FDIC Proposes Application Process for GENIUS Act Compliance

The FDIC released a proposed rule that would establish an application process for FDIC-supervised banks to issue "payment stablecoins" through a subsidiary pursuant to the GENIUS Act. The federal banking agencies and the NCUA must develop implementing regulations under the GENIUS Act, which becomes effective on January 18, 2027, or 120 days after primary regulators issue final implementing rules, whichever comes first. The FDIC's proposed rule is the first out of the gate.

The proposed rule would create a more expedited federal process for subsidiaries of FDIC-supervised banks to become "permitted payment stablecoin issuers" (PPSIs) under the GENIUS Act. The proposed rule would apply to insured state-chartered non-member banks, including industrial loan companies, and state-chartered savings associations. While these institutions do not make up the largest assets in the U.S. financial system, the FDIC explained that there are 2,772 insured state nonmember banks and insured state savings associations (generally, "banks").

The proposal reflects other aspects consistent with the GENIUS Act and this administration's policies: a streamlined, tailored, letter-based application process with clearly defined content and timing expectations—and an appeals process. FDIC Acting Chairman Hill explained that separate proposed rules addressing statutorily mandated capital, liquidity, and risk management requirements for PPSIs are forthcoming. The speed of the proposed rule's development is notable too: it comes more than a year before the GENIUS Act becomes effective.

Key Takeaways

• Streamlined applications. FDIC-supervised banks that want to establish PPSI subsidiaries and issue payment stablecoins under the GENIUS Act would be able to do so through a streamlined application process that seeks to avoid duplication and irrelevant data.
• Avoiding application delays. Applications would be deemed substantially complete on the date of receipt if the FDIC doesn't notify applicants otherwise within 30 days after receiving the application. Under the proposed rule, the FDIC must approve or deny an application not later than 120 days after receiving a substantially complete application. Applications would be deemed approved if the FDIC doesn't render a decision within 120 days of receiving a substantially complete application.
• Denial. Applications may only be denied if the activities would be "unsafe or unsound" based on the evaluation criteria set out in the GENIUS Act. Issuance on an open, public, or decentralized network would not be a valid basis for denial. This consideration will work in tandem with the proposed rule on redefining safety and soundness.
• Appeals. Denied applicants may appeal, including by requesting hearing under the FDIC's process for appealing material supervisory determinations with a final determination due within 60 days after the hearing.
• Interagency consistency. We expect there will be substantial interagency consistency for applications. But regulators such as the FDIC and Federal Reserve, which do not charter institutions, generally have different approaches and procedures, than federal agencies that charter institutions, such as the OCC and the NCUA. For instance, we hope expedited processing will be available in a future OCC proposed rule for eligible banks, as in other cases. The FDIC's proposal could be strengthened by making certain banks eligible for expedited approval or allowing them to file after-the-fact notice in certain circumstances.

Scope and key content requirements

New section 303.252 would govern applications by FDIC-supervised banks that seek to issue payment stablecoins through a subsidiary that would become a PPSI. Banks, as applicants, would file a letter with the appropriate FDIC regional office. The letter must include, to the extent applicable:

1. a description of the proposed payment stablecoin and all related activities—at the subsidiary, bank, and any third parties—including how stability will be maintained and any intercompany agreements, applicant guarantees, or applicant-provided sources of strength.
   
   
   • Note: Any proposed activities incidental to payment stablecoin activities or digital asset service provider activities must be detailed too to assess the PPSI's financial condition and safety and soundness.
     
     
2. relevant financial information such as planned capital and liquidity, reserve asset composition and management (including whether any reserves will be tokenized), and three years of financial projections.
   
   
3. ownership and control structure, organizing documents, and proposed directors/officers/principal shareholders.
   
   
4. core policies, procedures, and customer agreements for custody/safekeeping, segregation of customer and reserve assets, recordkeeping and reconciliation (on and off-chain), transaction processing, redemption, and BSA/AML/CFT and sanctions compliance.
   
   
5. an engagement letter with a public accounting firm to support monthly reserve attestations.

The FDIC would be able to request additional information as necessary to evaluate statutory factors, but, whenever possible, would be required to rely on information already available to it, such as supervisory and examination information, rather than request that duplicative information be submitted as part of an application.

What the FDIC will evaluate under the GENIUS Act

The FDIC must consider the factors listed in section 5(c) of the GENIUS Act in evaluating applications for PPSIs:

• Whether, based on the subsidiary's financial condition and resources, it can meet the GENIUS Act's requirements for issuing payment stablecoins, including one-for-one identifiable reserves in specified categories, monthly public reserve disclosures, and certified monthly reports examined by a public accounting firm.
• The subsidiary's ability to comply with forthcoming FDIC regulations on capital, liquidity, reserve diversification, and principles-based operational, compliance, and IT risk management, including BSA/AML/CFT and sanctions.
• Management-related factors such as competence, experience, integrity, compliance history, among others.
• The redemption policy's ability to meet statutory standards, including clear, conspicuous, and timely redemption procedures and transparent fees with at least seven days' advance notice for changes.

Though permitted to add factors for consideration under the GENIUS Act, the FDIC is not proposing to add "other factors" beyond those in the statute.

Processing timelines

The processing timelines in the NPRM mirror the timelines in the GENIUS Act:

• Within 30 days of receipt, the FDIC must notify the applicant whether the filing is "substantially complete." If the FDIC doesn't notify the applicant, the application is deemed substantially complete as of the FDIC's receipt.
• Once substantially complete, the FDIC must approve or deny within 120 days. If the FDIC doesn't act, the application is deemed approved.

Deemed approvals

Approvals may include conditions (including standard 12 CFR 303.2(bb) conditions such as closing within a certain period and obtaining all required approvals from state and federal agencies) but may not impose requirements beyond section 4 of the GENIUS Act. If the FDIC denies an application, the FDIC must provide a written explanation within 30 days that includes all findings made with respect to identified material shortcomings in the application and recommendations to address such shortcomings. While not exactly a "service guaranty," the processing timelines are friendly toward applicants.

Appeals

Within 30 days of a denial, an applicant would be able to request a hearing. If an applicant does not make a timely request for a hearing, the FDIC would be required to provide, within 10 days after the date by which the applicant could have requested a hearing, notice that the denial of the application is a final determination. If a hearing is timely requested, a hearing would have to be held within 30 days of the request, and the FDIC would have to issue its findings within 60 days after the date of the hearing.

The FDIC proposes to apply the same appeal process as it has for the appeal of a material supervisory determination. Once a final rule is issued, appeals would include a review by an independent, standalone Office of Supervisory Appeals, staffed by reviewing officials with relevant government or industry experience. By treating a denial of a PPSI application like a material supervisory determination for appeal purposes, the proposal would demonstrate the FDIC's commitment to consistency and would inspire confidence in the fair handling of PPSI applications. Additionally, the appeals process—with easy-to-understand timelines and written explanations—demonstrates a focus on open and accessible regulators.

Our Take

The proposed rules are a positive sign for the FDIC and the market. The FDIC—not always the leader in financial innovation or modernization—nevertheless is proceeding earnestly to implement the GENIUS Act. The way it would do so is largely tailored and seeks to avoid burdens on applicants, duplication, and speculative or extraneous materials. The included safeguards (like the appeals process) have further helped its credibility, especially against the backdrop of legacy supervision issues at the FDIC—both alleged examiner (mis)conduct and substantive issues, which the FDIC leadership has acknowledged.

The FDIC could consider more expedited procedures for well-capitalized and well-managed banks and similar applicants that seek to comply with the GENIUS Act. This would reflect financial holding company election and related procedures and certain OCC approaches for permissible activities. Another approach could include codified triggers that if met would help applicants and the FDIC expedite the processing of applications. Regardless of the final rule's approach, we would urge the FDIC to act expeditiously on safe and sound, healthy banks' applications—even well ahead of any mandatory timing triggers under the regulation and the GENIUS Act.

Pulling the camera back, one can see a larger lesson embedded in this proposed rule. It stands in stark contrast to most rulemaking exercises post-Dodd-Frank, which were burdensome, slow, opaque, and geared to serve the interests of the regulators, not those being regulated. In short, this appears to be a useful example of how the Trump Administration's regulatory reforms can work in practice. While the proposed rule is designed to allow the regulators to gather enough information to make a fully informed decision, it is different from the "regulatory black holes" which existed in previous administrations, where information went in and what came out was unclear, unrecognizable, or both. Once the financial services industry becomes used to this kind of reasonability (which is still surprising to see in action) it will be difficult to go back to the former ways of doing business.

Max Bonici, Stephen Gannon, Paige Knight, and Michael Treves have extensive experience spanning financial compliance, regulatory counsel, and enforcement matters, providing insights to help clients navigate complex challenges in the financial services sector. For more insights, contact Max, Steve, Paige, Michael, or another member of Davis Wright Tremaine's financial services team or sign up for our alerts.