Blockchain Association Tells U.S. Regulators to Keep Stablecoin KYC at the Issuer Level, Not on Wallet Transfers

The Blockchain Association is asking federal regulators to draw a hard line: customer identification programs (CIPs) should apply when a permitted payment stablecoin issuer deals directly with a customer, but not when tokens move later between third-party wallets. For high-risk payment flows, that distinction matters because it decides whether compliance sits with the issuer or gets pushed into decentralized transfers the issuer does not control.

1. In a Friday, Aug. 21 comment letter, the trade group backed the agencies’ broader plan to require permitted payment stablecoin issuers to run CIPs comparable to banks and other financial institutions under the Bank Secrecy Act.
2. Its main objection was scope. The association said the final rules must stay limited to primary-market relationships, warning that extending customer-identification duties to downstream wallet transfers could “cripple the industry.”
3. The group said the rules should not cover secondary-market transfers between third-party wallets when an issuer does not intermediate, facilitate or approve the transfer. In practice, that means no issuer-led KYC on a transfer just because a stablecoin moves through its smart contract later in the lifecycle.
4. The proposal at issue was issued jointly by FinCEN, the OCC, the Federal Reserve, the FDIC and the National Credit Union Administration. It implements a GENIUS Act requirement that permitted issuers verify the identities of their account holders.
5. The association supported the agencies’ definition of an “account” as a formal relationship between issuer and customer. That framing places identity checks at centralized control points such as issuance, fiat conversion, reserve management and some redemptions, while leaving peer-to-peer wallet transfers outside the issuer’s direct reach.

The mechanics are the whole story here. Once stablecoins are circulating, the sender signs a transaction, distributed validators confirm it and a smart contract executes predetermined code. The association’s point is that an issuer may have no custody, no contractual relationship with either wallet holder and no practical way to run real-time KYC on a transfer it cannot approve or block before settlement.