US Treasury issues call for public comment on illicit activity following Trump signing GENIUS stablecoin act into law

The U.S. Treasury Department is asking for public input on what approach financial institutions should take to combat illicit activity involving cryptocurrencies, as was required when a landmark stablecoin bill was signed into law last month.

The Treasury Department filed a request for comment on Monday on "innovative methods to detect illicit activity involving digital assets." The new law, called the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS, directed the Treasury Department to ask about application programming interfaces, artificial intelligence, digital identity verification, and the use of blockchain technology, according to the notice.

"Stablecoins will expand dollar access for billions across the globe and lead to a surge in demand for U.S. Treasuries, which back stablecoins," said Treasury Secretary Scott Bessent on Monday in a post on X. "It’s a win-win-win for everyone involved: stablecoin users, stablecoin issuers, and the U.S. Treasury Department."

The GENIUS Act was signed into law by President Donald Trump in July. The law creates a federal regulatory framework for stablecoins, requiring stablecoins to be fully backed by U.S. dollars or similarly liquid assets, mandating annual audits for issuers with a market capitalization of more than $50 billion, and establishing guidelines for foreign issuance.

The law also directed Treasury to "seek public comment to identify innovative or novel methods, techniques, or strategies that regulated financial institutions use, or have the potential to use, to detect illicit activity, such as money laundering, involving digital assets." After receiving comments, the Treasury said it will analyze its research and give that to leadership in the Senate Banking Committee and the House Financial Services Committee, which could then result in rulemaking, according to the notice.

Comments are due Oct. 17.

Recently, the law has drawn some concern from the largest banking associations over the GENIUS Act's supposedly weak prohibitions against stablecoin issuers paying interest to holders. While the groups are in favor of the restrictions, they argue new law can be easily bypassed by exchanges, brokers, and other affiliates, thereby "distorting market incentives" by turning stablecoins into potential stores-of-value and credit mechanisms rather than simply a means of payment.

TD Cowen's Jaret Seiberg said that was a "known flag."

"Our view is the banks are right to be worried," Seiberg wrote in a note on Monday. "We saw a flight to money market mutual funds during the Financial Crisis when the government offered a 100% backing to the industry. We believe the flight to stable coins would be a bigger threat because it would be fast and simple for consumers to convert deposits to stable coins."