Banking groups opened a new front in their policy battle with crypto firms this week by urging federal regulators to clarify who will exercise oversight of stablecoin transactions after their initial issuance. In a pair of comment letters, the Bank Policy Institute and The Clearing House jointly claimed that current anti-money laundering (AML) rules fail to adequately impose compliance obligations of on DeFi firms, certain types of crypto custodians, and exchanges.
The letters, addressed to the Treasure Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) as they develop regulations to implement the GENIUS Act, warn that most illicit activity involving stablecoins occurs after issuance, making oversight of secondary market transactions critical.
“Through a separate rulemaking or additional guidance, FinCEN and OFAC should clarify the obligations of the other actors that facilitate secondary-market Payment Stablecoin activity,” the second of the two letters said. “Without clear obligations for the actors that facilitate those transactions, the framework could leave substantial portions of Payment Stablecoin activity without sufficient AML/CFT and sanctions controls. Inadequate regulation with respect to secondary-market activities could create serious risks both for financial integrity and for other financial institutions across the Payment Stablecoin ecosystem.”
The banking groups urge the regulators to clarify the extent of payment stablecoin issuers obligations to block secondary market transactions in a manner that holds them to the same general AML compliance standard as other financial institutions.
The letters follow a warning by crypto investment firms earlier in the week that the proposed AML rules could push regulated dollar-pegged tokens away from DeFi markets if issuers are made responsible for secondary market activity.
In response to the banking groups’ letter, Charles d’Haussy, CEO of the crypto-trading organization dYdX Foundation, said both letters leave out compliance tools already built into major stablecoins and used by DeFi platforms.
“What is missing from both submissions is a basic technical fact: AML monitoring in stablecoins does not stop at issuance,” d’Haussy told Decrypt. He noted that each dollar stablecoin transfer runs through the issuer’s master smart contract, where freeze and blacklist controls are implied in real time, making the regulatory gap far narrower than the banking groups claim.
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“The real enforcement problem is offshore exchanges and unhosted wallets operating outside the [Financial Action Task Force] Travel Rule framework, not the compliant DeFi infrastructure that is already doing the work,” d’Haussy added.
The banking groups insist that consistent treatment of financial transfer is essential, however, regardless of how they are executed.
“FinCEN should apply the cost-benefit, risk-based analysis that it applied in this rulemaking across [Bank Secrecy Act] obligations and should reflect that same approach in the broader Program Rule for all financial institutions confronting secondary-market digital asset activity,” the groups’ letter said. “The final rule should clarify the obligation of PPSIs to ‘consider’ secondary-market activity for purposes of [Customer Due Diligence] for primary-market customers.”
The groups further recommend that the carveout for payment stablecoin issuers from the Money Services Business definition is merely a mechanical reclassification, and does not narrow or alter any preexisting rules related to money transmission obligations and should not create opportunities for regulatory arbitrage.
“The final rule also should ensure that the interpretations of the terms ‘Payment Stablecoin’ and “[Permitted Payment Stablecoin Issuer]” are broad enough to prevent evasive arrangements and other gaps that would allow entities to offer products that are functionally indistinguishable from Payment Stablecoins while claiming to remain outside the PPSI framework,” the groups said.