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<p>From being a niche crypto tool for years, to turning into a widely used payment and trading instrument in the US, stablecoins have come a long way. They now sit&nbsp; at the intersection of digital assets, TradFi, and regulatory oversight, which has pushed lawmakers to act.</p><p>That push led to the proposal for US stablecoin regulations -&nbsp; the GENIUS act. It’s a framework that aims to bring stablecoins and their trading platforms under the federal umbrella. And after being applied to banks, KYC and AML requirements are also being evenly enforced in crypto markets.</p><p>Let’s get into <a href="https://www.delta.exchange/blog/what-is-the-crypto-genius-act"><u>what the GENIUS Act is</u></a>, why KYC and AML matter in stablecoin markets, the impact of the rules on trading platforms and the market, and how the markets can prepare themselves for compliance.</p><h2 id="what-is-the-genius-act-and-its-objectives"><strong>What is the GENIUS Act and its objectives?</strong></h2><p>The GENIUS Act is a regulatory guardrail for stablecoins and their trading platforms. Under this act, issuers are required to back the stablecoins with 1:1 USD or other low-risk assets. Issuers are required to report their reserves and are subject to audits by public accounting firms.&nbsp;</p><h3 id="objectives"><strong>Objectives</strong></h3><h4 id="financial-stability-and-security"><strong>Financial stability and security</strong></h4><p>The GENIUS Act ensures that only compliant authorities can issue stablecoin, enforcing anti-money-laundering laws and complying with the Bank Secrecy Act.</p><h4 id="consumer-protection"><strong>Consumer protection</strong></h4><p>The US Stablecoin Regulations require issuers to provide guaranteed redemption rights and transparent, audited disclosures.</p><h4 id="compliance"><strong>Compliance</strong></h4><p>US stablecoin regulations provide a clear compliance checklist for issuers and the trading platforms.</p><h2 id="why-do-kyc-and-aml-matter-in-stablecoin-markets"><strong>Why do KYC and AML matter in stablecoin markets?</strong></h2><p>Stablecoins offer the high-speed execution of crypto and the stability of fiat money. Without proper regulations, stablecoins can be used for money laundering, terror funding, and even to evade cross-border sanctions.</p><p>And this is where the know-your-customer and anti-money-laundering framework comes in. KYC helps identify the person, while AML monitors transactions for suspicious patterns and unlawful activity. Together, they reduce the risks of anonymity without shutting down the system.</p><p>These controls and regulations are mandatory in traditional financial institutions. Now the stablecoins increasingly function as banks, offering payments, settlements, and liquidity management services. Regulators argue for a bank-like security structure for the stablecoin market to maintain trust and financial stability.</p><h2 id="kyc-requirements-under-the-genius-act"><strong>KYC requirements under the GENIUS Act</strong></h2><p>Under the US stablecoin regulations, KYC is the 1st step towards trading.&nbsp;</p><ul><li><strong>Customer identification and onboarding</strong><br>Trading platforms must complete know-your-customer verification for users before allowing them to deposit, trade, or withdraw. Limited or provisional verification is largely restricted under this act.&nbsp;</li><li><strong>Re-verification and customer due diligence</strong><ul><li>User information must be regularly updated, as one-time verification doesn’t meet compliance requirements.&nbsp;</li><li>Any noticeable pattern must trigger re-KYC of the user. The trigger could be a sudden increase in transaction volume or changes in trading behavior.</li></ul></li><li><strong>Enhanced KYC for high-risk accounts</strong><ul><li>Accounts linked to politically exposed persons require enhanced background checks with regular monitoring.</li><li>Users executing large or international transactions are subject to stricter KYC checks.</li></ul></li></ul><h2 id="aml-obligations-for-trading-platforms"><strong>AML obligations for trading platforms</strong></h2><p>Under this act, all permitted stablecoin payment issuers must implement robust anti-money-laundering programs.</p><h3 id="banking-secrecy-act-compliance"><strong>Banking Secrecy Act compliance</strong></h3><p>Under BSA, all permitted issuers will be treated as financial institutions. So the platforms must establish a robust anti-money-laundering program that includes a compliance officer, internal controls, and testing.</p><h3 id="know-your-customer"><strong>Know-your-customer</strong></h3><p>Platforms must verify users' identities, including personal details and government-issued IDs, before account activation.</p><h3 id="annual-certification"><strong>Annual certification</strong></h3><p>Issuers must submit a certificate of the AML program's effectiveness to the regulator within 180 days of license issuance and annually thereafter.</p><h3 id="transaction-monitoring-and-reporting"><strong>Transaction monitoring and reporting</strong></h3><p>Continuous monitoring of patterns of suspicious activity and filing of the Suspicious Activity Reports (SARs) with the FinCEN.</p><h3 id="technical-enforcement-capability"><strong>Technical enforcement capability</strong></h3><p>Issuers must be able to freeze, seize, burn, or block assets upon a federal agency's or the court's legal order.</p><h2 id="impact-of-the-genius-act-on-trading-platforms-and-stablecoin-markets"><strong>Impact of the GENIUS Act on trading platforms and stablecoin markets</strong></h2><h3 id="increased-compliance-cost-and-operational-complexity"><strong>Increased compliance cost and operational complexity</strong></h3><p>Trading platforms must invest in stronger know-your-customer and anti-money-laundering infrastructure. With dedicated compliance teams, identity verification tools, transaction monitoring systems, etc. And all these things push the operational costs.</p><h3 id="fall-in-anonymous-activities"><strong>Fall in anonymous activities</strong></h3><p>The US stablecoin regulations limit anonymous participation. Mandatory KYC checks mean stopping users from engaging in anonymous trading.</p><h3 id="alignment-with-the-us-stablecoin-regulations"><strong>Alignment with the US stablecoin regulations</strong></h3><p>The GENIUS Act requires trading platforms to align with US stablecoin regulations, making it more unified. It reduces the legal uncertainity but also removes the regulatory loophole opportunities.</p><h3 id="improved-credibility-with-regulators-and-investors"><strong>Improved credibility with regulators and investors</strong></h3><p>Strong KYC and AML compliance enhances trust among regulators. And the platforms that meet the compliance standards are more likely to attract institutional capital.</p><h3 id="pressure-to-exit-or-adapt"><strong>Pressure to exit or adapt</strong></h3><p>Platforms that are unable or unwilling to meet compliance requirements face enforcement actions, market restrictions, or forced shutdowns.</p><h2 id="compliance-challenges-platforms-are-likely-to-face"><strong>Compliance challenges platforms are likely to face</strong></h2><h3 id="balancing-user-experience-with-stricter-know-your-customer-rules"><strong>Balancing user experience with stricter know-your-customer rules</strong></h3><p>Strict know-your-customer checks can slow down onboarding and create friction, making it difficult to retain users.</p><h3 id="managing-aml-compliance"><strong>Managing AML compliance</strong></h3><p>Global trading platforms must align the GENIUS Act with local laws and regulations, creating overlap and operational complexity.</p><h3 id="data-privacy-and-cybersecurity-risks"><strong>Data privacy and cybersecurity risks</strong></h3><p>Following the know-your-customer and anti-money-laundering obligations requires platforms to store sensitive data. It increases the exposure to breaches, misuse, or even regulatory penalties.</p><h2 id="how-platforms-can-prepare-for-genius-act-compliance"><strong>How platforms can prepare for GENIUS Act compliance</strong></h2><h3 id="conduct-gap-assessments"><strong>Conduct gap assessments</strong></h3><p>Review ongoing onboarding, monitoring, and reporting procedures to identify gaps against GENIUS Act requirements.</p><h3 id="update-internal-controls-for-anti-money-laundering-compliance"><strong>Update internal controls for anti-money-laundering compliance</strong></h3><p>AML policies must be clearly documented, with regular reviews and checks to ensure alignment with the rules.</p><h3 id="treating-compliance-as-an-investment"><strong>Treating compliance as an investment</strong></h3><p>Viewing the GENIUS Act as a long-term investment rather than a short-term obligation positions platforms for regulatory trust and growth.</p><h3 id="invest-in-automated-compliance"><strong>Invest in automated compliance</strong></h3><p>Automation reduces manual errors, further increasing the chances of supporting compliance requirements.</p><h2 id="final-thoughts"><strong>Final thoughts</strong></h2><p>From being a niche tool, stablecoins have become a reliable payment instrument. And the implementation of the GENIUS Act makes it more trustworthy. Through stricter identity verification, translation monitoring, and reporting standards, the act addresses all concerns regarding market regulation. By enforcing stricter know-your-customer and anti-money-laundering rules, the act closes compliance gaps in the ecosystem. And more importantly, these changes reshape people’s trust in digital finance.</p><p>This act provides long-term operational stability for both domestic and foreign platforms. The act has become an obligation to uphold trust, support institutional participation, and align with evolving US stablecoin regulations.</p><h2 id="faqs"><strong>FAQs</strong></h2><h3 id="how-does-the-genius-act-relate-to-us-stablecoin-regulations"><strong>How does the GENIUS Act relate to US stablecoin regulations?</strong></h3><p>The Act complements broader US stablecoin regulations by ensuring that stablecoin transactions occur within regulated, transparent platforms.</p><h3 id="does-the-genius-act-apply-to-non-us-platforms"><strong>Does the GENIUS Act apply to non-US platforms?</strong></h3><p>Yes, if they offer services to US users or facilitate stablecoin transactions tied to the US financial system.</p><h3 id="does-the-genius-act-apply-to-decentralized-trading-platforms"><strong>Does the GENIUS Act apply to decentralized trading platforms?</strong></h3><p>The Act primarily targets centralized intermediaries, but decentralized platforms with custodial features or identifiable operators may still face compliance obligations.</p><h3 id="are-smaller-trading-platforms-exempt-from-genius-act-requirements"><strong>Are smaller trading platforms exempt from GENIUS Act requirements?</strong></h3><p>No. While implementation may scale with size and risk, all platforms serving US users must meet baseline compliance standards.</p>

From being a niche crypto tool for years, to turning into a widely used payment and trading instrument in the US, stablecoins have come a long way. They now sit  at the intersection of digital assets, TradFi, and regulatory oversight, which has pushed lawmakers to act.

That push led to the proposal for US stablecoin regulations -  the GENIUS act. It’s a framework that aims to bring stablecoins and their trading platforms under the federal umbrella. And after being applied to banks, KYC and AML 

GENIUS Act: KYC and AML Requirements for Trading Platforms