Texas Banking Commissioner Details Possible Stablecoin Regulation

Texas Banking Commissioner Charles Cooper published a supervisory memorandum last week that outlines how the Texas Department of Banking will treat cryptocurrencies. Focusing on how to assess fiat-backed stablecoins, it builds on a state memorandum from 2014 and expresses its interpretation of the Texas Money Services Act in relation to virtual currencies.

The new memorandum reiterates that cryptocurrencies are not treated as money under Texas law, since cryptocurrencies are not a coin or paper, and that an exchange of cryptocurrency into fiat does not count as a currency exchange under Texas’ finance code. Because of this, Texas does not require startups to obtain a license to “conduct any type of transaction exchanging virtual with sovereign currencies.”

Cooper’s memorandum notes that cryptocurrency’s lack of intrinsic value is an important characteristic when determining how it should be categorized under the Texas Money Services Act: “A unit of cryptocurrency does not represent a claim on a commodity and is not convertible by law.”

Stablecoins, by contrast, may fall under the Money Services Act definition of “money transmission.” The memorandum defines money transmission as “the receipt of money or monetary value by any means in exchange for a promise to make the money or monetary value available at a later time or different location.” This means that currency – or, in the case of a stablecoin, a claim that can be converted into currency – can both count as “money” or “monetary value,” whether converted through an electronic payments network, or other formal or informal payment system.

The final verdict on stablecoins is still out. Cooper concludes that because a sovereign-backed stablecoin can be considered money under the Money Services Act, receiving one in exchange for a promise to make it available later may constitute an act of money transmission. If so, then the issuer would have to apply for “licensing provisions” to ensure that “all virtual currency is secure while controlled by the applicant.”

The memorandum doesn’t detail how such a judgement will be made. As of now, Cooper says that a “licensing analysis” will be used to establish whether a stablecoin issuer owes fiat currency to its holder.

Nicholas Ruggieri studied English with an emphasis in creative writing at the University of Nevada, Reno. When he’s not quoting Vines at anyone who’s willing to listen, you’ll find him listening to too many podcasts, reading too many books, and crocheting too many sweaters for his dogs, RT and Peterman.

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