Blockchain Association Asks Regulators to Keep Stablecoin KYC Checks at the Issuer Level

MakeCryippreferred on

• The Blockchain Association filed comments on Aug. 21, the deadline for public input on a joint federal proposal covering stablecoin customer identification.
• The group is asking regulators to keep identity-verification duties tied to issuance, redemption and custody, not peer-to-peer wallet transfers.
• Banking trade groups took the opposite position in June, arguing most illicit stablecoin activity happens after coins leave the issuer.

The Blockchain Association told five federal regulators on Friday that new identity-verification rules for stablecoin issuers should stop at the moment a coin is issued or redeemed.

The trade group’s comment letter closed the public comment window on a joint proposed rule from FinCEN, the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC and the National Credit Union Administration. The rule implements the GENIUS Act’s customer identification requirement for what the law calls permitted payment stablecoin issuers.

What the Blockchain Association wants

The Blockchain Association backs the regulators’ framing: identification duties should apply only where an issuer has a direct relationship with a customer, through issuance, redemption or custody. It wants that limit written more precisely.

The letter asks regulators to confirm that four situations do not create an “account” that would trigger identification duties. Those are a one-off redemption from someone who never opened an account, an issuer’s vendor and service-provider contracts, an issuer’s unrelated lines of business, and redemptions routed through another regulated institution such as an exchange.

It also asks that issuers not be held liable when a bank they reasonably relied on for identity checks fails at its own job. And it asks that issuers be allowed to collect identifying information electronically through third parties, rather than only directly from customers, and that this rule’s start date line up with a related, still-pending anti-money-laundering rule.

The group grounds its core ask in the GENIUS Act’s own text, which requires issuers to verify the identities of “account holders with the permitted payment stablecoin issuer,” not everyone who later receives that stablecoin in a wallet-to-wallet transfer.

Why banks want broader oversight

The regulators already lean toward the Blockchain Association’s position. Their June proposal states that applying identification rules to every stablecoin transfer would be “nearly impossible” for issuers to carry out and could “cripple the industry,” since an issuer’s smart contract has no way to identify the wallets it settles for.

Bank Policy Institute and The Clearing House disagree. The two banking groups filed separate comments in June on a related GENIUS Act rulemaking arguing that anti-money-laundering oversight should reach further than issuance.

“The majority of illicit finance involving payment stablecoins occurs on the secondary market,” the banking groups wrote.

Their letters point to exchanges, custodians and decentralized finance platforms, not issuers, as the parties actually positioned to see and control that activity.

The position is not new for the group. In May, it separately asked the FDIC to keep stablecoin reserve and governance rules narrowly tied to the GENIUS Act’s text, warning that broader requirements would mainly help the largest, best-resourced companies. The Blockchain Association has also challenged other crypto regulations, including its position on SEC Rules 611 and 610(e), as part of its broader push for clearer and more narrowly tailored digital asset regulation. Friday’s letter extends the same argument to a different rule.

The comment period has now closed. Regulators have not said when a final rule will follow, or whether it will adopt the Blockchain Association’s clarifications, side with the banks on secondary-market monitoring, or land somewhere in between. The debate comes as the industry continues to push for Clarity Act crypto regulation and a clearer federal framework for digital assets.