Treasury to Force Stablecoin Issuers Into Fed Reserve Accounts and Real-Time Sanctions Screening

The Rule Is Coming Monday

The Treasury Department will publish a proposed rule on May 18 that requires major stablecoin issuers to hold customer reserves at Federal Reserve banks and to screen every wallet address against U.S. sanctions lists in near real time, according to two Treasury officials familiar with the matter. The proposal, titled the Stablecoin Reserve Integrity and Illicit Finance Rule, is scheduled to appear in the Federal Register at 8:45 a.m. Eastern Time and will take effect on July 1 if finalized, the officials said.

The rule would apply to any dollar-pegged digital asset issuer with more than $10 billion in circulation, a threshold that captures Tether, Circle, and several bank-issued tokens, according to a bank compliance officer familiar with the draft. Issuers below that threshold would face lighter reserve rules but still must report transactions above $10,000 to the Financial Crimes Enforcement Network, the officer said.

The rule is the first major use of authorities Congress granted in the Guiding and Establishing National Innovation for U.S. Stablecoins Act, which became law in May 2025, according to a lobbyist briefed on the draft. That law directed Treasury, the Federal Reserve, and the Office of the Comptroller of the Currency to write implementation rules within one year, the lobbyist said.

A senior Treasury official said the department briefed staff at the Federal Reserve Bank of New York on the proposal during a closed meeting at 33 Liberty Street on May 12. The official said the framework is designed to bring stablecoins under the same anti-money-laundering umbrella as traditional banks without requiring new legislation from Congress.

Reserve, Reporting, and Penalty Details

Stablecoins now back roughly $2.4 trillion in circulating tokens, with the largest issuer alone accounting for more than $700 billion, according to market data cited by the bank compliance officer. The Treasury Department views the sector as a payment rail that could rival credit card networks within five years, the officer said, and wants to impose bank-style safeguards before adoption spreads to retail payroll and remittances.

Under the draft rule, issuers must keep 100 percent of customer funds in cash or Treasury bills held in segregated accounts at one of the twelve Federal Reserve banks, two Treasury officials said. The reserve account must be separate from an issuer's operational funds and cannot be pledged as collateral for loans, denying firms the yield they currently earn on short-term government debt, the officials said.

The rule explicitly bars holding reserves at foreign commercial banks or in uninsured money-market funds, a provision aimed at offshore issuers' historic reliance on custodians outside the United States, the officials said. Issuers would also be required to submit daily reserve attestations to the Office of the Comptroller of the Currency and to make those reports public within 48 hours, according to the lobbyist briefed on the draft.

Failure to comply could trigger civil money penalties of up to $250,000 per day and the suspension of an issuer's access to Fed accounts, the lobbyist said. The Office of the Comptroller of the Currency would examine the largest issuers annually and could revoke a national trust charter for repeated violations, two Treasury officials said.

The sanctions component goes further than existing guidance. Every on-chain transaction would have to be checked against the Specially Designated Nationals list maintained by the Office of Foreign Assets Control before settlement, a Treasury official said. Wallets linked to sanctioned persons or entities would be frozen within two hours of a match, and issuers would file suspicious activity reports within 24 hours, the official said.

The Treasury Department also plans to require issuers to collect and verify the identities of wallet holders for transactions above $3,000, a lower threshold than the $10,000 trigger for currency transaction reports, the bank compliance officer said. The data would be stored for five years and made available to FinCEN and federal law enforcement upon request, the officer said. FinCEN would receive automated transaction feeds through a new portal scheduled to enter testing on June 15, the officer said.

Industry Reaction and What to Watch

Crypto industry representatives received a preview of the rule during a private dinner at the Willard InterContinental hotel on May 13, according to the lobbyist briefed on the draft. Attendees included counsel from Circle, Paxos, and several venture capital firms, the lobbyist said. The group was told the comment period would last only 45 days, far shorter than the typical 90-day window for financial rulemakings, the lobbyist said.

Stablecoin issuers are expected to push back hardest against the Fed account requirement, which could force some offshore issuers to restructure or exit the U.S. market, the lobbyist said. Circle and Paxos, both of which already maintain U.S. banking relationships, are likely to support the reserve rules while opposing the real-time sanctions screening mandate because of technical costs, according to a second lobbyist at the dinner.

U.S. banks see the rule as an opening to issue their own regulated tokens, according to the bank compliance officer. Several large banks have held internal strategy sessions this week to weigh entry into the stablecoin market under the new framework, the officer said. Offshore issuers, meanwhile, may shift operations to Singapore or the United Arab Emirates to avoid the reserve and reporting requirements, the officer said.

The Treasury Department plans to hold a public briefing at the Treasury Building on 1500 Pennsylvania Avenue at 2 p.m. on May 18, two officials said. The briefing will include officials from FinCEN, the Office of the Comptroller of the Currency, and the Federal Reserve, and will be followed by a call with foreign finance ministries at 4 p.m., the officials said. The White House National Economic Council is expected to release a fact sheet at 8:30 a.m. Monday to frame the proposal, the officials said.

Watch for an official statement from the Treasury Department on Monday morning and for a notice of proposed rulemaking to be posted on Regulations.gov by 9 a.m. If the rule is finalized on schedule, stablecoin issuers will have six weeks to adjust their reserve and compliance systems before the July 1 effective date.