Will Payment Stablecoins Mean the End of State Money Transmitter Licensing?
By: Judith Rinearson, Jennifer L. Crowder, and Joshua L. Durham
The GENIUS Act (Act) allows “permitted payment stablecoin issuers”—which term includes nonbanks that are either Federal qualified payment stablecoin issuers (FQPSI) (regulated by the OCC) or State qualified payment stablecoin issuers (SQPSI) (regulated by their qualifying state)—to:
- Issue and redeem payment stablecoins;
- Manage reserves;
- Custody payment stablecoins, reserves, or private keys of payment stablecoins; and
- Engage in activities that “directly support” the above listed activities.
While it’s a little early to predict the end of state money transmitter licensing as we know it, the broad language of the Act raises some beguiling issues for fintech companies currently deemed to be money transmitters—such as remittance companies, bill payment companies, and issuers of prepaid cards or payment instruments. As we will explore in further detail in our upcoming client alert, the ability of appropriately qualified non-banks to issue payment stablecoins in order to settle or redeem payments provides a powerful tool for fintechs.
But just because a fintech uses stablecoins to redeem or settle payments, does that mean it would no longer need state money transmitter licenses? Yes, that appears to be the case.
Section 5 of the Act (regarding FQPSIs) notes at Section 5(C)(h): “The provisions of this section supersede and preempt any state requirement for a charter, license or other authorization to do business with respect to a federal qualified payment stablecoin issuer…”
So, there is no question that if a fintech obtains its approval to be a FQPSI, it is exempt from state licensing laws. Such preemption is limited to chartering or licensure laws, but does not preempt state consumer protection laws.
SQPSs have similar protections. Section 7 discusses the laws of the “home state“ (the state where the SQPSI is qualified) versus a “host state” (another state where the SQPSI does business). Section 7(f) notes that a host state’s consumer protection laws shall apply to SQPSI activities conducted in the host state, but that host state laws “governing the chartering, licensure, or other authorization to do business in the host state” are excluded and will not apply to out of state SQPSIs.
So yes, if a fintech correctly structures itself and goes through the rigorous process of obtaining approval to be an FQPSI or an SQPSI, it will benefit from having only one regulator instead of multiple licenses required under the current patchwork of US state laws.
This is not to suggest that the way ahead for fintechs will be easy. The Act imposes substantial requirements, including holding US dollar reserves on a one-to-one basis and monthly certification of those reserves. But it does mean that finally, there is light at the end of the money transmitter licensing tunnel for fintechs in the US.
Keep an eye out for our detailed upcoming client alert regarding the stablecoin process and next steps!