State Banking Regulators Urge Revisions to Digital Asset Bill

The Conference of State Bank Supervisors ("CSBS") recommended revisions to the Senate Banking Committee's draft Responsible Financial Innovation Act, a bill to impose disclosure requirements for digital asset transaction. (See previous coverage.)

In a comment letter on the Banking Committee's request for information, the CSBS recommended changes to the bill concerning custody of digital assets, limitations on the scope of digital asset banking powers, treatment of foreign issued digital assets, incentives on rewards for stablecoins, and the use of federal preemption.

The CSBS raised the following:

1. On Custody. The CSBS argued that digital asset custody should be limited to "qualified custodians" under SEC rules, including state and national banks and trust companies. Digital asset custodians should be subject to strict requirements—including asset safeguarding, segregation, cybersecurity, and capital standards—and that oversight should reflect the elevated risks associated with uninsured and potentially interconnected activities.
2. On Banking. The CSBS urged lawmakers to (i) limit digital asset banking powers in Title III of the draft to insured depository institutions; (ii) remove provisions allowing commercial banks to engage in unrestricted digital asset investment banking; (iii) oppose allowing uninsured state-chartered depository institutions to operate nationwide without host state licensing; (iv) strike Section 16(d) of the GENIUS Act, which it said would unjustifiably preempt longstanding state authority; and (v) direct federal regulators to develop clear, practical standards for third-party partnerships—crafted in collaboration with state supervisors and industry stakeholders.
3. On Foreign Assets. The CSBS recommended holding foreign-issued digital assets traded by US consumers to the same regulatory, registration, and oversight standards as domestic assets to ensure consumer protection and market integrity.
4. On Interest Payments for stablecoins. The CSBS urged lawmakers to preserve the GENIUS Act’s ban on interest or rewards for stablecoins, warning that any incentives risk deposit flight, financial instability, and blurred lines between banking and commerce. 
5. On Preemption. The CSBS cautioned that federal preemption of state laws should remain rare and narrowly tailored, warning that broad preemption would undermine longstanding state regulatory frameworks.