Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the National Credit Union Administration

Federal RegisterMay 18, 2026

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 702, 704, 706, 745, and 747

RIN 3133-AG10

Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the National Credit Union Administration

AGENCY:

National Credit Union Administration (NCUA).

ACTION:

Supplemental proposed rule.

SUMMARY:

The NCUA Board (Board) is seeking comment on proposed regulations to implement portions of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The GENIUS Act charges the NCUA with licensing, regulating, and supervising Payment Stablecoin issuers that are subsidiaries of federally insured credit unions (FICU subsidiaries). In February 2026, the NCUA issued proposed regulations to govern investments in and licensing of permitted payment stablecoin issuers subject to the NCUA's jurisdiction. This current proposal supplements the previous proposal and would govern the issuance of Payment Stablecoins and certain related activities by entities subject to the NCUA's jurisdiction. This proposal would also make amendments to address share insurance coverage, tokenized shares, and other conforming and clarifying amendments.

DATES:

Comments must be received by July 17, 2026.

ADDRESSES:

Comments may be submitted in one of the following ways. (Please send comments by one method only):

•

Federal eRulemaking Portal: https://www.regulations.gov.

The docket number for this proposed rule is NCUA-2026-1024. Follow the “Submit a comment” instructions. If you are reading this document on federalregister.gov, you may use the green “SUBMIT A PUBLIC COMMENT” button beneath this rulemaking's title to submit a comment to the regulations.gov docket. A plain language summary of the proposed rule is also available on the docket website.

•

Mail:

Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.

•

Hand Delivery/Courier:

Same as mailing address. Mailed and hand-delivered comments must be received by the close of the comment period.

Public inspection:

Please follow the search instructions on

https://www.regulations.gov

to view the public comments. Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are public records; they are publicly displayed exactly as received, and will not be deleted, modified, or redacted. Comments may be submitted anonymously. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing

OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT:

Office of Examination and Insurance:

Amanda Parkhill, at (703) 518-6385 or at 1775 Duke Street, Alexandria, VA 22314.

Office of General Counsel:

Thomas Zells and Rachel Ackmann, Senior Staff Attorneys; or Ariel Woodard-Stephens, Staff Attorney at (703) 518-6540 or at the above address.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. Legal Authority

III. The NCUA Licensing Proposal

IV. The NCUA Standards Proposal

V. General Request for Comment

VI. Regulatory Procedures

I. Background

On July 18, 2025, President Trump signed the GENIUS Act into law. The GENIUS Act establishes a regulatory framework for Payment Stablecoins and provides pathways for regulation at both the Federal and State level.

Stablecoins are Digital Assets,

i.e.,

digital representations of value recorded on a cryptographically secured Distributed Ledger,

such as a blockchain.

In contrast to many other types of Digital Assets, stablecoins are intended to maintain a stable value relative to a reference asset, most often fiat currency.

Most stablecoin issuers use a pool of high quality and highly liquid reserve assets to back the stablecoin and maintain a stable value.

Stablecoins often rely on smart contracts (

i.e.,

self-executing programs that automatically enforce agreements between users) for different aspects of their functionality.

When an issuer redeems a tendered stablecoin, it typically accepts a stablecoin from a user or third party in exchange for a fixed amount of Monetary Value,

e.g.,

one dollar.

Stablecoins are frequently used to facilitate trading in Digital Assets and may be used for retail and institutional payments.

Certain stablecoin issuers have the capability to freeze funds or block transactions involving their stablecoin, which they may do, for example, to effectuate a court order.

12 U.S.C. 5901(6).

White House, “Strengthening American Leadership in Digital Financial Technology,” at 15 (July 17, 2025), [hereinafter, Digital Financial Technology Report],

https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.

A cryptographically secured ledger uses cryptography to maintain the integrity of the ledger.

See also

E.O. No. 14178, Strengthening American Leadership in Digital Financial Technology, 90 FR 8647 (Jan. 31, 2025) (defining blockchain to mean “any technology where data is: (i) shared across a network to create a public ledger of verified transactions or information among network participants; (ii) linked using cryptography to maintain the integrity of the public ledger and to execute other functions; (iii) distributed among network participants in an automated fashion to concurrently update network participants on the state of the public ledger and any other functions; and (iv) composed of source code that is publicly available”).

Digital Financial Technology Report at 88, 130.

See id.

at 90.

See id.

at 11.

Currently, rather than mint or redeem stablecoins through the issuer, most market participants rely on digital asset

trading platforms to exchange stablecoins for national currencies (or even other stablecoins).

Id.

at 93.

See id.

at 105.

The GENIUS Act focuses on a subset of stablecoins: Payment Stablecoins. Under section 2(22) of the Act, “payment stablecoin” means “a digital asset—(i) that is, or is designed to be, used as a means of payment or settlement; and (ii) the issuer of which—(I) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a digital asset denominated in a fixed amount of monetary value; and (II) represents that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value[.]”

The term does not include a Digital Asset that is (i) a national currency; (ii) a deposit, including a deposit recorded using distributed ledger technology; or (iii) a security, as defined in 15 U.S.C. 77b, 78c, or 80a-2.

12 U.S.C. 5901(22).

The Act provides that, for the avoidance of doubt, no bond, note, evidence of indebtedness, or investment contract that was issued by a permitted payment stablecoin issuer shall qualify as a security solely by virtue of its satisfying the conditions described in section 2(22)(A) of the Act, consistent with section 17 of the Act. 12 U.S.C. 5901(22)(B)(iii).

The GENIUS Act generally prohibits any Person other than a permitted payment stablecoin issuer (PPSI) from issuing a Payment Stablecoin in the

United States.

It further prohibits digital asset service providers

from offering or selling a Payment Stablecoin to a Person in the United States unless the issuer is a PPSI or the issuer is a foreign payment stablecoin issuer that meets certain requirements.

The GENIUS Act sets forth various regulatory and licensing requirements for PPSIs and foreign payment stablecoin issuers. In many instances, the GENIUS Act states that the specific requirements applicable to these entities (

e.g.,

those related to capital, liquidity, operational risk management), shall be set forth by regulations issued by the relevant primary Federal payment stablecoin regulator, in coordination with other relevant agencies, as appropriate.

This proposed rulemaking represents one piece of the GENIUS Act's implementing regulations.

See 12 U.S.C. 5902(a). See also 12 U.S.C. 5916 (excepting foreign payment stablecoin issuers that meet certain requirements from the prohibition in section 3 of the Act).

“Digital asset service provider” means a person that, for compensation or profit, engages in the business in the United States (including on behalf of customers or users in the United States) of: (1) exchanging digital assets for monetary value; (2) exchanging digital assets for other digital assets; (3) transferring digital assets to a third party; (4) acting as a digital asset custodian; or (5) participating in financial services relating to digital asset issuance. See 12 U.S.C. 5901(7). The term “digital asset service provider” does not include (1) a distributed ledger protocol; (2) an immutable and self-custodial software interface; or (3) a person solely by virtue of their (A) developing, operating, or engaging in the business of developing distributed ledger protocols or self-custodial software interfaces; (B) developing, operating, or engaging in the business of validating transactions or operating a distributed ledger; or (C) participating in a liquidity pool or other similar mechanism for the provisioning of liquidity for peer-to-peer transactions. See id. A liquidity pool is a portfolio of digital assets that is algorithmically bound and traded based on smart contracts. Liquidity providers and takers interact with liquidity pools by adding assets that the liquidity pools trade and receive a liquidity pool token in return that is proportionate to the percentage of assets they have contributed to the liquidity pool. Digital Financial Technology Report at 23.

The prohibition against digital asset service providers offering or selling Payment Stablecoins that are not issued by PPSIs begins on July 18, 2028. See 12 U.S.C. 5902(b)(1). The prohibition against digital asset service providers offering or selling Payment Stablecoins that are not issued by foreign payment stablecoin issuers that meet certain requirements goes into effect as of the effective date of the GENIUS Act. See 12 U.S.C. 5902(b)(2). The prohibitions that apply to a digital asset service provider would apply to an issuer to the extent that the issuer is a digital asset service provider.

See, e.g.,

12 U.S.C. 5903(a)(4), (b), (h).

For example, on September 19, 2025, the Department of the Treasury issued an advance notice of proposed rulemaking concerning the GENIUS Act. See 90 FR 45159 (Sept. 19, 2025). On December 19, 2025, the FDIC released a notice of proposed rulemaking related to certain application provisions under the GENIUS Act. 90 FR 59409 (Dec. 19, 2025). On February 12, 2026, the NCUA issued a notice of proposed rulemaking relating to investments in and licensing of PPSIs. 91 FR 6531 (Feb. 12, 2026). On March 2, 2026, the OCC issued a notice of proposed rulemaking relating to the issuance of Payment Stablecoins and certain related activities by entities subject to the OCC's jurisdiction. 91 FR 10202 (Mar. 2, 2026).

Under the GENIUS Act, “insured depository institutions,” which the Act defines to include both FDIC-insured depository institutions and FICUs (collectively referred to as “IDIs”), cannot be issuers of Payment Stablecoins. Instead, IDIs must use “subsidiaries” as issuers. The GENIUS Act defines the term “subsidiary of an insured credit union” to mean “(A) an organization providing services to the insured credit union that are associated with the routine operations of credit unions, as described in section 107(7)(I) of the Federal Credit Union Act (12 U.S.C. 1757(7)(I)); (B) a credit union service organization, as such term is used under part 712 of title 12, Code of Federal Regulations, with respect to which the insured credit union has an ownership interest or to which the insured credit union has extended a loan; and (C) a subsidiary of a State chartered insured credit union authorized under State law.”

The GENIUS Act requires that issuers that are subsidiaries of IDIs (including subsidiaries of FICUs) must be regulated by the primary Federal payment stablecoin regulators and does not allow them to opt for the state-level regulatory framework. Thus, the NCUA has jurisdiction over Payment Stablecoin issuers that are FICU subsidiaries.

12 U.S.C. 5901(33).

Under the GENIUS Act, only PPSIs may issue a Payment Stablecoin in the United States, subject to certain exceptions and safe harbors. PPSIs are subject to a number of requirements, including requirements related to reserves, capital, liquidity, illicit finance, and information technology risk management standards. For example, PPSIs must maintain reserves backing the Payment Stablecoin on a one-to-one basis using U.S. currency or certain other liquid assets, as specified. PPSIs must also publicly disclose their redemption policy and publish monthly the details of their reserves.

The GENIUS Act details the process for the primary Federal payment stablecoin regulators, which include the NCUA, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve System (Federal Reserve Board), to evaluate and review applications for licenses to be PPSIs and provides examination, supervision, and enforcement authority over PPSIs. Other issues addressed in the GENIUS Act include the provision of custody services for Payment Stablecoins; application of the Bank Secrecy Act and anti-money laundering and economic sanctions requirements; and treatment of PPSIs in insolvency proceedings.

The GENIUS Act establishes clear prohibitions and penalties to prevent the misrepresentation of Federal backing or insurance for Payment Stablecoins and to ensure that only authorized products may be marketed as such.

The GENIUS Act explicitly dictates that Payment Stablecoins are not backed by the full faith and credit of the United States, they are not guaranteed by the U.S. Government, nor are they covered by deposit or share insurance from the FDIC or NCUA. Similarly, it is unlawful to market a product in the United States as a Payment Stablecoin unless it is issued pursuant to the GENIUS Act.

See

12 U.S.C. 5903(e).

12 U.S.C. 5903(e)(3).

As detailed below, the GENIUS Act imposes a number of rulemaking, review, and reporting requirements on the primary Federal payment stablecoin regulators, including the NCUA. This supplemental proposal proposes regulations to implement the standards and restrictions imposed by the GENIUS Act on PPSIs (hereinafter, the “NCUA Standards Proposal”). This NCUA Standards Proposal supplements the notice of proposed rulemaking that the NCUA published in the

Federal Register

on February 12, 2026, entitled “Investments in and Licensing of Permitted Payment Stablecoins Issuers” (hereinafter, the “NCUA Licensing Proposal”).

91 FR 6531 (Feb. 12, 2026).

Separately, as is required by the GENIUS Act, the NCUA is engaging in a required review of its existing guidance and regulations to determine what steps are necessary, if any, to amend or promulgate new regulations and guidance to clarify FICUs' authority to engage in the Payment Stablecoin activities and investments contemplated by the GENIUS Act.

In addition to the above, the GENIUS Act requires the NCUA to examine and supervise issuers that are FICU subsidiaries. Thus, the NCUA is working to update various NCUA examination policies, guidance, and procedures, such as the National Supervision Policy Manual and Examiner's Guide, to accommodate the new examination and supervision authority over these FICU subsidiaries. The NCUA is also working to determine

whether further guidance to FICUs and FICU subsidiaries may be necessary on these subjects.

This proposal sets forth, and seeks comment on, the regulations that would apply to NCUA-Licensed Permitted Payment Stablecoin Issuers (NCUA-Licensed PPSIs) as well as certain custody activities conducted by FICUs and NCUA-Licensed PPSIs. These proposed regulations do not address stablecoins that do not qualify as Payment Stablecoins or issuers for which the NCUA does not have regulatory or enforcement authority. The GENIUS Act's effective date is the earlier of 18 months after the enactment date (July 18, 2025) or 120 days after the primary Federal payment stablecoin regulators issue final regulations implementing the GENIUS Act. The NCUA anticipates that these implementing regulations will be updated, as necessary, in the years following the effective date of the GENIUS Act as the business practices of NCUA-Licensed PPSIs continue to evolve and develop. In addition, other regulations beyond those addressed in this rulemaking may need to be updated in light of the passage of the GENIUS Act. This proposal would also make amendments to address share insurance coverage, tokenized shares, and other conforming and clarifying amendments.

A. Self-Executing Provisions

The GENIUS Act includes a number of self-executing provisions that are not addressed in this rulemaking. For example, the GENIUS Act includes several provisions addressing the applicability of State law to PPSIs. These provisions ensure that FICU subsidiaries approved to be NCUA-Licensed PPSIs are not subject to State licensure and address the effect of the GENIUS Act on State consumer protection laws.

Section 5(h) of the GENIUS Act expressly preempts “any State requirement for a charter, license, or other authorization to do business with respect to a” FICU subsidiary approved to be an NCUA-Licensed PPSI.

As a result, these entities are only required to obtain authorization to do business from the NCUA, which reduces the unnecessary complexity that would result from requiring these entities to also obtain a charter, license, or other authorization from one or more States. Section 7(f)(4) of the GENIUS Act provides that nothing in the GENIUS Act preempts State consumer protection laws.

12 U.S.C. 5904(h).

12 U.S.C. 5906(f)(4).

Together, these GENIUS Act provisions establish a framework for assessing the applicability of State law to a FICU subsidiary approved to be an NCUA-Licensed PPSI.

Because these GENIUS Act provisions are self-executing, the NCUA is not proposing regulatory text to implement them. However, the agency invites public comment on all aspects of this framework, including whether the self-executing provisions of the GENIUS Act should be codified in the NCUA's regulations for convenience.

The GENIUS Act also addresses the applicability of State law to State qualified payment stablecoin issuers.

See, e.g.,

section 7(f) of the Act (12 U.S.C. 5906(f)).

II. Legal Authority

As discussed in Section I. Background of this

SUPPLEMENTARY INFORMATION

section, the NCUA is a primary Federal payment stablecoin regulator with respect to a FICU or FICU subsidiary.

As a primary Federal payment stablecoin regulator, the GENIUS Act provides authority for the NCUA to approve and license issuance of Payment Stablecoins through FICU subsidiaries,

establish regulations for issuing Payment Stablecoins,

and examine for and enforce applicable requirements imposed on FICU subsidiaries.

The GENIUS Act also confers authority related to standards for custody of Payment Stablecoins, Private Keys, and reserves.

The GENIUS Act grants the NCUA general authority to promulgate regulations to carry out the GENIUS Act through appropriate notice and comment rulemaking.

12 U.S.C. 5901(25)(B).

12 U.S.C. 5904.

12 U.S.C. 5903(h).

12 U.S.C. 5903 and 5905.

12 U.S.C. 5909.

12 U.S.C. 5913.

Apart from the GENIUS Act, the FCU Act grants the NCUA a broad mandate to issue regulations governing both Federal Credit Unions (FCUs) and all FICUs. Section 120 of the FCU Act is a general grant of regulatory authority, and it authorizes the Board to prescribe rules and regulations for the administration of the FCU Act.

Section 209 of the FCU Act is a plenary grant of regulatory authority to the NCUA to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs.

12 U.S.C. 1766.

12 U.S.C. 1789.

Additionally, Section 204 of the FCU Act authorizes the Board, through its examiners, “to examine any [federally] insured credit union . . . to determine the condition of any such credit union for insurance purposes.”

Section 206(e) of the FCU Act authorizes the Board to take certain actions against a FICU, if, in the opinion of the Board, the credit union “is engaging or has engaged, or the Board has reasonable cause to believe that the credit union or any institution affiliated party is about to engage, in any unsafe or unsound practice in conducting the business of such credit union.”

Therefore, the Board has statutory authority to determine whether a FICU is operated in an unsafe or unsound manner and terminate a FICU's insurance if a FICU is not operated in a safe or sound manner.

12 U.S.C. 1784.

12 U.S.C. 1786.

With respect to proposed amendments to clarify the share insurance coverage of funds deposited in Share Accounts at FICUs that serve as Reserve Assets and the treatment of tokenized Share Accounts, in addition to the broad FCU Act authorities provided in sections 120 and 209 of the FCU Act, the FCU Act provides that the “[d]etermination of the net amount of share insurance under subparagraph (A), shall be in accordance with such regulations as the Board may prescribe . . .”

and that the “Board may define, with such classifications and exceptions as it may prescribe, the extent of the share insurance coverage provided for member accounts. . ..”

As discussed later in this preamble, the FCU Act also defines the term “member account.”

The NCUA insures member accounts at all FICUs. Importantly, this term is not limited to those persons enumerated in the credit union's field of membership who have become members. It also includes as member accounts certain nonmembers, such as other nonmember credit unions; nonmember public units and political subdivisions; and, in the case of credit unions serving predominantly low-income members, deposits of nonmembers generally. In other words, the NCUA provides share insurance coverage to members and those otherwise eligible to maintain insured accounts at FICUs.

12 U.S.C. 1787(k)(1)(B).

12 U.S.C. 1787(k)(1)(C).

12 U.S.C. 1752(5).

III. The NCUA Licensing Proposal

On February 12, 2026, the NCUA published a notice of proposed rulemaking in the

Federal Register

entitled “Investments in and Licensing of Permitted Payment Stablecoins Issuers.” The NCUA Licensing Proposal served as the first of two main proposed

rules that the NCUA anticipated issuing to implement the GENIUS Act. The NCUA is providing a high-level summary of that proposal to assist stakeholders as they review this second NCUA supplemental proposed rulemaking, the NCUA Standards Proposal, addressing standards for NCUA-Licensed PPSIs and FICUs, among other subjects.

The NCUA interprets the GENIUS Act to limit PPSI status to those institutions functioning as a subsidiary of an IDI (including a FICU),

a Federal qualified payment stablecoin issuer,

and a State qualified payment stablecoin issuer.

FICUs are not permitted to issue Payment Stablecoins directly. However, the GENIUS Act provides that subsidiaries of IDIs may apply and be approved to be PPSIs. As FICUs are expressly defined as IDIs, FICU subsidiaries may apply for and receive approval and license under the GENIUS Act to be PPSIs.

As discussed throughout the proposed rule, the GENIUS Act uses banking-specific terminology when defining PPSIs. For example, the GENIUS Act uses the two defined terms “subsidiary” and “insured depository institution” without using the defined term, “subsidiary of an insured credit union.” With respect to subsidiaries of FICUs, the Board believes the defined terms “subsidiary” of an “insured depository institution” should be read referring to the defined term “subsidiary of an insured credit union.” Given that FICUs are defined as insured depository institutions, it appears reasonable to read the terms synonymously. Additionally, the GENIUS Act expressly provides that all subsidiaries of an Insured Credit Union are subject to NCUA jurisdiction incorporating the defined term of “subsidiary of an insured credit union” into the definition of primary Federal payment stablecoin regulator. The term primary Federal payment stablecoin regulator is used for approvals under section 5 and it would be inharmonious for the NCUA to approve applications for issuers that otherwise are not subject to NCUA supervision.

A Federal qualified payment stablecoin issuer includes (1) a nonbank entity, (2) an uninsured national bank, and (3) a Federal branch. FICUs and their subsidiaries would not qualify as Federal qualified payment stablecoin issuers.

A State qualified payment stablecoin issuer is an entity that is: (A) legally established under the laws of a State and approved to issue payment stablecoins by a State payment stablecoin regulator; and (B) is not an uninsured national bank chartered by the OCC, a Federal branch, an IDI, or a subsidiary of a national bank, Federal branch, or IDI. FICUs and FICU subsidiaries, including CUSOs, therefore, would not qualify as a State qualified payment stablecoin issuer.

Section 5 of the GENIUS Act establishes the procedures and standards for the “approval of subsidiaries of insured depository institutions.”

The NCUA is required to “receive, review, and consider for approval applications” to issue Payment Stablecoins through a FICU subsidiary and to “establish a process and framework for the licensing, regulation, examination and supervision of such entities that prioritizes the safety and soundness of such entities.” Section 5(a)(2) requires the NCUA to issue regulations to carry out section 5.

Section 5(g) further requires that the NCUA issue rules necessary for the regulation of the issuance of Payment Stablecoins.

12 U.S.C. 5904.

12 U.S.C. 5904(a)(2).

12 U.S.C. 5904(g).

As explained in more detail in the NCUA Licensing Proposal, the GENIUS Act does not allow FICUs to directly issue Payment Stablecoins and instead provides that they must be issued through FICU subsidiaries that receive an NCUA-PPSI license. The Board made certain decisions in proposing to implement the GENIUS Act's application and licensing requirements that it believes will simplify the process and reduce the costs for the credit union industry and the NCUA. The Board discusses this approach in more detail in the NCUA Licensing Proposal.

The NCUA Licensing Proposal determined that it is preferrable for FICU subsidiaries themselves to submit the required applications to be an NCUA-Licensed PPSI jointly with their FICU Parent Company(ies), as defined in the NCUA-Licensing Proposal, rather than having every single FICU investing in them submit an application. The Board's proposed approach would also require the applying FICU subsidiary, and any of its FICU Parent Companies and Principal Shareholders, to provide written certification that any filing or supporting material submitted to the NCUA contains no material misrepresentations or omissions. Further, as required by the GENIUS Act, all Directors and Officers of the applying FICU subsidiary, its FICU Parent Company(ies), and any of its Principal Shareholders would have to provide certain information so that the NCUA can evaluate their competence, experience, and integrity and ensure they do not have felony convictions prohibited by the GENIUS Act. Finally, the NCUA Licensing Proposal proposed limiting FICUs to investing in NCUA-Licensed PPSIs. The Board believes this limitation is consistent with the definition of FICU subsidiary in the GENIUS Act and should not pose a barrier to the credit union industry's ability to facilitate Payment Stablecoin services for their members.

Further information about the proposed regulations to govern the process for reviewing and granting NCUA-PPSI licenses can be found in the NCUA Licensing Proposal.

IV. The NCUA Standards Proposal

The NCUA is issuing this supplemental proposed rule governing the issuance of Payment Stablecoins and certain related activities by entities subject to the NCUA's jurisdiction to supplement the NCUA Licensing Proposal and substantially implement the NCUA's proposed regulatory regime for NCUA-Licensed PPSIs and FICUs.

The NCUA is proposing the following procedures and standards for NCUA-Licensed PPSIs. Each section of the proposed rule will be discussed separately. As noted, the NCUA is providing a high-level summary of portions of the NCUA Licensing Proposal to assist stakeholders as they review this NCUA Standards Proposal. Unless explicitly stated in this supplemental proposal, the NCUA is not reproposing or otherwise modifying those provisions proposed in the NCUA Licensing Proposal.

The NCUA also notes that, as discussed throughout the NCUA Licensing Proposal, the GENIUS Act frequently uses banking-specific terminology and standards. Given this reliance on banking-specific terminology and the importance of providing consistent regulatory terminology and standards across the various primary Federal payment stablecoin regulators, where possible, proposed part 706 would maintain consistency with the standards and terminology proposed by the other primary Federal payment stablecoin regulators.

A. § 706.1. Authority, Purpose, and Scope

The NCUA Licensing Proposal proposed § 706.1 to describe the authority, purpose, and scope of part 706. The NCUA Standards Proposal is not proposing changes to what was previously proposed, but is restating the explanation provided in the NCUA Licensing Proposal to assist stakeholders as they review this proposal. Proposed § 706.1 would state that the NCUA is issuing part 706 under the GENIUS Act. Section 706.1 would state that part 706 applies to FICUs and all PPSIs with investment or loans from FICUs and sets forth such entities' requirements for an NCUA-issued license. Finally, § 706.1 would state that there is nothing in this part that shall be read to limit the authority of the NCUA to take action under provisions of law other than the GENIUS Act, including action to address unsafe or unsound practices or conditions, or violations of law or regulation, under section 206 of the FCU Act.

B. § 706.2. Definitions

Proposed § 706.2 would provide the definitions used throughout part 706.

It would state that, unless otherwise provided in part 706, the terms used in this part have the same meanings as set forth in 12 U.S.C. 1752 and 5901. It would also state that all accounting terms not otherwise defined in this part have meanings consistent with the commonly accepted meanings under United States generally accepted accounting principles (U.S. GAAP). Proposed § 706.2 would provide the following defined terms specific to part 706.

The definitions in proposed § 706.2 describe only terms used in proposed part 706. These definitions do not interpret terms for purposes of any other statute or regulation and are not issued pursuant to section 3(d) of the GENIUS Act (12 U.S.C. 5902(d)).

This NCUA Standards Proposal restates the definitions provided in the NCUA Licensing Proposal to assist commenters. Except where explicitly noted, the NCUA Standards Proposal does not modify the proposed definitions from the NCUA Licensing Proposal.

As discussed throughout the NCUA Licensing Proposal, the GENIUS Act frequently uses banking-specific terminology and standards. Given this reliance on banking-specific terminology and the importance of providing consistent regulatory terminology and standards across the various primary Federal payment stablecoin regulators, where possible, proposed part 706 would maintain consistency with the standards and terminology proposed by the other primary Federal payment stablecoin regulators. The GENIUS Act's reliance on banking-specific terminology also compels the NCUA to at times clarify the best meaning of credit union specific terminology in part 706.

The NCUA solicits stakeholder input as to the below definitions and specifically as to whether individual definitions appropriately balance consistent meaning across the primary Federal payment stablecoin regulators with needed differences to accommodate the credit union industry.

1. Affiliate

The NCUA is proposing to define the term “Affiliate” consistent with the definition proposed by the OCC in their Payment Stablecoin notice of proposed rulemaking published in the

Federal Register

on March 2nd (hereinafter, the “OCC Proposal”). The OCC proposal would define the term consistent with the definition in the Bank Holding Company Act, 12 U.S.C. 1841(k), but modified to use the defined term “Person” in place of the term “company.”

Under the proposed rule, the term “Affiliate” would mean a Person that controls, is controlled by, or is under common Control with another person. The NCUA believes the proposed definition of Affiliate would include the appropriate individuals and entities that could be involved in Payment Stablecoin issuance. As articulated above, the NCUA also believes that it is important to, where possible, provide consistent regulatory standards across the various primary Federal payment stablecoin regulators.

While the proposed definition of “Affiliate” is consistent with the definition in the Bank Holding Company Act, the NCUA would retain interpretive authority with respect to this definition for purposes of proposed 12 CFR part 706.

2. Applying Issuer

As proposed in the NCUA Licensing Proposal, the term “Applying Issuer” would mean any entity applying to the NCUA for an NCUA-PPSI license. This term would be used throughout part 706 to generally refer to any entity that is applying for an NCUA-PPSI license. As is required in proposed § 706.103, an Applying Issuer must apply jointly with any Insured Credit Union Parent Company(ies), as defined in the NCUA Licensing Proposal.

3. Bank Secrecy Act

The NCUA is proposing to define the term “Bank Secrecy Act” consistent with the definition provided in the GENIUS Act, 12 U.S.C. 5901(2). Under the proposal, the term “Bank Secrecy Act” would mean: (1) section 21 of the Federal Deposit Insurance Act (12 U.S.C. 1829b); (2) chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951

et seq.

); and (3) subchapter II of chapter 53 of title 31, United States Code and notes thereto (31 U.S.C. 5311

et seq.

). The proposal would add the phrase “and notes thereto” as a clarification.

4. Control

The NCUA is defining “Control” such that a Person would control another Person if: (1) the Person directly or indirectly or acting through one or more other Persons owns, controls, or has power to vote 25 percent or more of any class of voting securities of the other Person; (2) the Person controls in any manner the election of a majority of the Directors or trustees of the other Person; or (3) the NCUA determines, after notice and opportunity for hearing, that the Person directly or indirectly exercises a controlling influence over the management or policies of the other Person. Like the definition of “Affiliate,” the proposed definition of “Control” is generally consistent with the Bank Holding Company Act.

The NCUA notes that § 706.111, as proposed in the NCUA Licensing Proposal, included certain provisions regarding changes in control of an NCUA-Licensed PPSI related to ownership interests of FICU Parent Companies. As discussed later in this NCUA Standards Proposal, the NCUA is proposing to change proposed § 706.111 to refer to changes in FICU Parent Companies rather than changes in control. This is to help clarify that NCUA-Licensed PPSIs obtaining investment from FICUs and the investing FICUs should refer to the standards for FICUs that are or would be Parent Companies as described in § 706.111 while NCUA-Licensed PPSIs obtaining investment from non-FICU investors and the non-FICU investors should refer to this definition of Control and § 706.205(m). This is not intended to create a substantive change from the standards applicable to FICU Parent Companies initially proposed in the NCUA Licensing Proposal.

While the proposed definition of Control is consistent with the definition in the Bank Holding Company Act, the NCUA would retain interpretive authority with respect to this definition for purposes of proposed 12 CFR part 706.

5. Customer

The NCUA is proposing to define the term “Customer” to mean a Person that purchases (through any consideration) the products or services of another Person. This term appears in a variety of different contexts in the proposed rule, so the NCUA has proposed a broad definition for the term. The definition for purposes of the proposed rule is not intended to affect any customer identification program or customer due diligence rules.

6. Digital Asset

The NCUA is proposing to define the term “Digital Asset” as provided in section 2(6) of the GENIUS Act.

Under the proposed rule, the term “Digital Asset” would mean any digital representation of value that is recorded on a cryptographically secured Distributed Ledger.

12 U.S.C. 5901(6).

7. Director

As provided in the NCUA Licensing Proposal, proposed § 706.2 would define the term “Director” to mean an individual who serves on the board of directors of an Applying Issuer, a Parent Company of the Applying Issuer, or a Principal Shareholder of the Applying

Issuer. Under the NCUA-Licensing Proposal, individuals meeting the definition of a Director will generally need to complete the NCUA's Biographical and Financial Report so that the NCUA can verify their competence, experience, and integrity, as is required by the GENIUS Act.

The Directors and proposed Directors of an Applying Issuer will also generally need to provide legible fingerprints for a biometric based criminal history search so that the NCUA can evaluate whether any of these individuals have been convicted of a felony offense involving insider trading, embezzlement, cybercrime, money laundering, financing of terrorism, or financial fraud as is required by the GENIUS Act.

12 U.S.C. 5904(c)(3).

See

12 U.S.C. 5903(f).

As part of this NCUA Standards Proposal, the NCUA is proposing to amend the definition as proposed in the NCUA Licensing Proposal to specifically include individuals who serve on the board of directors of an NCUA-Licensed PPSI and to exempt certain advisory directors. These are not intended to be substantive changes, but instead to make clear that (1) an individual that is a Director of an Applying Issuer remains covered by the term Director once the Appling Issuer becomes an NCUA-Licensed PPSI; and (2) the definition is not intended to cover advisory directors who do not have the authority to vote on matters before the board of directors or any committee of the board of directors and provide solely general policy advice to the board of directors or any committee. Additionally, it is worth noting that Directors of NCUA-Licensed PPSIs would be subject to a number of additional requirements imposed by the NCUA Standards Proposal, including those related to Insider and Affiliate transactions in proposed § 706.204(a)(6).

Finally, as noted above, the NCUA is also proposing to include language in the definition of Director exempting advisory directors who do not have the authority to vote on matters before the board of directors or any committee of the board of directors and provides solely general policy advice to the board of directors or any committee.

8. Distributed Ledger

The NCUA is proposing to define the term “Distributed Ledger” as provided in the GENIUS Act with certain technical edits.

The proposed rule would define the term “Distributed Ledger” to mean technology in which (1) data is shared across a network that creates a public digital ledger of verified transactions or information among network participants and (2) cryptography is used to link the data to maintain the integrity of the public ledger and execute other functions. The proposed definition reformats the definition in the GENIUS Act by using numbering to distinguish between the two components of the definition. The formatting changes are technical and do not have a substantive effect on the definition.

12 U.S.C. 5901(8).

9. Distributed Ledger Protocol

The NCUA is proposing to define the term “Distributed Ledger Protocol” as provided in the GENIUS Act.

The term “Distributed Ledger Protocol” would mean publicly available and accessible executable software deployed to a Distributed Ledger, including smart contracts or networks of smart contracts.

12 U.S.C. 5901(9).

10. Eligible Financial Institution

The NCUA is proposing to define “Eligible Financial Institution” to mean (1) a Person that (a) is eligible to hold Reserve Assets in custody under section 10(a) of the GENIUS Act;

(b) complies with the applicable requirements in section 10(b), (c), and (d) of the GENIUS Act,

including with applicable implementing regulations issued by a relevant Federal payment stablecoin regulator as defined in 12 U.S.C. 5901(25), primary financial regulatory agency described in 12 U.S.C. 5301(12)(B) or (C), State bank supervisor, or State credit union supervisor; and (c), if applicable, enters into a custody agreement with an NCUA-Licensed PPSI documenting the Person's compliance with section 10(b), (c) and (d) of the Act as well as policies and procedures to ensure compliance; or (2) a Federal Reserve Bank.

12 U.S.C. 5909(a).

12 U.S.C. 5909(b)-(d).

The term “Eligible Financial Institution” is relevant to the Reserve Asset diversification and concentration requirements in proposed § 706.202(c) of the proposed rule. Under section 10(a) of the GENIUS Act, a Person may only engage in the business of providing custodial or safekeeping services for the Payment Stablecoin reserve, the Payment Stablecoins used as collateral, or the Private Keys used to issue Payment Stablecoins if the Person (1) is subject to (A) supervision or regulation by a primary Federal payment stablecoin regulator or a primary financial regulatory agency described under subparagraph (B) or (C) of section 2(12) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5301(12)); or (B) supervision by a State bank supervisor, as defined under section 3 of the FDI Act (12 U.S.C. 1813), or a State credit union supervisor, as defined under section 6003 of the Anti-Money Laundering Act of 2020 (31 U.S.C. 5311 note), and such State bank supervisor or State credit union supervisor makes available to the Federal Reserve such information as the Federal Reserve determines necessary and relevant to the categories of information under section 10(d) of the Act; and (2) complies with the requirements under section 10(b), unless such Person holds such property in accordance with similar requirements as required by a primary Federal payment stablecoin regulator, the Securities and Exchange Commission, or the Commodity Futures Trading Commission.

Eligible Financial Institutions would include IDIs regardless of whether the entities engaged in stablecoin activities or provided custody services to NCUA-Licensed PPSIs because these entities are subject to supervision or regulation by a primary Federal payment stablecoin regulator. Thus, for example, under proposed § 706.202(c) an NCUA-Licensed PPSI could deposit reserves in Share Accounts at a FICU regardless of whether the FICU acted as custodian for the NCUA-Licensed PPSI's other Reserve Assets.

To meet the proposed definition, a financial institution must also comply with the applicable requirements of section 10 of the Act,

and the relevant custody agreement must reflect compliance with section 10 as well as policies and procedures to ensure such compliance.

These criteria are intended to ensure compliance with section 10 of the Act and to encourage appropriate due diligence of entities that hold Reserve Assets for NCUA-Licensed PPSIs.

12 U.S.C. 5909.

As discussed above, to the extent that an Eligible Financial Institution does not engage in custody of covered assets, section 10 of the GENIUS Act (12 U.S.C. 5909) would not apply.

The NCUA recognizes that multiple agencies will regulate PPSIs and that multiple agencies regulate the entities that may permissibly custody Reserve Assets. The proposed rule would impose requirements on where and how NCUA-Licensed PPSIs may hold Reserve Assets and would also impose requirements on NCUA-regulated institutions that hold Reserve Assets on behalf of PPSIs, including PPSIs not regulated by the NCUA. Accordingly, there may be overlap between the

requirements imposed by different regulators with separate requirements implementing section 10 of the GENIUS Act that govern how their regulated entities must handle Reserve Assets placed by other PPSIs. The NCUA invites comment on the best ways to manage potentially overlapping requirements. The proposed rule would require that an “Eligible Financial Institution” comply with the requirements in section 10(b), (c), and (d) of the GENIUS Act, including applicable implementing regulations. Accordingly, even if different types of Eligible Financial Institutions are subject to different regulations on the safe handling of Payment Stablecoin Reserve Assets, an NCUA-Licensed PPSI could still custody Reserve Assets at any entity that meets the requirements in the definition of “Eligible Financial Institution.” Given the diverse set of entities that may permissibly hold Payment Stablecoin reserves, the proposed definition of “Eligible Financial Institution” would not necessarily require that Eligible Financial Institutions be subject to uniform regulations implementing the requirements in section 10(b), (c), and (d) of the GENIUS Act. The proposed rule would require an NCUA-Licensed PPSI to enter into a custody agreement with an Eligible Financial Institution, which would establish a baseline that the Eligible Financial Institution is adhering to the requirements in section 10(b), (c), and (d), along with any implementing regulations. In the absence of this requirement, Reserve Assets might be placed at a financial institution without the financial institution even purporting to comply with the requirements in section 10(b), (c), or (d), or possibly even knowing that its Customer's assets represent Payment Stablecoin reserves.

11. Fair Value

The NCUA is proposing to include a definition of the term “Fair Value” in the rule. As proposed, the term “Fair Value” would mean the fair value as determined under GAAP.

Fair value is used in proposed § 706.202 in describing proposed reserve requirements.

See discussion of the definition of “GAAP,” infra.

12. FDIC

The NCUA is proposing to define FDIC to mean the Federal Deposit Insurance Corporation. This accords with the definition of “Corporation” in section 2(5) of the GENIUS Act.

The NCUA has opted not to use the term “Corporation” to describe the FDIC because that term is used more broadly in the definition of Person, discussed below.

12 U.S.C. 5901(5).

13. GAAP

The NCUA is proposing to include a definition of the term GAAP in the rule. The proposed rule would define the term “GAAP” to mean the generally accepted accounting principles as used in the United States. GAAP is used in the definition of Fair Value and proposed subparts B and D.

14. Immediate Family

The NCUA is proposing to define the term “Immediate Family” to mean the spouse of an individual, the individual's minor children, and any of the individual's children (including adults) residing in the individual's home. This term is relevant to the risk management standards concerning Insider and Affiliate transactions. It aligns with the definition in the OCC Proposal and is consistent with the definition in Regulation O.

12 CFR part 215.

15. Insider

The NCUA is proposing to define the term “Insider” to mean: (1) an Officer or Director of an NCUA-Licensed PPSI; (2) any Parent Company, and the Officers and Directors of the Parent Company, of an NCUA-Licensed PPSI; (3) any Principal Shareholder, and Officers and Directors of the Principal Shareholder, of an NCUA-Licensed PPSI; and (4) a Related Interest of or the Immediate Family of any of these Persons. This term is relevant to the risk management standards concerning Insider and Affiliate transactions. It aligns with the definition in the OCC Proposal, which was adapted from the definition in Regulation O,

while accounting for Parent Company FICUs and their Officers and Directors. It has been adapted to make direct reference to the Immediate Family of one of the covered groups of Officers, Directors, Parent Companies, and Principal Shareholders to mitigate the risk of an Insider engaging in inappropriate transactions to benefit Immediate Family members.

Id.

16. Insured Credit Union

The NCUA proposes to define the term “Insured Credit Union” consistent with the definition of the term in the GENIUS Act.

As proposed, the term “Insured Credit Union” would have the meaning given to that term in section 101 of the Federal Credit Union Act.

12 U.S.C. 5901(14).

12 U.S.C. 1752.

17. Insured Depository Institution

The NCUA is proposing to define the term “Insured Depository Institution” consistent with the definition of the term in the GENIUS Act.

As proposed, the term “Insured Depository Institution” would mean an Insured Depository Institution, as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) and an Insured Credit Union.

12 U.S.C. 5901(15).

18. Issuing Group

As proposed in the NCUA Licensing Proposal, proposed § 706.2 would define the term “Issuing Group” to mean the Applying Issuer and Parent Company(ies) and the Officers, Directors, and Principal Shareholders, if applicable, of the Applying Issuer, its subsidiaries, and Parent Company(ies).

As part of this NCUA Standards Proposal, the NCUA is proposing to amend the definition as proposed in the NCUA Licensing Proposal to specifically include NCUA-Licensed PPSIs. This is not intended to be a substantive change, but instead to make clear that an Applying Issuer that becomes an NCUA-Licensed PPSI remains a member of the Issuing Group and is subject to the requirements proposed part 706 imposes on Issuing Groups.

19. Monetary Value

The NCUA is proposing to define the term “Monetary Value” as provided in the GENIUS Act.

The proposal would define “Monetary Value” to mean a National Currency or deposit (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) denominated in a National Currency.

12 U.S.C. 5901(17).

However, as noted throughout the NCUA's Licensing Proposal and this NCUA Standards Proposal, the GENIUS Act frequently relies on banking-specific terminology. The references to a “deposit” as defined by the FDI Act in the GENIUS Act's definitions of “Monetary Value”

and “Payment Stablecoin”

are an example of this. Despite these references to FDI Act “deposits,” which do not explicitly cover “accounts,”

as defined by the FCU Act, or “shares” at FICUs (defined as “Share Accounts” in this proposal), the Board believes the GENIUS Act broadly contemplates treating deposits

at banks and savings associations and funds in Share Accounts at FICUs interchangeably and is concerned that to do otherwise could potentially create interpretive and implementation issues.

See

12 U.S.C. 5901(17).

See

12 U.S.C. 5901(22).

See

12 U.S.C. 1752(5).

More specifically, the GENIUS limits “Payment Stablecoins” to Digital Assets that the issuer must (1) “be obligated to convert, redeem, or repurchase for a fixed amount of monetary value” and (2) “represent[ ] that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value[.]”

The GENIUS Act generally defines “Monetary Value” to mean (1) a National Currency; or (2) a deposit (as defined by the FDI Act) denominated in a National Currency.

In relevant part, a National Currency is defined by the GENIUS Act to include Federal Reserve notes and Money standing to the credit of an account with a Federal Reserve Bank.

The Payment Stablecoin definition also clarifies that Digital Assets that are a National Currency or a deposit (as defined by the FDI Act), including a deposit recorded using Distributed Ledger technology, are not Payment Stablecoins.

See

12 U.S.C. 5901(22)(A)(ii)(I)-(II).

12 U.S.C. 5901(17)

See

12 U.S.C. 5901(19)(A)-(B).

See

12 U.S.C. 5901(22)(B)(i)-(ii).

While the Payment Stablecoin and Monetary Value definitions do not explicitly address “accounts” or “shares” at FICUs (Share Accounts), the Board believes that an overall reading of the GENIUS Act warrants that funds in Share Accounts at FICUs have Monetary Value (1) for which an issuer is “obligated to convert, redeem, or repurchase” their Payment Stablecoins for; and (2) against which an issuer can utilize as “a fixed amount of monetary value.” The GENIUS Act provides numerous instances demonstrating the intention that “deposits” at FDIC-insured banks and savings associations and “shares” at FICUs be treated the same, including: (1) parallel treatment of “demand deposits” and “insured shares” at all “insured depository institutions,” which the Act defines to include both FDIC-insured banks and FICUs, as permissible reserves by which Payment Stablecoins can be backed;

(2) explicitly granting FDIC-insured banks and FICUs the power to accept Payment Stablecoin reserves as “cash on

deposit

” when providing custody services for PPSIs;

(3) explicit recognition that the GENIUS Act does not limit the authority of a bank or credit union to “accept[] or receiv[e] deposits or shares (in the case of a credit union), and issu[e] digital assets that represent those deposits or shares”;

(4) recognition that “[e]ntities regulated by the primary Federal payment stablecoin regulators [including FICUs] are authorized to engage in the Payment Stablecoin activities and investments contemplated by this Act, including acting as a principal or agent with respect to any Payment Stablecoin and payment of fees to facilitate customer transactions”;

and (5) a parallel prohibition for misrepresentation of insured status of Payment Stablecoins by FDIC-insured banks and NCUA-insured credit unions.

See

12 U.S.C. 5903(a)(1)(A)(ii).

See

12 U.S.C. 5909(c)(2)(D).

See

12 U.S.C. 5915(a)(1).

See

12 U.S.C. 5915(b).

See

12 U.S.C. 5903(e).

Given the GENIUS Act's clear intention that, despite the use of banking-specific terminology, Share Accounts at FICUs and deposits at banks are to be given parallel treatment, the NCUA is specifically seeking comment as to whether the NCUA should adopt a definition of the term “Deposit” and, if so, the proper definition. Should the parenthetical to the Federal Deposit Insurance Act definition of a “deposit” be dropped? Should a definition specifically include “deposits” as defined by the Federal Deposit Insurance Act and “accounts” as defined by the FCU Act (and defined as Share Accounts in this proposal)? Relatedly, the Board seeks comment as to whether the NCUA should provide an explicit interpretation in Part 706, the final rule's preamble, or other guidance that the definition of Monetary Value and/or Payment Stablecoin in the GENIUS Act expressly covers a Digital Asset for which an issuer has an obligation to redeem funds placed in a Share Account at a FICU? If so, how? For example, should the NCUA expressly interpret Monetary Value to include a broader conception of “deposits” not limited to the definition in section 3 of the Federal Deposit Insurance Act? Does the ubiquitous convertibility of funds in Share Accounts and bank deposits in the U.S. financial system bear on this question (

e.g.,

is redemption in funds placed in a Share Account at a FICU functionally equivalent to redemption in bank deposits for purposes of the scope of a Payment Stablecoin)? What are the practical or evasion risks of possible interpretations? In practice, will FICU subsidiaries likely seek to issue Payment Stablecoins that are redeemable only in funds in Share Accounts, bank deposits, or both?

20. Money

Section 2(18) of the GENIUS Act defines “Money” to mean a medium of exchange currently authorized or adopted by a domestic or foreign government, including a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.

This definition is relevant to the definition of National Currency (discussed below) and certain Reserve Assets described in section 4(a)(1)(A)(i) and (iv) of the GENIUS Act.

Section 4(a)(1)(A)(i) refers to Money standing to the credit of an account with a Federal Reserve Bank. Section 4(a)(1)(A)(iv) refers to Money received under a repurchase agreement that meets certain requirements. Although the statutory definition of Money clearly includes Monetary Value, it may be unclear at any point in time whether other mediums of exchange have been authorized or adopted by a domestic or foreign government. Moreover, whether a medium of exchange meets this definition may change based on actions of foreign governments or intergovernmental organizations. While it may be relatively clear whether an asset is Money standing to the credit of an account with a Federal Reserve Bank, there could be ambiguity as to whether a particular asset is Money received under a repurchase agreement. Therefore, to promote clarity and uniformity for purposes of determining whether certain assets would qualify as Money under proposed part 706, the NCUA proposes that it would provide prior confirmation publicly that a medium of exchange (other than those defined as Monetary Value) meets the definition of “Money” under the GENIUS Act. Specifically, the NCUA proposes to define “Money” for the purposes of part 706 to mean Monetary Value and any other medium of exchange that the NCUA has determined is currently authorized or adopted by a domestic or foreign government, including a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.

12 U.S.C. 5901(18).

12 U.S.C. 5903(a)(1)(A)(i) and (iv).

21. National Currency

The NCUA is proposing to define the term “National Currency” as provided in the GENIUS Act.

Under the proposed rule, the term “National Currency” would mean (1) a Federal Reserve note (as the term is used in the

first undesignated paragraph of section 16 of the Federal Reserve Act (12 U.S.C. 411)); (2) Money standing to the credit of an account with a Federal Reserve Bank; (3) Money issued by a foreign central bank; or (4) Money issued by an intergovernmental organization pursuant to an agreement by two or more governments.

12 U.S.C. 5901(19).

22. NCUA-Licensed Permitted Payment Stablecoin Issuer

As proposed in the NCUA's Licensing Proposal, proposed § 706.2 would define an NCUA-Licensed Permitted Payment Stablecoin Issuer to mean a Person formed in the United States that is a FICU subsidiary that has been approved and licensed by the NCUA under subpart A to issue Payment Stablecoins.

23. Nonpublic Personal Information

The NCUA is proposing to define the term “Nonpublic Personal Information” to mean information (1) provided by a Customer to an NCUA-Licensed PPSI to obtain a financial product or service, (2) about a Customer resulting from any transaction involving a financial product or service between the NCUA-Licensed PPSI and a Customer, or (3) otherwise obtained by the NCUA-Licensed PPSI in connection with providing a financial product or service to a Customer. The proposed definition does not include publicly available information, unless such publicly available information, when combined with other information, would reveal the identity of a Customer or would enable access to the Customer's account.

24. Officer

As proposed in the NCUA's Licensing Proposal, proposed § 706.2 would define the term “Officer” to mean the president, chief executive officer, chief operating officer, chief financial officer, chief technology officer, chief lending officer, chief investment officer, chief risk officer, Bank Secrecy Act officer, and any other individual the NCUA identifies in writing to the Issuing Group who exercises significant influence over, or participates in, major policy making decisions of the Issuing Group without regard to title, salary, or compensation. The term also includes employees of entities retained by an Issuing Group to perform such functions in lieu of directly hiring the individuals.

25. Outstanding Issuance Value

The NCUA is proposing to define the term “Outstanding Issuance Value” to mean the total consolidated par value of all of an NCUA-Licensed PPSI's Payment Stablecoins. This would include the combined total par value of different brands of Payment Stablecoin issued by the NCUA-Licensed PPSI (

e.g.,

under a white label arrangement) to the extent that such an arrangement complies with proposed 12 CFR part 706. The proposed definition includes the defined term “Payment Stablecoin” and should be read consistent with that definition, discussed below. For purposes of calculating the Outstanding Issuance Value, the NCUA believes that a Digital Asset that is, or is designed to be, used as a means of payment or settlement but for which there is not yet an obligation to convert, redeem, or repurchase for a fixed amount of Monetary Value should not be included in the calculation. A Digital Asset minted (

i.e.,

created on a blockchain) by an issuer to be a Payment Stablecoin would not be included in the calculation of Outstanding Issuance Value until the obligation to convert, redeem, or repurchase the Digital Asset for a fixed amount of Monetary Value is incurred.

Similarly, once an issuer permanently removes a Payment Stablecoin from circulation (

e.g.,

burns the Payment Stablecoin) the Digital Asset would cease to be included in the calculation of Outstanding Issuance Value. Payment Stablecoins for which holder access has been restricted pursuant to applicable law, regulation, or court order would remain Payment Stablecoins, as the issuer's obligation to convert, redeem, or repurchase for a fixed amount of Monetary Value continues and the associated reserves are maintained in segregated accounts pending resolution of the restriction. Likewise, if an issuer repurchased a Payment Stablecoin but did not burn the Payment Stablecoin, the stablecoin in the NCUA-Licensed PPSI's inventory would not be part of the issuer's Outstanding Issuance Value (but would become part of the Outstanding Issuance Value if the NCUA-Licensed PPSI subsequently put the Payment Stablecoin back into circulation). Therefore, the proposed definition of “Outstanding Issuance Value” only includes Payment Stablecoins for which the NCUA-Licensed PPSI is obligated to convert, redeem, or repurchase for a fixed amount of Monetary Value (generally the issued Payment Stablecoins in circulation).

The NCUA also considered whether the proposed “Outstanding Issuance Value” definition should include only those Payment Stablecoins issued by an NCUA-Licensed PPSI, or also the Payment Stablecoins issued by the issuer's non-consolidated Affiliates.

The NCUA determined that it was appropriate to limit the proposed definition to include only the Payment Stablecoins issued by an NCUA-Licensed PPSI (and consolidated subsidiaries). The NCUA believes that the proposed definition would scope in the appropriate NCUA-Licensed PPSIs to the relevant provisions regarding Reserve Assets,

the frequency of examinations,

required audits,

and minimum capital calculation

without being overly expansive and that it best aligns with the language in the statute. Notwithstanding the proposed definition of “Outstanding Issuance Value,” non-consolidated Affiliates of an issuer that issue Payment Stablecoins would separately need to comply with the requirements of the GENIUS Act.

As noted above, the definition of “Outstanding Issuance Value” includes the consolidated value of issued Payment Stablecoins.

See

proposed § 706.202.

See

proposed § 706.205.

See

id.

See proposed subpart D.

26. Parent Company

As proposed in the NCUA's Licensing Proposal, proposed § 706.2 would define the term “Parent Company.” The GENIUS Act requires that applications for a PPSI license granted by a primary Federal payment stablecoin regulator be evaluated using specifically defined factors.

One of these factors requires the NCUA to evaluate the competency, experience, and integrity of the Officers and Directors of the Applying Issuer's Parent Company(ies).

Proposed § 706.2 would define the term Parent Company to specify when a FICU must sign onto an application and when a FICU's Officers and Directors should be evaluated as part of an Applying Issuer's licensure application. The term Parent Company would also be used to determine when a FICU's investment in an NCUA-Licensed PPSI requires prior notice as a change in control.

12 U.S.C. 5904(b)-(c).

12 U.S.C. 5904(c)(3).

Proposed § 706.2 would define a Parent Company as an Insured Credit Union(s) that will own, control or hold the power to vote 10 percent or more of any class of voting securities, or has the ability to direct the management or policies, of a Permitted Payment Stablecoin Issuer. If no Insured Credit Union will own, control or hold the power to vote 10 percent or more of any class of voting securities, the Insured Credit Union with the largest percentage of voting securities in relation to all other Insured Credit Unions is considered the Parent Company.” Under

this definition, any FICU that owns 10 percent or more of a class of voting securities would be a Parent Company. Additionally, if no FICU owns 10 percent or more of a class of voting securities, then the FICU with the greatest percentage of a class of voting securities in relation to any other FICU is the Parent Company for purposes of an NCUA PPSI license. The definition would also provide that a FICU that has the ability to direct the management or policies of a PPSI would be considered a Parent Company. The Board believes it is important that the definition of Parent Company cover FICUs that have the power to direct the management or policies of a PPSI regardless of their ownership interests.

27. Payment Stablecoin

The NCUA is proposing to define the term “Payment Stablecoin” consistent with the definition of the term in the GENIUS Act, 12 U.S.C. 5901(22), with certain technical changes. Under the proposal, the term “Payment Stablecoin” would mean a Digital Asset (i) that is, or is designed to be, used as a means of payment or settlement; and (ii) the issuer of which (A) is obligated to convert, redeem, or repurchase for a fixed amount of Monetary Value, not including a Digital Asset denominated in a fixed amount of Monetary Value; and (B) represents that such issuer will maintain, or creates the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of Monetary Value.

For a Digital Asset to be a Payment Stablecoin under proposed part 706, the issuer must be obligated to convert, redeem, or repurchase the Digital Asset for a fixed amount of Monetary Value.

The NCUA interprets the statutory language in 12 U.S.C. 5901(22) to mean that the PPSI would be obligated to meet redemption requests at par.

The proposed definition also provides that a “Payment Stablecoin” does not include a Digital Asset that is a (i) National Currency; (ii) deposit (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), including a deposit recorded using Distributed Ledger technology; or (iii) security, as defined in section 2 of the Securities Act of 1933 (15 U.S.C. 77b), section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), or section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2).

The GENIUS Act's definition of “Payment Stablecoin” includes a parenthetical with the term “deposit” in (B)(2) limiting the scope of the term to a “deposit” as defined in section 3 of the FDI Act. However, as discussed in this preamble's proposed definition of the term “Monetary Value,” the Board believes that an overall reading of the GENIUS Act makes clear the intention that, despite the use of banking-specific terminology, Share Accounts at FICUs and deposits at banks are to be given parallel treatment. Further, the GENIUS Act also specifically states that “[n]othing in this Act may be construed to limit the authority of a Federal credit union [or] State credit union to engage in activities permissible pursuant to applicable State and Federal law, including—(1) accepting or receiving deposits or shares (in the case of a credit union), and issuing digital assets that represent those deposits or shares.”

The GENIUS Act clearly contemplates shares (Share Accounts) represented by Digital Assets, but does not intend to limit the ability of FICUs to directly accept, receive, or issue Digital Assets that represent shares (Share Accounts). Conversely, the GENIUS Act does prohibit FICUs from directly issuing Payment Stablecoins. Given this clear delineation between Share Accounts/deposits represented by digital assets and Payment Stablecoins, the Board believes that in addition to excluding deposits recorded using Distributed Ledger technology from the GENIUS Act's definition of a Payment Stablecoin, shares (Share Accounts) recorded using Distributed Ledger technology are also not covered by the GENIUS Act's definition of a Payment Stablecoin.

See

12 U.S.C. 5915(a)(1).

The Board is specifically seeking comment as to whether the final rule should modify the text drawn from the GENIUS Act's definition to specifically exempt Share Accounts recorded using Distribution Ledger technology from the GENIUS Act's definition of a Payment Stablecoin. If so, how? Should the NCUA drop the parenthetical to the Federal Deposit Insurance Act definition of the a “deposit?” Should the NCUA adopt a definition of the term “Deposit” that drops the parenthetical to the Federal Deposit Insurance Act definition of a “deposit”? Should a definition specifically include “deposits” as defined by the Federal Deposit Insurance Act and “accounts” as defined by the FCU Act (and defined as Share Accounts in this proposal)? Relatedly, the Board seeks comment as to whether the NCUA should provide an explicit interpretation in Part 706, the final rule's preamble, or other guidance that the definition of Monetary Value and/or Payment Stablecoin in the GENIUS Act expressly covers a Digital Asset for which an issuer has an obligation to redeem funds placed in a Share Account at a FICU? If so, how?

The GENIUS Act's definition of “Payment Stablecoin” also contains language clarifying that “no bond, note, evidence of indebtedness, or investment contract that was issued by a permitted payment stablecoin issuer shall qualify as a security solely [because the issuer satisfies] the conditions in [paragraph (1) of the proposed “payment stablecoin” definition], consistent with section 17 of the Act.” The GENIUS Act provides that this language was included “for the avoidance of doubt.” The NCUA determined that it was not necessary to include this language in the proposed “Payment Stablecoin” definition because section 17 of the GENIUS Act includes amendments to the cited Federal statutes that clarify that Payment Stablecoins are not securities.

28. Person

The NCUA is proposing to define the term “Person” as the term is defined in the GENIUS Act, 12 U.S.C. 5901(24). As proposed, the term “Person” would mean an individual, partnership, company, corporation, association, trust, estate, cooperative organization, or other business entity, incorporated or unincorporated.

29. Principal Shareholder

As proposed in the NCUA's Licensing Proposal, proposed § 706.2 would define the term “Principal Shareholder.” The GENIUS Act requires that applications for a PPSI license granted by a primary Federal payment stablecoin regulator be evaluated using specifically defined factors.

One of these factors requires the NCUA to evaluate the competency, experience, and integrity of the Officers and Directors of the Applying Issuer's Principal Shareholders.

Proposed § 706.2 would define a Principal Shareholder to mean a Person other than an Insured Credit Union that directly or indirectly or acting in concert with one or more Persons or companies, or together with members of their Immediate Family, will own, control, or hold the power to vote 10 percent or more of any class of voting securities. Under this definition, any non-FICU that owns 10 percent or more of a class of voting securities would be a Principal Shareholder. Proposed § 706.2 would include the defined term of Principal Shareholder to specify when a non-FICU's Officers and Directors should be evaluated as part of

an Applying Issuer's licensure application. The proposed definition is derived from the FDIC's change of control regulations.

The intent of the definition is to capture only the non-FICUs that are most likely to have an ability to control or direct the management and policies of the PPSI. Under the proposed definition, if there is an Applying Issuer that is widely held by FICUs that also has non-FICU shareholders, then only the non-FICU shareholders with 10 percent or more of a class of voting securities would be considered Principal Shareholders. The Board believes the definition is the best interpretation of the term Principal Shareholders as used in the GENIUS Act and appropriately balances the NCUA's allocation of its resources with its statutory mandate under the GENIUS Act. While the GENIUS Act requires that the Board evaluate certain statutory factors related to the Officers and Directors of the Principal Shareholders, the Board does not believe it is practical or consistent with congressional intent for the NCUA to review the Officers and Directors of each investing shareholder. Requiring this level of review would disadvantage Applying Issuers seeking NCUA licenses and FICUs investing in them. It would also impose a prohibitive burden on the NCUA's resources, especially when considering the 120-day deadline the GENIUS Act imposes on the NCUA for rendering a decision on a substantially complete application. In summary, the Board believes it is prudent to only review Officers and Directors of an investing shareholder when the investing shareholder would have a material amount of control of the PPSI. The Board selected 10 percent as that is a common threshold used for determining a material amount of control under banking law.

12 U.S.C. 5904(b)-(c).

12 U.S.C. 5904(c)(3).

12 CFR part 303, subpart E.

30. Private Key

The NCUA is proposing to define the term “Private Key” to mean the unique alphanumeric string that allows an individual to transfer a particular unit of a Digital Asset using a Distributed Ledger. This definition is intended to include shards of a Private Key.

Sharding refers to dividing a Private Key into distinct pieces for enhanced security.

31. Publicly Available Information

The NCUA is proposing to define the term “Publicly Available Information” to mean any information that a Person has a reasonable basis to believe is lawfully made available to the general public from: (1) Federal, State, or local government records; (2) widely distributed media; (3) disclosures to the general public that are required to be made by Federal, State, or local law; or (4) a Distributed Ledger.

As noted above, the term “Distributed Ledger” is limited to publicly available and accessible ledgers.

32. Registered Public Accounting Firm

The NCUA is proposing to define the term “Registered Public Accounting Firm” as provided in the GENIUS Act.

Under the proposal, the term “Registered Public Accounting Firm” would mean a registered public accounting firm set forth in section 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201).

12 U.S.C. 5901(26).

33. Related Interest

The NCUA is proposing to define the term “Related Interest” of a Person to mean (1) a company that is controlled by that Person; or (2) a political or campaign committee that is controlled by that Person or the funds or services of which will benefit that Person. This term is relevant to the risk management standards for Insider and Affiliate transactions. It aligns with the OCC Proposal and is derived from the definition in Regulation O.

12 CFR part 215.

34. Reserve Asset

The NCUA is proposing to define the term “Reserve Asset” to mean an asset maintained by an NCUA-Licensed PPSI of a type enumerated in § 706.202(b). An NCUA-Licensed PPSI may maintain Reserve Assets as a custodian.

35. Share Account

The NCUA is proposing to define the term “Share Account” to have the same meaning as the term “account” in section 101 of the FCU Act (12 U.S.C. 1752(5).

36. State

The NCUA is proposing to define the term “State” as provided in the GENIUS Act, 12 U.S.C. 5901(28). Under the proposed rule, the term “State” would mean each of the several States of the United States, the District of Columbia and each territory of the United States.

37. Subsidiary of an Insured Credit Union

As discussed at length in the NCUA's Licensing Proposal, proposed § 706.2 would define the definition of Subsidiary of an Insured Credit Union, or FICU subsidiary, as defined in the GENIUS Act. This definition includes three separate prongs. Specifically, the GENIUS Act defines a “subsidiary of an insured credit union” to include the following:

(A) an organization providing services to the insured credit union that are associated with the routine operations of credit unions, as described in section 1757(7)(I) of this title;

(B) a credit union service organization, as such term is used under part 712 of title 12, Code of Federal Regulations, with respect to which the insured credit union has an ownership interest or to which the insured credit union has extended a loan; and

12 U.S.C. 5901(33).

Each prong is a separate and distinct avenue to qualify as a FICU subsidiary for purposes of being a PPSI.

38. Trading Volume

The NCUA is proposing to define the term “Trading Volume” to mean the aggregate number of Payment Stablecoins issued by an NCUA-Licensed PPSI that were purchased or sold on exchanges during a specified period of time.

39. Request for Comment

The NCUA requests feedback on all aspects of the proposed rule, including:

Question 1:

Are the definitions in the proposed rule appropriately scoped? How should they be improved?

Question 2:

Given the GENIUS Act's frequent use of banking-specific terminology, has the proposed rule struck the appropriate balance of maintaining consistency with the standards and terminology used in the GENIUS Act and proposed by the other primary Federal payment stablecoin regulators while also reflecting the nuances of the credit union industry and its terminology? Has the proposed rule appropriately clarified the best meaning for banking and credit union specific terminology? Do the proposal's definitions of terms like “Share Account,” “Insured Credit Union,” and “Insured Depository Institution” enhance the clarity of Part 706? Are there ways that these and other terms could be better defined or utilized to strike the appropriate balance between consistency across regulatory regimes and clarity for those subject to the NCUA's regulations?

Question 3:

Is the definition of “Control” sufficiently clear? If not, how should the NCUA further clarify the term?

Question 4:

The term “Customer” is broadly defined to mean a Person that purchases (through any consideration)

the products or services of another Person. Is the scope of this definition too broad? With respect to Customers of NCUA-Licensed PPSIs, should the definition expressly include only Persons with direct interactions with an NCUA-Licensed PPSI? Alternatively, should the definition include all downstream Payment Stablecoin holders (

i.e.,

not just Customers with direct interactions with the PPSI)? Please address any significant impact or burden the proposed definition or contemplated alternative definitions may have or add given other requirements in the proposed rule, such as the Customer notification requirements in proposed § 706.204. Because the term is used in several different contexts throughout the proposed rule, should the definition of “Customer” be refined with respect to certain requirements (

e.g.,

Customer notification)?

Question 5:

Are the terms “deposit” and “Share Account” sufficiently clear as used in the proposed rule? If not, how should they be clarified? Is their intersection with the terms “Monetary Value,” “Money,” and “Payment Stablecoin” sufficiently clear? If not, what can the NCUA do to provide further clarity? Would commenters prefer that the proposed rule specifically refer to both deposits and Share Accounts in these terms and throughout the proposed rule or would they prefer the NCUA adopt a defined term “Deposit” to cover both deposits as defined by the FDI Act and Share Accounts?

Question 6:

Is the scope of the term “Digital Asset” sufficiently clear? If not, how should it be clarified?

Question 7:

The proposed rule does not define the term “digital asset service provider.” Is the scope of the term digital asset service provider under the statute sufficiently clear? If not, how should it be clarified? Are there specific activities that should be expressly excluded from digital asset service provider activities, consistent with the statutory definition? Should additional guidance on the exclusions from the definition of “digital asset service provider” or the meaning of “engaging in the business” of providing digital asset service provider activities be clarified? If so, how should the NCUA further clarify these terms? Should the NCUA clarify that only the provision of financial services that directly relate to Digital Asset issuance would result in an entity becoming a digital asset service provider?

Question 8:

Is the term “Director” sufficiently clear? How should the NCUA further clarify the term?

Question 9:

Is the term “Distributed Ledger” sufficiently clear? Should the term “public digital ledger” be further clarified? What additional clarifications would be helpful? Should certain permissioned or semi-permissioned digital ledgers be considered “public?” If so, how should the definition of “public” delineate between different types of permissioned or semi-permissioned blockchains?

Question 10:

Is the definition of “Eligible Financial Institution” appropriately scoped? How could the term be further refined? Are there particular elements of the definition that should be excluded or should be addressed elsewhere in the proposed rule?

Question 11:

Is the definition of “Money” appropriately scoped? Should the NCUA use the exact language of the statute, instead of using the proposed definition?

Question 12:

Is the term “Nonpublic Personal Information” appropriately scoped? How could the term be further refined or clarified?

Question 13:

The term “Outstanding Issuance Value” refers to the total consolidated par value of all of an issuer's Payment Stablecoins. Should the definition also include the par value of non-consolidated Affiliates? If so, what changes should be made to the Reserve Asset requirements to ensure 1:1 backing across all Affiliated entities?

Question 14:

Is the term “Payment Stablecoin” sufficiently clear? If not, how should the definition be amended to provide additional clarity as to whether a particular stablecoin is a “Payment Stablecoin”? Please describe the types of stablecoins that the NCUA should clarify do not meet the definition of a “Payment Stablecoin” and therefore would be outside the scope of the proposed rule. Should there be additional clarity around what it means that a Payment Stablecoin is a Digital Asset “that is, or is designed to be, used as a means of payment or settlement?” For example, are there certain settlement scenarios that the NCUA should clarify are not “designed to be, used as a means of payment or settlement?”

Question 15:

Is the exclusion of a Digital Asset that “is a deposit, including a deposit recorded using Distributed Ledger technology” from the definition of “Payment Stablecoin” sufficiently clear? Should the NCUA explicitly state in Part 706 that Share Accounts at FICUs, including Share Accounts recorded using Distributed Ledger technology are excluded from the definition of “Payment Stablecoin?” Should the NCUA clarify which tokenized products this exclusion may apply to?

Question 16:

Is the term “NCUA-Licensed Permitted Payment Stablecoin Issuer” sufficiently clear? How should the definition be amended to provide additional clarity as to whether a particular entity issues a Payment Stablecoin and is subject to the requirements of the GENIUS Act? Should the more generic term “Permitted Payment Stablecoin Issuer” be used instead? If so, why? If not, why not?

Question 17:

Is the term “Person” sufficiently clear? Should the NCUA further clarify the definition, including with respect to the meaning of “association” or other components of the definition?

Question 18:

Is the term “Private Key” sufficiently clear? How could the term be further clarified? Should the NCUA define the term to mean the unique alphanumeric sequence that allows an individual to prove ownership of an account on a Distributed Ledger, including for the purpose of transferring a particular unit of a Digital Asset?

Question 19:

Should the definition of “Principal Shareholder” or any other definitions explicitly incorporate governance instruments other than securities providing voting rights with respect to the activities of the issuer? In particular, are there governance instruments that may not qualify as securities that the NCUA should incorporate or instruments common to partnerships that the NCUA should consider incorporating?

Question 20:

Is the term “senior management” as used in proposed part 706 sufficiently clear? Should the NCUA define the term, for example, to include all or a select subset of Officers?

Question 21:

The GENIUS Act does not define “payment stablecoin holder.” Should the NCUA define the term? If so, should the NCUA define the term to mean the Person that beneficially owns the Payment Stablecoin? Should the NCUA instead define the term based on possession via Digital Wallets or control of cryptographic keys? What considerations relating to custody should the NCUA bear in mind if it chooses to define the term? What interactions with other requirements in the proposed rule should the NCUA consider if it chooses to define the term?

Question 22:

Should the NCUA refine the definition of Trading Volume? Should the term be limited to trades that occur on exchanges? Should it include transactions that occur outside of an exchange? Should the NCUA define “exchange” for purposes of this definition? If so, should the NCUA

define it to mean a Person engaged in the business of making a market in Digital Assets (including Payment Stablecoins)? Should any definition include decentralized exchanges? What impediments are there to PPSIs collecting data concerning Trading Volume?

C. § 706.2. Severability

Proposed § 706.3 would provide that the provisions of this proposed part 706 are separate and severable from one another. If any provision is stayed or determined to be invalid, it is the NCUA's intention that the remaining provisions shall continue in effect. If a provision of the rule were found to be invalid, the NCUA anticipates that it would evaluate whether any re-proposal of the rule is appropriate. The NCUA is proposing to include the severability clause to ensure that, in the event any particular provision of the proposed rule is held to be invalid, the remainder of the rule would continue in effect, providing clarity for market participants on how to comply with the NCUA's regulations implementing the GENIUS Act pending any re-proposal.

The NCUA generally intends all of its rulemakings to be severable to the extent portions of the rule are determined to be invalid regardless of the presence of a severability clause. The NCUA is proposing to include an explicit severability clause to this rulemaking given the novelty and scope of the GENIUS Act and the importance of ensuring as much certainty as possible for the regulatory framework for Payment Stablecoins.

D. Subpart B—NCUA-Licensed Permitted Payment Stablecoin Issuers

1. § 706.201. Activities

a. Permitted Activities

Section 4(a)(7)(A) of the GENIUS Act sets forth the list of activities in which a PPSI may engage.

Additionally, section 16(b) of the GENIUS Act outlines certain additional activities and investments in which PPSIs may engage.

12 U.S.C. 5903(a)(7)(A).

12 U.S.C. 5915(b).

Consistent with the statute, the NCUA is proposing to mirror the permitted activities from section 4(a)(7)(A) of the GENIUS Act in proposed § 706.201(a)(1) through (4), which include: (1) issuing Payment Stablecoins; (2) redeeming Payment Stablecoins; (3) managing reserves related to the issuance or redemption of Payment Stablecoins, including purchasing, selling, and holding Reserve Assets or providing custodial services for reserve assets, consistent with applicable State and Federal law; and (4) providing custodial or safekeeping services for Payment Stablecoins, required reserves, or Private Keys of Payment Stablecoins consistent with the GENIUS Act, as implemented in proposed subpart C.

Additionally, proposed § 706.201(a)(8) provides that an NCUA-Licensed PPSI may undertake any other activities that directly support any of the activities in proposed § 706.201(a)(1) through (4), which is explicitly provided for in section 4(a)(7)(A)(v) of the GENIUS Act.

One such example of an activity that would qualify under proposed § 706.201(a)(8) because it directly supports both issuance and redemption of Payment Stablecoins would be the NCUA-Licensed PPSI's holding of non-Payment Stablecoin crypto-assets as principal necessary for testing a Distributed Ledger, whether internally developed or acquired from a third-party.

Such an activity may be necessary to ensure that the NCUA-Licensed PPSI may operate safely and effectively on a Distributed Ledger. To the extent that NCUA-Licensed PPSIs are unclear about whether an activity qualifies as activity that directly supports the activities in proposed § 706.201 (a)(1) through (a)(4), the NCUA encourages issuers to ask the NCUA directly whether an activity is permissible. The NCUA is seeking comment on whether there should be a more formal process for clarifications around permissibility, including whether the NCUA should provide additional clarity to the public through long-established channels such as Letters to Credit Unions, published frequently asked questions, or other means.

12 U.S.C. 5903(a)(7)(A).

12 U.S.C. 5903(a)(7)(A)(v).

Separate from NCUA-Licensed PPSIs conducting this activity to support their permissible Payment Stablecoin activities, the NCUA believes that the holding of crypto-assets as principal necessary to support other permissible activities is a permissible activity for FCUs. FISCUs must look to State law to determine the permissibility of such activities.

In addition to the activities outlined in section 4(a)(7) of the GENIUS Act, for the sake of clarification, proposed § 706.201(a)(5) provides that NCUA-Licensed PPSIs may assess fees that are associated with the purchasing or redeeming of Payment Stablecoins.

This power is inherent in the activities described above and is explicitly recognized in section 4(a)(1)(B)(ii) of the Act.

100

12 U.S.C. 5903(a)(7).

100

12 U.S.C. 5903(a)(1)(B)(ii).

The NCUA also proposes to include the permitted activities outlined in section 16(b) of the GENIUS Act,

101

namely acting as principal or agent with respect to any Payment Stablecoin and paying fees to facilitate customer transactions.

102

The NCUA notes that the language in section 16(b) of the Act is limited by the clause that provides that entities regulated by the primary Federal payment stablecoin regulators are “authorized to engage in the payment stablecoin activities and investments contemplated by this Act . . . .”

103

Accordingly, “acting as principal or agent with respect to any Payment Stablecoin” is permissible within the limited set of authorities otherwise prescribed by the GENIUS Act rather than, for example, any activity that may be conducted as principal or agent (

i.e.,

any activity involving a Payment Stablecoin). Therefore, proposed § 706.201(a)(6) would allow NCUA-Licensed PPSIs to hold and transact in Payment Stablecoins as principal or agent. Payment Stablecoins are not, however, a permitted Reserve Asset in proposed § 706.202.

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To the extent an NCUA-Licensed PPSI is a “digital asset service provider,” as defined section 2(7) of the GENIUS Act,

105

the issuer must also comply with the prohibition outlined in section 3(b)(2) of the GENIUS Act,

106

providing that it is unlawful for any digital asset service provider to offer, sell, or otherwise make available in the United States a Payment Stablecoin issued by a foreign payment stablecoin issuer, unless certain conditions are met.

101

12 U.S.C. 5915(b).

102

Section 16(b) of the Act provides in part that “Entities regulated by the primary Federal payment stablecoin regulators are authorized to engage in the payment stablecoin activities and investments contemplated by this Act, including acting as a principal or agent with respect to any payment stablecoin and payment of fees to facilitate customer transactions.” 12 U.S.C. 5915(b). The activities authorized under section 16(b) include, for example, acting as an agent for a Customer with respect to the redemption of a Payment Stablecoin issued by a third party.

103

12 U.S.C. 5915(b).

104

See

12 U.S.C. 5903(a)(1) (setting forth permissible Reserve Assets).

105

12 U.S.C. 5901(7).

106

12 U.S.C. 5902(b)(2).

Consistent with section 16(b) of the GENIUS Act, proposed § 706.201(a)(7) would allow NCUA-Licensed PPSIs to pay fees to facilitate Customer transactions (

e.g.,

network or “gas” fees). If an issuer's Payment Stablecoin operates on a blockchain that assesses transaction fees, then the issuer may choose to pay transaction fees on behalf of the Customer. The NCUA recognizes that, if an issuer is paying transaction

fees on certain Distributed Ledgers, the issuer may have to hold non-Payment Stablecoin crypto-assets to facilitate the payment of these transaction fees. Consistent with the GENIUS Act, such crypto-assets are not permitted Reserve Assets in proposed § 706.202.

Proposed § 706.201(b) incorporates language from section 16(a) of the GENIUS Act and emphasizes that nothing in proposed § 706.201(a) may be construed to limit the authority of an Insured Credit Union to engage in activities permissible pursuant to applicable State and Federal law.

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12 U.S.C. 5915(a)

Beyond the core activities and those that directly support those activities, section 4(a)(7)(B) of the GENIUS Act provides a rule of construction such that none of a PPSI's activities discussed above (

i.e.,

issuance, redemption, managing reserve assets, limited custody,

etc.

) are to be construed as a limitation on certain incidental activities or Digital Asset service provider activities if the activities are authorized by the NCUA.

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Digital Asset service provider activities encompass: (1) exchanging Digital Assets for Monetary Value; (2) exchanging Digital Assets for other Digital Assets; (3) transferring Digital Assets to a third party; (4) acting as a Digital Asset custodian; and (5) participating in financial services relating to Digital Asset issuance.

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The NCUA is intending to adhere to the GENIUS Act's rule of construction and would authorize additional activities as appropriate.

108

12 U.S.C. 5903(a)(7)(B).

109

12 U.S.C. 5901(7)(A).

The NCUA's authority to approve these activities is limited to those activities specified by the GENIUS Act that are consistent with all other Federal and State laws, and provided that in any insolvency proceedings described under section 11 of the GENIUS Act,

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the activities would not jeopardize the claims of Payment Stablecoin holders, which would rank senior to claims of non-Payment Stablecoin creditors.

111

The NCUA seeks comment on how to implement section 4(a)(7)(B) of the GENIUS Act and whether it should serve as an independent grant of authority or whether it must be consistent with a grant of authority provided from another Federal or State law.

112

110

12 U.S.C. 5911.

111

See

12 U.S.C. 5903(a)(7)(B).

112

Id.

b. Prohibited Activities

The GENIUS Act also provides for certain prohibitions for PPSIs, including the prohibition on rehypothecation in section 4(a)(2),

113

the prohibition on the use of deceptive names in section 4(a)(9),

114

the prohibition against misrepresenting insured status in section 4(e),

115

and the prohibition on paying interest or yield in section 4(a)(11).

116

113

12 U.S.C. 5903(a)(2).

114

12 U.S.C. 5903(a)(9).

115

12 U.S.C. 5903(e).

116

12 U.S.C. 5903(a)(11).

In proposed § 706.201(c)(1), the NCUA imports the prohibition on the use of a deceptive name from section 4(a)(9) of the GENIUS Act.

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This provision prohibits an NCUA-Licensed PPSI from using any combination of terms relating to the United States Government, including “United States,” “United States Government,” and “USG,” in the name of the Payment Stablecoin. This prohibition does not apply to abbreviations relating directly to the currency to which the Payment Stablecoin is pegged, such as “USD.”

117

12 U.S.C. 5903(a)(9).

Consistent with section 4(a)(9) of the GENIUS Act,

118

proposed § 706.201(c)(2) would prohibit NCUA-Licensed PPSIs from marketing a Payment Stablecoin in such a way that a reasonable person would perceive the Payment Stablecoin to be legal tender as described in 31 U.S.C. 5103, issued by the United States, or guaranteed or approved by the Government of the United States. The NCUA recognizes that NCUA-Licensed PPSIs may want to market themselves as PPSIs under the GENIUS Act. There is no prohibition against issuers marketing themselves in this manner, so long as they do not run afoul of the prohibitions outlined in proposed § 706.201(c)(1) and (2), including the prohibition against marketing a Payment Stablecoin in such a way that a reasonable person would perceive the Payment Stablecoin to be guaranteed, issued, or approved by the United States. The NCUA notes that misrepresentations by an NCUA-Licensed PPSI cannot be cured by a general disclaimer and that representations and disclosures should be clear to permitted Payment Stablecoin holders and Customers. Consistent with section 4(e) of the GENIUS Act,

119

proposed § 706.201(c)(3) would provide that an NCUA-Licensed PPSI may not directly or through implication represent that Payment Stablecoins are backed by the full faith and credit of the United States, guaranteed by the United States Government, or subject to Federal deposit insurance or Federal share insurance.

118

12 U.S.C. 5903(a)(9).

119

12 U.S.C. 5903(e).

Consistent with section 4(a)(11) of the GENIUS Act,

120

proposed § 706.201(c)(4) provides that NCUA-Licensed PPSIs must not pay the holder of any Payment Stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such Payment Stablecoin. The NCUA understands that issuers could attempt to make prohibited payments of interest or yield to Payment Stablecoins holders through arrangements with third parties. Moreover, there likely will be a large and changing variety of arrangements with third parties in which issuers could achieve the payment of yield to Payment Stablecoin holders. It would not be possible to identify in detail all, or even most, of the potential arrangements between NCUA-Licensed PPSIs and third parties that the NCUA may prohibit under section 4(a)(11) of the GENIUS Act and the NCUA's rulemaking authority under section 4(h) of the GENIUS Act,

121

particularly as such arrangements may evolve over time. On the other hand, a rule with only a general prohibition on the payment of yield could create uncertainty within the Payment Stablecoin market.

120

12 U.S.C. 5903(a)(11).

121

Section 4(h) of the GENIUS Act provides that the NCUA and other stablecoin regulators may issue regulations to “carry out the requirements of this section, including to establish conditions, and to

prevent evasion thereof.”

12 U.S.C. 5903(h) (emphasis added).

To balance these interests, the NCUA is proposing to include a presumption in paragraph (c)(4)(i) that certain types of arrangements with certain types of Persons would be prohibited payments of yield or interest by the issuer. Specifically, the NCUA would presume that an NCUA-Licensed PPSI is paying the holder of any Payment Stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such Payment Stablecoin if: (A) the NCUA-Licensed PPSI has a contract, agreement, or other arrangement with an Affiliate or a related third party to pay interest or yield to the Affiliate or related third party; and (B) the Affiliate

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or related third party (or Affiliate of such related third party) has a contract, agreement, or

other arrangement to pay interest or yield (whether in cash, tokens, or other consideration) to a holder of any Payment Stablecoin issued by the NCUA-Licensed PPSI solely in connection with the holding, use, or retention of such Payment Stablecoin. To the extent that the Person, or an Affiliate of the Person with whom the NCUA-Licensed PPSI has a contract, agreement, or other arrangement to pay interest or yield is a related third party of the NCUA-Licensed PPSI because the NCUA-Licensed PPSI issues Payment Stablecoins on the related third party's behalf or under the related third party's branding, the arrangement between the related third party and the holder of the Payment Stablecoin would consider the holder of the Payment Stablecoin to be the holder of the Payment Stablecoin issued by the NCUA-Licensed PPSI on the related third party's behalf or under the related third party's branding. That is to say, with respect to a white-label relationship, the presumption would be triggered only to the extent the Payment Stablecoin holder is a holder of the related third party's white-labeled stablecoin (as opposed to other Payment Stablecoins issued by the NCUA-Licensed PPSI).

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A Person would not be included within this second prong solely because the Person is an Affiliate of an Affiliate of the issuer.

Related third parties would be defined to include any Person paying interest or yield to Payment Stablecoin holders as a service (

i.e.,

on behalf of the NCUA-Licensed PPSI) and any Person that the issuer issues Payment Stablecoins on behalf or under the branding of (

i.e.,

persons that have entered white-label relationship with the issuer). The NCUA believes that the close nexus to the issuer's payments and payments to the Payment Stablecoin holder as well as the close contractual or control relationship between the issuer and the other party would make it highly likely that the issuer's payments of yield or interest would be made to the holder through an intermediary or an attempt the evade the GENIUS Act's prohibition on interest and yield payments. Nonetheless, the NCUA would permit the issuer to rebut the presumption given the issuer provides sufficient evidence to the contrary. Specifically, an NCUA-Licensed PPSI may rebut the presumption by submitting written materials that, in the NCUA's judgment, demonstrate that the contract, agreement, or other arrangement is not prohibited under paragraph (c)(4) and is not an attempt to evade the prohibition.

Other arrangements that are not captured by the presumption may also violate the statutory prohibition or constitute an evasion thereof. The NCUA would assess those arrangements on a case-by-case basis but does not believe that it is necessary to include other arrangements within the rebuttable presumption at this time. The prohibition is not intended to prevent a merchant from independently offering a discount to a Payment Stablecoin holder for using Payment Stablecoins. The prohibition is also not intended to prevent an NCUA-Licensed PPSI from sharing in the profits derived from the Payment Stablecoin with a non-Affiliate partner in a white-label arrangement.

In proposed § 706.201(c)(5), the NCUA proposes to include the language from section 4(a)(2) of the GENIUS Act

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that prohibits PPSIs from pledging, rehypothecating, or reusing any Reserve Assets required under section 4(a)(1),

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except for the purposes listed in section 4(a)(2). Thus, consistent with the statute, an NCUA-Licensed PPSI may not pledge, rehypothecate, or re-use any Reserve Assets, either directly or indirectly (

e.g.,

through a third-party custodian of the Reserve Assets), except for the purpose of: (i) satisfying margin obligations in connection with investments in permitted reserves under proposed § 706.202(b)(4) or (5); (ii) satisfying obligations associated with the use, receipt, or provision of standard custodial services;

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or (iii) creating liquidity to meet reasonable expectations of requests to redeem Payment Stablecoins, such that reserves in the form of Treasury bills with a maturity of 93 days or less may be sold as purchased securities in repurchase agreements,

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provided that either: (A) the repurchase agreements are cleared by a clearing agency registered with the Securities and Exchange Commission; or (B) the NCUA-Licensed PPSI receives prior approval from the NCUA. By including the phrase “directly or indirectly” in the prohibition, it is clear that Congress intended that a custodian that holds the reserves on behalf of a PPSI also may not pledge, rehypothecate or reuse any of the Reserve Assets, other than with respect to the limited exceptions discussed in proposed § 706.201(c)(5). To the extent that a custodian holding the Payment Stablecoin reserves were allowed to bypass this prohibition, it would undermine the relatively safe nature of the Reserve Assets and the confidence that Payment Stablecoin holders have that the Payment Stablecoin will hold its peg.

123

12 U.S.C. 5903(a)(2).

124

12 U.S.C. 5903(a)(1).

125

The NCUA interprets this exception, codified in 12 U.S.C. 5903(a)(2)(B), as being related solely to the purposes specified in 12 U.S.C. 5909(c)(2)(B).

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Section 4(a)(2)(C) of the Act (12 U.S.C. 5903(a)(2)(C)) states that reserves in the form of Treasury bills may be sold as purchased securities for repurchase agreements with a maturity of 93 days or less if certain conditions are met. The NCUA proposes to clarify, consistent with section 4(a)(1)(iv) of the Act (12 U.S.C. 5903(a)(1)(iv)), that the Treasury bills sold under the repurchase agreement must have a maturity of 93 days or less. Consistent with this clarification and the NCUA's proposed approval of repurchase agreements under section 4(a)(2)(C) of the Act, discussed below, the maturity of the repurchase agreement would be overnight.

The NCUA will deem any repurchase agreement approved under this section and section 4(a)(2)(C) of the GENIUS Act, provided that the Treasury bills sold as purchased securities have a maturity of 93 days or less, consistent with the requirement that Treasury bills held as Reserve Assets must have a maturity of 93 days or less, and the liquidity obtained through repurchase borrowings is not being obtained solely for purposes other than meeting redemption requests or compliance with the requirements of this proposed rule. The NCUA believes that providing this prior approval by rule will enhance the ability of NCUA-Licensed PPSIs to obtain liquidity quickly (through outright sales or repurchase agreements) and thereby facilitate the timely redemption of Payment Stablecoins. It is clear from section 4(a)(1)(A) of the Act that PPSIs may maintain identifiable reserves comprising of Money received under certain repurchase agreements.

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It would frustrate section 4(a)(1)(A)(iv)'s clear permission to maintain such Reserve Assets if PPSIs could only engage in repurchase borrowing transactions upon the completion of cumbersome procedures and one-off supervisory approvals. The ability to obtain immediate liquidity through repurchase borrowings is useful and supplements a PPSI's ability to access immediate liquidity via other means (for example, the maintenance of deposits and Share Accounts at IDIs or actual sales of securities). The prohibition on rehypothecation in proposed § 706.201(c)(5) would, consistent with section 4(a)(2)(C) of the GENIUS Act, prohibit rehypothecation except for the purpose of creating liquidity to meet reasonable expectations of requests for redemption. However, given the fungibility of Money, the NCUA will not scrutinize the exact uses to which repurchase borrowing proceeds are put. The limited circumstances in which the NCUA would not consider rehypothecation permissible would be if repurchase borrowings are obtained solely for some purpose other than obtaining liquidity to meet redemption requests or compliance with the rule—

for example, if repurchase proceeds are to be used solely for paying dividends to a PPSI (

i.e.,

removing excess Reserve Assets above the required minimum).

127

12 U.S.C. 5903(a)(1)(A).

Section 4(h)(1) of the GENIUS Act provides that the NCUA may issue regulations to “carry out the requirements of this section . . . and to prevent evasion thereof .”

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In proposed § 706.201(c)(6), consistent with this statutory authority, the NCUA proposes language that provides that an NCUA-Licensed PPSI must not engage in any activity that the NCUA determines is an evasion of the requirements of section 4 of the GENIUS Act

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or Part 706.

128

12 U.S.C. 5903(h)(1).

129

12 U.S.C. 5903.

In proposed § 706.201(b)(7), the NCUA is proposing to prohibit an NCUA-Licensed PPSI from providing credit to its Customers to purchase Payment Stablecoins. The NCUA interprets the GENIUS Act's requirements that a PPSI maintain Reserve Assets consisting of a narrow set of highly liquid assets and that a PPSI engage in a narrow set of activities to be crucial in ensuring a PPSI is able to satisfy redemption requests. If a PPSI lends funds to Customers to enable Customers to purchase Payment Stablecoins, or were to otherwise issue Payment Stablecoins to Customers on credit extended by the PPSI, the PPSI would then, in effect, need to access separate funding to acquire and maintain identifiable Reserve Assets to back the Payment Stablecoins issued on credit. This could result in a highly leveraged balance in which the Reserve Assets do not provide the intended resiliency. The NCUA seeks comment on whether this is an appropriate prohibition, and whether other alternatives would better achieve the statute's objectives.

The NCUA has considered and is requesting comment on whether to prohibit an NCUA-Licensed PPSI from issuing more than one brand of Payment Stablecoin (

i.e.,

more than one set of Payment Stablecoins marketed under the same name). The NCUA recognizes that there are advantages and disadvantages associated with permitting an NCUA-Licensed PPSI to issue multiple brands of Payment Stablecoins that may be co-branded with a named partner in a white-label arrangement. These arrangements can allow parties to leverage the experience and expertise of an NCUA-Licensed PPSI and facilitate a broader range of Payment Stablecoins in the market. However, they may also foster uncertainty about Reserve Assets and encourage contagion and run risk among brands of Payment Stablecoins, including but not limited to brands issued by one issuer. One possibility that the NCUA has considered and is requesting comment on is to restrict each NCUA-Licensed PPSI to issuing only one brand of Payment Stablecoin but to streamline the process for approving applications to become an NCUA-Licensed PPSI if an Affiliate has already been approved. Under this approach, multiple NCUA-Licensed PPSIs could share certain services and back-office functions with each other and might operate under a common risk management framework, but each issuer would be legally separate. This approach would allow an entity to leverage its experience and expertise but may provide more certainty with respect to the rights of Payment Stablecoin holders in the event that an NCUA-Licensed PPSI becomes insolvent.

The NCUA has also considered and is requesting comment on whether to include a provision explicitly prohibiting an NCUA-Licensed PPSI from engaging in unsafe or unsound practices. Pursuant to section 6(a)(3) of the GENIUS Act,

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the NCUA has the ability to examine NCUA-Licensed PPSIs for risks that may pose a threat to safety and soundness. Further, section 5(a)(1)(B) of the GENIUS Act requires the NCUA to “establish a process and framework for the licensing, regulation, examination, and supervision of [PPSIs] that prioritizes the safety and soundness of such entities.”

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It follows that NCUA-Licensed PPSIs should not be allowed to engage in practices that are unsafe or unsound. Explicitly prohibiting such activities may help the NCUA to address practices that could undermine public confidence in PPSIs and the financial system more generally.

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12 U.S.C. 5905(a)(3).

131

12 U.S.C. 5904(a)(1)(B).

c. Request for Comment

The NCUA requests feedback on all aspects of the proposed rule, including:

Question 23:

Are there activities not contemplated in proposed § 706.201 that PPSIs must be able to engage in for purposes of the GENIUS Act? If so, please describe them and any appropriate limits for these additional activities.

Question 24:

Should the NCUA clarify that a PPSI may retain an asset manager under a separately managed account under proposed § 706.201(a)(8)?

Question 25:

Are there other limits or conditions the NCUA should consider with respect to PPSIs acting as principal or agent with respect to any Payment Stablecoin? Should the NCUA specify the activities contemplated under the GENIUS Act for which a PPSI may act as principal or agent in Payment Stablecoins under section 16(b) of the Act?

132

12 U.S.C. 5915(b).

Question 26:

Do PPSIs need to hold crypto-assets other than Payment Stablecoins for other purposes beyond paying transaction fees or testing a Distributed Ledger? If so, under what circumstances would a PPSI need to hold such assets?

Question 27:

Should the final rule include specific provisions addressing an issuer's holding of non-Payment Stablecoin crypto-assets to pay transaction fees, such as limitations on the amount of non-Payment Stablecoin crypto-assets that a PPSI may hold at any time? If so, how should those limits be calibrated? Should any limit be based on anticipated fees, a percentage of assets, or be set at a certain value threshold?

Question 28:

Should there be any limit on what methods of payment a PPSI can accept when assessing fees, including fees associated with the purchasing or redeeming of Payment Stablecoins? Should the final rule include provisions addressing a PPSI's potential assessment of fees in crypto-assets other than Payment Stablecoins and how long issuers can hold onto such crypto-assets? Are there specific forms of payment outside of fiat and Payment Stablecoin that PPSIs will need to accept that the NCUA should provide additional clarity on?

Question 29:

Should the NCUA include an approval process for the activities listed in the Section 4(a)(7)(B) of the GENIUS Act, including Digital Asset service provider activities and activities incidental to Payment Stablecoin activities or Digital Asset service provider activities?

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12 U.S.C. 5903(a)(7)(B).

Question 30:

Should the NCUA clarify proposed § 706.201(a)(8) by providing specific examples of activities that directly support the activities in proposed § 706.201(a)(1) through (4)? Are there specific examples of activities that directly support the activities in proposed § 706.201(a)(1) through (4) that should be clarified? Should the NCUA distinguish between what it means for an activity to directly support the activities in proposed § 706.201(a)(1) through (4), and therefore, satisfy the test in proposed § 706.201(a)(8) as opposed to what it means for an activity to be incidental to the activities in proposed § 706.201(a)(1) through (7) provided in

section 4(a)(7)(B) of the GENIUS Act? Should the NCUA provide an approval process related to Digital Asset service provider activities and/or incidental activities?

Question 31:

The proposed rule would permit a PPSI to hold non-Payment Stablecoin crypto-assets to pay certain fees (

e.g.,

network fees). Should the rule include an express limitation on the amount of such crypto-assets that the PPSI may hold? For example, the rule could provide that the amount of such crypto-assets may not exceed reasonably expected near-term demand.

Question 32:

Could the prohibition against paying interest or yield solely in connection with the holding or use of a permitted Payment Stablecoin be clarified? If so, how? Would it be helpful to include a

de minimis

exception to the prohibition to provide certainty with respect to arrangements that are not designed to violate the prohibition and that do not have a meaningful economic impact? If so, is there any specific guidance the NCUA should provide on what

de minimis

means?

Question 33:

Does the presumption with respect to the prohibition against paying interest or yield solely in connection with the holding, use, or retention of a permitted Payment Stablecoin appropriately address concerns relating to evasion? Is the presumption with respect to the prohibition against paying interest or yield solely in connection with the holding, use, or retention of a permitted Payment Stablecoin appropriately scoped? Is the presumption sufficiently clear? How could the presumption be clarified? Should the NCUA clarify the standard of review under which it would consider written materials to rebut the presumption related to interest or yield and specify whether the NCUA's determination is appealable? Should the NCUA propose any safe harbor for arrangements that the NCUA believes do not violate the statutory prohibition?

Question 34:

Should the prohibition on interest and yield in proposed § 706.201(c)(4) be broader to prevent issuers from directly or indirectly paying interest or yield to Payment Stablecoin holders (rather than presuming that certain arrangements with Affiliates or related third parties violate the prohibition)? Are there examples of potentially evasive behavior that the NCUA should expressly include in a prohibition? If the NCUA were to expand the prohibition, are there activities that should be expressly carved out of such an expansion?

Question 35:

Should the prohibition on interest and yield in proposed § 706.201(c)(4) clarify the terms “pay,” “interest,” “yield,” “solely,” or any other terms? If so, what clarifications would be helpful? What types of rewards, if any, should be subject to the prohibition?

Question 36:

What would the economic impact of a narrow prohibition on paying interest or yield solely in connection with the holding, use or retention of a Payment Stablecoin be relative to a broader prohibition (

i.e.,

one that includes relationships with Affiliates or third parties)? What impact would either prohibition have on deposits and funds placed in Share Accounts?

Question 37:

Is the scope of the prohibition against pledging, rehypothecating, or reusing Reserve Assets sufficiently clear? Are there specific types of transactions, relationships, or structures for which it would be helpful to clarify whether the prohibition applies? For example, should the NCUA clarify whether the prohibition would prevent establishing a collateral trustee that would hold a security interest in Reserve Assets for the benefit of Payment Stablecoin holders? What arguments weigh for and against finding that the prohibition would prohibit these arrangements? If a PPSI sets up a collateral trustee arrangement where the issuer grants a security interest in the Reserve Assets, does this arrangement sufficiently protect the Reserve Assets in the event of insolvency or bankruptcy? Should a PPSI be required to make particular disclosures if it uses such an arrangement? What should those disclosures include?

Question 38:

Should the NCUA specify what “creating liquidity to meet reasonable expectations of requests to redeem Payment Stablecoins” means under proposed § 706.201(c)(5)(iii)? Should the NCUA pre-approve repurchase agreements by rule as proposed in § 706.205(c)(5)(iii)(B)? Alternatively, should the NCUA allow for broad and open-ended approvals of the sale of reserves as purchased securities in repurchase agreements or should approvals be limited to specific types of transactions? What factors should the NCUA consider prior to granting approval of the sale of reserves as purchased securities in repurchase agreements under proposed § 706.201(c)(5)(iii)(B)?

Question 39:

Should PPSIs be required to provide disclosures stating that Payment Stablecoins are not legal tender, issued by the United States, or guaranteed or approved by the United States? If so, should the NCUA impose any requirements on the manner in which disclosures are made? For example, should the NCUA require that disclosures be made on the PPSI's website, at point of direct sale by the issuer, alongside other types of disclosures, or in some other manner?

Question 40:

Is any further clarity needed regarding the prohibition on the use of deceptive names, marketing, and representations in proposed § 706.201(c)(1) through (3)? For example, should the NCUA specify what kind of images or branding are likely to violate the prohibition? Should the NCUA require PPSIs to affirmatively state that Payment Stablecoins are not legal tender, issued by the United State, or guaranteed or approved by the Government of the United States? Should the NCUA explicitly require PPSIs to disclose that Payment Stablecoins are not subject to deposit or share insurance?

Question 41:

Is the proposed prohibition on providing credit to Customers to purchase Payment Stablecoins appropriate? If so, should the prohibition be modified in any way? Should it be narrower or broader? If not, are there alternatives to achieve the intended objective or ensuring Reserve Assets achieve the intended resiliency? Are there any other activities that the NCUA should expressly prohibit as not being permissible and not in direct support of issuance, redemption, managing reserves, and providing certain safekeeping and custody services?

2. § 706.202. Reserve Assets

a. Proposed § 706.202

Proposed § 706.202 contains requirements applicable to Reserve Assets. Section 4(a)(1)(A) of the Act provides that a PPSI must maintain identifiable reserves backing the outstanding Payment Stablecoins of the PPSI on an at least one-to-one basis and specifies the eight permissible Reserve Asset types.

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The one-to-one backing requirement applies at the PPSI level. A PPSI would not comply with this requirement if it did not maintain Reserve Assets sufficient to meet the one-to-one backing requirement. A PPSI may maintain Reserve Assets through a custodian, including an Affiliate acting as a custodian, as long as the custodian qualifies as an Eligible Financial Institution.

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12 U.S.C. 5903(a)(1)(A).

Proposed § 706.202(a)(1) would require that an NCUA-Licensed PPSI maintain Reserve Assets that: (i) are

identifiable; (ii) are segregated from and not commingled with other assets owned or held by the NCUA-Licensed PPSI; (iii) at all times have a total Fair Value that equals or exceeds the Outstanding Issuance Value of the NCUA-Licensed PPSI; and (iv) are either held directly by the NCUA-Licensed PPSI or within the custody of an Eligible Financial Institution. In order to maintain Reserve Assets that are “identifiable” and comply with proposed § 706.202(a)(1)(i), NCUA-Licensed PPSIs must maintain appropriate records to ensure documented ownership and legal entitlement to individual Reserve Assets. Similarly, any ownership arrangements, including ownership via custodians, must comply with applicable laws and regulations, for example, requirements applicable to Customer securities owned through the Fedwire Securities Service. The NCUA generally anticipates that Reserve Assets will be recorded on the NCUA-Licensed PPSI's balance sheet under GAAP and be included in the quarterly reports required under proposed § 706.205(i). An NCUA-Licensed PPSI must maintain the appropriate operational capabilities, internal controls, policies, and safeguards to ensure that Payment Stablecoins are always backed by reserves on an at least a one-to-one basis. Among other things, safeguards may include mechanisms to prevent the issuance of abnormally large amounts of new Payment Stablecoins without additional approvals.

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C.f.,

Dylan Butts, “PayPal's crypto partner mints a whopping $300 trillion worth of stablecoins in `technical error,'” CNBC (Oct. 16, 2025),

https://www.cnbc.com/2025/10/16/paypals-crypto-partner-mints-300-trillion-stablecoins-in-technical-error.html

(describing a technical error leading to the minting of a large amount of new stablecoins).

To comply with the requirement in proposed § 706.202(a)(1)(iii), an NCUA-Licensed PPSI must ensure that the Fair Value of Reserve Assets equal or exceed the Outstanding Issuance Value of the outstanding Payment Stablecoins issued by the NCUA-Licensed PPSI at all times. Valuing Reserve Assets at Fair Value (

i.e.,

market value), rather than another measure, such as amortized cost, will help ensure that the Reserve Assets maintained by the NCUA-Licensed PPSI reflect current prices and will be monetizable at a value sufficient to meet any redemption requests at par value. Notably, the Outstanding Issuance Value is based on the total consolidated par value of all of an NCUA-Licensed PPSI's Payment Stablecoins rather than on the Fair Value of the outstanding issued Payment Stablecoin. Thus, if the Fair Value of the Payment Stablecoin decreased (

i.e.,

if the Payment Stablecoin de-pegged in the secondary market), the NCUA-Licensed PPSI would nevertheless be obligated to retain a stock of Reserve Assets, the Fair Value of which equals or exceeds the par value of outstanding Payment Stablecoins. This approach is intended to ensure that the NCUA-Licensed PPSI is able to credibly meet redemption requests, including in adverse circumstances. To take a contrary approach (

e.g.,

basing the Outstanding Issuance Value on the Fair Value of Payment Stablecoins) could allow NCUA-Licensed PPSIs to inappropriately remove assets from the required stock of Reserve Assets when stablecoins de-peg (as Reserve Asset requirements decline, along the with the secondary market price of the Payment Stablecoin), rather than maintaining the Reserve Assets on behalf of Payment Stablecoin holders, which may in turn exacerbate run risk for an NCUA-Licensed PPSI.

Proposed § 706.202(a)(1)(iv) provides that the Reserve Assets must either be held directly by the NCUA-Licensed PPSI or within the custody of an Eligible Financial Institution, which is defined in proposed § 706.2.

Proposed § 706.202(a)(2) would require that an NCUA-Licensed PPSI demonstrate the operational capability to access and monetize the identifiable Reserve Assets, commensurate with the NCUA-Licensed PPSI's risk profile and business model. The NCUA-Licensed PPSI must be able to monetize the Reserve Assets, potentially quickly and at short notice, in order to meet redemption requests. The inability to quickly monetize Reserve Assets would undermine the ability of a PPSI to maintain the stable value of its Payment Stablecoin.

To comply with proposed § 706.202(a)(2), an NCUA-Licensed PPSI must be able to demonstrate the ability to monetize all types of Reserve Assets it maintains. Depending on an NCUA-Licensed PPSI's size, risk profile, business model, activities, and operations, a PPSI may be able to demonstrate monetization in different ways. For example, it may be sufficient for some NCUA-Licensed PPSIs to demonstrate the ability to monetize Treasury bills they hold as Reserve Assets by establishing that they maintain appropriate repurchase arrangements through which they can quickly sell Treasury bills and receive liquid funds with which they can satisfy redemption requests. For other NCUA-Licensed PPSIs, for example, larger issuers or those with more complicated operations, additional measures may be appropriate to demonstrate the operational capability to monetize. It may be appropriate for such NCUA-Licensed PPSIs to maintain multiple alternative methods of monetization (for example, multiple repurchase agreement lines or repurchase agreement lines plus arrangements allowing outright sales of Treasury securities) in order to satisfactorily demonstrate the ability to monetize their Reserve Assets. Such redundant arrangements may be necessary if an NCUA-Licensed PPSI maintains a sufficiently large Treasury position that it could be difficult to monetize the entire position through transactions with a single repo counterparty or if an issuer maintains concentrated positions in particular types of Reserve Assets. The availability of multiple monetization channels helps ensure that an NCUA-Licensed PPSI is not required to monetize assets at reduced or “fire sale” prices. Having alternative monetization channels reduces the risk that an issuer would be obliged to accept unfavorable pricing when monetizing Reserve Assets under stress.

For certain NCUA-Licensed PPSIs, it may be necessary to periodically conduct actual monetization transactions (that is, actual outright sales or repurchase transactions) in order to demonstrate the ability to monetize. Actual transactions can more fully confirm that monetization capabilities exist. In the absence of actual test transactions, potential barriers to monetization may still exist. NCUA-Licensed PPSIs may lack the procedures and systems to monetize assets at any time in accordance with standard settlement periods and processes. For example, borrowing agreements may name authorizing officials that are unavailable or inappropriate. Actual monetization transactions may be necessary, for example, for issuers with unusually complicated operations or organizational structures, or for issuers that are particularly dependent on certain monetization channels or the ability to monetize particular assets. Periodic actual monetization transactions can minimize the risk of negative signaling during financial stress. If an NCUA-Licensed PPSI begins using a monetization channel that it has not regularly used in the past, that may spark concerns about the financial health of the issuer. For example, if an NCUA-Licensed PPSI has pre-established a repurchase agreement with a bilateral counterparty but never utilized it, sudden utilization of the repurchase agreement may generate

concerns that the issuer is experiencing a run on its Payment Stablecoins. Periodic test transactions using multiple monetization channels can mitigate such concerns. NCUA-Licensed PPSIs may be able to demonstrate the ability to execute actual monetization transactions in the ordinary course of their business (for example, redeeming Payment Stablecoins) and would not necessarily be required to engage in additional test transactions.

Proposed § 706.202(a)(3) would include requirements for when NCUA-Licensed PPSIs could withdraw Reserve Assets in excess of Outstanding Issuance Value. In order to ensure that sufficient Reserve Assets are maintained to back outstanding Payment Stablecoin issuance, NCUA-Licensed PPSIs would be able to withdraw excess Reserve Assets only after the monthly examination and certification required by section 4(a)(3) of the GENIUS Act

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and provided for in proposed § 706.202(e) and (f). Specifically, NCUA-Licensed PPSIs would be able to withdraw any surplus Reserve Assets in excess of Outstanding Issuance Value, calculated and reported as of the last day of the previous month, only upon the publication of that month's public disclosure, due at the end of the subsequent month. Only permitting an issuer to withdraw surplus Reserve Assets after examination and certification will promote public confidence about the integrity of the handling of Reserve Assets. Permitting withdrawal of excess Reserve Assets at other intervals would significantly undermine the purpose of examination and certification. If NCUA-Licensed PPSIs were able to withdraw excess Reserve Assets at any time, based only upon their own internal calculations, that could undermine confidence and even create concerns about misconduct, for example if an issuer might make its own bad faith and un-validated determination that an excess existed in order to justify a withdrawal. Proposed § 706.202(a)(3) would also require that, while withdrawals would be based on calculations as of the end of the previous month, an NCUA-Licensed PPSI could only make withdrawals if the remaining Reserve Assets remained at least equal to the current Outstanding Issuance Value, calculated as of the day of withdrawal.

136

12 U.S.C. 5903(a)(3).

Under proposed § 706.202(b), reserve assets must only comprise: (1) United States coins and currency (including Federal Reserve notes) or Money standing to the credit of an account with a Federal Reserve Bank; (2) funds held as deposits or in Share Accounts

137

that are payable upon demand at an IDI (including any foreign branches or agents, including correspondent banks, of an IDI), subject to any limitation established by the FDIC and the NCUA, as applicable, pursuant to section 4(a)(1)(A)(ii) of the GENIUS Act to address safety and soundness risks of such IDI;

138

(3) Treasury bills, Treasury notes, or Treasury bonds with a remaining maturity of 93 days or less;

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(4) Money received under repurchase agreements, with the NCUA-Licensed PPSI acting as a seller of securities and with a no longer than overnight maturity, that are backed by Treasury bills with a maturity of 93 days or less;

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(5) reverse repurchase agreements, with the NCUA-Licensed PPSI acting as a purchaser of securities and with a no longer than overnight maturity, that are collateralized by Treasury bills, Treasury notes, or Treasury bonds on a no longer than overnight basis, subject to overcollateralization in line with standard market terms, that are: (i) tri-party; (ii) centrally cleared through a clearing agency registered with the Securities and Exchange Commission; or (iii) bilateral with a counterparty that the issuer has determined to be adequately creditworthy even in the event of severe market stress; (6) securities issued by an investment company registered under section 8(a) of the Investment Company Act of 1940,

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or other registered Government money market fund, and that are invested solely in underlying assets described in proposed § 706.202(b)(1) through (5);

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(7) any other similarly liquid Federal Government-issued asset approved by the NCUA; or (8) any reserve described in proposed § 706.202(b)(1) through (3), (6), or (7), in tokenized form, provided that such reserves comply with all applicable laws and regulations.

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Section 4(a)(1)(A)(ii) of the GENIUS Act refers to reserves comprising “funds held as demand deposits (or other deposits that may be withdrawn upon request at any time) or insured shares at an insured depository institution. . . .” For the reasons expressed in the sections (section IV.B) of this preamble proposing the defined terms “Monetary Value” and “Share Account), the NCUA is proposing to use the defined term “Share Account.” The NCUA believes this approach is clearer than utilizing the undefined term “insured shares” from the Act. The proposed rule would also simplify and clarify the GENIUS Act's text by limiting deposits and funds in Share Accounts than can be reserves to those that are “payable upon demand” at an IDI. The GENIUS Act refers to “demand deposits (or other deposits that may be withdrawn upon request at any time). . . .” The NCUA believes this construction can be more simply stated as proposed without any substantive change.

138

12 U.S.C. 5903(a)(1)(A)(ii).

139

The GENIUS Act permits the inclusion of Treasury bills, notes, or bonds “(I) with a remaining maturity of 93 days or less; or (II) issued with a maturity of 93 days or less.” The proposed rule would combine these categories since the former category includes the latter, at least for purposes of complying with the requirements of proposed § 706.202. NCUA-Licensed PPSIs may choose to categorize these assets separately for other reasons, for example, accounting or risk management purposes.

140

The proposed rule would clarify that a repurchase agreement or reverse repurchase agreement with an intraday maturity could qualify as a permitted reserve asset. Section 4(a)(1)(A)(iv) and (v) of the Act (12 U.S.C. 5903(a)(1)(A(iv) and (v))) specifically refers to repurchase agreements and reverse repurchase agreements with an overnight maturity. The NCUA believes that this provision is intended to permit repurchase agreements and reverse repurchase agreements with a maturity no longer than overnight. Thus, the proposed rule would explicitly permit the use of intraday repurchase agreements and reverse repurchase agreements.

141

15 U.S.C. 80a-8(a).

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A money market fund that invests in any other assets, including in Treasury securities with a remaining maturity longer than 93 days, would not be eligible to be held as a Reserve Asset.

The NCUA encourages any NCUA-Licensed PPSI that seeks clarity on whether a specific tokenized asset qualifies as a permissible Reserve Asset under proposed § 706.202(b)(8) to discuss with the NCUA whether the asset qualifies. To the extent feasible, the NCUA is considering publishing a list of, or otherwise making public, the acceptable tokenized Reserve Assets for the sake of transparency. In determining whether a potential Reserve Asset qualifies as “any other similarly liquid Federal Government-issued asset,” under proposed § 706.202(b)(7) the NCUA will consider, among other relevant factors, whether: (i) the asset has liquidity characteristics, including during times of stress, comparable to the other Reserve Assets allowed under proposed § 706.202(b); (ii) NCUA-Licensed PPSIs will be operationally capable of monetizing the asset to meet redemption requests, including sudden and high-volume requests; (iii) the asset poses levels of risk comparable to the assets allowed under proposed § 706.202(b), including interest rate risk and counterparty credit risk; and (iv) whether the asset introduces additional risks that may be difficult for NCUA-Licensed PPSIs to manage.

Section 4(a)(4)(A)(iii) of the GENIUS Act requires the NCUA to issue regulations implementing Reserve Asset diversification, including deposit concentration at banking institutions and interest rate risk management standards that (1) are tailored to the business model and risk profile of PPSIs and (2) do not exceed standards that are sufficient to ensure the ongoing operations of PPSIs.

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As discussed

throughout this preamble, the GENIUS Act regularly uses banking-specific terminology. The NCUA interprets “deposit concentration at banking institutions” to include deposits and funds in Share Accounts at all IDIs.

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12 U.S.C. 5903(a)(4)(A)(iii).

In proposing regulations to implement the Reserve Asset diversification requirement, the proposed rule includes two alternative options in proposed § 706.202(c), only one of which would be selected in the final rule. “Option A” would include a principles-based general requirement with an optional safe harbor containing quantitative requirements. “Option B” would make the quantitative requirements mandatory for all NCUA-Licensed PPSIs. Option A's principle-based general requirement would require an NCUA-Licensed PPSI to maintain Reserve Assets that are sufficiently diverse to manage potential credit, liquidity, interest rate, and price risks. In addition, the principles-based requirement in Option A in proposed § 706.202(c) would require an NCUA-Licensed PPSI to measure and manage the risk that concentrating Reserve Assets at one Eligible Financial Institution or a small number of Eligible Financial Institutions may impair the ability of an NCUA-Licensed PPSI to satisfy redemption demands if individual Eligible Financial Institutions are unable to return, or if there is a delay in returning, Reserve Assets placed by an NCUA-Licensed PPSI.

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The proposed rule's diversification and concentration requirements would apply to custodial relationships, including sub-custodial arrangements. NCUA-Licensed PPSIs would be expected to “look through” any sub-custodial relationships to ensure that Reserve Assets are custodied at the sufficiently diverse number of Eligible Financial Institutions needed to comply with the proposed rule's requirements. Without this requirement, a PPSI might supposedly have its stock of Treasury securities custodied at multiple Eligible Financial Institutions, but sub-custodial relationships could result in the entire stock being custodied at only a single Eligible Financial Institution.

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Eligible Financial Institutions that hold Reserve Assets in custody or safekeeping must be subject to supervision and comply with the requirements set forth in section 10 of the GENIUS Act (12 U.S.C. 5909). Institutions subject to NCUA supervision would need to comply with the requirements set forth in proposed subpart C of part 706.

NCUA-Licensed PPSIs with less complex business models and lower risk profiles may be able to maintain a less diverse stock of Reserve Assets than NCUA-Licensed PPSIs with more complex business models or higher risk profiles. However, the NCUA interprets section 4(a)(4)(A)(iii) of the GENIUS Act as mandating some Reserve Asset diversification for all PPSIs,

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both in types of Reserve Assets maintained and in the number of Eligible Financial Institutions holding a PPSI's Reserve Assets.

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The NCUA expects that it would be unlikely, for example, that an NCUA-Licensed PPSI, even one with a simple business model and low risk profile, could satisfy the requirements in proposed § 706.202(c) by placing all its Reserve Assets at a single Eligible Financial Institution. Such a reliance on a single third-party location of Reserve Assets could expose the NCUA-Licensed PPSI to the unnecessary risk that its Reserve Assets, or some portion of them, could be unavailable to meet redemption requests. Similarly, the NCUA expects that all NCUA-Licensed PPSIs will need to maintain multiple Reserve Asset types, if only to serve as a back-up to what is otherwise a PPSI's primary Reserve Asset. Some NCUA-Licensed PPSIs may need to maintain more robustly diverse stocks of Reserve Assets to satisfy proposed § 706.202(c), depending on their business model, risk profile, and other relevant factors. For example, a large NCUA-Licensed PPSI with complex operations may need to maintain deposits and/or Share Accounts) with multiple Eligible Financial Institutions, as well as a stock of Treasury bills, potentially custodied with more than one Eligible Financial Institution in order to ensure they are capable of being monetized during periods of financial stress. Factors such as the number of parties that redeem directly with the NCUA-Licensed PPSI, the volume of redemptions (and volatility with respect to such volume), and the number and nature of the blockchains on which a Payment Stablecoin is traded could all increase the complexity of the PPSI's operations and weigh in favor of maintaining multiple different pools of Reserve Assets. NCUA-Licensed PPSIs may be able to comply with this requirement by maintaining multiple deposit accounts and/or Share Accounts, or through deposit or share placement services, as they can comply with the requirement in proposed § 706.202(a)(2) to demonstrate the operational capability to access and monetize the Reserve Assets.

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12 U.S.C. 5903(a)(4)(A)(iii).

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An NCUA-Licensed PPSI that maintains ownership and control of all of its own Reserve Assets, rather than relying on separate Eligible Financial Institutions, may be able to satisfy the principles-based general diversification and concentration requirement in Option A, depending on the PPSI's particular circumstances. While explicitly requiring all NCUA-Licensed PPSIs to maintain some Reserve Assets at a third-party Eligible Financial Institution may help promote confidence that an issuer's Reserve Assets are diversified across multiple Eligible Financial Institutions, such a requirement may be unnecessary if the PPSI is able to establish its own secure control over the Reserve Assets. Any NCUA-Licensed PPSI maintaining direct ownership and control of Reserve Assets would still be subject to all requirements in proposed § 706.202, notably the requirement in proposed § 706.202(a)(2) under which the PPSI must demonstrate the operational capability to access and monetize Reserve Assets. An NCUA-Licensed PPSI that maintains ownership and control of its own assets may fail to satisfy this requirement, or the diversification and concentration requirements in proposed § 706.202(c), if the PPSI, for example, relies exclusively on arrangements with a single Eligible Financial Institution to monetize its Reserve Assets.

Option A contains a safe harbor under which an NCUA-Licensed PPSI would be deemed to satisfy proposed § 706.202(c) if the PPSI maintains on each business day: (i) at least 10 percent of its required Reserve Assets as deposits and/or funds in Share Accounts payable upon demand at IDIs or Money standing to the credit of an account with a Federal Reserve Bank; (ii) at least 30 percent of its Reserve Assets as deposits and/or funds in Share Accounts payable upon demand at IDIs, Money standing to the credit of an account with a Federal Reserve Bank, or amounts receivable and due unconditionally within five business days on pending sales of Reserve Assets, maturing Reserve Assets, or other maturing transactions (

e.g.,

reverse repurchase agreements); (iii) no more than 40 percent of its Reserve Assets at any one Eligible Financial Institution, whether as deposits and/or funds in Share Accounts payable upon demand at any one IDI, securities custodied at any one Eligible Financial Institution, bilateral reverse repurchase agreements with any counterparty, or through other exposures; (iv) no more than 50 percent of the amount provided in proposed § 706.202(c)(2)(i) at any one Eligible Financial Institution; and (v) Reserve Assets with a weighted average maturity of no more than 20 days.

Weighted average maturity is computed as the sum of the product of each Reserve Asset's (1) remaining maturity and (2) percentage of the total pool of Reserve Assets (based on principal value). Deposits or Share Accounts payable upon demand would have a weighted average maturity of zero. The NCUA invites comments on whether the proposed rule should include an express definition of weighted average maturity, particularly whether the NCUA should adopt the same definition used in SEC Rule 2a-7 (17 CFR 270.2a-7). Paragraph (i) of SEC

Rule 2a-7 provides that, for certain securities and transactions, maturity should not necessarily be the time remaining until ultimate repayment of principal but instead should be based on other characteristics (for example, the time until an interest rate reset or until demand repayment options can be exercised). The NCUA invites comment on whether this proposed rule should include these same maturity assumptions for certain Reserve Assets. The proposed rule does not include these maturity assumptions since they should not be relevant for most or all permissible Reserve Assets. Even if the maturity assumptions are relevant for certain Reserve Assets that might be permissible (for example, Floating Rate Treasury Notes), the NCUA expects that the limited maturity of Reserve Assets (93 days or less) will diminish the value of applying maturity assumptions. Accordingly, under the proposed rule, the NCUA expects that the maturity of all Reserve Assets, for purposes of calculating weighted average maturity, will be the time remaining until the repayment of principal.

This safe harbor would give NCUA-Licensed PPSIs a transparent and standardized target for achieving compliance with Reserve Asset diversification requirements.

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However, under Option A, meeting the safe harbor is not the only means to comply with proposed § 706.202(c). Some issuers, particularly smaller and less complex issuers, may be able to comply with § 706.202(c) without meeting the minimum levels in the safe harbor. For example, if a smaller NCUA-Licensed PPSI with a comparatively simple business model and lower risk profile finds it commercially useful to maintain more of its Reserve Assets as deposits and/or funds in Share Accounts payable upon demand, the PPSI may be able to satisfy proposed § 706.202(c) even if the PPSI maintains more than 10 percent of its Reserve Assets as Deposits and/or funds in Share Accounts at one Eligible Financial Institution, depending on particular facts and circumstances. This flexibility is consistent with the GENIUS Act's requirements that the proposed asset diversification requirements be “tailored to the business model and risk profile of permitted payment stablecoin issuers.”

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The NCUA recognizes that, as an NCUA-Licensed PPSI sells more liquid assets to meet redemption requests in times of stress, it may temporarily fail to satisfy the terms of the proposed safe harbor. An NCUA-Licensed PPSI should appropriately diversify its Reserve Assets as soon as practicable following such an event. However, at no point, can an NCUA-Licensed PPSI's Reserve Assets be less than the Fair Value of the Outstanding Issuance Value of the PPSI as required in proposed § 706.202(a)(1)(iii).

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12 U.S.C. 5903(a)(4)(A)(iii)(I).

The safe harbor's requirement that an NCUA-Licensed PPSI maintain at least 10 percent of its Reserve Assets as “daily liquidity”: deposits and/or funds in Share Accounts payable upon demand or Money standing to the credit of an account with a Federal Reserve Bank would help ensure that a PPSI has readily available funds necessary to meet redemption requests. While all of the proposed Reserve Assets should be liquid and easily monetizable, the requirement to have some minimum level of immediately liquid funds is additional protection against the risk that a PPSI would be unable to meet redemption requests in a timely manner, which is critical to avoid in order to maintain confidence in the PPSI and the Payment Stablecoin industry as a whole. A minimum requirement of 10 percent would be in line with the largest 1-day redemption events experienced by stablecoin issuers.

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The NCUA invites comment on whether an alternate minimum is appropriate.

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Although the NCUA referenced SEC Rule 2a-7 when drafting these requirements due to certain similarities between money market funds and PPSIs, the proposed requirements diverge in certain respects based on inherent differences between the two (

e.g.,

Reserve Asset composition).

Including a baseline requirement to maintain a minimum percentage of liquidity that is immediately available (without the need to sell any assets, even highly liquid assets like Treasury securities) will help ensure an NCUA-Licensed PPSI's ability to meet redemption requests. The NCUA invites comments on these and other considerations, particularly on whether conservative liquidity requirements are necessary. The proposed rule includes robust liquidity requirements but does not include capital-based overcollateralization or Reserve Asset buffer requirements. An alternative possibility would be to remove some of the proposed liquidity requirements, though this may warrant increased capital or buffer requirements.

The safe harbor would also require that an NCUA-Licensed PPSI maintain at least 30 percent of its Reserve Assets as deposits and/or funds in Share Accounts payable upon demand, Money standing to the credit of an account with a Federal Reserve Bank, or amounts receivable and due unconditionally within five business days on pending sales of Reserve Assets, maturing Reserve Assets, or other maturing transactions. This “weekly” liquidity would help ensure that an NCUA-Licensed PPSI is able to meet a series of redemption requests that takes place over multiple days. It will also help prevent issuers from meeting the “daily” liquidity requirement but otherwise maintaining a stock of assets that are less readily monetizable. A minimum requirement of 30 percent “weekly” liquidity would protect issuers against redemption runs that take place over multiple days, a phenomenon experienced by stablecoin issuers in the past, and a 30 percent minimum requirement would exceed the redemption volumes seen during these redemption runs. In the absence of a minimum “weekly” (or other multi-day) requirement, an issuer might only have its stock of 10 percent immediately available liquidity plus owned securities that it would have to actually sell in order to monetize and meet redemption requests. While NCUA-Licensed PPSIs must be prepared to monetize any such securities, it would be safer to have a stock of liquid funds that will automatically become available over the next several days as a first line of defense against multi-day redemption runs.

The safe harbor would also require that an NCUA-Licensed PPSI maintain no more than 40 percent of its Reserve Assets at any one Eligible Financial Institution, whether as Deposits and/or funds in Share Accounts payable upon demand at any one IDI, securities custodied at any one Eligible Financial Institution, bilateral reverse repurchase agreements with any counterparty, or through other exposures. This requirement would prevent an issuer from being overly exposed to any One Eligible Financial Institution. While this requirement would not eliminate the chance of losing Reserve Assets because of distress at an Eligible Financial Institution holding Reserve Assets—or temporarily losing access to Reserve Assets—this requirement would ensure that NCUA-Licensed PPSIs have other stocks of Reserve Assets available to satisfy redemption requests. This requirement is meant to capture all potential exposures to a counterparty. An NCUA-Licensed PPSI could maintain deposits and/or funds in Share Accounts payable upon demand at an IDI while at the same have an Affiliate of that IDI maintain custody of the issuer's securities or serve as a counterparty in repurchase or reverse repurchase transactions. All of these transactions could expose an NCUA-Licensed PPSI's Reserve Assets to the health of a single Eligible Financial Institution. Accordingly, this requirement would aggregate exposures to prevent excessive exposure to any

one Eligible Financial Institution. The phrase “or other exposures” is meant to capture any other exposure that creates a similar risk. The NCUA invites comments on alternate minimums besides 40 percent; the 40 percent measure would ensure that no one Eligible Financial Institution would have a majority of an NCUA-Licensed PPSI's Reserve Assets and that issuers spread relationships and operational capabilities across multiple Eligibl

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