The Bank Policy Institute (BPI) and The Clearing House Association are urging the U.S. Financial Crimes Enforcement Network (FinCEN) to extend customer identification requirements beyond stablecoin issuers to participants in the secondary market for payment stablecoins.
In a comment letter filed August 21, the banking groups said regulators should clarify that digital asset service providers (DASPs) establishing customer relationships to facilitate stablecoin activity are subject to Customer Identification Program (CIP) requirements under the Bank Secrecy Act (BSA). They argue that the secondary market is where the majority of illicit stablecoin activity occurs.
The request comes as U.S. agencies work to implement the GENIUS Act, the federal stablecoin framework that requires permitted payment stablecoin issuers to establish effective customer identification programs.
BPI Wants Stablecoin KYC Requirements Expanded
The BPI and The Clearing House broadly support FinCEN’s proposed customer identification framework for permitted payment stablecoin issuers, but argue that focusing primarily on issuers leaves an important regulatory gap.
The groups said exchanges, custodians, digital asset service providers and other secondary-market participants have significant relationships with stablecoin users and facilitate a substantial share of stablecoin purchases and sales.
They therefore want regulators to explicitly state that DASPs that establish account relationships with customers for payment stablecoin activity must comply with applicable CIP requirements.
The proposal would potentially bring more stablecoin trading activity under identity-verification requirements rather than placing most of the compliance responsibility on the companies that originally issue the tokens.
Why Secondary Stablecoin Markets Matter
The distinction between primary and secondary markets is central to the regulatory debate.
In the primary market, users or institutions acquire stablecoins directly from an issuer, while the issuer is responsible for minting or redeeming the tokens.
The secondary market includes transactions after issuance. These can occur through cryptocurrency exchanges, custodians, decentralized exchanges and other platforms.
According to FinCEN and the other agencies’ proposed rule, approximately 99% of stablecoin transaction activity takes place in the secondary market. The proposal also says most users of payment stablecoins are secondary-market users because large issuers typically impose financial requirements on primary-market participants that exclude retail traders.
That creates a potential regulatory challenge: the part of the market where most activity occurs is not necessarily the part of the ecosystem where the issuer has a direct customer relationship.
FinCEN Has Already Acknowledged the Challenge
FinCEN’s June 2026 proposed rule specifically recognizes that collecting information about secondary-market customers could provide significant benefits but would be difficult to implement.
The agencies said stablecoin transactions can take place through both on-chain and off-chain markets. On-chain transactions occur directly on blockchain networks, while off-chain transactions can be recorded internally by third-party exchanges without appearing directly on the blockchain.
The proposal also notes that issuers have limited ability to collect customer information from people using secondary-market platforms.
This is one reason the BPI and The Clearing House want regulators to place clearer customer-identification responsibilities on the intermediaries that actually establish relationships with secondary-market users.
What Is a Customer Identification Program?
A Customer Identification Program, commonly known as CIP, is a component of U.S. anti-money-laundering requirements designed to establish the identity of customers.
Under the proposed stablecoin framework, permitted payment stablecoin issuers would need to collect information such as a customer’s name, address and identification details before establishing certain customer relationships. The framework also includes requirements related to recordkeeping, customer notifications and procedures for dealing with customers whose identities cannot be verified.
Banks already operate under comparable customer-identification requirements.
The BPI and The Clearing House argue that similar protections should apply where other financial intermediaries establish customer relationships involving payment stablecoins.
GENIUS Act Drives the Regulatory Changes
The proposed rules are part of the U.S. implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly known as the GENIUS Act.
Under the legislation, permitted payment stablecoin issuers are treated as financial institutions under the Bank Secrecy Act and are required to maintain effective customer identification programs. FinCEN issued its joint proposed CIP rule with the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corporation and National Credit Union Administration on June 18, 2026.
The proposed rule is intended to create a tailored framework for stablecoin issuers while addressing money-laundering, terrorist-financing and other illicit-finance risks.
Banking Groups Say Regulatory Gaps Remain
The banking associations argue that the proposed framework does not go far enough if customer-identification obligations remain concentrated at the issuer level.
Their concern is that stablecoins can move through multiple intermediaries after they are issued.
A user could acquire a stablecoin through one platform, transfer it to another wallet or exchange, trade it for another asset and ultimately send it through another service. If customer-identification obligations are not consistently applied at the points where customer relationships are established, the groups argue that illicit actors could potentially exploit gaps between regulated entities.
The BPI has raised similar concerns in previous policy work, arguing that crypto pathways can create opportunities for criminals and other illicit actors to exploit gaps between traditional financial institutions and digital asset platforms.
Federal Reserve Governor Also Raised Secondary-Market Concerns
The banking groups’ position comes after Federal Reserve Governor Michael Barr raised concerns about illicit finance in stablecoin secondary markets.
In a June 18 statement supporting the proposed CIP framework, Barr said he remained concerned that the GENIUS Act regulatory framework did not adequately address illicit-finance risks associated with secondary-market payment stablecoin transactions.
He also said he would examine whether elements of the CIP framework should eventually be extended to secondary-market activity.
That makes the BPI’s latest recommendation part of a broader regulatory discussion rather than an isolated banking-industry request.
Decentralized Exchanges Create a Bigger Challenge
One of the most difficult questions concerns decentralized finance (DeFi).
Traditional exchanges and custodians generally have identifiable corporate structures and customer-account relationships. Decentralized protocols can operate differently, with users interacting directly with smart contracts and blockchain addresses.
The BPI and The Clearing House specifically called for regulators to address compliance gaps involving exchanges, custodians, digital asset service providers and decentralized market participants.
Applying conventional KYC requirements to decentralized systems could therefore create significant technical and regulatory questions.
It is not always clear which entity should be responsible for identifying a user when a transaction is executed through a decentralized protocol rather than through a centralized company.
FinCEN Recognizes Blockchain Identification Limits
The agencies’ proposal acknowledges that blockchain architecture can make customer identification particularly difficult.
Unlike traditional financial systems, public blockchains can record transactions without necessarily recording the real-world identity behind each wallet address.
The proposed rule therefore recognizes the practical limits issuers face when attempting to identify customers operating in secondary markets.
This creates a key policy question: Should regulators require stablecoin issuers to identify secondary-market users, or should the responsibility fall on exchanges and other intermediaries that directly interact with those users?
The BPI and The Clearing House favor the latter approach.
Banking Groups Also Want Clearer Definitions
The organizations’ recommendations go beyond simply expanding customer-identification rules.
They also asked regulators to clarify how CIP requirements should apply when a customer directly redeems a payment stablecoin.
In addition, they want clearer definitions of important regulatory terms such as “customer” and “account.”
The groups argue that these definitions should account for the different types of relationships that can arise in the stablecoin ecosystem, including direct redemption and other interactions between users and issuers.
Clearer definitions could help companies determine when a particular user relationship triggers customer-identification obligations.
BPI Supports a Risk-Based Approach
Although the banking groups want stronger oversight of secondary markets, they have also supported a risk-based and cost-benefit approach to stablecoin compliance.
In their June comment on the broader illicit-finance regime, BPI and The Clearing House said the proposed framework placed too much emphasis on issuers while leaving gaps involving exchanges, custodians and decentralized market participants.
Their latest recommendation similarly focuses on applying customer identification where it can be most effective rather than imposing identical requirements across every participant in the ecosystem.
What the Proposal Could Mean for Crypto Exchanges
If regulators adopt the BPI recommendation, cryptocurrency exchanges and other stablecoin platforms could face additional compliance responsibilities.
Platforms that establish direct customer relationships for stablecoin transactions could potentially need to:
- Verify customer identities
- Maintain customer identification records
- Establish procedures for identity verification
- Restrict or deny certain customer relationships where identities cannot be verified
- Integrate stablecoin activity into broader BSA compliance programs
The exact requirements would depend on the final regulations and the legal status of each platform.
The BPI is not itself proposing a final regulatory rule; it is asking FinCEN and other agencies to clarify how existing and proposed obligations should apply.
The Deadline for Comments Has Passed
FinCEN and the other federal agencies released the proposed CIP rule on June 18.
The Federal Reserve’s regulatory docket lists August 21, 2026, as the deadline for public comments.
BPI and The Clearing House submitted their recommendations on August 21, putting their proposal among the stakeholder feedback regulators will consider as they develop the final framework.
The agencies have not yet announced a final rule incorporating the banking groups’ recommendations.
Potential Impact on Stablecoin Users
For ordinary stablecoin users, broader customer-identification requirements could mean more identity checks when buying, selling or redeeming payment stablecoins through regulated platforms.
The impact could be relatively limited for users already trading through exchanges that conduct KYC procedures.
However, users who rely on platforms with less extensive identity requirements could encounter additional verification procedures if regulators expand CIP obligations to more secondary-market intermediaries.
The effect on decentralized markets is less certain because applying traditional customer-account concepts to permissionless protocols presents substantially different technical and legal challenges.
Why This Matters for the Stablecoin Industry
Stablecoins have become an increasingly important part of cryptocurrency markets, particularly for trading, payments and transfers.
Their dollar-linked structure makes them useful for moving value between exchanges and blockchain networks without relying directly on traditional banking rails for every transaction.
That same flexibility has increased regulatory attention.
If policymakers believe most illicit stablecoin activity occurs after tokens leave their original issuer, then focusing AML and customer-identification requirements exclusively on issuers may leave significant parts of the ecosystem outside the strongest controls.
The BPI’s latest recommendation is therefore part of a larger debate over where responsibility for stablecoin compliance should sit.
Conclusion
The Bank Policy Institute and The Clearing House Association are asking FinCEN to extend customer-identification requirements to the secondary market for payment stablecoins, arguing that regulators need stronger safeguards where most stablecoin activity and illicit-finance risk occur.
The recommendation responds to FinCEN’s proposed Customer Identification Program rules implementing the GENIUS Act. The proposal would require permitted payment stablecoin issuers to maintain effective CIP programs, but it recognizes that approximately 99% of stablecoin transaction activity occurs in secondary markets, where issuers have limited ability to identify users.
BPI and The Clearing House want regulators to clarify that exchanges and other digital asset service providers establishing customer relationships for stablecoin activity should also fall under CIP requirements. They additionally want clearer rules covering direct redemptions and the definitions of “customer” and “account.”
The proposal could ultimately increase compliance requirements across the stablecoin ecosystem, particularly for centralized exchanges and other intermediaries. At the same time, extending conventional KYC requirements to decentralized markets could present significant technical and regulatory challenges.
The debate now moves to the next stage as U.S. regulators consider stakeholder feedback and work toward finalizing the GENIUS Act’s stablecoin regulatory framework.
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