law of a State or other jurisdiction
governing a Covered Custodian's custody relationships, any applicable
Federal law governing those relationships, the terms of the Custody
Agreement, and any applicable court order.
Covered Assets means Payment Stablecoin reserves, Payment
Stablecoins used as collateral, and Private Keys used to issue Payment
Stablecoins, as well as cash and other property received in the course
of the provision of custodial or safekeeping services for such assets.
Covered Custodian means an Insured Credit Union or NCUA-Licensed
Permitted Payment Stablecoin Issuer to the extent of such Person's
provision of custodial or safekeeping services for Covered Assets.
Covered Customer means a Person for or on whose behalf a Covered
Custodian receives, acquires, or holds Covered Assets.
Custody Agreement means a legally binding contractual agreement
between a Covered Customer, as the principal, and the Covered
Custodian, as the agent, that establishes the Covered Custodian's
duties and responsibilities in providing safekeeping and ancillary
services to the Covered Customer.
Digital Wallet means a software program or hardware device that
stores and manages the Private Keys associated with a particular unit
of a Digital Asset.
Sub-Custodian means a Person that provides custody and safekeeping
services to a Covered Custodian, including through a Digital Wallet for
which such Person controls the associated Private Keys, with respect to
Covered Assets of a Covered Customer, for which the Covered Custodian
otherwise serves as a custodian under this subpart. A sub-custodian is
subject to the requirements applicable to a custodian under the GENIUS
Act, including the requirements of section 10 of the Act (12 U.S.C.
5909).
Sec. 706.302 Covered Asset custodial property requirements.
(a) Separate accounting, treatment, and dealing. A Covered
Custodian must separately account for the Covered Assets of a Covered
Customer and must treat and deal with those Covered Assets as belonging
to such Covered Customer and not as the property of the Covered
Custodian.
(b) Protection, possession, and control.
(1) A Covered Custodian must take appropriate steps to protect the
Covered Assets of Covered Customers from the claims of creditors of the
Covered Custodian and any Sub-Custodian, as applicable, including
through adopting, implementing, and maintaining written policies,
procedures, and internal controls that are adequate to comply with
Applicable Law and that are commensurate with the Covered Custodian's
size, complexity, and risk profile and with the nature of the
applicable Covered Assets for which it provides custodial or
safekeeping services.
(2)
(i) A Covered Custodian must maintain possession or control of the
Covered Assets of a Covered Customer that are held directly, including
in a Digital Wallet for which the Covered Custodian controls the
associated Private Keys; however, a Covered Custodian may maintain the
Covered Assets of a Covered Customer through the use of a Sub-Custodian
if consistent with Applicable Law, provided the Covered Custodian
maintains adequate safeguards and internal controls reasonably designed
to provide the Covered Custodian with oversight of such Sub-Custodian's
compliance with the requirements of this subpart.
(ii) With regards to any Payment Stablecoin or Payment Stablecoin
reserve in the form of a tokenized asset held in safekeeping under this
subpart, a Covered Custodian, or Sub-Custodian, as applicable,
maintains control for purposes of paragraph (b)(2)(i) of this section
if it can reasonably demonstrate, consistent with the standard of care
established by applicable law, that no other party, including the
Covered Customer, can transfer the Payment Stablecoin or tokenized
asset using a Distributed Ledger without the consent of the Covered
Custodian or Sub-Custodian, as applicable.
(c) Withdrawals and application of Covered Assets. Consistent with
Applicable Law, a Covered Custodian may withdraw and apply such share
of the Covered Assets of a Covered Customer necessary to transfer,
adjust, or settle a transaction or transfer of assets applicable to
that Covered Customer, including the payment of commissions, taxes,
storage, and other charges lawfully accruing in connection with the
provision of services to that Covered Customer by the Covered
Custodian.
(d) Holdings of cash. Notwithstanding any other provision of this
section, an Insured Credit Union that provides custodial or safekeeping
services, including as a Sub-Custodian, for Covered Assets that are in
the form of cash may hold such cash in the form of a deposit or Share
Account liability, provided such treatment is consistent with Federal
law.
Sec. 706.303 Use of omnibus accounts.
(a) Segregation of Covered Assets. A Covered Custodian must
segregate all Covered Assets of Covered Customers from and not
commingle them with the assets of the Covered Custodian, except as
permitted under Sec. 706.302(d).
(b) Commingling covered assets. A Covered Custodian may, for
convenience, commingle the Covered Assets of multiple Covered
Customers, in one or more omnibus accounts to the extent that the steps
it has taken pursuant to Sec. 706.302(b) are adequate to
[[Page 29031]]
maintain safe and sound practices for the use of omnibus accounts, and
to the extent that the use of omnibus accounts is consistent with
Applicable Law.
Sec. 706.304 Self-custody hardware and software exclusion.
The requirements of this subpart do not apply to any Insured Credit
Union or NCUA-Licensed Permitted Payment Stablecoin Issuer solely on
the basis that such entity engages in the business of providing
hardware or software to facilitate a Person's self-custody of their
Payment Stablecoins or Private Keys.
Subpart D--Capital and Operational Backstop
Sec. 706.400 Capital elements.
(a) Capital elements. The minimum capital requirement must consist
of common equity tier 1 capital and additional tier 1 capital.
(b) Common equity tier 1 capital. Common equity tier 1 capital is
the sum of the common equity tier 1 capital elements in this paragraph
(b). The common equity tier 1 capital elements are:
(1) Any common stock instruments (plus any related surplus) issued
by the NCUA-Licensed Permitted Payment Stablecoin Issuer, net of
treasury stock, that meet all the following criteria:
(i) The instrument is paid-in, issued directly by the NCUA-Licensed
Permitted Payment Stablecoin Issuer, and represents the most
subordinated claim in a receivership, insolvency, liquidation, or
similar proceeding of the NCUA-Licensed Permitted Payment Stablecoin
Issuer;
(ii) The holder of the instrument is entitled to a claim on the
residual assets of the NCUA-Licensed Permitted Payment Stablecoin
Issuer that is proportional with the holder's share of the NCUA-
Licensed Permitted Payment Stablecoin Issuer's issued capital after all
senior claims have been satisfied in a receivership, insolvency,
liquidation, or similar proceeding;
(iii) The instrument has no maturity date, can only be redeemed via
discretionary repurchases with the prior approval of the NCUA, and does
not contain any term or feature that creates an incentive to redeem;
(iv) The NCUA-Licensed Permitted Payment Stablecoin Issuer did not
create at issuance of the instrument through any action or
communication an expectation that it will buy back, cancel, or redeem
the instrument, and the instrument does not include any term or feature
that might give rise to such an expectation;
(v) Any cash dividend payments on the instrument are paid out of
the NCUA-Licensed Permitted Payment Stablecoin Issuer's net income or
retained earnings and are not subject to a limit imposed by the
contractual terms governing the instrument;
(vi) The NCUA-Licensed Permitted Payment Stablecoin Issuer has full
discretion at all times to refrain from paying any dividends and making
any other distributions on the instrument without triggering an event
of default, a requirement to make a payment-in-kind, or an imposition
of any other restrictions on the NCUA-Licensed Permitted Payment
Stablecoin Issuer;
(vii) Dividend payments and any other distributions on the
instrument may be paid only after all legal and contractual obligations
of the NCUA-Licensed Permitted Payment Stablecoin Issuer have been
satisfied, including payments due on more senior claims;
(viii) The holders of the instrument bear losses as they occur
equally, proportionately, and simultaneously with the holders of all
other common stock instruments before any losses are borne by holders
of claims on the NCUA-Licensed Permitted Payment Stablecoin Issuer with
greater priority in a receivership, insolvency, liquidation, or similar
proceeding;
(ix) The paid-in amount is classified as equity under GAAP;
(x) The NCUA-Licensed Permitted Payment Stablecoin Issuer, or an
entity that the NCUA-Licensed Permitted Payment Stablecoin Issuer
controls, did not purchase or directly or indirectly fund the purchase
of the instrument;
(xi) The instrument is not secured, not covered by a guarantee of
the NCUA-Licensed Permitted Payment Stablecoin Issuer or of an
Affiliate, and is not subject to any other arrangement that legally or
economically enhances the seniority of the instrument;
(xii) The instrument has been issued in accordance with applicable
laws and regulations; and
(xiii) The instrument is reported on the NCUA-Licensed Permitted
Payment Stablecoin Issuer's financial statements separately from other
capital instruments.
(2) Retained earnings.
(3) Accumulated other comprehensive income (AOCI) as reported under
GAAP.
(4) Notwithstanding the criteria for common stock instruments
referenced in paragraph (b)(1) of this section, common stock issued by
the NCUA-Licensed Permitted Payment Stablecoin Issuer and held in trust
for the benefit of its employees as part of an employee stock ownership
plan does not violate any of the criteria in paragraph (b)(1)(iii),
(iv), or (xi) of this section, provided that any repurchase of the
stock is required solely by virtue of the Employee Retirement Income
Security Act of 1974 (ERISA) for an instrument of an NCUA-Licensed
Permitted Payment Stablecoin Issuer that is not publicly-traded. In
addition, an instrument issued by a NCUA-Licensed Permitted Payment
Stablecoin Issuer to its employee stock ownership plan does not violate
the criterion in paragraph (b)(1)(x) of this section.
(c) Additional tier 1 capital. Additional tier 1 capital is the sum
of additional tier 1 capital elements and any related surplus.
Additional tier 1 capital elements are:
(1) Instruments (plus any related surplus) that meet the following
criteria:
(i) The instrument is issued and paid-in;
(ii) The instrument is subordinated to payment stablecoin holders,
general creditors, and subordinated debt holders of the NCUA-Licensed
Permitted Payment Stablecoin Issuer in a receivership, insolvency,
liquidation, or similar proceeding;
(iii) The instrument is not secured, not covered by a guarantee of
the NCUA-Licensed Permitted Payment Stablecoin Issuer or of an
Affiliate, and not subject to any other arrangement that legally or
economically enhances the seniority of the instrument;
(iv) The instrument has no maturity date and does not contain a
dividend step-up or any other term or feature that creates an incentive
to redeem;
(v) If callable by its terms, the instrument may be called by the
NCUA-Licensed Permitted Payment Stablecoin Issuer only after a minimum
of five years following issuance, except that the terms of the
instrument may allow it to be called earlier than five years upon the
occurrence of a regulatory event that precludes the instrument from
being included in additional tier 1 capital or a tax event that impacts
the taxation of the instrument. In addition:
(A) The NCUA-Licensed Permitted Payment Stablecoin Issuer must
receive prior approval from the NCUA to exercise a call option on the
instrument;
(B) The NCUA-Licensed Permitted Payment Stablecoin Issuer does not
create at issuance of the instrument, through any action or
communication, an expectation that the call option will be exercised;
and
(C) Prior to or simultaneously with exercising the call option, the
NCUA-Licensed Permitted Payment Stablecoin Issuer must either replace
the instrument to be called with an equal amount of common equity tier
1 or additional tier 1 instruments or demonstrate to the satisfaction
of the
[[Page 29032]]
NCUA that following redemption, the NCUA-Licensed Permitted Payment
Stablecoin Issuer will continue to hold capital commensurate with its
risk;
(vi) Redemption or repurchase of the instrument requires prior
approval from the NCUA;
(vii) The NCUA-Licensed Permitted Payment Stablecoin Issuer has
full discretion at all times to cancel dividends or other distributions
on the instrument without triggering an event of default, a requirement
to make a payment-in-kind, or an imposition of other restrictions on
the NCUA-Licensed Permitted Payment Stablecoin Issuer except in
relation to any distributions to holders of common stock or instruments
that are pari passu with the instrument;
(viii) Any cash dividend payments on the instrument are paid out of
the NCUA-Licensed Permitted Payment Stablecoin Issuer's net income or
retained earnings;
(ix) The instrument does not have a credit-sensitive feature, such
as a dividend rate that is reset periodically based in whole or in part
on the NCUA-Licensed Permitted Payment Stablecoin Issuer's credit
quality, but may have a dividend rate that is adjusted periodically
independent of the NCUA-Licensed Permitted Payment Stablecoin Issuer's
credit quality, in relation to general market interest rates or similar
adjustments;
(x) The paid-in amount is classified as equity under GAAP;
(xi) The NCUA-Licensed Permitted Payment Stablecoin Issuer, or an
entity that the NCUA-Licensed Permitted Payment Stablecoin Issuer
controls, did not purchase or directly or indirectly fund the purchase
of the instrument; and
(xii) The instrument does not have any features that would limit or
discourage additional issuance of capital by the NCUA-Licensed
Permitted Payment Stablecoin Issuer, such as provisions that require
the NCUA-Licensed Permitted Payment Stablecoin Issuer to compensate
holders of the instrument if a new instrument is issued at a lower
price during a specified time frame.
(2) [Reserved]
Sec. 706.401 Minimum capital and backstop.
(a) Minimum capital requirement. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must hold minimum capital as follows:
(1) De novo capital requirement.
(i) A de novo NCUA-Licensed Permitted Payment Stablecoin Issuer
must hold minimum capital equal to the greater of:
(A) The amount specified as part of its licensing conditions; or
(B) $5 million.
(ii) A de novo NCUA-Licensed Permitted Payment Stablecoin Issuer
means a permitted payment stablecoin issuer that has received NCUA
approval to issue a Payment Stablecoin under this part within the prior
3 years.
(iii) A de novo NCUA-Licensed Permitted Payment Stablecoin Issuer
must hold this minimum amount for 36 months, or for a shorter or longer
period as specified as part of its licensing conditions or as
subsequently determined by the NCUA based on the experience of the
NCUA-Licensed Permitted Payment Stablecoin Issuer.
(2) Ongoing capital requirement.
(i) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
maintain capital commensurate with the level and nature of all risks to
which the NCUA-Licensed Permitted Payment Stablecoin Issuer is exposed,
including risks for off-balance sheet activities.
(ii) An NCUA-Licensed Permitted Payment Stablecoin Issuer must have
a process for assessing its overall capital adequacy in relation to its
business model and risk profile and a comprehensive strategy for
sustaining an appropriate level of capital to maintain ongoing
operations.
(b) Operational backstop. An NCUA-Licensed Permitted Payment
Stablecoin Issuer must maintain assets:
(1) Equal to 12 months of total expenses.
(i) In the case of an NCUA-Licensed Permitted Payment Stablecoin
Issuer that has provided quarterly reports under Sec. 706.205 for one
year or more, the NCUA-Licensed Permitted Payment Stablecoin Issuer
must calculate the amount required under this paragraph (b)(1) using
the quarterly expenses reported in the current quarterly report and the
three immediately preceding reports.
(ii) For each calendar quarter in the preceding 12 months for which
the NCUA-Licensed Permitted Payment Stablecoin Issuer has not filed a
quarterly report required under Sec. 706.205 the NCUA-Licensed
Permitted Payment Stablecoin Issuer must calculate its expenses using:
(A) Actual expenses, in the case of an NCUA-Licensed Permitted
Payment Stablecoin Issuer that was in operation during a calendar
quarter in which it did not file a quarterly report under Sec.
706.205; or
(B) Reasonably determined expenses, which may include annualizing
expenses from other quarters, in the case of any other NCUA-Licensed
Permitted Payment Stablecoin Issuer.
(2) Consisting of:
(i) United States coins and currency (including Federal Reserve
notes) or Money standing to the credit of an account with a Federal
Reserve Bank;
(ii) Funds held as deposits or in Share Accounts that are payable
upon demand at a U.S. Insured Depository Institution, the balances of
which are fully insured by the FDIC or the NCUA; and
(iii) U.S. Treasury bills, notes, or bonds with a remaining
maturity of 93 days or less, or issued with a maturity of 93 days or
less; and
(3) Separately identified from any reserve assets required under
Sec. 706.202 or other assets of the NCUA-Licensed Permitted Payment
Stablecoin Issuer on the reports filed under Sec. 706.205.
(c) Failure to meet minimum capital or backstop requirements.
(1) An NCUA-Licensed Permitted Payment Stablecoin Issuer must
comply with its minimum capital and backstop requirements at the end of
each quarter based on the amounts reported in the most recent report
required under Sec. 706.205.
(2) An NCUA-Licensed Permitted Payment Stablecoin Issuer that fails
to satisfy its minimum capital or backstop requirement at the end of a
quarter is prohibited from issuing any new Payment Stablecoins, except
as necessary to facilitate a transfer of Payment Stablecoins from one
Distributed Ledger to another and provided that the net Outstanding
Issuance Value does not increase starting on the first day of the
following month and until such time as it satisfies its minimum capital
and backstop requirements.
(3) If an NCUA-Licensed Permitted Payment Stablecoin Issuer fails
to meet its minimum capital or backstop requirements at the end of two
consecutive quarters, it must:
(i) Begin liquidation of Reserve Assets and redemption of
outstanding Payment Stablecoins, consistent with Sec. 706.203;
(ii) Not charge Customers a fee to redeem their Payment
Stablecoins; and
(iii) Not issue any new Payment Stablecoins going forward.
Sec. 706.402 Individual additional capital or backstop requirement.
(a) Applicability. The NCUA may require an additional capital or
backstop requirement for an individual NCUA-Licensed Permitted Payment
Stablecoin Issuer in view of its circumstances. For example, an
additional capital or backstop requirement may be appropriate for:
(1) Failure of management to assess an appropriate capital
requirement to support ongoing operations consistent
[[Page 29033]]
with the NCUA-Licensed Permitted Payment Stablecoin Issuer's business
model and risk profile;
(2) An NCUA-Licensed Permitted Payment Stablecoin Issuer that has,
or is expected to have, losses resulting in capital inadequacy;
(3) An NCUA-Licensed Permitted Payment Stablecoin Issuer with
significant exposure due to management's overall inability to monitor
and control financial and operating risks;
(4) An NCUA-Licensed Permitted Payment Stablecoin Issuer that is
experiencing significant volatility in Payment Stablecoin issuance or
redemption;
(5) An NCUA-Licensed Permitted Payment Stablecoin Issuer with
significant exposure due to fiduciary or operational risk;
(6) An NCUA-Licensed Permitted Payment Stablecoin Issuer's
significant off-balance sheet activities; or
(7) An NCUA-Licensed Permitted Payment Stablecoin Issuer that may
be adversely affected by the activities or condition of its
Affiliate(s), or other Persons or institutions, with which it has
significant business relationships.
(b) Standards for determination. The factors to be considered in
the determination will vary in each case and may include, for example:
(1) The conditions or circumstances leading to the NCUA's
determination that an additional capital or backstop requirement is
appropriate or necessary for the NCUA-Licensed Permitted Payment
Stablecoin Issuer;
(2) The exigency of those circumstances or potential problems;
(3) The overall condition, management strength, and future
prospects of the NCUA-Licensed Permitted Payment Stablecoin Issuer and,
if applicable, its Affiliate(s);
(4) The NCUA-Licensed Permitted Payment Stablecoin Issuer's
liquidity, capital, and Payment Stablecoin Reserve Assets compared to
its peer group; and
(5) The views of the NCUA-Licensed Permitted Payment Stablecoin
Issuer's owners and senior management in any response provided under
paragraph (c)(2) of this section.
(c) Procedures--
(1) Notice. When the NCUA determines that an additional capital or
backstop requirement above that set forth in Sec. 706.401 are
necessary or appropriate for a particular NCUA-Licensed Permitted
Payment Stablecoin Issuer, the NCUA will notify the NCUA-Licensed
Permitted Payment Stablecoin Issuer in writing of the proposed
additional capital or backstop requirement and the date by which the
requirement should be reached (if applicable) and will provide an
explanation of why the requirement proposed is considered necessary or
appropriate for the NCUA-Licensed Permitted Payment Stablecoin Issuer.
(2) Response.
(i)
(A) The NCUA-Licensed Permitted Payment Stablecoin Issuer may
respond to the NCUA in writing to the notice.
(B) The response should include any matters which the NCUA-Licensed
Permitted Payment Stablecoin Issuer would have the NCUA consider in
deciding whether an individual additional capital or backstop
requirement should be established for the NCUA-Licensed Permitted
Payment Stablecoin Issuer, what the capital or backstop requirement
should be, and, if applicable, when it should be achieved.
(C) Any response must be delivered to the designated NCUA official
within 30 days after the date on which the NCUA-Licensed Permitted
Payment Stablecoin Issuer received the notice or such other time period
as the NCUA determines appropriate based on the condition of the NCUA-
Licensed Permitted Payment Stablecoin Issuer.
(ii) Failure to respond within the time period specified by the
NCUA constitutes a waiver of any objections to the proposed individual
additional capital or backstop requirement or the deadline for its
achievement.
(3) Decision. After the close of the NCUA-Licensed Permitted
Payment Stablecoin Issuer's response period, the NCUA will decide,
based on a review of the NCUA-Licensed Permitted Payment Stablecoin
Issuer's response and other information concerning the NCUA-Licensed
Permitted Payment Stablecoin Issuer, whether the individual additional
capital or backstop requirement should be established for the NCUA-
Licensed Permitted Payment Stablecoin Issuer and, if so, the
requirement and the date the requirement will become effective. The
NCUA-Licensed Permitted Payment Stablecoin Issuer will be notified of
the decision in writing. The notice will include an explanation of the
decision, except for a decision not to establish an individual
additional capital or backstop requirement for the NCUA-Licensed
Permitted Payment Stablecoin Issuer.
(4) Submission of plan. The decision may require the NCUA-Licensed
Permitted Payment Stablecoin Issuer to develop and submit to the NCUA,
within a time period specified, an acceptable plan to reach the
additional capital or backstop requirement established for the NCUA-
Licensed Permitted Payment Stablecoin Issuer by the date required.
(5) Change in circumstances. If, after the NCUA's decision in
paragraph (c)(3) of this section, there is a significant change in the
circumstances that materially affects the NCUA-Licensed Permitted
Payment Stablecoin Issuer's capital adequacy or its ability to reach
the required additional capital or backstop requirement by the
specified date, the NCUA-Licensed Permitted Payment Stablecoin Issuer
may request, or the NCUA may propose to the NCUA-Licensed Permitted
Payment Stablecoin Issuer, a change in the additional capital or
backstop requirement for the NCUA-Licensed Permitted Payment Stablecoin
Issuer, the date when the minimum must be achieved, or the NCUA-
Licensed Permitted Payment Stablecoin Issuer's plan (if applicable).
Pending a decision on reconsideration, the NCUA's original decision and
any plan required under that decision continues in full force and
effect.
Subpart E--Supervision and Enforcement Policy for Anti-Money
Laundering/Countering the Financing of Terrorism Program
Requirements for NCUA-Licensed Permitted Payment Stablecoin Issuers
Sec. 706.501 Definitions.
For purposes of this section:
AML/CFT enforcement action means any formal or informal action
taken under authority of 12 U.S.C. 5905, 12 U.S.C. 1786, or other
applicable law, that seeks to penalize, remedy, prevent, or respond to
noncompliance with past or ongoing violations of, or past or ongoing
deficiencies relating to, an AML/CFT requirement. The term includes--
(1) A cease-and-desist order, written agreement, consent order, or
memorandum of understanding; or
(2) The assessment of a civil money penalty.
AML/CFT requirement means:
(1) A requirement of the Bank Secrecy Act or applicable regulations
at 31 CFR chapter X;
(2) A requirement of 12 U.S.C. 5903(a)(5)(A)(i)-(v), 12 U.S.C.
5903(a)(6)(B), or 12 U.S.C. 5903(f)(1)(A); or
(3) A requirement prescribed under 12 U.S.C. 1786(q) or this
section.
Significant AML/CFT supervisory action means any written
communication or other formal supervisory determination that--
(1) Identifies one or more alleged deficiencies, weaknesses,
violations of law, or unsafe or unsound practices or conditions
relating to an AML/CFT requirement;
[[Page 29034]]
(2) Communicates supervisory expectations to an NCUA-Licensed
Permitted Payment Stablecoin Issuer regarding actions or remedial
measures required to correct the deficiency, weakness, violation, or
practice or condition; and
(3) contemplates significant or programmatic actions or remedial
measures to be taken by the NCUA-Licensed Permitted Payment Stablecoin
Issuer.
The term does not include examiner observations, suggestions, or
other informal comments.
Sec. 706.502 NCUA Supervision and Enforcement Policy
(a) In general. Except with respect to a significant or systemic
failure to implement an effective AML/CFT program in accordance with
applicable regulations at 31 CFR Chapter X, an NCUA-Licensed Permitted
Payment Stablecoin Issuer that has established an effective AML/CFT
program in accordance with applicable regulations at 31 CFR Chapter X
will not be subject to an AML/CFT enforcement action or to a
significant AML/CFT supervisory action related to the requirements of
31 U.S.C. 5318(h)(1), this section, or applicable regulations at 31 CFR
Chapter X.
(b) Program establishment violations. Nothing in this subpart E may
be construed to restrict an AML/CFT enforcement action or a significant
AML/CFT supervisory action with respect to any failure to establish an
effective AML/CFT program in accordance with applicable regulations at
31 Chapter X.
(c) Criminal enforcement unaffected. Nothing in this subpart may be
construed to affect criminal enforcement liability under the Bank
Secrecy Act.
Sec. 706.503 FinCEN consultation.
(a) Consultation and consideration requirement. Before initiating
an AML/CFT enforcement action or a significant AML/CFT supervisory
action, the NCUA will provide the FinCEN Director an opportunity to
review the action and will consider any input offered by the FinCEN
Director on the action, which may include any view as to the
effectiveness of the NCUA-Licensed Permitted Payment Stablecoin
Issuer's AML/CFT program.
(b) Notice requirement. To provide the FinCEN Director an
opportunity to provide a view under paragraph (a) of this section, the
NCUA will:
(1) Send written notice to the FinCEN Director of its intent to
take that action at least 30 days before taking the action (unless a
shorter period of time is necessary, in the sole discretion of the
NCUA, to remedy, prevent, or respond to an unsafe or unsound practice
or condition), accompanied by the relevant AML/CFT information
underlying the proposed action, including the relevant portions of the
draft report or enforcement action, the relevant examination workpapers
supporting the proposed action, and the relevant AML/CFT information
submitted by the NCUA-Licensed Permitted Payment Stablecoin Issuer to
the NCUA, other than information over which the NCUA-Licensed Permitted
Payment Stablecoin Issuer may claim privilege under Federal or State
law; and
(2) Respond to the extent reasonably practicable to requests for
additional information from the FinCEN Director regarding the proposed
action.
Sec. 706.504 . Disclosure of supervisory information to FinCEN.
[OPTION A]
The NCUA permits a permitted payment stablecoin issuer subject to
the NCUA's jurisdiction, on behalf of the NCUA, to disclose to the
FinCEN Director, and permits the FinCEN Director to use, any
information relating to an existing or potential AML/CFT enforcement
action or significant AML/CFT supervisory action to which the permitted
payment stablecoin issuer has access.
[OPTION B]
(a) The NCUA permits a permitted payment stablecoin issuer subject
to the NCUA's jurisdiction, on behalf of the NCUA, to disclose to the
FinCEN Director, and permits the FinCEN Director to use, any
information relating to an existing or potential AML/CFT enforcement
action or significant AML/CFT supervisory action to which the permitted
payment stablecoin issuer has access upon the contemporaneous
disclosure of such information to the NCUA
(b) A permitted payment stablecoin issuer's disclosure of
information to the FinCEN Director under paragraph (a) of this section
does not waive, invalidate, destroy, or otherwise affect any privilege
or protection available under Federal or State law, including the
attorney-client privilege, the work-product doctrine, the bank-
examination privilege, or any other confidentiality or evidentiary
privilege.
(c) Any disclosure made by a permitted payment stablecoin issuer
under paragraph (a) of this section is made on behalf of the NCUA
pursuant to the NCUA's authorization under 12 U.S.C. 1821(t).
PART 745--SHARE INSURANCE COVERAGE
0
7. Authority for part 745 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782,
1787, 1789; title V, Pub. L. 109-351;120 Stat. 1966.
0
8. Amend Sec. 745.2 by adding a new paragraph (f) to read as follows:
* * * * *
(f) Technology used to record accounts. The technology or type of
recordkeeping utilized by an Insured Credit Union to record account
liabilities does not affect whether those liabilities constitute
``accounts.''
* * * * *
0
9. Revise Sec. 745.6 to read as follows:
Sec. 745.6 Accounts held by a corporation, partnership or
unincorporated association.
(a) Accounts of a corporation, partnership, or unincorporated
association engaged in any independent activity shall be insured up to
the SMSIA in the aggregate. The account of a corporation, partnership,
or unincorporated association not engaged in an independent activity
shall be deemed to be owned by the Person or persons owning such
corporation or comprising such partnership or unincorporated
association and, for account insurance purposes, the interest of each
Person in such an account shall be added to any other account
individually owned by such Person and insured up to the SMSIA in the
aggregate. For purposes of this section, ``independent activity'' means
an activity other than one directed solely at increasing insurance
coverage.
(b) Notwithstanding any other provision of this part, accounts at
an Insured Credit Union held as reserves for a Payment Stablecoin, as
defined in the Guiding and Establishing National Innovation for U.S.
Stablecoins Act (GENIUS) (12 U.S.C. 5901), are accounts of the
permitted payment stablecoin issuer's and insured as corporate accounts
for purposes of this part.
PART 747--ADMINISTRATIVE ACTIONS, ADJUDICATIVE HEARINGS, RULES OF
PRACTICE AND PROCEDURE, AND INVESTIGATIONS
0
10. The authority citation for part 747 is revised to read as follows:
Authority: 12 U.S.C. 1766, 1782, 1784, 1785, 1786, 1787, 1790a,
1790d, 5905, and 5913; 15 U.S.C. 1639e; 42 U.S.C. 4012a; Pub. L.
101-410; Pub. L. 104-134; Pub. L. 109-351; Pub. L. 114-74.
0
11. Amend Sec. 747.1 by revising paragraph (e) and adding paragraph
(f) to read as follows:
[[Page 29035]]
Sec. 747.1 Scope.
* * * * *
(e) Suspension or revocation of registration, cease-and-desist,
temporary cease-and-desist, removal and prohibition proceedings, or
civil money penalties under section 6 of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (``GENIUS Act'') (12
U.S.C. 5905); and
(f) This subpart also applies to all other adjudications required
by statute to be determined on the record after opportunity for an
agency hearing, unless otherwise specifically provided for in subparts
B through J of this part.
0
14. Amend Sec. 747.3 by revising paragraphs (g) and (h) to read as
follows:
Sec. 747.3 Definitions.
* * * * *
(g) Institution includes:
(1) Any Federal credit union as that term is defined in section
101(1) of the Act (12 U.S.C. 1752(1));
(2) Any insured State-chartered credit union as that term is
defined in section 101(7) of the FCUA (12 U.S.C. 1752(7)); and
(3) Any NCUA-Licensed Permitted Payment Stablecoin Issuer as that
term is defined in 12 CFR 706.2.
(h) Institution-affiliated party means any institution-affiliated
party as that term is defined in section 206(r) of the Act (12 U.S.C.
1786(r)). For actions pursuant to the GENIUS Act, institution-
affiliated party means any institution-affiliated party as that term is
defined in section 2(13) of the GENIUS Act (12 U.S.C. 5901(13)).
* * * * *
0
12. Amend Sec. 747.3 by revising paragraph (a) to read as follows:
Sec. 747.703 Authority to conduct investigations.
(a) The General Counsel and persons acting on his or her behalf and
at his or her direction may conduct such investigations into the
affairs of any insured credit union, NCUA-Licensed Permitted Payment
Stablecoin Issuer, or institution-affiliated parties as deemed
appropriate to determine whether such credit union or party has
violated, is violating or is about to violate any provision of the Act,
the GENIUS Act, the NCUA Board's regulations or other relevant statutes
or regulations that may bear on a party's fitness to participate in the
affairs of a credit union or an NCUA-Licensed Permitted Payment
Stablecoin Issuer. The General Counsel and persons acting on his or her
behalf may investigate whether any party is unfit to participate in the
affairs of a credit union or an NCUA-Licensed Permitted Payment
Stablecoin Issuer, whether formal enforcement proceedings are
warranted, or such other matters as the General Counsel or his or her
designee, in his or her discretion, shall deem appropriate. Such
investigations may be conducted either informally or formally.
[FR Doc. 2026-09915 Filed 5-15-26; 8:45 am]
BILLING CODE 7535-01-P