Federal Reserve Governor Michael Barr has urged U.S. regulators to enforce stricter anti-money-laundering (AML) measures for stablecoins, citing risks tied to unregulated secondary market access.
Speaking in Washington, D.C., Barr emphasized that the flexibility of stablecoins-usable with just a smartphone and internet-while beneficial, poses significant challenges in combating illicit finance. His comments follow the implementation of the GENIUS Act, which aims to bring digital assets under clearer regulatory frameworks.
"Bad actors can purchase stablecoins in secondary markets that may not have customer identification requirements," Barr warned. He advocated for both regulatory and technological tools, such as smart contracts, to mitigate financial crime risks.
A recent U.S. Treasury report backs Barr’s stance, highlighting how financial institutions are already employing AI to analyze blockchain data in the absence of formal standards. The report also recommended a "hold law" giving legal cover to institutions freezing suspicious digital assets during investigations.
Global watchdogs echo these concerns. The Financial Action Task Force (FATF) has flagged peer-to-peer stablecoin transfers as major vulnerabilities for money laundering and sanctions evasion, urging issuers to develop mechanisms to block or reverse transactions.
Meanwhile, debate continues around a U.S. central bank digital currency (CBDC). While the Fed remains undecided, the Senate recently passed legislation banning a CBDC until at least 2031. Some states, like Florida, are moving independently to regulate stablecoins under existing financial crime statutes.