The proposal outlines the application process and the factors that the FDIC will consider in granting approval for an entity to issue payment stablecoins.

By Arthur S. Long, Parag Patel, Pia Naib, Connor Jobes, and Deric Behar

Key Points

  • The Proposal would align stablecoin issuer reviews to five statutory factors, including the ability to meet reserve and disclosure requirements, management fitness and competence, and a clear, timely redemption policy.
  • The FDIC may deny an application only if the applicant’s activities would be unsafe or unsound based on statutory factors, and it must provide a written explanation with specific findings within 30 days of denial; denials are appealable within 30 days.
  • The FDIC intends to issue separate proposals for stablecoin issuers to address prudential standards (capital, liquidity, reserve diversification requirements) and operational, compliance, and risk management standards.

Introduction

On December 16, 2025, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking (the Proposal) to implement section 5 of the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act). The GENIUS Act, enacted by Congress in July 2025, created a federal regulatory framework for stablecoins whereby a subsidiary of an insured depository institution could be approved to issue payment stablecoins.1

The GENIUS Act tasked the FDIC with developing new regulations to establish a framework for licensing, regulation, examination, and supervision for permitted payment stablecoin issuers that are subsidiaries of insured depository institutions (PPSIs). For more information on the GENIUS Act, see this Latham Client Alert.

The goal of the Proposal is to establish procedures for a tailored application process under which the FDIC can evaluate the safety and soundness of an applicant’s stablecoin activities and support the responsible growth and use of digital asset technologies.

Application Considerations

Under section 5 of the GENIUS Act, the FDIC is charged with evaluating a PPSI’s “substantially complete application” to issue a payment stablecoin based on the financial condition and resources of the PPSI. The Proposal outlines the application process and the factors that the FDIC will consider in granting approval to a PPSI to issue payment stablecoins.

Proposed Application Process

A PPSI applicant would be required to submit information requested by the FDIC regulations in the form of a letter application to the office of their appropriate FDIC region. In considering the application, the FDIC is required to use information already available to it, including supervisory and examination information, to limit the regulatory burden on PPSI applicants.

The applications will be considered based on timelines dictated by the GENIUS Act. PPSI applicants will be notified as to whether their application is considered substantially complete within 30 days, and the FDIC will approve or deny a substantially complete application within 120 days. The FDIC has also proposed allowing for conditional approvals (such conditions, however, may not impose requirements beyond those in section 4 of the GENIUS Act).

The FDIC may only deny an application upon determining that the activities of an applicant would be unsafe or unsound, and the agency must provide the applicant with a written notice of the basis for denial within 30 days. In the case of denial, an applicant will have an opportunity to appeal in writing within 30 days of receipt of the denial, and request either a written or oral hearing pursuant to the FDIC’s process for appealing material supervisory determinations. The hearing will take place within 30 days of receipt of the request, and the FDIC must render a final determination no later than 60 days after the date of the hearing.

The FDIC may request additional information as it deems necessary for evaluating a PPSI’s application “solely for its consideration of the factors listed in section 5(c) of the GENIUS Act.” An applicant may also request a waiver of all or some of the requirements of the GENIUS Act under the safe harbor provision in section 5(f),2 but the FDIC declined to include a provision in the Proposal on procedures for requesting a waiver “due to the temporary nature of the [safe harbor] provision and the case-by-case analysis required for any waiver.”

Financial Information, Reserves, and Disclosures

The GENIUS Act requires that the FDIC consider specific financial information and conditions of a PPSI, including:

  • identifiable reserves backing outstanding payment stablecoins on at least a 1-to-1 basis, comprising specific categories of reserves;
  • the reserve asset composition and the PPSI’s associated asset management plan (including whether any reserves will be in a tokenized form);
  • monthly reserve disclosures, including disclosure of the composition of the reserves on the PPSI’s website;
  • an engagement letter with a registered public accounting firm; and
  • certified reports examined by a public accounting firm regarding the prior month’s reserve composition disclosure.

The FDIC will also consider relevant financial information, including the PPSI’s planned capital and liquidity structure, planned financial commitments, stablecoin launches as part of a consortium, and financial projections for the first three years of operations.

Payment Stablecoin Activities

In its application, a PPSI would be required to include a description of its proposed payment stablecoin and its proposed payment stablecoin activities. Such activities are limited by statute to issuing and redeeming payment stablecoins, managing related reserves, providing certain payment stablecoin and reserve custodial and safekeeping services, and undertaking other activities that directly support those activities. PPSIs are generally prohibited from pledging, rehypothecating, or reusing their reserve assets.

Additional details requested by the FDIC in the Proposal include descriptions of:

  • related activities of the PPSI and the identities, roles, and responsibilities of the entities involved in the proposed activities;
  • how the PPSI plans (or reasonably expects) to maintain the payment stablecoin’s stable value, including any planned applicant-provided sources of strength, guarantees, or intercompany agreements; and
  • proposed incidental activities to the payment stablecoin activities or digital asset service provider activities.

The FDIC believes this information is “necessary to evaluate the ability of the subsidiary in light of its financial condition and resources to meet the requirements set forth under section 4 of the GENIUS Act” and to determine if the PPSI’s activities would be unsafe or unsound for the purposes of the FDIC’s review.

Management and Operations

Applications would be required to contain a description of a PPSI’s ownership and control structure, organizing documents, and a list of the subsidiary’s proposed directors, officers, and shareholders, including a statement as to whether any of the proposed directors or officers have been convicted of a felony offense.

If a proposed payment stablecoin is to be backed or offered by multiple banks through a consortium, the PPSI would be required to address the governance structure of the arrangement, including expected activities of the other consortium members.

Applicants would also be required to include relevant policies, procedures, and customer agreements, including those for custody and safekeeping; segregating customer and reserve assets; recordkeeping; reconciliation and transaction processing; redemption; and Bank Secrecy Act, anti-money laundering, countering the financing of terrorism, and economic sanctions policies.

The Rulemaking Process and Next Steps

The GENIUS Act will become effective on the earlier of January 18, 2027, or 120 days after final implementing regulations are approved. The FDIC is seeking public comment on all aspects of the Proposal for 60 days after publication in the Federal Register. Within the Proposal, the FDIC asked for specific feedback on the following:

  • the Proposal’s alignment with the GENIUS Act’s application process;
  • the use of a form versus a letter application;
  • the sufficiency of the proposed filing content requirements;
  • the adequacy of the factors the FDIC proposes to use to evaluate PPSIs;
  • the evidence applicants should provide to the FDIC to substantiate the sufficiency of their capital and liquidity structures as well as the composition, custody, and valuation of payment stablecoin reserve assets;
  • ownership or control structures for PPSIs;
  • policies, procedures, and customer agreements;
  • treatment of the GENIUS Act safe harbor waiver;
  • the appeals process;
  • the FDIC’s estimates of application volume and associated costs; and
  • any additional costs, benefits, or other effects of the Proposal.

The FDIC underscored that the Proposal is designed to implement statutory mandates dictated by Congress rather than present any policy alternatives. The FDIC also noted that it intends to issue separate proposals to address prudential standards for PPSIs, such as capital, liquidity, reserve diversification requirements, as well as operational, compliance, and risk management standards.

FDIC Acting Chairman Travis Hill issued a statement in support of the Proposal, and noted that the FDIC will “continue to explore ways to provide regulatory clarity regarding activities related to digital assets and tokenized deposits more broadly.”

Follow this and other critical developments on Latham’s US Crypto Policy Tracker.