New FED rule brings mandatory ID checks for stablecoin users! What does this mean for the crypto market?

The US Federal Reserve (FED) has rolled out a draft regulation that would require crypto companies operating in the US to verify the identities of all stablecoin users. The proposed measure aims to address money laundering and illegal finance risks, clarifying how customer identification regulations should be applied to stablecoin services.

Identity requirements for stablecoin companies

The draft regulation was prepared jointly with the Treasury Department and the FDIC, coordinating closely with agencies under the previous Trump administration. It interprets the implementation of the customer identity verification provisions established by the GENIUS Act, which took effect last summer. This legislation set the legal foundation for issuing stablecoins pegged to the US dollar.

Under the proposal, any person or company considered a “digital asset service provider” will need to adopt certain measures. This category covers individuals and entities in the US engaged in the buying, selling, transferring, or custody of crypto assets. The companies must establish additional checks to prevent stablecoins and related services from being misused by criminal organizations or illicit entities.

Specifically, the rules would mandate verification of customers’ names, birth dates, and addresses. Additionally, this information must be checked against US government records, including terrorist lists and other blacklists.

A standout abstention in the board vote

Most members of the FED’s board of governors backed the regulation proposal. Notably, former FED Chair Jerome Powell was among those giving their approval. However, current FED Chair Kevin Warsh abstained from voting.

Warsh did not offer any public explanation for his abstention, and a FED spokesperson declined to comment immediately when asked. This has sparked new questions about which aspects of the proposal might be generating debate within the institution.

Exemption for decentralized protocols sparks debate

The draft carves out an exemption for decentralized protocols, which has been criticized by some officials. This exception features in both the regulation proposal and the GENIUS Act’s legislative framework.

Michael Barr expressed support for publishing the regulation proposal, yet noted potential gaps—especially concerning illicit financial risks in secondary market trades of stablecoins. Barr has frequently voiced opinions on financial regulation as a board member.

Timeline targets public feedback

The FED’s proposed rule now enters a 60 day public consultation period. Industry representatives, legal experts, companies, and other stakeholders will be able to submit their opinions and feedback. Whether or not changes are made to the draft—and what the final rule will look like—will become clear after this comment process concludes.

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