The U.S. Department of the Treasury has taken a significant step in implementing the GENIUS Act’s stablecoin framework. On April 1, Treasury released a Notice of Proposed Rulemaking (the “Treasury NPRM”) to implement Section 4(c) of the Act, establishing broad‑based principles for determining whether a State‑level stablecoin regulatory regime is “substantially similar” to the federal regulatory framework established by the GENIUS Act.
The Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act” or “Act”) creates the first comprehensive federal licensing framework for “permitted payment stablecoin issuers,” while deliberately preserving the ability to alternatively operate under a State-level authorization. Specifically, Section 4(c) allows issuers with $10 billion or less in outstanding payment stablecoins to opt for State supervision as an alternative to federal authorization, provided the applicable State regulatory regime is substantially similar to the federal regime.
Whether an issuer may rely on a State‑level pathway depends not on issuer choice alone, but on whether the relevant State regime is ultimately found to satisfy the Act’s substantial similarity standard. Until now, there was little guidance on how that determination would be made. The Treasury NPRM fills that gap by translating the Act’s high‑level directive into an evaluative framework that will guide how State regulatory regimes are assessed for certification under the Act – and, in turn, when a permitted payment stablecoin issuer may remain under State supervision rather than transition to federal oversight.
The proposal also forms part of a coordinated series of GENIUS Act rulemakings across the federal banking agencies. While the Office of the Comptroller of the Currency’s (“OCC”) proposed rules address the substantive requirements applicable to certain federally supervised issuers, the Treasury NPRM focuses on the complimentary question of how existing and future State regulatory regimes will be measured against that same federal framework as it comes into force.
At a practical level, the Treasury NPRM seeks to answer two closely related questions that will shape the future of State‑regulated payment stablecoins in the United States:
- what “substantially similar” means in practice, and
- which State frameworks can realistically support a durable State‑level regulatory pathway under the GENIUS Act.
By articulating the principles that will guide those determinations, Treasury provides clearer direction for State regulators evaluating certification under the Act and for issuers assessing the viability of a State‑based regulatory strategy going forward.
What the Treasury NPRM Says About “Substantial Similarity”
At a high level, the Treasury NPRM adopts a principles‑based, outcome-focused approach to evaluating whether a State-level stablecoin regulatory regime is “substantially similar” to the federal framework under the GENIUS Act. Rather than requiring States to replicate federal rules line‑by‑line, the Treasury NPRM emphasizes substantive alignment and equivalent regulatory outcomes across the Act’s core requirements.
Defining the Federal Benchmark
A threshold aspect of that analysis is what Treasury considers the relevant “federal regulatory framework.” Treasury proposes that “substantial similarity” is measured not only against the GENIUS Act’s statutory text, but against the full federal regulatory framework implementing the Act, including:
- OCC regulations and interpretations issued under the GENIUS Act (reflecting the OCC’s role as the primary prudential regulator for most nonbank federal payment stablecoin issuers),
- Treasury rules addressing BSA/AML, sanctions, and lawful‑orders compliance, and
- Federal Reserve interpretations, regulations, and orders implementing the Act’s anti‑tying provisions.
Importantly, Treasury proposes to exclude informal guidance, such as FAQs or interpretive materials not published in the Federal Register, from the definition of the federal regulatory framework. This choice is designed to give States a clearer, more stable benchmark against which to design and evaluate their own regimes, while avoiding the need to continuously track evolving federal guidance.
The Treasury NPRM also explains why the federal benchmark is anchored largely to the OCC framework. In Treasury’s view, this approach reflects both the statutory structure of the Act and the reality that most State‑qualified issuers will ultimately transition to OCC supervision if they exceed the $10 billion issuance threshold. Grounding the substantial similarity analysis in the OCC’s published framework is therefore intended to promote continuity and easier administration.
Uniform vs. State‑Calibrated Requirements
To operationalize the substantial similarity standard, Treasury divides the Act’s core prudential requirements into two categories:
1. Uniform Requirements
Certain GENIUS Act requirements are treated as effectively uniform, meaning they must be implemented consistently with the federal framework in all substantive respects. These include, among other things:
- reserve backing requirements,
- prohibitions on rehypothecation,
- reserve reports and related disclosures,
- BSA/AML and sanctions compliance obligations,
- anti‑tying restrictions, and
- prohibitions on deceptive stablecoin names and misrepresentations.
Under the Treasury NPRM, States may not materially narrow, reinterpret, or selectively enforce these requirements. High‑level statutory alignment alone is not sufficient where a State framework diverges meaningfully from the substance of federal prudential expectations, and non‑enforceable guidance will not count toward substantial similarity.
2. State‑Calibrated Requirements
By contrast, the Act affords States discretion with respect to certain requirements, including capital, liquidity, reserve‑asset diversification, interest‑rate risk management, and operational and IT risk controls. Treasury refers to these as State‑calibrated requirements.
That discretion, however, is expressly bounded. To qualify as substantially similar, a State‑level regime must produce regulatory outcomes that are at least as stringent and protective as those under the federal framework. Treasury indicates that the OCC’s implementing rules will function as the primary reference point for evaluating those outcomes, even where States adopt different structures or metrics.
Authority, Supervision and the Regulatory Lifecycle
Treasury also makes clear that substantial similarity is not limited to prudential standards alone. A qualifying State regime should also address the full regulatory lifecycle contemplated by the Act, including:
- licensing and application review,
- ongoing supervision and examination,
- enforcement powers and remedial actions,
- transition to federal oversight once the $10 billion threshold is exceeded, and
- custody and insolvency protections, including priority treatment for payment stablecoin holders.
Here, Treasury draws an important distinction. Unlike the GENIUS Act’s core prudential requirements, which must meet or exceed federal standards, these other elements are evaluated under a substantial similarity standard focused on comparable authority and protections, not identical procedures or outcomes. States are not required to mirror federal forms, timelines, or supervisory processes, provided that the relevant regulators have sufficient legal authority and tools to achieve similar regulatory objectives.
Practical Takeaways
Although the Treasury NPRM is framed in terms of State‑level regimes, its practical relevance is squarely at the issuer level. For payment stablecoin issuers evaluating the viability of a State‑based regulatory strategy, the proposal highlights several points that merit close attention:
- Statutory alignment alone will not be sufficient. State regimes must demonstrate enforceable alignment with federal prudential outcomes, particularly for uniform requirements.
- OCC rules matter – even for State issuers. Because Treasury anchors substantial similarity primarily to OCC‑issued regulations published in the Federal Register, changes between the OCC’s proposed and final rules may directly affect how State regimes are assessed.
- State discretion exists, but it is bounded. States retain flexibility in areas such as capital and liquidity, but only where alternative approaches produce outcomes that are at least as protective as the federal framework.
- Form matters less than authority. Treasury is explicit that substantial similarity turns on substantive authority and enforceability.
Taken together, the Treasury NPRM reinforces that the State pathway under the GENIUS Act remains viable, but not open‑ended. For issuers, the durability of a State‑based approach will depend less on legacy classifications and more on how closely a given State regime can align, in substance and effect, with the federal framework as it is finalized.
Comments on the Treasury NPRM will be due 60 days after publication in the Federal Register, and issuers with a stake in State‑level regulation may wish to engage in that process.
