FED unveils tough new stablecoin rules with strict ID checks! What does this mean for crypto investors?

The US Federal Reserve (FED) has released a new draft regulation requiring US-based crypto companies to verify the identities of stablecoin users. The proposal aims to limit risks linked to money laundering and illicit financing by detailing how customer identification protocols should apply to stablecoin-related services.

ID Verification Mandate for Stablecoin Firms

The draft regulation was prepared in collaboration with relevant agencies under the Trump administration, including the Treasury Department and the FDIC. It provides guidance on enforcing the customer identification requirements brought by the GENIUS Act, which came into force last summer. This legislation created a legal framework for issuing US dollar-pegged stablecoins.

According to the draft, entities defined as “digital asset service providers” will have to take specific precautions. This scope covers both individuals and companies based in the US that offer crypto trading, transfer, or custodial services. These firms are expected to implement enhanced controls to prevent stablecoin services from being misused by criminal or illicit groups.

The new rules explicitly require the verification of customer names, birth dates, and addresses. Moreover, these details will need to be screened against federal databases of terrorist organizations and blacklisted groups, raising compliance demands for firms.

Noteworthy Abstention in FED Board Vote

A strong majority of the FED’s board members backed the draft rules. According to information in the text, former FED Chair Jerome Powell was among those who endorsed the proposal. However, the current FED Chairman, Kevin Warsh, notably abstained from the vote.

Warsh did not provide any public explanation for his abstention. A FED spokesperson also declined to comment when asked about the matter. This silence has sparked speculation about which parts of the proposal may be the subject of internal debate within the central bank.

Exemption for Decentralized Protocols Sparks Debate

The draft’s exclusion of decentralized protocols from certain obligations has drawn criticism from some officials. This exemption appears not only in the regulatory proposal but also within the GENIUS Act’s legislative framework.

Barr, who regularly comments on financial regulation as a FED board member, supported the release of the draft regulation. However, he highlighted that the existing framework may not sufficiently address illegal financing risks, especially those emerging from secondary market activities involving stablecoins.

Regulation Enters 60-Day Public Comment Window

The FED’s proposed regulation now enters a 60-day public comment period. Throughout this phase, industry representatives, legal experts, companies, and other stakeholders can submit their feedback to the regulator. Whether or not the final rules will be amended depends on the input received during this window.

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