What Credit Unions Need to Know About the GENIUS Act and NCUA Proposed Rules

Blockchain-based financial services are rapidly moving from the margins of finance toward the mainstream – no longer being driven by adventurous pioneers alone.  The legal and regulatory framework is now being built to support a significant expansion of the frontiers established by the early innovators and first movers.  The adoption of GENIUS in July 2025 and significant rulemaking now under way is already changing the banking world at scale, and increasingly community financial institutions — including credit unions — are being drawn into the conversation by commercial members, payments providers, core processors, and technology partners seeking faster settlement, programmable money movement, and new digital payment capabilities.

There are significant incentives for credit unions to participate in the emerging stablecoin economy, including to better serve younger, tech-forward members who might otherwise choose to bank with larger financial institutions and emerging fintech and big tech providers pitching stablecoin rails solutions for instant, borderless remittances, lower transaction fees, and new product offerings (such as programmable savings and membership rewards).  Although relatively few credit unions may choose to become stablecoin issuers themselves, virtually every credit union should begin evaluating how stablecoins, programmable payments, and blockchain-based settlement systems may affect member expectations, payments strategy, liquidity management, vendor relationships, and long-term competitiveness. 

The GENIUS Act

In July 2025 Congress enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”), establishing a federal framework for payment stablecoins and directing federal regulators to implement comprehensive supervisory standards.  The National Credit Union Administration (the “NCUA”) on May 18 of this year followed with proposed regulations to implement portions of the Act, having earlier proposed regulations to implement the Act’s required process for approval and licensure of Permitted Payment Stablecoin Issuers (“PPSI’s) subject to its jurisdiction. 

The NCUA’s applications proposal earlier this year largely follows the form and scope of proposed regulations published by the FDIC in December 2025 for FDIC-insured institutions, and the May 2026 NCUA stablecoin standards purposely reflect those adopted by the Office of the Comptroller of the Currency in March 2026.   The OCC's proposed GENIUS Act standards, which generally set a benchmark under the Act, would establish the supervisory, licensing, capital, risk management, and enforcement framework for national banks and federal branches that engage in payment stablecoin activities or seek to operate as federally regulated PPSIs. The rules are intended to ensure that payment stablecoin issuance and related reserve management activities are conducted in a safe and sound manner, with appropriate governance, liquidity, operational resilience, compliance, and consumer protection safeguards, while providing a federal regulatory framework that complements the GENIUS Act's statutory requirements for reserve backing, redemption rights, disclosures, and prudential supervision.  

Credit Unions Issuing Stablecoins Through CUSOs

Under the GENIUS Act, an OCC‑chartered uninsured national bank, as a “Federal Qualified Payment Stablecoin Issuer,” may issue stablecoins directly or through a subsidiary. A federal credit union, on the other hand, may only issue them through an NCUA-licensed subsidiary – generally, a Credit Union Service Organization (a “CUSO”) that applies for and obtains an NCUA-issued Permitted Payment Stablecoin Issuer (“PPSI”) license.  To do otherwise would violate the Act’s prohibition on issuance of stablecoins by anyone other than a “permitted payment stablecoin issuer.”

A key constraint for federal credit unions investing in stablecoin-issuing CUSO subsidiaries is that they can only invest up to 1% of their total paid-in and unimpaired capital and surplus in the entity.  Credit unions already near that ceiling will have limited room to participate and may want to consider pooling resources with other credit unions to share in the expense of establishing a compliant stablecoin operation. Recognizing this, and the potential to benefit by pooling their resources, the NCUA contemplates in its February 2026 proposed rulemaking that some credit unions will want to invest in PPSIs jointly with other credit unions.

Stablecoins Are Becoming Financial Infrastructure

The public discussion surrounding stablecoins often focuses on speculative cryptocurrency markets. In reality, however, the more consequential development is the increasing use of stablecoins as payment infrastructure.  Major financial institutions, payment companies, and technology firms are actively exploring stablecoin-based settlement systems because blockchain networks can allow funds to move continuously — including nights, weekends, and holidays — with near real-time settlement visibility and programmable transaction functionality.  A small business member of a credit union that regularly purchases inventory from suppliers traditionally might pay for those purchases using wire transfer, ACH payment, or card payment and then separately exchange invoices, shipping documents, and payment confirmations. Reconciliation often requires manual effort.

With a programmable stablecoin or tokenized deposit and smart contract technology, the process can be more highly automated, faster, and less expensive.  The member could use a smart contract (a self-executing computer program stored on a blockchain that automatically runs when predetermined conditions are met) that includes a payment instruction to automatically release a designated amount of stablecoins to the supplier’s on-chain wallet when the smart contract conditions are satisfied (the contract would be programmed to pull the relevant information from an on-chain data “oracle” – through an Application Programming Interface (“API”) or Software Development Kit (“SKD”) – indicating the supplier has uploaded proof that the materials have been shipped and the shipment tracking number confirms pickup by the carrier.)  The payment token would be transferred only when the conditions specified in the smart contract are met.    

In this example, the Credit Union member would benefit from faster settlement (potentially 24/7), reduced manual reconciliation, lower operational costs, fewer payment disputes, and improved cash-flow management, and the customer will appreciate automated recording of purchase order information on-chain, smart contract splitting of funds among multiple parties (e.g., supplier, freight carrier, customs broker), and automated notifications to all parties that payment has been completed.

Commercial customers increasingly view these capabilities as attractive alternatives to traditional payment rails that may involve cut-off times, intermediary delays, reconciliation inefficiencies, and cross-border friction. 

The GENIUS Act Creates a Federal Stablecoin Framework

The GENIUS Act is designed to establish a comprehensive federal framework governing payment stablecoins. Among other things, the Act establishes standards relating to reserve backing, redemption rights, supervision, operational safeguards, and permissible issuers. Importantly, the legislation attempts to distinguish payment stablecoins from speculative crypto-assets by emphasizing that qualifying stablecoins must maintain stable value and be fully backed by high-quality reserve assets. 

Historically, federal banking agencies have approached digital asset activities cautiously, focusing heavily on safety and soundness, cybersecurity, liquidity, consumer protection, and BSA/AML compliance.  The NCUA, in its May 18 proposed regulations, takes a similarly measured approach, aligning with the OCC’s proposed rules and focusing on several core themes:

1. Risk Management Expectations

Under its proposed regulations, the NCUA will expect credit unions engaging in stablecoin-related activities to demonstrate strong governance, board oversight, and enterprise risk management controls.  This includes board-approved digital asset or blockchain risk frameworks; vendor and third-party oversight procedures; cybersecurity and operational resilience controls; liquidity and contingency planning; enhanced due diligence for fintech and blockchain counterparties; and clear delineation of management responsibilities. 

Examiners are likely to focus less on the technology itself and more on whether management fully understands the operational and legal risks created by the activity, including unique risks related to blockchain banking. For example, for a credit union holding reserve deposits for a stablecoin issuer and providing settlement services for minting and redemption activity, examiners will focus on whether the credit union’s board and management understand and can manage the risks created by the activity:  How would the credit union respond if a smart contract vulnerability resulted in unauthorized token issuance, if a blockchain network outage disrupted customer access to funds, if sanctions concerns arose from wallet-to-wallet transfers, or if a stablecoin issuer directed the freezing or burning of tokens? They may also evaluate whether the CU has appropriate BSA/AML controls, vendor management oversight, liquidity contingency plans, legal agreements allocating responsibility among participants, and governance processes for addressing blockchain-specific events. In short, the supervisory question is often not whether the blockchain technology works, but whether management has identified, measured, monitored, and controlled the operational, legal, compliance, liquidity, and reputational risks that arise from using it.

2. BSA/AML and Sanctions Compliance

Stablecoin transactions can move rapidly across global blockchain networks, creating heightened concerns regarding anti-money laundering compliance, sanctions screening, transaction monitoring, and suspicious activity reporting. Credit unions should anticipate close scrutiny regarding customer identification procedures; wallet screening and blockchain analytics; OFAC compliance controls; transaction monitoring methodologies; relationships with third-party payment providers; and whether the institution can adequately identify and mitigate illicit finance risks.   A credit union may permit a commercial member engaged in international trade to fund purchases from overseas suppliers using stablecoins rather than traditional wire transfers. A payment that would ordinarily move through identifiable correspondent banking channels can instead be transmitted within minutes across multiple blockchain wallets, decentralized platforms, and jurisdictions before reaching the ultimate recipient.

Although the blockchain provides transaction visibility, the parties controlling the wallets may not be readily identifiable, and some intermediary wallets may be associated with high-risk jurisdictions, sanctioned persons, mixers, or other obfuscation tools, increasing the challenges for credit unions to verify the identities of transaction participants, screening transactions against sanctions lists, monitoring for unusual or suspicious activity, determining the true source and destination of funds, and identifying patterns indicative of money laundering, terrorist financing, fraud, or sanctions evasion.

Importantly, in these situations the NCUA expects credit unions to understand not only their direct counterparties, but also the broader transaction flows associated with blockchain-based payment activity.   In traditional banking, a credit union generally knows its customer, the customer's counterparty, and the financial institutions through which a payment travels. The transaction path is relatively structured and visible. In blockchain-based payments, however, value may move through a series of wallets, smart contracts, exchanges, liquidity pools, custodians, bridges, or other intermediaries before reaching its ultimate destination. Examiners are likely to focus on whether the credit union has implemented enhanced blockchain analytics, customer due diligence, transaction monitoring, escalation procedures, and suspicious activity reporting processes appropriate for the unique risks presented by blockchain-based payment activity.

Examiners may ask questions such as: Are the stablecoins being sent to self-hosted wallets, regulated exchanges, or unidentified counterparties? Do the transaction flows involve high-risk jurisdictions or sanctioned regions? Are decentralized exchanges, mixers, tumblers, privacy-enhancing protocols, or cross-chain bridges involved? Is there evidence that funds are rapidly moving through multiple wallets in a manner designed to obscure ownership? What blockchain analytics tools does the credit union use to identify these risks?   How does the credit union monitor for suspicious activity occurring beyond the initial transfer from the member's account?  Answers to these questions will require a more holistic understanding of the movement of funds than would be expected for many traditional payment activities – management will need to explain where value is going, how it gets there, who is involved in the transaction chain, and what controls exist to identify money laundering, sanctions evasion, fraud, or other illicit activity occurring within that broader blockchain payment flows.

3. Vendor Management and Technology Risk

Many credit unions are unlikely to build blockchain infrastructure internally. Instead, they may rely on fintech providers, custodians, core processors, or stablecoin networks. As a result, third-party risk management will likely become a central supervisory issue.  Credit unions should expect regulators to examine contractual allocation of liability; cybersecurity responsibilities; data access and recovery rights; smart contract governance; business continuity procedures; audit rights (including smart contract audits to identify “bugs” or flawed logic); and regulatory examination access.  Institutions that enter these relationships without strong diligence and contractual protections may face elevated supervisory criticism.

4. Liquidity and Deposit Implications

One of the most significant policy questions surrounding stablecoins involves their potential impact on traditional bank and credit union deposits.  If consumers or businesses increasingly hold transactional balances in stablecoins rather than conventional deposit accounts, financial institutions could experience dramatic changes in deposit composition and liquidity behavior, and credit unions should begin to assess such risks.

At the same time, a credit union may have the opportunity to hold reserve deposits for stablecoin issuers themselves, potentially opening the door for the credit union to provide new fee-based liquidity and treasury management services.  The GENIUS Act generally requires permitted payment stablecoin issuers to maintain reserves backing outstanding stablecoins on at least a 1:1 basis with highly liquid, low-risk assets, such as U.S. currency, demand deposits, insured deposits, Treasury bills with short maturities, certain repurchase agreements backed by Treasuries, and qualifying money market funds. The reserves must be segregated from the issuer's other assets, subject to prescribed risk management and reporting requirements, and maintained in a manner designed to ensure that stablecoin holders can redeem their stablecoins promptly at par value.  Credit unions looking to hold stablecoin reserves for issuers should acquire deep familiarity with these requirements before doing so.

5. Consumer Protection and Member Communications

Stablecoin-related products may create member confusion regarding deposit insurance coverage, redemption rights, transaction finality, fraud protections, and operational outages. In its proposed regulations, the NCUA places significant emphasis on clear disclosures and member communications.  Credit unions should anticipate heightened expectations regarding distinguishing insured deposits from digital assets; explaining transaction risks and settlement mechanics; disclosing third-party relationships; addressing fraud and error resolution procedures; and clarifying operational limitations during blockchain outages or disruptions.

Credit Unions Should Begin Preparing Now

The GENIUS Act reflects a broader reality that distributed ledger technology is steadily moving from the periphery of finance toward the operational core of payments and settlement infrastructure. For credit unions, the relevant question is no longer whether blockchain-based financial activity will affect the industry, but rather how quickly those effects will emerge and how institutions will respond.

The NCUA’s May 18, 2026 proposed regulations provides significant detail on how federally insured credit unions can participate directly in this evolving ecosystem, signally that, at this point, credit unions should begin preparing for a world in which stablecoins and programmable payment systems increasingly intersect with mainstream financial services.

Institutions that understand the legal, operational, and strategic implications early will be better positioned to serve members, manage risk, and remain competitive as the payments landscape evolves. Even credit unions with no immediate plans to engage directly in stablecoin activity should begin evaluating how these developments could affect their institutions over the next several years.  Practical early-stage considerations may include educating boards and senior management regarding stablecoin infrastructure and regulatory developments; evaluating existing vendor relationships for blockchain exposure; reviewing payments modernization strategies; assessing treasury and liquidity implications; monitoring member demand for faster or programmable payment capabilities; and developing internal governance frameworks before opportunities or pressures emerge suddenly. The institutions best positioned to navigate this environment will likely be those that approach the technology pragmatically, neither dismissing it outright nor embracing it without appropriate controls.

For Further Information

If you have any questions about the GENUIS Act or the NCUA’s proposed regulations, or any other aspect of digital assets, please feel free to contact Patrick Quinn at (516) 357-3826 or via email at pquinn@cullenllp.com, or Joseph D. Simon at (516) 357-3710 or via email at jsimon@cullenllp.com.

This advisory provides a brief overview of the most significant changes in the law and does not constitute legal advice. Nothing herein creates an attorney-client relationship between the sender and recipient.