New York Financial Regulator Proposes Stablecoin Rules Aligned With GENIUS Act

New York state is moving to adopt its own stablecoin rules in line with the federal GENIUS Act.

The New York State Department of Financial Services released a proposed regulation for authorized payment stablecoin issuers on June 9, The Block reported on June 10. The proposal would turn stablecoin guidance issued in 2022 into formal regulation and incorporate the GENIUS Act and follow-up federal rulemaking.

The biggest change covers custody of reserve assets. Stablecoin issuers would be required to hold reserves across multiple custodians. The proposal also introduces new redemption-related measures to prevent excessive concentration of reserves at a single custodian.

Risk-management obligations would also be strengthened. Issuers would need to establish frameworks covering security, internal controls and audits, insider trading, and oversight of external service providers.

A dual-authorization system would apply to reserve management. Each month, an issuer's chief executive officer and chief financial officer would have to certify the accuracy of reserve composition reports. Each year, issuers would also need an attestation from an accounting firm on the effectiveness of internal controls.

Large issuers with more than $25 billion in outstanding stablecoins would face additional rules. They would have to place at least 0.5% of reserves with deposit-taking institutions covered by deposit insurance. The required amount would be capped at $500 million.

The proposal also clarifies redemption authority. Issuers would have to process holders' redemption requests within two business days. Only authorities including the Office of the Comptroller of the Currency and the Federal Reserve would be allowed to adjust that period.

Rehypothecation of reserve assets would in principle be banned. Tying arrangements, false claims about deposit insurance coverage, and the payment of interest on stablecoins would also be prohibited. The Block said the ban on stablecoin interest payments reflects the GENIUS Act and the OCC's implementation framework, and that the proposal was designed to meet Treasury Department certification standards.