The Bank Policy Institute and The Clearing House submitted joint comment letters on Wednesday arguing that stablecoin anti-money laundering rules should cover activity after tokens leave issuers. The trade groups said current requirements fail to impose sufficient obligations on decentralized finance firms, certain digital asset custodians, and exchanges, with most illicit activity occurring after issuance. The letters follow warnings earlier this week from crypto investment firm Paradigm and the Hyperliquid Policy Center that broad AML rules could push regulated dollar tokens out of decentralized finance.
Bank Trade Groups Call for Secondary Market AML Oversight
In the joint comment letters made public Wednesday, the Bank Policy Institute and The Clearing House 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.
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.
Crypto Firms Warned Against Broad AML Rules Earlier This Week
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. The firms argued that stablecoin issuers should not be held responsible for activity they cannot monitor or control after tokens move into secondary markets.
dYdX Foundation CEO Cites Existing Compliance Tools in Stablecoins
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.
Zeus Research Analyst Says Broader Oversight Could Narrow Gap with Traditional Finance
Dominick John, analyst at Zeus Research, told Decrypt that broader oversight could help stablecoin markets scale by "narrowing the gap" between crypto markets and traditional finance.
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.
FAQ
What did the Bank Policy Institute and The Clearing House say about stablecoin AML rules?
The Bank Policy Institute and The Clearing House submitted joint comment letters on Wednesday arguing that stablecoin anti-money laundering rules should cover activity after tokens leave issuers. The trade groups said current requirements fail to impose sufficient obligations on decentralized finance firms, certain digital asset custodians, and exchanges, with most illicit activity occurring after issuance.
Why did crypto firms warn against broad AML rules earlier this week?
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. The firms argued that stablecoin issuers should not be held responsible for activity they cannot monitor or control after tokens move into secondary markets.
What compliance tools exist in major stablecoins according to dYdX Foundation?
Charles d'Haussy, CEO of dYdX Foundation, said each USDC or USDT transfer runs through the issuer's master smart contract, where freeze and blacklist controls "execute in real time." He added that most leading DeFi platforms also screen trades on-chain, making the regulatory gap "narrower than either letter acknowledges."
