Insight
The special case of Puerto Rico stablecoin issuers
Under the GENIUS Act, is a Puerto Rico-based stablecoin issuer a U.S. issuer or a foreign issuer? It seems like it could be either -- or even both.
Reading the GENIUS Act as a banking lawyer, one thing leaps out: this is a banking law. The Act borrows heavily from existing banking statutes. In the process, it imports many features that make bank reg fun for me, but bewildering to outsiders.
Among the many examples is the treatment of Puerto Rico-based issuers. In this respect, the GENIUS Act mirrors a peculiarity of U.S. law as it applies to banks:
➡️ Under the Federal Deposit Insurance Act (FDIA), “State” includes the several States, the District of Columbia, and each U.S. territory. A Puerto Rico‑chartered bank is therefore a “State bank” for FDIC purposes.
➡️ But under the International Banking Act of 1978 (IBA), a “foreign bank” includes a company organized under the laws of a foreign country or a U.S. territory such as Puerto Rico. That means a Puerto Rico‑chartered bank is also a “foreign bank” for IBA purposes.
The dual treatment has real consequences: A Puerto Rico-based bank can operate in the continental U.S. through both FDIC-insured domestic branches and an uninsured foreign bank branch. The foreign bank branch can be an OCC-regulated federal branch that provides most of the benefits of national bank preemption otherwise unavailable to this "state" chartered bank.
The GENIUS Act imports this quirk of US banking law into the world of stablecoin issuers. It includes territories in both the definition of “state” and “foreign stablecoin issuer.”
How much this matters depends on what Puerto Rico and the U.S. Treasury do next. Given its history of crypto-friendliness, it seems plausible that Puerto Rico could establish its own stablecoin framework. If it does, will the Puerto Rico regulator seek federal certification of its framework under the state certification process? Or recognition as a comparable foreign regulatory regime? Is there any reason it can’t do both?