The Blockchain Association, a Washington-based trade group representing crypto industry firms, has urged five U.S. financial regulators to limit stablecoin customer identification checks to issuers' direct relationships, arguing that independent peer-to-peer transfers should be excluded from customer identification requirements. The group filed its comments by the Aug. 21 deadline and summarized its position on Aug. 24. It supports the joint proposal but is seeking clearer definitions, fewer duplicate checks, and flexibility for digital identity technology.

Rules Would Focus on Direct Issuer Customers

FinCEN, the OCC, the Federal Reserve, the FDIC and the NCUA proposed the customer identification program in June. Under the proposal, permitted payment stablecoin issuers would be required to establish written, risk-based customer identification programs.

Such programs have been a baseline anti-money-laundering obligation for U.S. banks since the customer identification rules implementing Section 326 of the USA PATRIOT Act took effect in 2003, so the joint rulemaking would extend a familiar bank-style regime to a new category of regulated entity.

Issuers would collect names, addresses, birth dates or formation dates, and identification numbers, and would then verify identities using documentary or non-documentary methods. Records would generally be retained for five years after account closure.

The Blockchain Association said these requirements should apply when issuers directly issue, redeem, convert, repurchase or custody stablecoins.

A Firm Boundary for Peer-to-Peer Transfers

The association asked regulators not to extend identification requirements to independent peer-to-peer transfers, saying issuers should not face those obligations without intermediating, facilitating or approving transactions.

The proposal generally excludes secondary-market activity from its customer definition. Transfers from self-hosted wallets, exchange trades and vendor payments fall within those excluded examples. Notably, the agencies estimated that about 99% of stablecoin transaction activity occurs in secondary markets.

That estimate is central to the debate: the largest stablecoins by circulation, Tether's USDT and Circle's USDC, anchor a combined market measured in the hundreds of billions of dollars, and the line drawn around the customer definition determines whether identification checks stay tied to issuers' direct relationships or extend further into that activity. The boundary between regulated intermediaries and self-hosted wallets has been contested in U.S. rulemaking before — FinCEN's 2020 proposal to require banks and money services businesses to report certain transactions involving self-hosted wallets drew thousands of comments and was never finalized.

The group also requested clearer definitions for accounts, customers and digital asset service providers, and asked regulators to avoid overlapping compliance duties.

Digital Identity Rules Remain Under Review

The association wants issuers to be able to use digital identity tools and interoperable technology. The proposal already permits documentary and non-documentary verification methods, and regulators have asked whether final rules should recognize digital identities and verifiable credentials.

Under the proposal, issuers could rely on certain checks performed by federally regulated financial institutions. That reliance requires a contract, an annual certification and reasonable procedures, but the issuer remains responsible for compliance.

The comment period closed Aug. 21, and regulators will review submissions before finalizing the rule. Issuers would receive 12 months after publication to comply. The final rule's definitions of accounts, customers and digital asset service providers will determine how much of the secondary market the identification requirements reach.

The broader GENIUS Act framework is expected to restrict unlicensed payment stablecoin issuance in the U.S. beginning Jan. 18, 2027. Signed into law in July 2025, the GENIUS Act created the first federal regulatory framework for payment stablecoins and classifies permitted issuers as financial institutions under the Bank Secrecy Act, the anti-money-laundering statute underlying these customer identification requirements.

Primary source: Blockchain Association comment letter via Crypto Front News