Law and Ledger is a specialized news segment focusing on critical developments in crypto legal news, brought to you by Kelman Law, a premier law firm dedicated to digital asset commerce. In the latest installment of an ongoing expert legal series examining the post-legislative landscape, attorney Michael Handelsman of Kelman Law breaks down the complex regulatory realities facing businesses operating within the digital economy.
The passage of the GENIUS Act has undeniably reshaped the federal framework governing the issuance of payment stablecoins, establishing clear ground rules for token creators, reserve requirements, and redemption procedures. However, a widespread misconception persists across the financial technology sector: that compliance at the issuer level automatically shields downstream participants from regulatory scrutiny. According to legal experts, the new federal framework does not eliminate money-transmission regulations for every business that handles, routes, or touches stablecoins in the ordinary course of commerce.
Exchanges, hosted wallets, payment processors, and cross-border remittance companies may still find themselves legally obligated to register with the Financial Crimes Enforcement Network (FinCEN) as money services businesses (MSBs). Furthermore, these entities frequently must obtain state-level money transmitter licenses or specialized virtual-currency authorizations to remain fully compliant.
The practical compliance question facing industry executives is not simply whether a platform utilizes a stablecoin issued by a federally regulated entity. Instead, regulators and legal counsel must evaluate whether the intermediary company itself accepts, controls, exchanges, or transmits value on behalf of customers—and precisely which corporate entity performs each discrete step of the transaction.
The GENIUS Act and Money-Transmission Laws Regulate Different Activities
To understand the current compliance burden, businesses must recognize that the GENIUS Act and traditional money-transmission statutes govern fundamentally distinct activities. As explored in earlier legal analyses of the stablecoin compliance landscape, the GENIUS Act principally determines who is authorized to issue a payment stablecoin. It sets rigorous standards concerning reserve assets, mandatory redemption procedures, federal supervision, and related requirements that apply directly to issuers.
In contrast, long-standing money-transmission laws address an entirely different operational function: whether a commercial enterprise accepts money or other economic value from one individual and transmits that value to another person or a different location. Under FinCEN’s established regulatory guidance regarding virtual currency, value that substitutes for traditional fiat currency can encompass convertible virtual currencies. Consequently, FinCEN generally treats administrators and commercial exchangers that accept and transmit convertible virtual currency as money transmitters, unless a specific statutory exemption or limitation applies. By contrast, an ordinary retail consumer who merely uses virtual currency to purchase commercial goods or services is treated differently under the law.
Because these regimes govern separate layers of a transaction, a digital asset company often faces multiple distinct legal inquiries simultaneously. Satisfying one regulatory layer does not automatically fulfill obligations under the others. For instance, obtaining FinCEN registration is a federal administrative requirement, but it does not serve as a substitute for obtaining nationwide state-level licenses.
What the GENIUS Act Preempts—and What Remains Unresolved
The GENIUS Act does contain meaningful provisions regarding state-law preemption, but the precise scope of these protections is critical for businesses to understand. Under federal provisions codified at 12 U.S.C. § 5904(h), state charter requirements, licensing mandates, and other local authorizations are preempted with respect to a federal qualified payment stablecoin issuer, or an approved subsidiary of an insured depository institution or credit union that successfully operates as a permitted payment stablecoin issuer.
However, that legal protection is narrowly tailored to the approved issuer itself. The statute does not state that every third-party exchange, commercial distributor, wallet provider, payment company, corporate affiliate, or independent contractor working alongside the issuer is automatically exempt from state licensing. Nor should businesses hastily assume that federal preemption covers every ancillary activity an issuer might choose to conduct.
Federal regulators have explicitly recognized these unresolved boundaries. During the rulemaking process, the Office of the Comptroller of the Currency (OCC) addressed these topics in its comprehensive final rule concerning the GENIUS Act. When industry commenters requested broad clarification regarding potential preemption for third-party service providers and issuers engaging in expanded business lines, the OCC declined to adopt a sweeping general interpretation. Instead, the agency explained that such complex issues must be evaluated individually as specific factual scenarios arise in practice.
The OCC rule also underscores the necessity of independent legal authority for additional digital-asset services. The agency has made clear that it will not declare all wallet operations or money-transmission activities permissible based solely on an entity’s status as a stablecoin issuer. While token issuance and direct redemption are recognized as permissible issuer activities, broader financial services require much closer examination. Implementation bulletins indicate that the effective dates for the statute and its principal OCC rules arrive in early 2027, meaning businesses cannot justify abandoning their existing licensing obligations under current law.
State-qualified issuers follow an alternative structural path. Under 12 U.S.C. § 5906, qualifying issuers operating under a certified state regulatory regime receive protection from duplicative host-state issuer licensing, subject to strict statutory conditions. While home-state law may govern certain activities when conducted in other jurisdictions, the statute carefully preserves applicable state consumer-protection laws and traditional common-law remedies.
A separate provision, 12 U.S.C. § 5915(d), permits qualifying state-chartered depository institutions to conduct money transmission or custody services through a permitted-issuer subsidiary across state lines, contingent upon meeting specific capital and liquidity conditions. Even under this pathway, host-state consumer-protection oversight remains relevant, and legal experts caution that this mechanism should not be generalized to nonbank fintech firms.
How the Analysis Applies to Common Stablecoin Businesses
The legal reality confronting digital asset enterprises varies significantly depending on their specific business model. For a digital asset exchange, the central compliance questions include whether the platform actively buys, sells, converts, holds, or transmits stablecoins on behalf of retail or institutional customers. The mere fact that another entity originally issued the token does not resolve the platform’s independent regulatory status.
Hosted wallet providers face a similarly rigorous examination centered on custody and transfer functions. A technology provider that maintains direct control over customer assets and routes them to destinations selected by users presents a vastly different legal profile compared to a software company that merely distributes noncustodial developer tools. Specialized legal analyses highlight how recovery mechanisms, integrated token-swap features, and administrative controls can fundamentally alter a platform’s money transmitter exposure.
For cross-border remittance businesses, replacing traditional fiat settlement methods with stablecoins generally does not alter the underlying economic function of the service: accepting monetary value from a sender and arranging its delivery to a recipient abroad. Legal counsel must examine the entirety of the transaction flow, including initial fiat collection, token conversion processes, cross-border transfers, and local payout mechanisms.
Payment processors must exercise exceptional caution when evaluating potential statutory exemptions. In past administrative rulings, FinCEN outlined specific conditions required to qualify for payment processor exemptions, including ensuring that transactions involve payments for legitimate goods or services, utilizing clearance and settlement systems that admit only Bank Secrecy Act-regulated financial institutions, and maintaining appropriate contractual agreements with the underlying sellers or creditors.
Consider a payment processor that collects stablecoins into a wallet under its own administrative control, deducts a transaction fee, and forwards the remaining balance to merchants. That commercial arrangement requires a substantially different legal analysis than checkout software that merely displays a merchant’s personal wallet address while the customer executes a direct payment. Executing a merchant agreement alone does not establish a federal exemption, and settlement executed over a public blockchain requires intense scrutiny regarding clearance-and-settlement criteria.
State Licensing Requires Its Own Analysis
State regulatory frameworks add another layer of complexity because individual state statutes do not utilize identical definitions, exclusions, or exemptions. While some states regulate virtual-currency activities directly through their traditional money-transmission laws, others maintain separate, specialized digital-asset licensing regimes.
New York serves as a prominent example of this regulatory distinction. Guidance from the New York Department of Financial Services (DFS) clarifies that many stablecoins fall squarely within the regulatory scope of the state’s BitLicense framework. Consequently, a commercial enterprise engaging in virtual-currency activities while simultaneously transmitting fiat currency may be required to secure both a BitLicense and an Article 13-B money transmitter license. Conversely, a New York limited-purpose trust company may possess broader operational authority. State regulators consistently confirm that holding federal FinCEN registration does not determine whether a state-level BitLicense is legally required.
To navigate this environment, businesses should independently assess each commercial activity across every relevant jurisdiction. Partner agreements should explicitly identify the licensed corporate entity, its authorized operational services, the company’s internal role, and any conditions supporting an exemption. Simply describing a commercial relationship as a partnership or agency arrangement does not resolve underlying licensing obligations.
FinCEN Requirements Are Also Changing
Under 12 U.S.C. § 5903(a)(5), permitted payment stablecoin issuers are legally classified as financial institutions under the Bank Secrecy Act. The statute mandates comprehensive compliance frameworks, including anti-money laundering (AML) programs, detailed recordkeeping, suspicious-transaction monitoring, customer identification protocols, due diligence procedures, robust sanctions compliance, and transaction-blocking capabilities.
Specialized AML and sanctions rules for permitted issuers, alongside joint agency proposals addressing customer identification requirements for the GENIUS Act, serve as vital tools for strategic planning. However, legal advisors emphasize that these proposals should not be mistaken for fully effective final requirements while rulemaking is underway. Existing Bank Secrecy Act obligations continue to demand strict attention as the issuer-specific framework reaches final implementation.
A thorough regulatory review typically begins with detailed transaction diagrams, internal wallet permissions, customer terms of service, and vendor contracts. Businesses must identify precisely who receives economic value, directs token transfers, converts assets, and bears financial responsibility when settlement fails. By separating federal MSB status, state licensing obligations, and issuer approval requirements, companies can better protect their operations in a rapidly evolving legal landscape.
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
