OCC Finalizes First GENIUS Act Stablecoin Rule, Drops Proposed Presumption on Affiliate and Third-Party Rewards – Revisiting the Yield Debate

Key Takeaways

• On October 21, 2026, the Office of the Comptroller of the Currency (OCC) issued the first final rule from any federal stablecoin regulator under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The rule takes effect January 18, 2027.
• The OCC dropped its proposed presumption that rewards paid through affiliates or related third parties violate the Act's yield ban. It will instead judge those arrangements case by case, while keeping its anti-evasion authority.
• The OCC refused every safe harbor requested through public comment, and it expects a future rule clarifying the yield prohibition.
• Bank trade groups have criticized the final rule as leaving room for third-party rewards that could draw funds out of traditional deposits.

Background

The OCC’s final rule sets reserve, redemption, custody and risk-management standards for the payment stablecoin issuers the OCC will license. It creates a new 12 CFR Part 15 and amends the OCC's capital, prompt corrective action, fee and practice rules.  Bank Secrecy Act and sanctions rules will follow separately, in coordination with the Treasury Department. 

The final rule implements the GENIUS Act’s ban on a permitted payment stablecoin issuer (a “PPSI”) paying holders interest or yield "solely in connection with the holding, use, or retention" of its payment stablecoin, and applies that ban equally to retail and institutional holders.

What Changed From the Proposal

The OCC’s March 2026 proposal would have presumed that a PPSI pays prohibited yield if (A) the PPSI has an arrangement to pay interest or yield to an affiliate or related third party, (B) such affiliate or third party has an arrangement to pay interest or yield to holders of the PPSI’s stablecoin solely in connection with their holding, use, or retention of it, and (C) the PPSI issues the stablecoin on the related third party’s behalf or under its branding. A related third party would have included a person offering to pay interest or yield to holders as a service and any person on whose behalf or under whose branding the PPSI issues.

The final rule drops the presumption in favor of a case-by-case approach. The OCC reasoned that the presumption would have been both overinclusive and underinclusive, burdening permissible arrangements while implying that arrangements outside it are lawful, and that it would “not be possible to identify in detail all, or even most” of the potential issuer-third party arrangements it may prohibit. At the same time, the OCC acknowledged that “a rule with only a general prohibition on the payment of yield could create uncertainty within the payment stablecoin market.”

Who Stands to Gain?

The clearest beneficiaries of a weaker standard are those participating in issuer-distributor models in which a distributor pays customer stablecoin holders out of income it receives from the issuer’s reserve asset investments. Circle and Coinbase are a leading example: Coinbase funds "loyalty rewards" for its users from income generated by reserves backing Circle’s stablecoin, USDC.  The two currently split this income on a 50/50 basis. (Coinbase reported $305 million of stablecoin revenue under the arrangement for the first quarter of 2026.)

Coinbase’s user rewards encourage wider use, longer holding time, and fewer redemptions by USDC holders, which, in turn, means more funding for Circle’s reserve assets, generating even more income.  More USDC circulation also means deeper liquidity and wider acceptance in payments and trading, and a steadier float lets Circle keep its reserve income more predictable and plan reserve management around it – all of which helps Circle compete against other stablecoin issuers.  

PayPal similarly pays a variable reward directly to eligible users who hold PayPal’s stablecoin, PYUSD, encouraging them to keep funds in its ecosystem for transfers, checkouts and remittances rather than moving them to bank accounts or other platforms.

What Did Not Change

Dropping the presumption is not a green light for issuers to pay yield indirectly. Several limits remain:

• Agents – Payments an agent makes on a PPSI’s behalf count as the issuer's own payments.
• Evasion – The OCC stated that paying another firm to make a payment the issuer could not make directly would clearly evade the Act, and it retains its anti-evasion authority.
• No safe harbors – The OCC refused every safe harbor commenters sought, including for small payments, for rewards programs that predate the Act, for decentralized finance (DeFi) arrangements and for securities.
• Bona fide services – Payments for bona fide services generally fall outside the ban.

Industry Reaction

Bank trade groups fought the stablecoin reserve program model during the GENIUS Act debate and again on the CLARITY Act (a second bite at the apple), which failed in a Senate vote on September 15, 2026.  Bank groups had warned during the comment period that third-party rewards could pull money away from traditional deposits, and because the GENIUS Act as enacted reaches only payments by PPSIs, not by their business partners, the proposed presumption was the principal regulatory obstacle to such programs.

After the final rule, the American Bankers Association said it undermines Congress's ban on stablecoin yield; the Independent Community Bankers of America renewed its call for rules that limit harm to local lending; and the Bank Policy Institute said the OCC'S final rule leaves room for ambiguity on yield – making it “impossible to know whether the GENIUS Act’s prohibition on the payment of interest or yield is being applied in practice.”

Why This Matters for Banks and Credit Unions

For community banks and credit unions, the practical concern is deposit competition. Without a bright-line presumption, stablecoin issuers and their affiliates or partners (such as exchanges, wallet providers and fintech platforms) may structure rewards programs that, in economic effect, compete with deposit and share account rates, and the legality of each structure will turn on an OCC facts-and-circumstances review rather than a presumption against it.

Institutions should consider:

• Monitoring deposit and share flows for movement toward stablecoin rewards products, and factoring that risk into liquidity and funding plans.
• Reviewing any existing or proposed partnerships with stablecoin issuers, exchanges or fintechs to understand whether the institution could be viewed as an affiliate, agent or related third party in a rewards arrangement.
• For institutions considering issuing a stablecoin through a subsidiary, ensuring that any compensation paid to partners is tied to bona fide services and is not a pass-through of yield.

Other Key Provisions

Licensing and the January 18, 2027 Deadline

Beginning January 18, 2027, issuing a payment stablecoin without approval as a PPSI carries criminal penalties. In Bulletin 2026-51, the OCC said it expects to waive the prior-approval requirement for issuers already operating in the United States that submit a substantially complete application before January 18, 2027, and generally to rule on waivers by that date. It will grant no waivers to prospective issuers not yet operating and sees no compelling reason to waive other requirements, noting that issuers have had 18 months to prepare. Applications open only after the Office of Management and Budget (OMB) approves the forms; no start date has been announced.

Reserves

Fixed diversification tests give way to a principles-based approach, with minimum daily liquidity and single-counterparty limits.

Reporting

Bulletin 2026-52 finalizes Form PS-01, a weekly report of daily issuance, reserve and ownership data for each coin, filed through BankNet every Wednesday by 5 p.m. ET. An issuer with less than $1 billion outstanding, no enforcement order and clean reserve compliance may report some reserve schedules for the last day of the week only. Form PS-02, a quarterly condition and income report, is due within 30 days of quarter-end and is posted publicly unless the OCC grants confidential treatment. Subject to OMB approval, the forms start with the January 25 and March 31, 2027 report dates. Comments on the forms are due 30 days after Federal Register publication.

How We Can Help

Cullen and Dykman LLP regularly advises banks and credit unions on regulatory, deposit and fintech partnership matters. Please contact R. Patrick Quinn at (516) 357-3826 or via email at PQuinn@cullenllp.com, or your regular Cullen and Dykman contact with questions about the GENIUS Act rule and its implications for your institution.

This alert is for informational purposes only and does not constitute legal advice. Attorney Advertising. Nothing herein creates an attorney-client relationship between the sender and recipient.