The U.S. Department of the Treasury has issued a notice of proposed rulemaking (NPRM) to implement the broad-based principles set out in the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act for determining when a state-level regulatory regime for “state qualified payment stablecoin issuers” is “substantially similar” to the federal regulatory framework. That determination is the gateway for state-chartered, nonbank stablecoin issuers with up to $10 billion in outstanding stablecoins to operate primarily under state oversight rather than as federally supervised “permitted payment stablecoin issuers.” Comments will be due 60 days after publication in the Federal Register.

GENIUS Act and the State Option

Enacted July 18, 2025, the GENIUS Act creates a new regulatory regime for “payment stablecoins” under which only “permitted payment stablecoin issuers” may issue such stablecoins in the U.S., subject to limited exceptions and transition periods. The Secretary of the Treasury will chair a Stablecoin Certification Review Committee that will play a central gatekeeping role.

The GENIUS Act, however, preserves a state path for smaller issuers. A “state qualified payment stablecoin issuer” (generally, a nonbank entity organized under state law, with no more than $10 billion in outstanding stablecoins on a consolidated basis) may operate under a state regime if (1) the state certifies that its “State-level regulatory regime” is “substantially similar” to the federal framework, and (2) the Stablecoin Certification Review Committee unanimously determines that the regime “meets or exceeds” the standards and requirements of the Act. Treasury’s proposal is aimed at operationalizing those tests.

Defining the “Federal Regulatory Framework” and “State-Level Regulatory Regime”

A central feature of the NPRM is Treasury’s proposed definition of the “Federal regulatory framework.” Treasury rejects the view that only the bare statutory text of the GENIUS Act should be included, and instead proposes that relevant implementing rules and interpretations be included as well, in particular (i) those issued by the Office of the Comptroller of the Currency (OCC); (ii) federal Bank Secrecy Act (BSA)/anti-money laundering (AML) and sanctions compliance regulations and guidance (including the required capabilities to comply with related lawful orders); and (iii) Federal Reserve anti-tying regulations, interpretations, and orders.

For BSA/AML, sanctions, and certain Federal Reserve Board anti-tying authorities, Treasury expects states largely to cross-reference federal requirements rather than recreate them.

Uniform vs. State-Calibrated Requirements Under Section 4(a)

Treasury’s proposal hinges on a distinction between “uniform requirements” and “state‑calibrated requirements”. Uniform requirements are those for which the Act does not grant substantive discretion to states (for example, one-to-one reserve backing, the approved list of reserve assets, monthly reserve disclosures, BSA/AML and sanctions obligations, and certain naming and marketing restrictions). State-calibrated requirements are those where the Act expressly contemplates regulatory tailoring by state regulators (such as capital, liquidity, reserve asset diversification and deposit concentration, interest rate risk management, and broader operational risk management).

For uniform requirements, Treasury would require states to incorporate and enforce the federal standard without material substantive deviation. In practice, this means that state regimes must track the federal interpretation of statutory terms and may not materially narrow, condition, or limit the scope of these requirements. States have flexibility in form (for example, they may incorporate federal rules by reference), but not in substantive content.

For state-calibrated requirements, Treasury proposes that states may design their own standards so long as those standards are consistent with the statute and “lead to regulatory outcomes that are at least as stringent and protective as the Federal regulatory framework.” States have more room to tailor, but capital, liquidity, diversification, and risk-management outcomes cannot fall below the federal floor.

What “Substantial Similarity” and “Meet or Exceed” Mean in Practice

Treasury clarifies that “substantial similarity” extends beyond § 4(a) to other provisions as well, including transition to federal oversight (§ 4(d)), applications and licensing (§ 5), supervision and enforcement (§ 6), custody (§ 10), and insolvency (§ 11). For example, a state regime that materially weakened custody safeguards or limited the state regulator’s examination and enforcement tools compared with § 6 would not be substantially similar.

At the same time, Treasury makes clear that states may diverge on procedural and formal matters, such as data formats for reports or internal timelines, so long as those deviations do not change substantive standards or impede the operation of federal law.

Reserves, Capital, Liquidity, Risk Management, and Activities

The NPRM uses the OCC’s March 2, 2026 proposed GENIUS implementation rule as a reference point for what it expects from states in prudential areas.

On reserves, Treasury proposes that states may allow reserve assets beyond those specifically listed in § 4(a)(1)(A) only if the OCC has approved those assets as “similarly liquid Federal Government-issued assets” under § 4(a)(1)(A)(vii). States may be more conservative than the OCC, but not more permissive.

On capital, Treasury would require state regimes to adopt a capital framework anchored in high‑quality capital (common equity tier 1 and additional tier 1 as defined in federal rules), tailored to the issuer’s business model and risk profile, and supported by a formal capital adequacy assessment process. State issuers would also have to maintain an “operational backstop” such as a pool of assets sized to a specified period of operating expenses, at levels at least as strong as under OCC rules, and state regimes would need to impose meaningful consequences (up to and including issuance halts and mandatory wind‑down) for failure to meet capital or backstop minimums.

On liquidity, diversification, and interest rate risk, states could either adopt OCC‑style quantitative liquidity thresholds (for example, minimum percentages in certain short‑term assets and maximum weighted‑average maturity) or design alternative frameworks that nonetheless produce outcomes at least as protective as the federal metrics. States would be expected to impose robust interest rate risk management standards, including appropriate reporting to management and boards, and to establish enforcement mechanisms for shortfalls in reserve requirements.

On operational, compliance, and IT risk, Treasury expects state regimes to impose principles-based standards that address, at a minimum, internal controls, information security and systems, internal audit, asset growth, earnings, affiliate and insider transactions, and third‑party relationships. For BSA/AML and sanctions, states are expected to rely on and enforce Treasury’s federal rules rather than creating divergent state systems.

Transition, Licensing, Supervision, Custody, Insolvency, and Additional State Requirements

On transition to federal oversight, Treasury emphasizes that, once an issuer’s outstanding stablecoins exceed $10 billion (absent a waiver), it must either transition into the federal regime or stop issuing. State rules in this area must not impede or condition the issuer’s compliance with federal requirements, though states need not replicate the detailed OCC processes.

For applications and licensing of state issuers, the NPRM does not attempt to federalize state chartering. Instead, Treasury would require only that state regimes provide a fair, transparent, and viable application framework that specifies what must be included in an application and the factors the state regulator will consider, and that they implement the GENIUS Act’s post‑application and annual certification requirements.

On supervision and enforcement, Treasury underscores that state regulators must be empowered with examination, reporting, licensing, and enforcement tools comparable to those granted to federal regulators in § 6, but that states retain considerable discretion in how they structure and deploy those tools.

For custody, state regimes must align with § 10’s requirements on who may serve as custodian, how certain assets must be segregated and treated as customer property, and what information must be available to regulators. For insolvency, state frameworks must respect the Act’s priority for stablecoin holder claims with respect to required reserves and otherwise be consistent with § 11 and related Bankruptcy Code amendments.

Treasury also recognizes that states may impose additional or more stringent requirements so long as they do not conflict with the Act, part 1521, or other federal law, and do not so transform the regime that it can no longer be “reasonably viewed” as substantially similar to the federal framework. That standard is intentionally open‑ended, and Treasury expressly solicits comment on when additional state restrictions might cross the line into incompatibility.

Next Steps

For states considering a GENIUS‑compliant regime, the NPRM provides a high-level roadmap. States will face relatively tight guardrails around reserves, BSA/AML and sanctions compliance, core consumer‑facing disclosures, and certain prudential baselines. They will enjoy greater discretion in calibrating capital, liquidity, and operational requirements, designing application processes, and structuring supervision and enforcement, subject to the requirement that outcomes be at least as robust as under the federal framework.

Issuers will need to plan for the possibility of crossing the $10 billion threshold and transitioning into full federal oversight, and will need to consider carefully how state-specific requirements interact with federal standards.