Treasury proposes GENIUS Act gatekeeping rules with a path for foreign issuers

On August 17, 2026, the Department of the Treasury (“Treasury”) issued a highly anticipated notice of proposed rulemaking (the “Proposal”) to implement provisions of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”) governing the issuance, offering, and sale of payment stablecoins in the United States¹. If adopted, the Proposal would establish rules of the road for foreign issuers and digital asset service providers (“DASPs”) seeking to access the U.S. market.

In a series of posts over the last year, we have discussed the GENIUS Act itself as well as various proposed rules to implement the domestic prudential framework for permitted payment stablecoin issuers (“PPSIs”), including reserve management, redemption, custody, capital, and risk management. These proposed rules include an earlier Treasury proposal as well as companion rules proposed by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation. 

This Proposal addresses a different part of the GENIUS Act framework, namely how foreign payment stablecoin issuers (“FPSIs”) may be able to issue payment stablecoins directly in the United States, including to “persons located in the United States,” and how intermediaries may offer and sell those stablecoins. Two features warrant emphasis at the outset, each of which we expect to be a particular focus of commenters. 

• First, in potentially good news for FPSIs, Treasury adopted a permissive reading of the GENIUS Act to establish a direct issuance pathway in the United States.

• Second, the rule would place meaningful gatekeeping responsibilities on intermediaries (e.g., exchanges) to ensure FPSI compliance.

We discuss these and other features of the Proposal in greater detail below, after first setting out some of its key definitions.

What types of market participants would be subject to the proposed rule?

The GENIUS Act contemplates and defines key categories of market participants relevant to this Proposal as follows.

• PPSI: A U.S.-formed entity authorized to issue payment stablecoins under one of the GENIUS Act’s federal or state regulatory pathways.

• FPSI: A payment stablecoin issuer organized or domiciled in a foreign jurisdiction or specified U.S. territory that does not qualify as a PPSI.

• DASP: A U.S.-facing business that, for compensation or profit, exchanges digital assets for monetary value or other digital assets, transfers digital assets to a third party, acts as a digital asset custodian, or participates in financial services relating to digital asset issuance, excluding specified distributed ledger protocols and activities.²

Who may issue payment stablecoins?

Under the statute as Treasury interprets it, only PPSIs or FPSIs that satisfy Section 18(a) of the GENIUS Act (the conditions of which include, for example, registration with the OCC) may issue payment stablecoins in the United States, subject to applicable exemptions and safe harbors.³ For purposes of these provisions, Treasury explains in the Proposal that an issuance occurs in the United States if either the issuer or the recipient is located here. For individuals, location generally turns on physical presence, subject to exceptions for a non-resident’s temporary presence in the United States and a U.S. resident’s temporary presence abroad. An entity is located in the United States if it is organized or incorporated under U.S. or state law, or has its principal place of business here.

In another permissive reading of the statutory text, the Proposal provides that an issuer may avoid being treated as issuing in the United States if, in summary, it: (i) reasonably believes all recipients are located abroad; (ii) implements appropriate controls for avoiding issuance in the U.S.; and (iii) does not target persons located in the United States through advertising or solicitation.

Violating the prohibition on non-qualified U.S. issuance carries both criminal and civil penalties, and the exposure is not confined to the issuer. Under Section 3(f) of the GENIUS Act, anyone who knowingly participates in a violation may be fined up to $1 million for each violation, imprisoned for up to five years, or both, and a primary Federal payment stablecoin regulator with reason to believe a person has knowingly violated the prohibition may refer the matter to the Attorney General. Moreover, under Section 6(b)(5)(A), unless otherwise specified in the GENIUS Act, anyone who issues a U.S. dollar-denominated payment stablecoin in violation of section 3 of the GENIUS Act, and any institution-affiliated party who knowingly participates in such issuance, is liable for civil penalties of up to $100,000 for each day during which such stablecoins are issued.⁴

The Proposal creates no new penalties, but by defining what it means to issue a payment stablecoin and when an issuance occurs in the United States, it determines when these penalties could attach.

What does it mean to “issue” a payment stablecoin?

The Proposal defines “issue” to mean the first direct or indirect transfer of a payment stablecoin by the issuer that gives, or will give, another person the right to use, transfer, redeem, convert, or require the repurchase of the stablecoin. In this formulation, minting a token into the issuer’s own treasury would not constitute an issuance, but minting directly into a holder’s wallet would, as would transferring a redeemed or reacquired stablecoin back into circulation.

Along the same lines, the proposed definition of “issuer” focuses on economic responsibility rather than technical activity. Under the Proposal, an issuer must have an obligation to convert, redeem, or repurchase the stablecoin for a fixed amount and must represent, or create a reasonable expectation, that such issuer will maintain a stable value relative to a fixed amount of monetary value. A person who merely performs technical minting or provides branding may not be the issuer, although they could still face criminal exposure for knowingly participating in an unlawful issuance. 

As noted above, the Proposal defines issuance “in the United States” to occur if, at the time of issuance, either the issuer or the recipient is located in the United States. Treasury explains that it selected this party-location test instead of a broader U.S.-nexus standard to provide a clearer and more administrable rule, particularly because knowing participation in an unlawful issuance may result in a fine of up to $1 million per violation, imprisonment for up to five years, or both.

What restrictions apply to the offer and sale of payment stablecoins?

The Proposal would implement two related restrictions on DASPs. These restrictions would apply on different timelines and would address different aspects of the offer and sale of payment stablecoins in the United States. 

Beginning July 18, 2028, which is three years after the enactment of the GENIUS Act, a DASP generally could offer or sell a payment stablecoin to a person located in the United States only if the stablecoin was issued by a PPSI or a qualifying FPSI. That presupposes that, by then, a method will be available for FPSIs to establish compliance with Section 18(a) of the GENIUS Act.

A separate restriction for FPSI-issued stablecoins, however, will apply from the GENIUS Act’s effective date, which Treasury expects to be January 18, 2027. Starting on the law’s effective date, a DASP may not offer, sell, or otherwise make an FPSI’s payment stablecoin available in the United States unless the FPSI has the technological capability to comply with—and will comply with—the terms of any lawful order and any reciprocal arrangement under Section 18.

Treasury explicitly acknowledges the practical difficulties in applying this provision: a DASP may lack full insight into an FPSI’s technological capability and cannot know with certainty whether the FPSI will comply in the future. Treasury concludes that a strict reading of the provision would effectively foreclose DASPs from offering or selling FPSI-issued stablecoins and is not compelled by the statute. It therefore proposes that a DASP may rely on an FPSI’s representation that the FPSI has the technological capability to comply, and will comply, with lawful orders and reciprocal arrangements, provided that the DASP conducts reasonable due diligence. A DASP could not rely on the representation if it knows, has reason to know, or should know that the representation is false, that the FPSI lacks the required technological capability, or that the FPSI will not comply with a lawful order or reciprocal arrangement. 

This sequencing produces a notable gap. The FPSI restriction becomes effective first even though Treasury has not yet established the process for determining whether an FPSI’s home jurisdiction maintains a comparable regulatory regime, such that the FPSI may operate in the United States under Section 18(a) of the GENIUS Act. As a result, when the FPSI restriction takes effect and potentially for a long time afterward, there may be no clear pathway to establish eligibility under Section 18(a). During that period, a DASP that lists a foreign-issued stablecoin would do so only in reliance on the FPSI’s representations regarding its lawful order capability and on the quality of the DASP’s own due diligence. We expect that some DASPs may be reluctant to do so and that, therefore, the gap between the effective dates of these prohibitions will be a principal area of focus during the comment period.

The Proposal provides non-exhaustive examples of offers and sales to persons located in the United States that could implicate these restrictions. Examples include direct solicitation, advertising a stablecoin as available to persons in the United States, expressing a willingness to sell in response to an unsolicited U.S. inquiry, advising potential purchasers on how to evade applicable location detection or restriction mechanisms, and entering into a contract to sell to a person located in the United States.

The third example bears emphasis because it eliminates the types of reverse solicitation exemptions available under other U.S. regulatory regimes with extraterritorial effect, such as relief for unsolicited transactions under U.S. securities laws. Under the Proposal, responding to an unsolicited inquiry from a person in the United States would itself constitute an offer. For firms accustomed to relying on reverse solicitation principles to permit limited U.S. activities, this is a meaningful divergence that will need to be reflected in compliance procedures. 

What safe harbors and exemptions are available?

The Proposal includes parallel location-based safe harbors for non-U.S. issuers and DASPs. Both depend on a reasonable belief about the counterparty’s location, appropriately designed and implemented controls, and the absence of U.S.-directed advertising or solicitation.

First, a non-U.S. issuer would be deemed not to have issued in the United States if it reasonably believes each recipient is outside the United States, implements policies, procedures, and controls reasonably designed to avoid issuing to persons located in the United States, and does not direct advertising or solicitation to persons in the United States. This safe harbor would be unavailable if the issuer knows, has reason to know, or should know that a recipient is in the United States.

Second, a DASP could similarly be deemed not to have offered or sold a payment stablecoin to a person located in the United States if it reasonably believes the customer is outside the United States, implements controls designed to avoid offers or sales to persons in the United States, and does not engage in U.S.-directed advertising or solicitation.

The Proposal also articulates certain other exemptions and safe harbors, including the potential for a temporary waiver under certain conditions for issuers with applications pending as of the GENIUS Act’s effective date, certain limited safe harbors that may be available in unusual and exigent circumstances, and transactions that are statutorily exempt under Section 3(h) of the GENIUS Act: (i) direct transfers between two individuals acting on their own behalf and for their own lawful purposes without an intermediary; (ii) transfers between an individual’s U.S. and non-U.S. accounts offered by the same parent company; and (iii) transactions effected through software or hardware wallets that facilitate self-custody. Treasury requests comment on whether further safe harbors should be created. 

Treasury also specifically requests comment on whether these safe harbors strike the right balance. The agency identifies two alternatives: a strict liability regime, under which any offer or sale to a person located in the United States of a payment stablecoin not issued by a PPSI or qualifying FPSI would be unlawful regardless of the relevant party’s knowledge or diligence; or an approach based more closely on Regulation S under the Securities Act of 1933. Regulation S deems an offer or sale to occur outside the United States, and so outside that statute’s registration requirements, where the buyer is outside the country and no selling efforts are directed at the U.S. market. This is a conduct-based test keyed to where the transaction order originates and how the offering is marketed, rather than to the purchaser’s place of organization or principal place of business. We expect commenters to take Treasury up on its request for input on whether a Regulation S-style framework should replace or supplement the proposed approach or operate as an additional safe harbor.

What’s next?

As noted above, comments are due October 19, 2026, and we expect robust discussion of the issues highlighted above. 

Although the Proposal does not impose any immediate legal obligations, market participants may begin to consider and prepare for the implications of a future final rule. In particular, foreign issuers could begin to assess their potential Section 18(a) status and test their controls against the proposed issuance safe harbor. DASPs could review their listing standards, diligence and geolocation controls, and consider how representations regarding lawful order capability will be documented, refreshed, and enforced contractually, especially because the Proposal contemplates continuing rather than one-time diligence. Other participants may wish to begin evaluating whether their activities could constitute participation in an unlawful issuance.

Other agency regulations required under the GENIUS Act remain outstanding. Although the one-year statutory deadline for issuing regulations lapsed in July, none of the bank regulatory, Bank Secrecy Act, or anti-money-laundering rules has been finalized, and a required rule establishing the Federal Reserve’s prudential framework has not yet been proposed. OCC Comptroller Jonathan Gould recently said that the OCC will finalize its rule by November, and we understand that most agencies are similarly working to finalize their rules expeditiously.

We will continue to closely monitor and provide updates on developments in this space.

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1. The Proposal was published in the Federal Register on August 18, 2026 and comments are due October 19, 2026. It follows the Advance Notice of Proposed Rulemaking Treasury issued last fall. 90 Fed. Reg. 45159 (Sept. 19, 2025).

2. Treasury explains that the issuer and DASP categories overlap and that any party engaged in the business of issuing payment stablecoins in the United States for compensation or profit is a DASP. As a consequence, a PPSI is not merely licensed to issue its own stablecoin but also will be subject to the DASP offer and sale restrictions with respect to every other issuer’s stablecoin that it lists, distributes, or otherwise makes available.

3. Pursuant to Section 18(a), an FPSI may operate in the United States only if Treasury first determines that its home jurisdiction maintains a comparable regulatory regime, but the agency has not yet proposed a rule establishing the process for doing so.

4. Section 4(e)(3) reaches potentially overlapping conduct, making it unlawful to market a product in the United States as a payment stablecoin unless it is issued pursuant to the GENIUS Act, subject to a fine of up to $500,000 for each knowing and willful violation.

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