onerror=”this.setAttribute(‘data-error’, 1)” alt=”BlackRock urges OCC to drop tokenized reserve cap idea, expand eligible assets in GENIUS Act comment letter” loading=”eager” data-nuxt-img sizes=”33vw” srcset=”https://www.tbstat.com/cdn-cgi/image/f=avif,q=50/wp/uploads/2022/10/20221005_Blackrock2-1200×675.jpg 0w” image-component=”optimized-image” class=”absolute inset-0 h-full w-full object-cover” priority fetchpriority=”high” src=”https://www.tbstat.com/cdn-cgi/image/f=avif,q=50/wp/uploads/2022/10/20221005_Blackrock2-1200×675.jpg”>
BlackRock has formally submitted a comment letter to the Office of the Comptroller of the Currency (OCC), advocating for significant adjustments to the proposed rules designed to implement the GENIUS Act. The world’s largest asset manager’s submission, filed on the final day of the OCC’s comment period, addresses crucial aspects of reserve composition, capital requirements, custody arrangements, and yield restrictions for entities authorized to issue stablecoins under the new federal framework.
Key Takeaways
- BlackRock is urging the OCC to remove a proposed 20% cap on tokenized reserve assets within the GENIUS Act’s implementation rules.
- The asset manager seeks clarification that Treasury Exchange-Traded Funds (ETFs) are considered eligible reserves.
- BlackRock has requested the inclusion of two-year U.S. Treasury floating-rate notes in the list of permissible reserve assets.
- The firm supports a principles-based standard for reserve diversification, coupled with an optional quantitative safe harbor.
- BlackRock’s submission highlights the potential impact of regulatory constraints on its tokenized Treasury products, such as the BUIDL fund.
The GENIUS Act, enacted last July, establishes a federal charter for Payment Stablecoin Issuers (PPSIs). BlackRock’s response focuses specifically on the regulatory parameters governing these entities. A central point of contention is the OCC’s proposed 20% cap on the proportion of reserves that can be held in tokenized form. BlackRock contends that such a limitation is “extraneous” and does not align with the OCC’s stated objectives, arguing that the risk profile of an asset is determined by its credit quality, duration, and liquidity, rather than its format on a distributed ledger.
This stance is particularly relevant given BlackRock’s significant engagement in the tokenization space. Its BUIDL fund, a prominent tokenized Treasury product with approximately $2.6 billion in assets under management, provides the backing for over 90% of the reserves for Ethena’s USDtb and Jupiter’s JupUSD. A stringent cap on tokenized reserves would directly impede the growth and utility of such products within the federal regulatory structure.
Furthermore, BlackRock has requested explicit confirmation from the OCC that Treasury ETFs, which invest exclusively in eligible reserve assets, should be recognized as qualifying reserves under Section 4 of the GENIUS Act. The firm has cautioned that any ambiguity in this regard could discourage PPSIs from incorporating ETFs into their reserve management strategies. They propose that qualifying ETFs should receive the same quantitative safe harbor treatment as government money market funds.
Regarding reserve diversification, BlackRock favors the OCC’s “Option A,” which combines a principles-based regulatory standard with an optional quantitative safe harbor. This is in contrast to “Option B,” which would mandate stricter quantitative requirements, including a 40% limit on concentration within a single institution and a 20-day weighted average maturity ceiling, for all issuers on a daily basis.
BlackRock has also put forth several technical recommendations for Option A’s safe harbor. These include excluding “self-custodied” government money market fund shares from the 40% concentration limit, clarifying that PPSIs are not required to conduct granular reviews of fund holdings to apply concentration limits to custodians or service providers, and allowing same-day-settlement government money market funds to contribute towards the 30% weekly liquidity requirement.
Beyond the proposed safe harbor, BlackRock advocates for the expansion of the eligible reserve asset list to include U.S. Treasury floating-rate notes with up to two years of remaining maturity. The firm cites the relatively low price volatility and regular coupon resets of these instruments as reasons for their suitability. Additionally, BlackRock has called for the establishment of a formal and transparent process for the future consideration of additional eligible assets.
Regulatory Precedent and the GENIUS Act
BlackRock’s detailed submission underscores the significant influence that major financial institutions are exerting on the formation of new regulatory frameworks. The OCC’s proposed rules for implementing the GENIUS Act represent a critical juncture in the evolution of digital asset regulation in the United States. The OCC’s decisions regarding BlackRock’s recommendations, particularly concerning the treatment of tokenized assets and ETFs, could set a precedent for how other regulatory bodies approach similar issues globally, especially as frameworks like Europe’s Markets in Infrastructure Regulation (MiCA) continue to mature.
The finalization of these rules is crucial for providing clarity and certainty to the rapidly growing stablecoin market. The OCC’s 376-page proposal is part of a broader effort across U.S. financial regulators, including the FDIC, Treasury, FinCEN, and OFAC, to establish comprehensive oversight for digital assets. The January 2027 compliance deadline for the GENIUS Act signifies a concerted push towards integrating digital assets into the existing financial regulatory landscape, with potential implications for market structure, consumer protection, and financial stability.
Information compiled from materials : www.theblock.co