FED pushes new ID rules for stablecoin users! What does this mean for crypto companies?

The US Federal Reserve (FED) has released a draft regulation that would require crypto companies operating in the United States to carry out identity verification on stablecoin users. The proposed rules aim to address risks related to money laundering and illicit financial activity by clarifying how customer identification requirements apply to stablecoin services.

New compliance obligations for stablecoin firms

This draft regulation was prepared in cooperation with the Treasury Department, the Federal Deposit Insurance Corporation (FDIC), and other relevant agencies during the Donald Trump administration. It interprets how customer identification provisions under last summer’s GENIUS Act will apply in practice. That law provided a legal framework for the issuance of US dollar-pegged stablecoins in the country.

According to the draft, any individual or entity deemed a “digital asset service provider” must implement certain safeguards. This scope includes US-based individuals and legal entities offering cryptocurrency trading, transfer, or custody services. Companies will be required to put additional controls in place to ensure stablecoin services are not used by criminal organizations or groups engaged in illegal activities.

Under the proposed rules, customer names, birthdays, and addresses must be verified. Additionally, these details must be checked against US government records of terrorist organizations and other entities on official blacklists.

Abstention draws attention during board vote

Most members of the FED’s board of governors supported the new regulation proposal. The document notes that former FED Chair Jerome Powell was among those who approved it. However, current Chair Kevin Warsh abstained from the vote, raising eyebrows both inside and outside the institution.

Warsh did not issue any public statement explaining his abstention. A spokesperson for the FED also declined to immediately comment on the matter. This lack of transparency has sparked questions about which aspects of the proposal are generating debate within the agency.

Controversy over exemption for decentralized protocols

A key source of contention has been the draft’s exemption for decentralized protocols, which would not be subject to the same identity verification requirements. This exception is present both in the proposed regulations and the original GENIUS Act itself, prompting criticism from some officials.

Michael Barr, who frequently speaks on financial regulation topics at the FED, stated his support for publishing the proposal. Nonetheless, he cautioned that the existing framework might fall short when it comes to managing the risks associated with secondary market activity and potential misuse of stablecoins.

Public comment period begins

The FED’s proposal now enters a 60-day public comment phase. During this period, industry representatives, legal experts, companies, and other stakeholders will have the chance to provide feedback on the draft rules. Whether the final version will be revised remains to be seen and will depend on the input received during this window.

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