Texas Department Of Banking Publishes Supervisory Memorandum About Crypto

By Rishma Banerjee

The Texas Department of Banking has recently published a supervisory memorandum, which provides and updates regulatory guidance about the treatment of virtual currencies, under the Texas Money Services Act.

The document emphasizes that most transactions which involve cryptocurrencies will not be considered to be transfers having any monetary value, but they clarified that exchange of virtual currencies for fiat will be identified as “money transmissions”. The guidelines also classify cryptocurrency with regards to their centralization, where decentralized virtual currencies have been described as something which is not “created or issued by a particular person or entity,” in addition to having “no administrator, and no central repository.”

The memorandum, however, notes that bitcoin and cryptocurrencies have “sparked new discourse on the nature of money” and the “transferability of value.”

Stablecoins have been described as a “subclass” of centralized virtual currencies, and it has been mentioned in the memorandum that “an important aspect” of stablecoins that they are backed by sovereign currencies, which is a “redemption right that allows the stablecoin holder to redeem the coin for fiat currency from the issuer.”

The memorandum adds,

“Some experts consider cryptocurrency to be a new asset class that is neither currency nor commodity, but possessing characteristics of both, as well as characteristics of neither.”

The Texas Department of Banking also specifies that various factors are at play while distinguishing the various centralized virtual currencies, and the process can be a complicated and nuanced one, so much so that the regulator “must individually analyze centralized virtual currency schemes.” The document states that licensing determinations should be dependant on the question whether cryptocurrency has any “money or monetary value” under the Money Services Act.

The memorandum which lays down a few regulating policies also says that cryptocurrency transactions involving sovereign currency “may” comprise money transmissions “depending on how the sovereign currency is handled.” The document adds that “A licensing analysis will be based on the handling of the sovereign currency.”