Back to Markets
Crypto▼ Bearish
Fed's Stablecoin ID Rule Targets Redemption Loophole
The proposal requires stablecoin issuers to collect customer IDs before direct redemptions, closing a gap that left secondary holders anonymous. Final rules due before 2027, but statutory deadline may arrive first.
Continue with
The Federal Reserve proposed Thursday requiring stablecoin issuers to verify customer identities before opening accounts or allowing direct token redemptions, extending anti-money laundering rules that traditional banks have followed for more than two decades.
The proposal targets a specific gap. Stablecoins trade on secondary markets – exchanges, peer-to-peer transfers, smart contracts – without the issuer as a direct counterparty. A holder who buys a coin on an exchange and later redeems it directly with the issuer creates an account relationship only at that redemption moment. The proposed rule defines an "account" to include that event, meaning the issuer must then collect a legal name, date of birth, physical address, and government-issued identification number.
Purely secondary-market transactions where the issuer is not involved do not trigger customer identification program (CIP) obligations, the Fed said.
The rule would apply to permitted payment stablecoin issuers (PPSIs), a category created by the Genius Act – the Guiding and Establishing National Innovation for U.S. Stablecoins Act – signed by President Trump in July 2025. That law required stablecoin issuers to comply with the Bank Secrecy Act for the first time and mandated 100% reserve backing with liquid assets. The statute takes effect on the earlier of Jan. 18, 2027, or 120 days after primary federal regulators publish their final implementing rules.
The Fed's CIP proposal mirrors obligations that banks, broker-dealers, mutual funds, and futures commission merchants have operated under for two decades. It is one piece of a broader rulemaking wave. In April, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control jointly proposed requiring PPSIs to adopt written anti-money laundering and counter-financing-of-terrorism programs, plus a full sanctions compliance framework. That rule would carve PPSIs out of the money services business category and treat them as a distinct class of BSA-covered institutions. FinCEN found that roughly half of known stablecoin issuers have not registered as MSBs at all, the agency said.