US banking lobby urges CIP for stablecoin cash-outs

The American Bankers Association filed comments on Aug. 21 asking federal agencies to require anyone who buys or redeems a payment stablecoin directly with an issuer to open an account and complete identity verification before receiving dollars.

The filing responded to a June joint proposal from federal agencies that would require permitted payment stablecoin issuers to operate customer identification programs for customers who open accounts. The proposal listed direct issuance or redemption as an activity that could establish an account but left unclear whether a one-off direct redemption by a person with no prior relationship would itself create an account. Regulators asked for public comment on that boundary.

A customer identification program, or CIP, is the process an issuer uses to collect and verify identifying information when someone opens an account. The June proposal also said that mere token ownership does not make someone an issuer customer and that interactions routed solely through a third-party smart contract would not automatically onboard every user.

The ABA recommended that a direct purchase or redemption from an issuer should trigger account opening and CIP obligations. Under the ABA approach, an individual seeking dollars directly from an issuer would need to provide identifying information and have it verified before the issuer returned funds. The ABA also urged regulators to apply comparable identification rules and examinations to exchanges and other secondary-market service providers.

The Blockchain Association filed its response on Aug. 24 and offered a different approach. The trade group agreed that primary-market customers who establish accounts with an issuer should undergo a CIP, but it asked regulators to allow issuers the option to process a one-off redemption for a non-account holder without treating that single transaction as account opening. The Blockchain Association also said that when a regulated intermediary such as an exchange presents stablecoins for redemption on behalf of users, the intermediary should be the issuer’s customer rather than each underlying token holder.

Market practices already reflect both approaches. Circle and Paxos limit eligible U.S. direct redemptions to verified account customers under their published terms. Circle routes eligible direct redemptions through its Circle Mint account product, which requires verification. Under the European Union’s MiCA rules, Circle allows a dedicated redemption form for eligible retail holders in the EEA but still requires identity checks, screening and an eligible bank account.

Separately, regulators proposed broader anti-money-laundering and sanctions controls in April that would cover transaction monitoring, reporting and screening duties. Those controls could apply to token transfers or wallet activity without automatically making every token holder an issuer account customer. The June proposal also sought comment on whether CIP obligations should extend into secondary-market activity.

Until regulators issue a final rule, the ABA and the Blockchain Association positions remain advocacy. The agencies will need to resolve whether asking an issuer for dollars always creates an account relationship or whether some holders can redeem without establishing that relationship.