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Texas Department of Banking Releases Supervisory Memo on Virtual Currencies

Avatar newsbtc 6 years ago

State of Texas

The Texas Department of Banking on Thursday released a supervisory memorandum on the topic of virtual currencies, chief of which include bitcoin.

The five-page document serves to outline the Texas Department of Banking’s policies toward virtual currency and express the Department’s interpretation of the Texas Money Services Act with reference to virtual currency.

The memo makes note of the following (condensed for the sake of brevity):

  • “Exchange of cryptocurrency for sovereign currency between two parties is not money transmission.”
  • “Exchange of one cryptocurrency for another cryptocurrency is not money transmission.”
  • “Transfer of cryptocurrency by itself is not money transmission.”
  • “Exchange of cryptocurrency for sovereign currency through a third party exchanger is generally money transmission.”
  • “Exchange of cryptocurrency for sovereign currency through an automated machine is usually but not always money transmission.”

Of interest is that last bullet point. On that, the Department said:

If the machine never involves a third party, and only facilitates a sale or purchase of Bitcoins by the machine’s operator
directly with the customer, there is no money transmission because at no time is money received in exchange for a promise to make it available at a later time or different location.

Assuming a business is conducting money-transmitting activities, they will be required to comply with state regulations (in addition to federal regulations, such as registering with the Treasury’s FinCEN.

A cryptocurrency business that conducts money transmission must comply with all applicable licensing provisions of Finance Code Chapter 151 and of Title 7, Texas Administrative Code, Chapter 33. In addition, several considerations should be highlighted. First, because a money transmitter conducting virtual currency transactions conducts business through the Internet, the minimum net worth requirement under Finance Code §151.307 is $500,000. Be advised that the Commissioner may increase the required net worth up to a maximum of $1,000,000 based on the factors set out in §151.307(b). Second, a license holder may not include virtual currency assets in calculations for its permissible investments under Finance Code §151.309. Lastly, pursuant to Finance Code §151.203(a)(3) the Commissioner requires that license applicants who handle virtual currencies in the course of their money transmission activities must submit a current third party security audit of their relevant computer systems. Because the new technological paradigm created by cryptocurrencies has brought with it new risks for the consumer, it is incumbent on a license applicant to demonstrate that all virtual currency is secure while controlled by the applicant.

As virtual currency continues to gain traction, you can expect more of these statements (from other states) to be released. You can read the entire memorandum here.

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