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

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Federal Register › Vol. 91 › 91 FR 28956

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

United States. 11 It further prohibits digital asset service providers 12 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. 13 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. 14 This proposed rulemaking represents one piece of the GENIUS Act's implementing regulations. 15

11 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).

12 “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)

ance 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. 18

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

18 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”). 19

19 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.

r 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

rminology 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. 42 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.

42 The definitions in proposed § 706.2 describe only terms used in proposed part 706

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

45 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. 46 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. 47

46 12 U.S.C. 5904(c)(3).

47 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

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.

50 12 U.S.C. 5909(a).

51 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

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, 52 and the relevant custody agreement must reflect compliance with section 10 as well as policies and procedures to ensure such compliance. 53 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.

52 12 U.S.C. 5909.

53 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

nizes 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

orm 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. 54 Fair value is used in proposed § 706.202 in describing proposed reserve requirements.

54 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. 55 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.

55 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

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. 56

56 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, 57 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.

57 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. 58 As proposed, the term “Insured Credit Union” would have the meaning given to that term in section 101 of the Federal Credit Union Act. 59

58 12 U.S.C. 5901(14).

59 12 U.S.C. 1752.

ransactions to benefit Immediate Family members.

57 Id.

16. Insured Credit Union

58 12 U.S.C. 5901(14).

59 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. 60 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.

60 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. 61 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.

61 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

ve to the value of a fixed amount of monetary value[.]” 65 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. 66 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. 67 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. 68

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

66 12 U.S.C. 5901(17)

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

68 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; 69 (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; 70 (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

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

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

73 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?

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.

74 12 U.S.C. 5901(18).

75 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. 76 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.

76 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.

more governments.

76 12 U.S.C. 5901(19).

22. NCUA-Licensed Permitted Payment Stablecoin Issuer

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.

ct 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.

e 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. 77 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 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. 77 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, 78 the frequency of examinations, 79 required audits, 80 and minimum capital calculation 81 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.

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

78 See proposed § 706.202.

79 See proposed § 706.205.

80 See id.

81 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. 82 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). 83 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.

82 12 U.S.C

ny(ies). 83 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.

82 12 U.S.C. 5904(b)-(c).

83 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

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.

85 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 necessa

er 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. 88 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

uted media; (3) disclosures to the general public that are required to be made by Federal, State, or local law; or (4) a Distributed Ledger. 90

90 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. 91 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).

91 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. 92

92 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

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

93 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.

e 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 Pe

ecorded 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

ould 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

§ 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. 94 Additionally, section 16(b) of the GENIUS Act outlines certain additional activities and investments in which PPSIs may engage. 95

94 12 U.S.C. 5903(a)(7)(A).

95 12 U.S.C. 5915(b)

bpart B—NCUA-Licensed Permitted Payment Stablecoin Issuers

1. § 706.201. Activities

a. Permitted Activities

94 12 U.S.C. 5903(a)(7)(A).

95 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. 96 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. 97 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. 98 Such an activity may be necessary to ensure that the NCUA-Licensed PPSI may operate safely and effectively on a Distributed Ledger

ectly 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. 98 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.

96 12 U.S.C. 5903(a)(7)(A).

97 12 U.S.C. 5903(a)(7)(A)(v).

98 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. 99 This power is inherent in the activities described above and is explicitly recognized in section 4(a)(1)(B)(ii) of the Act. 100

99 12 U.S.C. 5903(a)(7).

100 12 U.S.C. 5903(a)(1)(B)(ii)

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. 99 This power is inherent in the activities described above and is explicitly recognized in section 4(a)(1)(B)(ii) of the Act. 100

99 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. 104 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)

ned 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

the issuer may choose to pay transaction fees on behalf of the Customer. The NCUA recognizes that, if an issuer is paying transaction

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. 107

107 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. 108 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. 109 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)

tal 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. 109 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, 110 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. 117 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

116 12 U.S.C. 5903(a)(11).

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)

mers. 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)

general prohibition on the payment of yield could create uncertainty within the Payment Stablecoin market.

120 12 U.S.C. 5903(a)(11).

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

te or related third party; and (B) the Affiliate 122 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).

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

e 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

ssion; 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).

126 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

PSIs 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 .” 128 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 129 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

ses 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 129 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

CUA 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, 130 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.” 131 It follows that NCUA-Licensed PPSIs should not be allowed to engage in practices that are unsafe or unsound

t 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? 133

133 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

d/or incidental activities?

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?

e 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

stablishing 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 a

ed § 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. 135

135 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

d ( 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.

e 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

suer 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

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 136 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

n 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; 139 (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; 140 (5) reverse repurchase agreements, wit

ample, 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).

142 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

ciples-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. 144 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.

144 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

ests. 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.

145 12 U.S.C. 5903(a)(4)(A)(iii).

146 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

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. 147 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

NCUA-Licensed PPSIs a transparent and standardized target for achieving compliance with Reserve Asset diversification requirements. 147 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.” 148

147 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).

148 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

the issuer to hold the entire range of permissible assets while ensuring that the portfolio in aggregate does not have excess exposure to interest rate risk. A limit of 20 days would still allow NCUA-Licensed PPSIs the full range of permissible Reserve Assets (for example, newly issued 3-month Treasury bills) while ensuring that Reserve Assets are not overly concentrated in longer-dated issuances. The NCUA invites comment on whether a weighted average maturity limit of 20 days is appropriate, including whether it would represent a binding constraint for current stablecoin issuers and the desirability of higher or lower limits. The NCUA additionally invites comment on whether the weighted average maturity requirement for a large issuer should differ from that for a smaller issuer ( e.g., by allowing smaller issuers to have a longer weighted average maturity such as 30 or 40 days).

150 During the rapid increases in interest rates in the early 1980s, 3-month Treasury Bill secondary market rates increased from 12.05 percent to 15.37 percent over the period of a month. See Fed. Reserve Econ. Data, “Table Data—3-Month Treasury Bill Secondary Market Rate, Discount Basis,” https://fred.stlouisfed.org/data/WTB3MS (including Treasury Bill secondary market rates for February 8, 1980, and March 7, 1980). A change of this magnitude would result in a 90-day security losing approximately 0.79 percent of its value.

As an example, an NCUA-Licensed PPSI with $20 billion of Outstanding Issuance Value could meet the safe harbor by depositing at least $1 billion each at two IDIs. This would meet the requirement in proposed § 706.202(c)(2)(i) that the NCUA-Licensed PPSI maintain at least 10 percent ($2 billion in this example) of its required Reserve Assets as readily available funds as well as the requirement in proposed § 706.202(c)(2)(iv) that the NCUA-Licensed PPSI maintain no more than 50 percent of its readily available funds at any one Eligible Financial Institution ($1 billion in this example)

t in proposed § 706.202(c)(2)(i) that the NCUA-Licensed PPSI maintain at least 10 percent ($2 billion in this example) of its required Reserve Assets as readily available funds as well as the requirement in proposed § 706.202(c)(2)(iv) that the NCUA-Licensed PPSI maintain no more than 50 percent of its readily available funds at any one Eligible Financial Institution ($1 billion in this example). In order to qualify for the safe harbor, the NCUA-Licensed PPSI would still need to satisfy proposed § 706.202(c)(2)(iii), under which an issuer could not maintain more than 40 percent of its Reserve Assets at any one Eligible Financial Institution and proposed § 706.202(c)(2)(ii), under which an NCUA-Licensed PPSI must maintain 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 conditionally within five business days on pending sales of Reserve Assts, maturing Reserve Assets, or other maturing transactions. In this example, the NCUA-Licensed PPSI could not keep more than $8 billion in Reserve Assets at any one institution (for instance, invested in a single investment fund) and would also need to maintain at least $6 billion 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 or other maturing transactions. The issuer would also need to ensure that its entire stock of Reserve Assets ($20 billion) complied with the requirement to have a weighted average maturity of no more than 20 days. While compliance with the diversification safe harbor would establish compliance with proposed § 706.202(c), it would not relieve an NCUA-Licensed PPSI of its obligations under proposed § 706.202(a)

he information disclosed in the previous month-end report examined by a Registered Public Accounting Firm. Proposed § 706.202(f)(1) would require the examination of the previous month-end report to occur by noon on the last day of each month and would require the report to be published on the NCUA-Licensed PPSI's website at the same time as the monthly report required under proposed § 706.202(e). Consistent with the GENIUS Act, proposed § 706.202(f)(2) would require the Chief Executive Officer and Chief Financial Officer (or the Persons performing the equivalent functions) of the NCUA-Licensed PPSI to submit a certification as to the accuracy of the monthly report to the NCUA. Under section 4(a)(3)(C) of the Act, 153 any Person who submits this required certification knowing that such certification is false shall be subject to the same criminal penalties as those set forth under 18 U.S.C. 1350(c).

152 12 U.S.C. 5903(a)(3).

153 12 U.S.C. 5903(a)(3)(C).

Proposed § 706.202(g) provides for the consequences and remedial measures if an NCUA-Licensed PPSI does not comply with the requirements of § 706.202. Proposed § 706.202(g)(1) would provide that an NCUA-Licensed PPSI must notify the NCUA on any day in which its Reserve Asset amount has fallen below the required minimum in proposed § 706.202(a). Proposed § 706.202(g)(2) would provide that an NCUA-Licensed PPSI falling below the required minimum would be barred from issuing new Payment Stablecoins until it had remediated the shortfall except as necessary to facilitate a transfer of Payment Stablecoins from one Distributed Ledger to another and provided that the net Outstanding Issuance Value does not increase

on 8(a) of the Investment Company Act of 1940, 154 or other registered Government money market fund, and that are invested solely in underlying assets described in clauses (i) through (v)” as eligible Reserve Assets for Payment Stablecoins issued by PPSIs. However, many or all Government money market funds are investment companies registered under section 8(a) of the Investment Company Act of 1940. Should the provision relating to securities issued by investment companies registered under section 8(a) of the Investment Company Act, or other registered Government money market funds, be clarified? Does section 4(a)(1)(A)(vi) permit securities issued by investment companies registered under section 8(a) of the Investment Company Act of 1940 that are not Government money market funds to be Reserve Assets for Payment Stablecoins issued by PPSIs? Are there any registered Government money market funds that are not investment companies registered under section 8(a) of the Investment Company Act? Does section 4(a)(1)(A)(vi) permit securities issued by registered Government money market funds that are not registered under section 8(a) of the Investment Company Act to be Reserve Assets for Payment Stablecoins issued by PPSIs?

154 15 U.S.C. 80a-8(a).

Question 43: Should the provisions relating to repurchase agreements and reverse repurchase agreements be clarified? For example, should the NCUA provide that deposits and funds in Share Accounts can serve as collateral for repurchase agreements? If so, what limitations, if any, should the NCUA include with respect to the use of deposits and funds in Share Accounts as collateral?

Question 44: Should the proposed rule require a buffer or impose haircuts on certain Reserve Assets to ensure that Reserve Asset values do not fall below Outstanding Issuance Values? The GENIUS Act requires PPSIs to maintain identifiable reserves “on an at least 1 to 1 basis.” What measures should the proposed rule include to ensure that issuers are able to maintain this minimum? Without a buffer

s ( e.g., minimum amount of Reserve Assets held as deposits and/or funds in Share Accounts or minimum number of Eligible Financial Institutions holding the PPSI's Reserve Assets) for PPSIs that hold Treasury securities with a remaining maturity between 94 days and two years?

Question 50: Should the proposed rule clarify that Treasury Floating Rate Notes (FRNs) and Treasury Inflation-Protected Securities (TIPs) be included as permissible Reserve Assets, assuming they otherwise meet the requirements of the proposed rule, including maturity requirements? Is there any reason these securities should be excluded? Should Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS) be included? Are there other instruments that should be considered as included within the GENIUS Act's phrase “Treasury bills, notes, or bonds”? If these securities are included, should there be additional requirements—for example, both weighted average life and weighted average maturity limits to accommodate interest rate resets in FRNs?

Question 51: Should the proposed rule's requirements for Reserve Assets incorporate requirements to reflect potential interactions with the larger market for Treasury securities? For example, should the proposed rule include requirements to prevent any disruptive or negative effects that the management or liquidation of Treasury Reserve Assets might have on markets?

Question 52: The proposed rule would, consistent with the GENIUS Act, allow as Reserve Assets funds held as deposits and/or in Share Accounts) that are payable upon demand at an IDI (including any foreign branches or agents, including correspondent banks)

unt with a Federal Reserve Bank, or amounts receivable and due unconditionally within five business days on pending sales of Reserve Assets or other maturing transactions be set at 20 percent, 25 percent, or 30 percent? Are the proposed maxima for various types of Reserve Assets that may be held at an Eligible Financial Institution appropriately calibrated? Would a shorter or longer weighted average maturity be appropriate? Should larger issuers have a shorter weighted average maturity requirement than smaller issuers? If the final rule includes quantitative requirements for all PPSIs, should there be additional risk management requirements to ensure that PPSIs appropriately manage diversification and concentration risk? In particular, the risk management requirements could include a requirement that PPSIs must measure and manage the risk that their gross exposure to any one institution or a small number of institutions may impair their ability to satisfy redemption demands.

Question 56: The Reserve Asset diversification and concentration limits in proposed § 706.202(c) would not distinguish reserve assets held at Federal Reserve Banks and would therefore include requirements (or conditions of a safe harbor) that would limit the reserve assets held at any one Federal Reserve Bank. In light of the low credit risk associated with Federal Reserve Banks, should the final rule eliminate these requirements or conditions? Specifically, should the NCUA exempt reserve assets held at a Federal Reserve Bank from the conditions in § 706.202(c)(2)(iii) and § 706.202(c)(2)(iv) of Option A and the requirements in § 706.202(c)(3) and § 706.202(c)(4) of option B?

from the conditions in § 706.202(c)(2)(iii) and § 706.202(c)(2)(iv) of Option A and the requirements in § 706.202(c)(3) and § 706.202(c)(4) of option B?

Question 57: The Reserve Asset diversification and concentration limits in proposed § 706.202(c) would limit the Reserve Assets, including deposits and/or funds in Share Accounts payable upon demand, at any one Eligible Financial Institution. Should there be an exception to some or all of these requirements for a subsidiary of an NCUA-regulated FICU approved to be a PPSI if the NCUA-regulated FICU has less than a certain amount of total assets? Should the exception be limited to or tailored for Reserve Assets at a Parent Company FICU? For example, should a PPSI that is a subsidiary of an NCUA-regulated FICU Parent Company with less than a certain amount of total assets be permitted to hold a larger percentage, or all, of its Reserve Assets as deposits and/or funds in Share Accounts at the NCUA-regulated FICU Parent Company? Should any such exception be subject to any conditions? For example, should it only be available if the NCUA-regulated FICU is well-capitalized?

Question 58: Option A for proposed § 706.202(c) would require that a PPSI must maintain Reserve Assets that are sufficiently diverse to manage potential credit, liquidity, interest rate, or price risks. Are there other risks that should be added to this list, or removed from it? If the final rule adopts mandatory quantitative diversification and concentration requirements, should the requirement to monitor and manage these risks be codified as a separate risk management requirement?

Question 59: The NCUA invites comment on the extent to which additional diversification requirements are necessary

lecoin holders? Should the thresholds in proposed § 706.202(d) be set at different levels: for example, apply to issuers with an Outstanding Issuance Value of $1 billion, $10 billion, $50 billion, or $100 billion or more? Should covered larger issuers be required to maintain a smaller or larger percentage of Reserve Assets as fully insured deposits and/or Share Accounts (for example, 0.1 percent, 0.25 percent, 1 percent, or 2 percent)? Should the cap be higher or lower (for example, $100 million, $250 million, or $1 billion)?

Question 62: How should the NCUA calibrate the fully insured deposit and/or Share Account) requirement for PPSIs? Should it be as a percentage of assets or an absolute number? If a percentage, what percentage should that be? If an absolute number, what should that be? Should there be a cutoff for PPSIs above or below a certain size

threshold that should be required to place fully insured deposits and/or Share Accounts? If so, why? What would be the implications of such a cutoff? What is the total amount of fully insured Payment Stablecoin deposits and/or funds in Share Accounts that the banking system in the United States can or should reasonably absorb? What is the total amount of fully insured deposits and/or funds in Share Accounts that an individual community bank or FICU is likely to hold?

Question 63: There are approximately 4,380 total insured banks and 4,287 FICUs in the United States

ch concerns? Should the proposed rule include a minimum percent of Reserve Assets as deposits and/or funds in Share Accounts in order to offset potential reductions in overall levels of deposits and funds in Share Accounts?

Question 68: One option in the proposed rule would include flexible baseline diversification and concentration requirements, coupled with an optional quantitative safe harbor. Should the default requirement for PPSIs include quantitative limits for Reserve Asset diversification? For example, the NCUA could impose quantitative limits on the maximum amount of uninsured deposits and/or uninsured funds in Share Accounts payable upon demand that PPSIs can maintain with a single IDI, in addition to any restrictions imposed by the FDIC and NCUA pursuant to separate authority under the GENIUS Act. PPSIs might be required to maintain no more than a specified percentage (for example, one percent, five percent, or 10 percent) as uninsured deposits and/or uninsured funds in Share Accounts payable upon demand at a single IDI. Examples of other quantitative limits could include the following.

• Minimum cash limits, such as a minimum amount of Money standing to the credit of an account of a Federal Reserve bank plus deposits and/or funds in Share Accounts payable upon demand as a percentage of operating expenses for a specific period, as a percentage of total Reserve Assets, or as a percentage of modeled stress cash outflows (for example, 10 percent or 15 percent);

• Minimum amount of assets maturing daily, weekly, or over some other time period (for example, assets available on demand or maturing weekly must constitute 20 percent of Reserve Assets);

• Counterparty diversification limits, such as maximum credit exposure to repo or reverse repo counterparties; and

• Limitations on tokenized forms of Reserve Assets under proposed § 706.202(b)(8), such as limiting the amount to no more than a certain percentage ( e.g., 20 percent) of a PPSI's total Reserve Assets

hare Accounts at a single IDI?

Question 71: Should the NCUA's concentration requirements include requirements to not have more than a specified portion of Reserve Assets at a single custodian? Would this requirement impose undue burden? For example, would requiring the use of more than one Eligible Financial Institution as custodian of Treasury securities and collateral for reverse repurchase agreements impose undue burden or complexity on the management of Reserve Assets? What are the costs and benefits of such an approach, including from an operational risk perspective?

Question 72: Should the proposed rule include measures to ensure that a PPSI is not overly reliant on short-term lending transactions to meet immediate

liquidity needs? In the absence of such a restriction, a PPSI hypothetically might maintain a Reserve Asset portfolio entirely of Treasury securities and rely on overnight repo transactions to generate the daily liquidity amounts required by the proposed rule. This arrangement could leave the PPSI vulnerable to disruptions in repo markets. Should the proposed rule require excluding short-term repayment obligations from daily and weekly liquidity? For example, the proposed rule could require, for daily liquidity, deducting payments due on overnight borrowings and, for weekly liquidity, deducting any payments due within the next five business days? If such a restriction is included, should repayment deductions be offset by any expected inflows?

Question 73: Consistent with the GENIUS Act, the proposed rule would allow physical currency, including coins, to serve as Reserve Assets

e NCUA require? For example, should the report include information about deposit and Share Account concentration and CUSIPs of securities? Should the required content include the composition of the Reserve Assets by type of assets and maturities and by counterparty issuer? For purposes of stating the geographic location of custody, should it suffice to state the country of custody? Or should more granular information be required? Should the NCUA require that the composition report conform to the specified template? Are there specific methods for calculating tenor that the rule should require or explicitly permit?

For example, should the rule define average tenor as the weighted average maturity or life of the asset? Should the monthly composition report require the issuer to distinguish between insured and uninsured deposits and funds in Share Accounts?

Question 84: Are there any additional steps that the NCUA should take to encourage transparency while minimizing burden with respect to the Reserve Asset composition report?

Question 85: What modifications to the reporting requirements, including the Reserve Asset composition report, would be appropriate for arrangements where one issuer issues multiple Payment Stablecoins under different brands ( e.g., white label arrangements), if that arrangement is permitted in the final rule? Are there any additional disclosures that the issuer should provide in order to ensure that the report is not misleading?

Question 86: Should the report be required to list and name any IDIs holding Reserve Assets? Should the report be required to list and name other Eligible Financial Institutions holding Reserve Assets? Should the proposed rule include additional measures to ensure that Reserve Assets are appropriately traceable and linked to their corresponding Payment Stablecoin so as to avoid any difficulties in resolving claims to Reserve Assets?

Question 87: For purposes of the composition report and reserves in tokenized form, should the PPSI be required to disclose t

nt and form of the certification?

Question 90: Should the monthly composition report be published at some point before the examination by a Registered Public Accounting Firm? For example, a PPSI could publish the report five days after the end of the previous month and have the report examined 30 days after the end of the previous month and disclose any discrepancies uncovered by the examination. Would the benefits of more timely availability of these reports outweigh the potential costs associated with the risk of subsequent changes as a result of the examination that would be completed at a later date?

Question 91: Is the requirement in proposed § 706.202(f) to have information disclosed in the previous month-end report examined by a Registered Public Accounting Firm sufficiently clear? If not, what additional clarity should the NCUA provide with respect to the examination by a Registered Public Accounting Firm? Should the examination be performed at the “reasonable assurance” level or at some other standard? What additional standards, if any, should the NCUA apply to ensure that the examination is accurate and appropriate? Should the engagement letter between the PPSI and the Registered Public Accounting Firm require the Registered Public Accounting Firm to attest to whether the PPSI is in compliance with the Reserve Asset requirements in § 706.202 (or a subset thereof), based on the information available to the Registered Public Accounting Firm? What criteria should be used for the examination? Would assurances from the management of the PPSI regarding the information in the issuer's weekly or monthly report be sufficient? If not, what other criteria should be included?

Question 92: Should PPSIs be required to monitor the financial condition of Eligible Financial Institutions holding Reserve Assets? Should the financial condition of an Eligible Financial Institution holding an issuer's Reserve Assets be considered in whether issuers have met their deposit and/or funds in Share Account concentration obl

ands to redeem Payment Stablecoins outside of normal business hours and outside of the hours when many Reserve Assets could be liquidated. As provided for in proposed § 706.203(c)(2), the extended redemption period applies to all redemption requests that are outstanding at the time the 10 percent threshold is met as well as any subsequent redemption requests following the time the threshold is met. Proposed § 706.203(c)(3) clarifies that the extension is non-discretionary and that an NCUA-Licensed PPSI may only redeem any of the outstanding or subsequent redemption requests prior to the seven calendar day period if the NCUA determines that the issuer has the ability to redeem sooner in an orderly fashion and through a fair and transparent process or the NCUA otherwise provides notice to the NCUA-Licensed PPSI that the extended redemption period no longer applies. The NCUA expects that the NCUA-Licensed PPSI seeking to redeem sooner than the seven calendar day period will engage with the NCUA to provide evidence that it can redeem in an orderly fashion and through a fair and transparent process that does not unfairly advantage some Payment Stablecoin holders relative to other Payment Stablecoin holders. Under proposed § 706.203(c)(4), an NCUA-Licensed PPSI that exceeds that 10 percent threshold would be required to provide notice to the NCUA within 24 hours. Using this 24-hour time period will provide appropriate notice to the NCUA and allow an appropriate amount of time to facilitate the orderly liquidation of Reserve Assets. These provisions are intended to facilitate the orderly liquidation of sufficient Reserve Assets in the event of a spike in redemption requests and would help ensure financial stability by lowering the potential price impact of a sudden liquidation of Reserve Assets

es the Payment Stablecoin; (ii) that the NCUA-Licensed PPSI is the entity that is obligated to convert, redeem, or repurchase the Payment Stablecoin for a fixed amount of Monetary Value; (iii) the link to the monthly composition report of the relevant NCUA-Licensed PPSI's reserves as required under proposed § 706.202(e); and (iv) all fees associated with purchasing or redeeming Payment Stablecoins. The NCUA is including a requirement that the disclosures under proposed § 706.203(d)(1) are readily noticeable by Customers, readily understandable by Customers, and segregated from other information to

provide more certainty on what it means to “publicly, clearly, and conspicuously disclose [the information] in plain language.” 161 The NCUA is proposing to include the requirement that the disclosures be segregated from other information to ensure that the information in the disclosures is not combined with other non-relevant information that could obscure the importance of these disclosures. Although the NCUA-Licensed PPSI may include additional information beyond what is required in proposed § 706.203(d)(1) in the same disclosure, the information required under proposed § 706.203(d)(1) should be sufficiently separate and must meet the other requirements outlined, including that the information is readily noticeable and readily understandable by Customers. The NCUA believes that the disclosures required under proposed § 706.203(d)(1) are consistent with section 4(a)(1)(B) of the GENIUS Act 162 and are particularly important in the situation where an NCUA-Licensed PPSI issues more than one brand of Payment Stablecoin either directly or through an Affiliate (if the NCUA limits NCUA-Licensed PPSIs to issuing a single brand of Payment Stablecoin). The NCUA believes that these disclosures are necessary to prevent confusion and ensure that Payment Stablecoin holders understand who has the ultimate obligation to redeem their Payment Stablecoin.

161 12 U.S.C. 5903(a)(1)(B)(ii).

162 12 U.S.C. 5903(a)(1)(B)

blecoin either directly or through an Affiliate (if the NCUA limits NCUA-Licensed PPSIs to issuing a single brand of Payment Stablecoin). The NCUA believes that these disclosures are necessary to prevent confusion and ensure that Payment Stablecoin holders understand who has the ultimate obligation to redeem their Payment Stablecoin.

161 12 U.S.C. 5903(a)(1)(B)(ii).

162 12 U.S.C. 5903(a)(1)(B).

Proposed § 706.203(d)(2) provides that an NCUA-Licensed PPSI must update the disclosures in proposed § 706.203(d)(1)(iv) if there are any changes in the fees associated with purchasing or redeeming Payment Stablecoins and provide Customers at least seven calendar days' prior notice of the change, including by securely delivering the notice to current Customers. Proposed § 706.203(d)(3) provides that an NCUA-Licensed PPSI must publish the disclosures in proposed § 706.203(d)(1) and any updates made in accordance with proposed § 706.203(d)(2) on the NCUA-Licensed PPSI's website. Proposed § 706.203(d)(4) provides that an NCUA-Licensed PPSI must include the disclosures in proposed § 706.203(d)(1) and any updates made in accordance with proposed § 706.203(d)(2) in any Customer agreements that it provides.

b. Request for Comment

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

Question 95: Has the NCUA appropriately defined “timely” for purposes of redemption in proposed § 706.203(b)(1)(i) as not exceeding two business days? If not, what may be a more appropriate time frame? For example, should the NCUA consider other time frames ranging from one calendar day to seven calendar days timely? Should the NCUA consider some timeframe longer than seven calendar days timely? Should the NCUA define “timely” in a manner that scales with the liquidity of the underlying Reserve Assets or other factors? How should any definition of “timely” appropriately balance considerations of price stability and run risk?

Question 96: Should the NCUA include a safe harbor for failing to timely redeem a Payment Sta

ent process, the PPSI would not be able to redeem sooner than seven calendar days? Should the PPSI be able to make the determination that it can redeem through a fair and transparent process on its own without NCUA approval or should the standard otherwise be changed? Should the extended redemption time period apply to outstanding and subsequent redemption requests as proposed?

Question 98: Should the NCUA define “redemption” for purposes of the proposed rule? If so, should it be defined broadly to mean that, for example, the PPSI has initiated payment to the Payment Stablecoin holder in return for a tendered Payment Stablecoin? Are there reasons to define “redemption” more narrowly? For example, should the NCUA define redemption to mean that the PPSI's payment to a Payment Stablecoin holder in exchange for Payment Stablecoin has settled?

Question 99: Are there limitations that the NCUA should impose on redemption fees, e.g., to discourage run risk or to encourage price stability?

Question 100: Should the NCUA require PPSIs to deliver notice to current Customers whenever they change fees, as proposed? Are there any specific methods or modes of communication that the NCUA should require? If so, which modes of communication would be most effective and appropriate? Should the notice be waived if the change is a decrease in fees?

Question 101: Should the NCUA include specific additional provisions regarding fee disclosures in the regulation text? If so, what additional requirements should be included? Should the NCUA specify how section 5 of the FTC Act relating to unfair or deceptive acts or practices could apply to how the NCUA evaluates the disclosures? 163 To whom should issuers have a responsibility to deliver disclosures regarding changes in fees? Should it be all Payment Stablecoin holders ( e.g., include retail holders who purchased from an exchange or secondary market), or should it be a narrower subset of holders ( e.g., only holders who purchased directly from the Payment Stablecoin issuer)? Are th

. For example, the procedures to safeguard, manage, control, and monetize assets will be expected to include measures to monitor and ensure the deposit and funds in Share Account concentration and diversification requirements are met on a daily basis. 170 Likewise, procedures will be expected to address potential vulnerabilities related to fraud and the theft of Payment Stablecoins or other assets.

170 In spring 2023, interest rate increases contributed to the failure of Silicon Valley Bank, which in turn caused the value of one stablecoin, USDC, to fall below $1 in the secondary market when it became evident that much of USDC's reserves were held at Silicon Valley Bank. This event illustrates the potential knock-on effects of changes in interest rates and the importance of continuous monitoring for Payment Stablecoins, particularly if acute stress creates situations where issuers are unable to access reserve assets.

The NCUA proposes that § 706.204(a)(2) requires NCUA-Licensed PPSIs have an internal audit system that is appropriate to the size and complexity of the PPSI and the nature, scope, and risk of its activities and that the audit system provides for (i) adequate monitoring of the system of internal controls through an internal audit function, or for an NCUA-Licensed PPSI whose size, complexity or scope of operations does not warrant a full scale internal audit function, a

system of independent reviews of key internal controls; (ii) independence and objectivity; (iii) qualified Persons responsible for the audit function; (iv) adequate independent testing and review of internal controls and information systems, verification of published information available to Customers, calculations for required reserves, and regulatory filings; (v) adequate documentation of tests and findings and any corrective actions; (vi) verification and review of management actions to address deficiencies; and (vii) review by the institution's audit committee or board of directors of the effectiveness of the internal audit

would be offered to, or would apply to non-Affiliates or non-Insiders); and (3) are appropriately documented and reviewed by the board of directors. Proposed paragraph (a)(6)(ii) would require an NCUA-Licensed PPSI to appropriately monitor and validate compliance with these requirements.

Proposed § 706.204(a)(7) would provide requirements for overseeing third-party service provider arrangements. Specifically, an NCUA-Licensed PPSI must (i) exercise appropriate due diligence in selecting its service providers; (ii) require its service providers by contract to implement appropriate measures designed to meet the requirements of part 706; and (iii) as appropriate, monitor its service providers to confirm they have satisfied their obligations under proposed part 706. As part of this monitoring, NCUA-Licensed PPSIs should review audits, summaries of test results, or other equivalent evaluations of its service providers.

Proposed § 706.204(a)(8) would require an NCUA-Licensed PPSI to (i) appropriately monitor and validate compliance with the requirements of § 706.202 and (ii) manage liquidity and concentration risk in a manner that is appropriate to the business model and risk profile of the PPSI.

Proposed § 706.204(b)(1) provides that an NCUA-Licensed PPSI must implement a comprehensive written information security risk and control framework, including a program that assesses and manages information technology and information security risks.

Under proposed § 706.204(b)(2), the board of directors of the NCUA-Licensed PPSI, or an appropriate board committee, must approve the information technology and security program. The board must oversee the development, implementation, and maintenance of the program, including the appointment of a qualified Information Technology and Security Officer. The oversight required of the board or committee includes assigning specific responsibility for program implementation and review of program-related reports

mittee, must approve the information technology and security program. The board must oversee the development, implementation, and maintenance of the program, including the appointment of a qualified Information Technology and Security Officer. The oversight required of the board or committee includes assigning specific responsibility for program implementation and review of program-related reports.

Under proposed § 706.204(b)(3), an NCUA-Licensed PPSI's information technology and security program must include (i) an inventory and classification of assets, processes, and sensitivity of data; (ii) controls supporting and safeguarding sensitive information and processes; (iii) evaluation, validation, and reporting processes to ensure that key information technology systems and controls, including smart contracts, are operating as intended; (iv) periodic independent testing; and (v) a comprehensive and effective incident identification and assessment process and incident response program.

Under proposed § 706.204(b)(4), an NCUA-Licensed PPSI's information technology and security program must include administrative, technical, and physical safeguards designed to (i) ensure the security and confidentiality of records containing Nonpublic Personal Information about a Customer; (ii) protect against any anticipated threats or hazards to the security or integrity of such records; (iii) protect against unauthorized access to or use of such records that could result in substantial harm or inconvenience to any Customer; and (iv) ensure the proper disposal of such records

cent corporate information technology system failures have demonstrated the importance of measures to maintain operational resilience. NCUA-Licensed PPSIs should ensure that they have sufficient controls to reliably address operational issues that may arise with burning and minting new Payment Stablecoins and should conduct appropriate due

diligence before supporting any new Distributed Ledger. Operational resilience will be particularly important for PPSIs, who will depend on Customer confidence in the stable value and availability of their Payment Stablecoins.

Proposed paragraph § 706.204(c) would implement the GENIUS Act's requirement for the NCUA to issue regulations implementing appropriate Bank Secrecy Act and sanctions compliance standards by providing that, in order to ensure compliance with Bank Secrecy Act and sanctions compliance requirements, each NCUA-Licensed PPSI must comply with the Bank Secrecy Act, sections 4(a)(5) and 4(a)(6) of the GENIUS Act, 177 and applicable regulations at 31 CFR Chapter V and 31 CFR Chapter X, including any AML/CFT program, sanctions program, and reporting requirements. The Department of Treasury's Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) recently issued a separate proposed rule that would implement the GENIUS Act's directive to treat PPSIs as financial institutions under the Bank Secrecy Act, as well as imposing several unique obligations required by the GENIUS Act. 178 The FinCEN and OFAC proposed rule would also implement the GENIUS Act's directive to require PPSIs to maintain effective sanctions compliance programs. In the interests of reducing burden and promoting consistent requirements, the proposed rule would not contain additional requirements beyond those contained in these proposed rules at this time. Instead, compliance with regulations at 31 CFR Chapter V and 31 CFR Chapter X would constitute compliance with proposed paragraph § 706.204(c)

standing Issuance Value)?

Question 106: Which standards from 12 U.S.C. 1831p-1 and 12 CFR part 30 appendices A and B should or should not apply to PPSIs? Are there other standards not in 12 U.S.C. 1831p-1 and 12 CFR part 30 appendices A and B that should apply PPSIs? Commenters are directed to these sources even though they do not apply to FICUs because they serve as a basis for the OCC Proposal.

Question 107: Do the proposed risk management requirements appropriately provide for clear management roles, responsibilities, and accountability? If not, how should the proposed risk management requirements be revised?

Question 108: Should PPSIs be required to adopt and adhere to a risk appetite statement?

Question 109: Should PPSIs be required to regularly ( e.g., on at least an annual basis), review their risk management framework and make any changes to appropriately align risk management activities with their business objectives and strategies?

Question 110: Should the proposed rule's requirements with respect to interest rate risk management be modified? If so, how? For example, should PPSIs have in place the appropriate policies, procedures and internal controls for their interest rate risk management programs? Should PPSIs develop appropriate measurement of interest rate risk as part of their interest rate risk management programs? Should PPSIs establish risk appetite and limit structure as part of interest rate risk management programs? Should PPSIs incorporate stress testing as part of their interest risk management programs? Should PPSIs be allowed to use assets that do not qualify as Reserve Assets as part of an interest rate risk hedging program? If so, should there be restrictions on the types of instruments used for hedging purpose? Additionally, should the maturities of the hedging instruments be matched with the maturities of the qualified Reserve Assets?

Question 111: What types of credit risk may PPSIs face, and how should PPSIs manage these risks? Should the proposed rule include specific

ified Information Technology and Security Officer. Should the rule also require the appointment of a qualified Chief Risk Officer and Chief Audit Executive? The NCUA is considering all possible combinations of the standards in proposed § 706.204 and invites comments on which combination of standards is appropriate as well as whether to remove any of the individual standards in proposed § 706.204.

Question 114: Should the NCUA consider operational risk management principles-based requirements and standards to address the situation where an issuer needs to transfer Payment Stablecoins across different blockchains to satisfy a redemption demand? If so, what kind of requirements and standards should the NCUA consider to address this situation? For example, should there be specific requirements relating to locking, minting, or burning Payment Stablecoins to facilitate a transfer?

Question 115: Should the NCUA include consumer protection-related compliance risk management principles-based requirements and standards in § 706.204? If so, are there specific standards the NCUA should institute?

Question 116: Are there additional requirements concerning data privacy that would be appropriate for the NCUA to include in proposed part 706? Please describe in detail any such standards.

Question 117: Are there particular measures necessary to manage compensation-related concerns at PPSIs, notably risks associated with compensating any party with Payment Stablecoins issued by a PPSI?

Question 118: Should the NCUA include additional requirements concerning PPSIs' management of their ability to satisfy redemption requests and to monetize Reserve Assets, including by analyzing reasonably anticipated redemption scenarios?

Question 119: Should the NCUA include additional requirements relating

to the maintenance of safeguards to prevent the payment of compensation, fees, and benefits that are excessive or that could lead to material financial loss to the PPSI?

Question 120: Are the proposed requirements with respec

to monetize Reserve Assets, including by analyzing reasonably anticipated redemption scenarios?

Question 119: Should the NCUA include additional requirements relating

to the maintenance of safeguards to prevent the payment of compensation, fees, and benefits that are excessive or that could lead to material financial loss to the PPSI?

Question 120: Are the proposed requirements with respect to Insider and Affiliate transactions appropriately tailored? If not, how should they be modified? Should the NCUA consider more prescriptive quantitative or qualitative requirements related to Insider and Affiliate transactions?

Question 121: Should the NCUA include any requirements relating to the concentration of management at unaffiliated PPSIs? For example, should the NCUA include limits on the number of unaffiliated PPSIs for which an individual may serve as an Officer or senior management official? Should any such limits be tied to the Outstanding Issuance Value of the PPSI?

Question 122: Should the NCUA require PPSIs to acquire insurance against certain risks? For example, should PPSIs be required to hold cyber insurance policies? If so, what should be the minimum coverage requirements? Should the NCUA require some minimum level of property and casualty insurance? If so, what should the minimum level of coverage be? What disclosures, if any, would it be appropriate for a PPSI to make with respect to its insurance coverage and to whom should those disclosures be directed ( e.g., investors or Payment Stablecoin holders)? What implications with respect to other applicable disclosure regimes should the NCUA consider when deciding whether to impose any disclosure requirements with respect to insurance coverage? To what extent are the terms and conditions for property and casualty (or other types of) insurance coverage for PPSIs becoming more standardized? What steps, if any, should the NCUA take to encourage standardization to increase certainty and consistency with respect to insurance coverage across jurisdict

, asset size, supervisory ratings, and status of any enforcement actions. 183 The NCUA is proposing to apply this same examination framework to its examination authority over PPSIs. Proposed § 706.205(a) provides that the NCUA will conduct a full-scope examination of every PPSI subject to its supervision at least once during each 12-month period, unless otherwise specified in proposed § 706.205(d). A full-scope examination refers to the comprehensive review of a PPSI's financial condition, risk management practices, compliance with laws and regulations, and overall safety and soundness.

182 See NCUA's Examination Flexibility Initiative web page at available at https://ncua.gov/regulation-supervision/examination-modernization-initiatives/exam-flexibility-initiative for the eligibility criteria

183 Id.

Proposed § 706.205(d) would provide the NCUA with the option to examine some PPSIs on a 14- to 24-month cycle, as determined by the NCUA in its sole discretion, if the issuers satisfy the following conditions: (1) the PPSI currently is not subject to a formal enforcement proceeding or order; (2) no Person became a Parent Company or acquired Control, as specified in §§ 706.111 and 706.205(m), of the PPSI during the preceding 12-month period in which a full-scope examination would have been required but for proposed § 706.205(d); (3) the PPSI has an Outstanding Issuance Value of less than $1 billion or less than $25 billion in total monthly Trading Volume; and (4) the PPSI is in compliance with all of the reserve requirements set forth in proposed § 706.202 and the reporting requirements in proposed § 706.205.

Consistent with the NCUA's statutory authority under the GENIUS Act and the NCUA's supervisory authority over FICUs, proposed § 706.205(e) allows the NCUA to conduct examinations of PPSIs as frequently as the agency deems necessary, including examinations of a limited scope

more quickly to emerging novel and financial stability risks. The NCUA also believes the information request is currently tracked on a regular basis by stablecoin issuers.

189 12 U.S.C. 5905(a)(2). With regards to reporting by a PPSI as to its assets under custody, section 10(d) of the GENIUS Act (12 U.S.C. 5909(d)) provides an additional statutory grant of authority.

190 12 U.S.C. 5905(a)(1).

The NCUA is proposing in § 706.205(i) a separate provision that requires PPSIs to submit quarterly reports of financial condition to the NCUA, including, but not limited to income statement, expenses, balance sheet, reserves, changes in equity, investments, capital, Outstanding Issuance Value, and assets under custody, in a standardized format as prescribed by the NCUA within 30 days of the end of the prior quarter. This provision is similar to the quarterly statements of financial condition that FICUs provide through their quarterly Call Report and Profile. The NCUA proposes this provision to ensure that PPSIs provide consistent, standardized statements of financial condition to the NCUA and will include additional information beyond the composition report required under § 706.202(e) and different information than what would be requested in the confidential weekly reporting required under proposed § 706.205(h). Receiving standardized data on a quarterly basis will enhance the NCUA's ability to supervise PPSIs and provide another source of information that can be used to tailor examinations and identify emerging risks.

The information required to be reported under this section will be streamlined substantially relative to the Call Reports filed by FICUs. Standardizing these reporting requirements will enhance the NCUA's ability to supervise PPSIs and provide clarity as to the information a PPSI must report

rovides that a Registered Public Accounting Firm must perform an audit of the annual financial statement. The audited annual financial statement must be made publicly available on the PPSI's website and be

submitted annually to the primary Federal payment stablecoin regulator.

192 12 U.S.C. 5903(a)(10).

Proposed § 706.205(l) implements the requirements of section 4(a)(10) of the GENIUS Act. Under the proposed rule, each PPSI with more than $50 billion in Outstanding Issuance Value that is not subject to the reporting requirements under section 13(a) or 15(d) of the Securities and Exchange Act of 1934 193 must prepare, in accordance with GAAP, an annual financial statement that must include the disclosure of any related party transactions, as defined by GAAP. Proposed § 706.205(l)(1) requires that a Registered Public Accounting Firm must conduct an audit of the financial statements in accordance with all applicable auditing standards established by the Public Company Accounting Oversight Board. Section 4(a)(10)(A)(iii) of the GENIUS Act describes “applicable auditing standards” 194 as those that would apply if the PPSI were subject to the reporting requirements under section 13(a) or 15(d) of the Securities and Exchange Act of 1934. 195 The standards would be enforced by the NCUA for PPSIs subject to the audit requirement under section 4(a)(10)(A)(iii) of the GENIUS Act. 196 Consistent with this framework, the NCUA may at any time request that a Registered Public Accounting Firm provide to the NCUA certain additional information or documents relating to information provided by the PPSI. The Registered Public Accounting Firm must agree to provide copies of any working papers, policies, and procedures relating to services in connection with the audit required under section 4(a)(10)(A)(iii) of the GENIUS Act. 197

193 15 U.S.C. 78m(a) or 78o(d).

194 12 U.S.C. 5903(a)(10)(A)(iii).

195 15 U.S.C. 78m or 78o(d).

196 12 U.S.C. 5903(a)(10)(A)(iii).

197 12 U.S.C. 5903(a)(10)(A)(iii)

roposed 12 CFR 706.111 in Subpart A as if the Person were a FICU seeking to become a new Parent Company of an NCUA-Licensed PPSI. Thus, consistent with § 706.111, a Person seeking to acquire Control would need to provide 60 days' prior notice to the NCUA. The NCUA could inform the filer that the acquisition has been disapproved, has not been disapproved, or that the review period has been extended.

The NCUA is considering including additional provisions detailing the consequences of failing to follow the procedures under § 706.111 both for new potential FICU Parent Companies and Persons acquiring Control of an NCUA-Licensed PPSI. For example, the NCUA is considering including language stating that, if a Person acquires Control of an NCUA-Licensed PPSI without following the requirements of § 706.111 before the time for the NCUA's review as provided in § 706.111 has expired or after the NCUA has disapproved the acquisition of control, the PPSI: (i) must, within 15 calendar days of the acquisition of Control, provide all information required under § 706.111; and (ii) may be subject to supervisory or enforcement actions relating to any concerns arising from the change in Control, consistent with applicable law. The NCUA welcomes any comments related to proposed § 706.205(m) as well as the additional language the NCUA is considering including in proposed § 706.205(m).

The NCUA proposes requiring this notice to facilitate the NCUA's ongoing examination and supervision of NCUA-Licensed PPSIs. Requiring notice of changes in Control will assist the NCUA in carrying out its mandate to examine PPSIs and is consistent with the NCUA's authority to supervise, request reports, and conduct examinations pursuant to section 6(a) of the GENIUS Act. 198 In addition, requiring notice regarding changes in Control will help the NCUA monitor for and address evasion of the requirements of the GENIUS Act

Requiring notice of changes in Control will assist the NCUA in carrying out its mandate to examine PPSIs and is consistent with the NCUA's authority to supervise, request reports, and conduct examinations pursuant to section 6(a) of the GENIUS Act. 198 In addition, requiring notice regarding changes in Control will help the NCUA monitor for and address evasion of the requirements of the GENIUS Act. For example, there may be instances where changes in Control implicate the risk management requirements of t

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