Banks Say Stablecoin Rules Should Cover Secondary Markets

Banking trade groups are pressing U.S. regulators to clarify who oversees stablecoin transactions after issuance, opening a new front in a policy fight after crypto firms warned earlier this week that broad anti-money laundering rules could push regulated dollar tokens out of the decentralized finance sector.

In a pair of joint comment letters made public Wednesday, the Bank Policy Institute and The Clearing House said current requirements fail to impose sufficient obligations on DeFi firms, certain digital asset custodians, and exchanges. Most illicit activity occurs after issuance, making secondary market oversight critical as regulators weigh how to implement stablecoin AML rules, the trade groups argued.

Across two letters, the bank groups said regulators should put “flexibility first,” letting banks focus resources on “the most urgent threats” while moving away from “check-the-box compliance” and addressing gaps in stablecoin secondary markets.

In the stablecoin letter, the trade groups said the Financial Crimes Enforcement Network and the Office of Foreign Assets Control “correctly recognize” that “the majority of illicit finance involving payment stablecoins occurs on the secondary market,” and that permitted payment stablecoin issuers “may have less information on secondary market transactions than on primary market transactions.”

Stablecoins are crypto tokens designed to track the value of another asset, usually a fiat currency such as the U.S. dollar. Issuers create and redeem those tokens, manage the reserves backing them, and, under the GENIUS Act, can qualify as permitted payment stablecoin issuers, which means they’re authorized to issue payment stablecoins in the U.S.

Earlier this week, crypto investment firm Paradigm and the Hyperliquid Policy Center warned that broad anti-money laundering rules could push regulated dollar tokens out of decentralized finance, arguing that stablecoin issuers should not be held responsible for activity they cannot monitor or control after tokens move into secondary markets.

Checks and controls

The banking and crypto industry letters point to a growing tension over how regulators should treat stablecoin activity after issuance without making issuers directly responsible for transactions they can’t monitor or control.

Charles d’Haussy, CEO of dYdX Foundation, said both letters leave out compliance tools already built into major stablecoins and used by DeFi platforms.

“What is missing from both submissions is a basic technical fact: AML monitoring in stablecoins does not stop at issuance,” d’Haussy told Decrypt.

Each USDC or USDT transfer runs through the issuer’s master smart contract, where freeze and blacklist controls “execute in real time,” d’Haussy said, adding that most leading DeFi platforms also screen trades on-chain. In his view, that makes the regulatory gap “narrower than either letter acknowledges.”

“The real enforcement problem is offshore exchanges and unhosted wallets operating outside FATF’s Travel Rule framework, not the compliant DeFi infrastructure that is already doing the work,” d’Haussy said.

Beyond the technical question of where monitoring happens, broader oversight could help stablecoin markets scale by “narrowing the gap” between crypto markets and traditional finance, Dominick John, analyst at Zeus Research, told Decrypt.

For decentralized finance firms, custodians, and exchanges, broader oversight could mean stronger KYC checks and transaction controls, with the upside being “clearer rules, stronger trust, bigger institutional flows,” he added.