Banking groups urge tougher AML for stablecoins

TLDR

Major U.S. banking trade groups are pushing regulators to tighten anti money laundering rules for stablecoins, especially in secondary markets like DeFi platforms, custodians, and exchanges.

1. Bank Policy Institute and The Clearing House told FinCEN and OFAC that most illicit stablecoin activity happens after issuance and want clear AML duties for DeFi, custodians, and exchanges.
2. Crypto industry groups warn that overbroad rules, especially if issuers are responsible for all downstream activity, could push compliant dollar stablecoins out of permissionless DeFi and raise compliance costs.
3. The outcome of ongoing GENIUS Act rulemaking and the CLARITY Act fight will decide how much KYC, screening, and centralization future stablecoin use in DeFi will face.

Deep Dive

1. Banking Groups Demands

Two major U.S. banking lobbies, the Bank Policy Institute and The Clearing House, sent joint comments urging the U.S. Treasurys FinCEN and OFAC to close what they call significant AML gaps in secondary stablecoin markets. They argue that the majority of illicit finance involving payment stablecoins occurs on the secondary market, and that current rules focus too much on issuers while under-regulating DeFi protocols, digital asset custodians, and exchanges that handle most transfers after issuance.

Their letter, part of the GENIUS Act implementation process, calls for a shift from checklist-style compliance to a risk-based framework that explicitly assigns AML and sanctions obligations to intermediaries facilitating secondary stablecoin transactions, not just to issuers themselves. If adopted, this would formalize regulatory expectations for DeFi frontends, centralized exchanges, and custodial wallets that touch stablecoins in the U.S. market.

2. Tension With Crypto Industry

Crypto firms are pushing back on how far these AML expectations should reach. Paradigm and the Hyperliquid Policy Center warned that if issuers are made responsible for all secondary market activity they cannot see or control, regulated dollar stablecoins could be driven off open DeFi platforms into walled gardens.

The Blockchain Associations own letters support issuer-focused AML for functions like issuance, redemption, and reserve management, but argue that peer to peer transfers should not be treated as issuer intermediated activity. Separately, dYdX Foundations CEO notes that major stablecoins already include blacklist and freeze tools and many top DeFi apps perform on chain screening, suggesting the real enforcement gaps are offshore exchanges and unhosted wallets rather than core on chain protocols.

3. What To Watch Next

FinCEN and OFAC are now deciding how to finalize GENIUS Act rules, including whether to harden AML expectations around DeFi and secondary stablecoin markets in line with the banking groups recommendations. In parallel, the broader CLARITY Act battle in Congress, which also touches stablecoin treatment and rewards, remains a key venue where bank and crypto interests are lobbying for very different outcomes.

If regulators lean toward the banks view, expect more explicit KYC, transaction monitoring, and sanctions screening obligations for U.S. facing DeFi frontends and custodians handling major stablecoins, alongside clearer expectations for issuers. A lighter approach would keep issuer centric AML, leave most peer to peer transfers less constrained, and rely more on existing blacklist tools and targeted enforcement against high risk venues.

Conclusion

Banks are trying to pull stablecoins and DeFi closer to the existing AML perimeter, while crypto industry groups push to preserve permissionless use and keep issuers responsibilities bounded. How U.S. regulators and lawmakers resolve this tension will shape where compliant dollar stablecoins can circulate, how intrusive on chain KYC becomes, and which parts of the stablecoin market remain accessible to pseudonymous users versus migrating into more bank like, heavily monitored environments.