Banks and FinTechs Press Treasury on Compliance Gaps in GENIUS Act

In September, the Treasury Department extended the public comment period on the implementation of the GENIUS Act, signaling both the complexity and sensitivity of shaping anti-money laundering (AML) and compliance standards for digital assets.

As of this week, 333 comments have been posted, ranging from anonymous individual submissions to detailed responses by state regulators, financial institutions and payments firms. While the voices are varied, the core debate centers on how to balance innovation in stablecoin payments with frameworks that deter illicit finance and maintain market stability. The deadline is Tuesday, Nov. 4. The letters published via the Federal Register relay these concerns.

CSBS: Respect State Oversight

In a detailed filing, the Conference of State Bank Supervisors (CSBS) urged Treasury to avoid preempting state authority as it designs the national stablecoin framework. The group wrote that “the United States financial system and the payment stablecoin market will benefit from a regime that respects the role of the states and allows issuers to choose between federal and state frameworks based on their organizational structures and business strategy.”

CSBS said the act should treat state supervision as a floor, not a ceiling, permitting states to impose stronger AML or consumer-protection requirements if they wish. It also pressed Treasury to clarify the scope of “digital asset service providers,” warning that broad or vague definitions could open the door to unlicensed money transmission or lending.

“Federal regulators should not grant broad authorization for all issuers to engage in all digital asset service provider activities,” the CSBS letter stated. “Authorization should be granted on a case-by-case basis, calibrated to the business model, risk profile, and risk-management capabilities of the issuer.”

The organization also called for rules defining “interest,” “yield,” and “pay” broadly enough to prevent evasion of the act’s ban on paying holders of stablecoins any return. “The prohibition will be meaningless if issuers can evade it by arranging for an affiliate or business partner to pay the yield instead,” CSBS wrote. It recommended regulators treat indirect payments by affiliates or third parties as violations of the statute’s intent.

First State: Oversight Needed to Validate Reserves

First State Bank and Trust called for strong supervisory oversight of payment stablecoin issuers’ reserves and liquidity positions. The bank noted that the GENIUS Act requires the Primary Federal Payment Stablecoin Regulators to establish “capital and liquidity requirements applicable to PPSIs [Permitted Payment Stablecoin Issuer], and establish a process and framework for the licensing, regulation, examination, and supervision of PPSIs.”

It added that the reserve and custody positions of issuers and their affiliates “should be subject to periodic examination by their qualifying (chartering) federal or state regulator.” The bank recommended that federal and state regulators have authority to validate reserves, custody and liquidity, explaining that “self-reporting and audits are appropriate controls — but should be supplemented by federal and state examinations.”

The bank also emphasized that affiliations between stablecoin issuers and digital asset service providers vary widely — from intercompany ownership to service contracts — and said that the rules must ensure protections extend to these affiliates.

Weld: Technology Can’t Replace People

Cross-border payments company Weld argued in its filing that stablecoin use cases depend on “machine-driven trust,” but that this does not diminish the need for traditional compliance  disciplines. “Technology can accelerate transaction monitoring, but it cannot replace the human judgment necessary for assessing intent, source of funds, and risk escalation,” the company wrote.

Weld’s comment highlighted the tension between AI-based risk scoring and regulatory expectations. The company urged Treasury to define clear standards for when automated AML tools may satisfy due-diligence requirements and when manual review remains mandatory. “If every AI flag is treated as a false positive, we lose efficiency; if none are reviewed, we lose accountability,” Weld said.

The firm also endorsed a tiered approach to AML obligations based on transaction volume and jurisdiction, warning that applying “bank-grade” compliance requirements to micro-remittance platforms would “drive legitimate activity off-shore and strengthen unregulated corridors.”

While the comment period remains open, several common threads have emerged. Industry participants support a regulatory floor for AML and sanctions compliance but caution that over-centralizing control could stifle innovation. State regulators seek parity with federal agencies in enforcing standards, while smaller banks and payment firms want clarity on how far those standards extend into existing compliance regimes.