Federal Reserve proposes KYC rule for stablecoin issuers

The Federal Reserve proposed a rule that would require stablecoin issuers in the United States to establish and maintain customer identification programs. The proposal would make identity verification, recordkeeping and screening requirements standard for companies that issue stablecoins used for payments.

Under the proposal, customer identification programs would require issuers to collect and verify basic customer information, retain transaction and identity records, and screen customers against government sanctions and watch lists. The rule would require monitoring systems to detect and report suspicious activity tied to accounts that hold or move stablecoins.

The proposal targets firms that create and distribute stablecoins and would extend anti‑money‑laundering and counter‑terrorist financing controls similar to those applied to banks and other financial institutions. Federal regulators say the measures are intended to reduce illicit finance risks, improve consumer protections and support oversight of a growing digital‑payment channel.

As a formal rulemaking, the proposal opens a public comment period before any final rule is adopted. The Fed’s notice invites industry participants, consumer groups and other stakeholders to comment on the scope of the requirement, technical standards for identity verification and how enforcement would be coordinated with other federal and state regulators.

If finalized, the rule would require many stablecoin issuers to build or acquire compliance infrastructure, including know‑your‑customer systems, transaction monitoring tools and secure recordkeeping capabilities. Issuers that do not already operate under bank‑style compliance regimes may need to form partnerships with regulated financial institutions or third‑party compliance providers to meet the standards.

Stablecoins are digital tokens intended to hold a stable value relative to a fiat currency and are used for trading, payments and remittances. Their rapid growth and use on payment rails has drawn regulatory attention as authorities consider how existing anti‑money‑laundering and consumer‑protection laws apply to crypto firms. Regulators have cited risks that include fraud, consumer losses and the potential for illicit use if identity controls are weak.

Next steps include the collection and review of public comments, possible revisions to the proposal and a final rule that will specify compliance deadlines and supervisory arrangements. A final rule would change compliance obligations for many firms in the stablecoin market and affect how those tokens are issued and used in the U.S. financial system.