Responsible Financial Innovation Act Offers Clarity and Safeguards for Digital Assets – Banking and Payment Stablecoins | Latham & Watkins LLP

The RFIA could make it easier for fintechs trading digital assets and stablecoins to access Federal Reserve banking services.

Latham & Watkins presents a blog series on the Responsible Financial Innovation Act, which was introduced in the US Senate on June 10, 2022, to create a framework for digital assets, cryptocurrency and blockchain technology. This fourth article in the series covers stablecoin banking and payment issues.

Banking problems

Banking issues are covered by Title VII of the bill (Responsible Banking Innovation).

The RFIA would add a new Section 11A to the Federal Reserve Act that would require the Board of Governors of the Federal Reserve System (FRB) to make available currency and coin services, wire transfer services, automated clearing house services and settlement services to any depositary. institution licensed under state or federal law, and to make available to a deposit-taking institution a separate balance account upon request. Within two years of the bill’s enactment, the FRB shall assume responsibility for issuing routing transit numbers to depository institutions for all purposes related to transaction clearing and services required under the Federal Reserve Act mentioned above.

In addition, Title VII of the RFIA would allow, in part:

  • Prohibit federal banking agencies (including Federal Reserve banks) from delaying decisions on applications by requiring decisions to be made within one year of the application and reporting to Congress a list of applications pending for more than nine months.
  • Require the Federal Financial Institutions Examination Council (FFIEC) (in consultation with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN)) to issue final guidelines and adopt examination standards relating to digital asset activities depository institutions within 18 months. Topics should include anti-money laundering, customer identification, beneficial ownership and sanctions compliance (including with respect to stablecoin payment activities and subsidiary value), custody, fiduciary and capital markets, information technology standards, payment system risk and consumer protection.
  • Codify the basic principles around custody by defining the term “custody” for depository institutions and non-custodial trust companies as “the safekeeping, servicing and management of clients’ financial assets, including currencies, securities and raw materials, on an off-balance sheet basis. Custody will generally be accomplished through a lease and written agreement with the client, and will not be considered a fiduciary or fiduciary activity unless the custodian is providing “substantial discretionary services” in respect of a account (for example, through investment advice or discretionary investing).
  • Prohibit federal banking agencies from (i) restricting or discouraging a deposit-taking institution from establishing or maintaining a banking relationship with a specific customer or group of customers because of reputational risk (including through reviews and deposit institution ratings); or (ii) request or direct a depository institution to terminate a specific client account or group of client accounts (unless the agency has a valid reason and provides written justification for such request or order, e.g. , the client poses a threat to national security , is involved in the financing of terrorism, etc.).
  • Require the FRB to conduct a study and submit a report to Congress within 180 days of the bill’s enactment, outlining how distributed ledger technology can reduce risk to depository institutions (e.g., settlement risk, operational and capital requirements).

Payment Stablecoin Issues

Considerations for issuing payment stablecoins are covered by Title VI of the Bill (Responsible Payments Innovation).

The RFIA defines a stablecoin payment as a digital asset that is:

  1. redeemable, on demand, on a one-for-one basis for instruments denominated in U.S. dollars and defined as legal tender, or for instruments defined as legal tender under the laws of a foreign country (excluding assets defined as legal tender under the laws of a foreign country);
  2. issued by a commercial entity;
  3. accompanied by a statement from the issuer that the asset is redeemable as specified by the issuer or other identified person;
  4. backed by one or more financial assets (excluding other digital assets); and
  5. intended for use as a medium of exchange.

This definition would therefore exclude algorithmic stablecoins, digital asset-backed stablecoins, or bitcoin-backed stablecoins that are legal tender of at least one sovereign nation.

The RFIA would add Section 4810 to Chapter 48 of Title 12 of the United States Code, to clarify that a depositary institution, or non-custodial institution operating under a state or federal charter or license , may “issue, redeem and perform all Activities [e.g., management of assets, market-making, custodial services, settlement and clearing, post-trade services, etc.] regarding payment stablecoins. The FRB, through the Federal Reserve Banks, would also be required to provide payment stablecoin clearing and settlement services between depository institutions. Federal banking agencies, in consultation with state banking supervisors, would be required to adopt rules implementing the section, although no timeline is specified.

A depository institution can seek permission to issue a stablecoin payment from a federal banking agency or state bank supervisor, and an affirmative decision should be rendered within four months, unless it is determined that stablecoin payment activities are unlikely to be able to operate. in a safe and sound manner, the depository institution does not have the resources and expertise to manage the operation of the payment stablecoin, or the depository institution does not have the required policies and procedures relating to material areas the functioning of payment stablecoin activities. Such a request to issue a stablecoin should be accompanied by a tailored recovery and resolution plan (which would allow for the orderly resumption of safe and sound operation or the orderly liquidation of operations in the event of distress, including redemption of all payment stablecoins in circulation), a draft client agreement, an explanation of funds flows, a solid IT plan and an operational design of the payment stablecoin.

In addition, among others, Title VI of the RFIA:

  • Authorize the Office of the Comptroller of the Currency to charter national banks for the exclusive purpose of issuing payment stablecoins.
  • Require all payout stablecoin issuers to maintain high-quality liquid assets[1] valued at 100% of the face value of all outstanding payout stablecoins issued by the institution.
  • Require all payout stablecoin issuers to provide publicly available information on a monthly basis regarding the number of stablecoins in circulation, the assets backing the stablecoin, and the value of the assets. These disclosures would be subject to verification, through regular reviews of the depository institution by the relevant federal banking agency or state banking supervisor.
  • Requiring that customers of a depository institution (including other depository institutions) have the ability to redeem all outstanding stable payments at par in legal tender.
  • Require the Office of Foreign Assets Control (OFAC) to develop guidance within 120 days of enacting the bill clarifying the sanctions compliance responsibilities and obligations of a payment stablecoin issuer.
  • Require the Office of Management and Budget, in consultation with the Director of the Cybersecurity and Infrastructure Security Agency, the Director of National Intelligence and the Secretary of Defense, to formulate standards and guidelines for that executive agencies develop security measures for the use of digital yuan on government-issued information technology devices.
  • Establish an Innovation Lab within FinCEN to promote, among other things, regulatory dialogue and pilot projects with financial institutions to facilitate financial technology supervision.


The RFIA, if enacted as proposed, would allow fintechs and digital asset market participants to issue payment stablecoins and access banking services provided by the Federal Reserve that were previously unavailable to non-custodial institutions. By requiring higher levels of engagement and transparency from the Federal Reserve, the RFIA would remove many of the barriers to entry into traditional banking that digital asset service providers face in the environment. current regulations.

Responsible growth and innovation in the digital asset market would also benefit from clear guidance and review standards from FFIEC and FinCEN relating to the digital asset activities of depository institutions, as well as the regulatory dialogue that the lab proposed innovation FinCEN would promote.

Finally, while market participants and consumers may benefit from the ability of custodial and non-custodial institutions to issue payment stablecoins fully backed by high-quality liquid assets, many banking sector participants are concerned that the RFIA will establish a regulatory regime for certain stablecoins. issuers that are inconsistent with past precedents and fail to adequately address the concerns and recommendations of the President’s Stablecoin Task Force Report (see this Latham Publish for more).


[1] Eligible high-quality liquid assets would include: (1) US coins and currency and any other instruments defined as legal tender under 31 USC § 5130; (2) demand deposits with a deposit-taking institution, subject to certain conditions; (3) balances held at a Federal Reserve Bank, which may be held in a main account or a separate balance account; (4) redeemable foreign reserves (as defined in 12 CFR § 249.3), compatible with any foreign unit of account in which the stablecoin payment is denominated or pegged; (5) a security issued by, or unconditionally guaranteed as to prompt payment of principal and interest by, the United States Department of the Treasury, with an original maturity of one year or less; (6) a repurchase agreement relating to a security referred to in paragraph (5) above; and (7) any other high quality liquid assets deemed to be in accordance with safe and sound banking practices, as determined by the relevant federal banking agency or state bank supervisor.