Key Points

• NYDFS has proposed 23 NYCRR Part 202, a comprehensive regulation for authorized payment stablecoin issuers that codifies existing guidance and integrates federal requirements under the GENIUS Act.
• The regulation takes effect upon the GENIUS Act's effective date, tying state compliance directly to the federal timeline and establishing New York as the first state to publish a formal alignment proposal.
• Existing issuers receive a 12-month transition window but must ultimately comply with all new requirements, including enhanced reserve management, capital backstop obligations, and BSA/AML certification.
• Practical compliance implications are significant — particularly around reserve custody, redemption timelines, capital adequacy, and cybersecurity standards — and regulated entities should begin gap analyses now.

The Regulatory Context

For anyone tracking the convergence of state and federal stablecoin policy, the New York Department of Financial Services' proposed Part 202 is a milestone worth close attention. It is not merely a restatement of the agency's 2022 industry guidance on dollar-backed stablecoins, but a formal regulatory architecture designed to satisfy the "substantially similar" standard that the GENIUS Act imposes on state regimes.

The GENIUS Act, signed into law in July 2025, permits stablecoin issuers with less than $10 billion in outstanding issuance to operate under state oversight, provided that the state's regulatory framework meets or exceeds federal standards as certified by the Stablecoin Certification Review Committee. The U.S. Treasury proposed broad-based principles for that certification in April 2026, using the OCC's proposed regulations as the baseline for comparison.

New York's proposed regulation explicitly references both the GENIUS Act's statutory provisions and the OCC's proposed rules at 12 C.F.R. Part 15, weaving them into a state-level framework that preserves certain elements of NYDFS discretion while ensuring federal consistency. Acting Superintendent Kaitlin Asrow has stated that the proposal "will ensure that the department's regulatory regime is in full alignment with new federal requirements while maintaining our standard for protecting consumers and fostering responsible innovation."

Who May Issue — and How

The regulation limits eligibility to limited purpose trust companies, applicants for such charters, and other entity types the superintendent may approve consistent with the GENIUS Act. Notably, public companies that are not predominantly engaged in financial activities are excluded from eligibility, except as provided under section 4(a)(12) of the GENIUS Act.

Applicants must demonstrate financial capacity, leadership integrity, and readiness to comply with all requirements of the regulation from day one. Each distinguishable brand of stablecoin requires separate superintendent approval.

Existing issuers — those already approved by NYDFS before the regulation's effective date — need not reapply, but must achieve full compliance within 12 months. This transition period is meaningful: it acknowledges that current market participants built their programs under the 2022 guidance framework, which the regulation formally withdraws.

Reserve Requirements and Backing

The reserve framework is among the regulation's most granular provisions. Issuers must maintain reserves at a level consistent with section 4(a)(1)(A) of the GENIUS Act and 12 C.F.R. § 15.11(a) — effectively one-for-one backing with high-quality liquid assets.

Several requirements go beyond baseline federal mandates. Reserves must be held in custody at eligible financial institutions other than the issuer itself, and superintendent approval is required for any custodian that is not an insured depository institution. For issuers with multiple brands, reserves must be separately identifiable and maintained in segregated pools — commingling requires prior written approval.

Issuers with $25 billion or more in outstanding issuance must maintain at least 0.5% of reserves (capped at $500 million) in insured deposits on each business day. Monthly composition reports, CEO/CFO certifications, and registered public accounting firm attestations are all mandatory.

The consequences of falling below reserve minimums are swift: immediate prohibition on new issuance, and if the shortfall persists for 15 consecutive business days, mandatory liquidation and fee-free redemption.

Redemption and Capital

The regulation establishes a two-business-day ceiling for redemption following a holder's request. Discretionary limitations on timely redemption may only be imposed by the OCC, Federal Reserve, or the superintendent — not the issuer. Issuers must publicly disclose detailed redemption policies and submit them for prior superintendent approval.

Capital requirements are tailored to each issuer's risk profile and business model but must be at least as stringent as 12 C.F.R. § 15.41. The regulation also mandates an "operational backstop" — a liquid asset pool designed to sustain the issuer through business disruptions. Failure to meet capital or backstop requirements at the end of two consecutive quarters triggers mandatory liquidation and a permanent prohibition on new issuance.

BSA/AML, Cybersecurity, and Operational Standards

Each issuer must comply with the Bank Secrecy Act, applicable FinCEN regulations, and OFAC sanctions requirements. Within 180 days of approval — or, for existing issuers, 180 days after the regulation's effective date — each must submit a BSA/AML certification to the superintendent. Failure to submit timely certification may result in revocation of authorization.

On cybersecurity, the regulation mandates compliance with NYDFS's existing Part 500 requirements applicable to Class A companies — one of the more stringent cybersecurity frameworks in the nation — plus any additional requirements needed to meet or exceed 12 C.F.R. § 15.13(b). Customer data breach notification must comply with New York General Business Law § 899-aa.

The operational standards provisions address internal controls, internal audit systems, interest rate exposure management, asset growth governance, earnings sufficiency, insider and affiliate transaction oversight, and service provider due diligence. These are not aspirational guidelines — they are enforceable regulatory obligations backed by the superintendent's examination and enforcement authority.

Points of Divergence and State Discretion

While the regulation largely mirrors federal requirements, NYDFS has preserved certain areas of independent authority. The superintendent retains discretion over capital calibration, examination frequency, custodian approval, and extension of redemption timelines in safety-and-soundness scenarios.

The Treasury's April 2026 proposal acknowledged that states may maintain "state-calibrated requirements" around reserves, redemption deadlines, and capital, provided they yield outcomes at least as protective as the federal floor. NYDFS has expressed "significant concerns" that the Treasury's approach is "overly prescriptive," urging more meaningful state discretion. Part 202 appears to be New York's answer: demonstrate alignment through direct statutory cross-references while preserving supervisory flexibility at the margins.

Looking Ahead

A preproposal comment period is now open, to be followed by a 60-day formal comment period upon publication in the state register. The regulation becomes effective upon the GENIUS Act's own effective date — a deliberate linkage that ensures New York is positioned for certification from the moment the federal framework goes live.

For regulated entities, the compliance implications are immediate and substantial. Firms currently operating under the 2022 guidance should conduct a gap analysis against Part 202's requirements — particularly around reserve custody arrangements, capital adequacy, redemption policy formalization, and BSA/AML certification timelines. New market entrants should evaluate whether the limited purpose trust company charter pathway aligns with their business models.

The direction of travel here is unmistakable. New York is not simply preserving its existing stablecoin regime — it is reinforcing and expanding it to meet a federal standard while maintaining the supervisory authority that has defined its approach to digital asset regulation from the beginning. Institutions that engage with this framework early, and structure their operations accordingly, will be best positioned when the certification process begins in earnest.

For more information on this topic, contact Stephen A. Aschettino at saschettino@foxrothschild.com.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the authors and not necessarily this law firm or its clients.