Paradigm Files Comment Letter on NCUA’s GENIUS Rulemaking

Today, Paradigm filed a comment letter with the National Credit Union Administration in response to the first half of the agency’s proposal to implement the GENIUS Act. The NCUA deserves real credit for crafting a thoughtful, detailed proposal for licensing and supervising payment stablecoin issuers. Our letter broadly supports this good effort.

But, this good effort can be made greater. We have two improvements that we believe will make this rule and the entire GENIUS regime better for issuers, consumers, and the stablecoin ecosystem.

First, our letter raises concerns about proposed Section 706.112, which would restrict federally insured credit unions (FICUs) from investing in payment stablecoin issuers (PPSIs) that are licensed by a different regulator—say, the OCC or the Fed—rather than the NCUA. We don’t think either of the rationales offered by NCUA support this restriction:

• First, the NCUA suggests that this type of outbound investment might cause confusion about which regulator has primary oversight responsibility. But multi-regulator coordination isn’t novel in banking: State banking regulators, the FDIC, and Federal Reserve already operate under a well-tested protocol for coordinating responsibility across jurisdictions, and a similar approach can work here.
• Second, the NCUA suggests that its existing interpretations of federal law might not permit investment in entities that don’t “primarily serve” credit unions. But the GENIUS Act clearly allows FICUs to invest in PPSIs that provide services to them, and the Board effectively acknowledges that its historical interpretation may be due for revision in any event. In other words, we’re just asking the Board not to hold stablecoins to an interpretation it may no longer believe in and which GENIUS doesn’t require.

Even more to the point, the proposed rule takes the right approach to inbound investment, permitting non-FICU investors to put unlimited money into NCUA-licensed PPSIs. The logic behind that decision applies with equal force in the other direction, and the Board should apply its own reasoning symmetrically.

Second, we believe the proposal needs to have additional processes in place when there are unexpected and involuntary shifts in ownership; call it another safety net for when things go wrong. Specifically, the Proposed Rule establishes a 60-day notice process for ordinary change-of-control transactions involving PPSIs, but doesn’t address what happens when ownership shifts suddenly and involuntarily through bankruptcy, insolvency, or other corporate distress. In those situations, the 60-day pre-notice window isn’t workable and the absence of any framework creates uncertainty for everyone: the PPSI, its counterparties, the NCUA, and the stablecoin holders.

Accordingly, we recommend the Board adopt a 90-day post-event transition window for these involuntary scenarios, modeled directly on the FDIC’s existing approach to similar situations, during which the affected party would be required to file notice or a rebuttal to the presumption of control. This approach provides clarity without creating new burdens for ordinary transactions.

The NCUA comment period is in many ways the starting gun to GENIUS Act implementation, and will be followed by substantive proposals from other agencies (as well as a second round of rulemaking from the NCUA itself). Our goal throughout will remain the same: a stablecoin regulatory framework that is genuinely pro-competition, protects consumers, spurs investment and market dynamism, and gives the industry clear rules to build upon.

We’re grateful to the NCUA for moving quickly and thoughtfully, and we look forward to continued engagement as this framework takes shape.

You can read Paradigm’s full comment letter here.