Texas Department Of Banking Reveals Regulatory Treatment Of Virtual Currencies Under Texas Money Services Act

By
Caleb Chen @bitxbitxbitcoin
April 3, 2014

The full text of the Texas Department of Banking (DOB) memorandum, including introduction and analysis can be found here.  The letter is from Charles G. Cooper, the Banking Commissioner and the formal subject of the memorandum is: Regulatory Treatment of Virtual Currencies Under the Texas Money Services Act.  As is becoming increasingly clear in the United States, regulators are realizing that existing laws against money laundering and such crimes are more than all-encompassing enough to include Bitcoin.  This memorandum clarifies which types of cryptocurrency transactions count as money transmission, and thus require a license.

In Texas, the definition of a money transmission business as it relates to cryptocurrencies is now crystal clear.  FinCEN, please take note.

In fact, the Texas DOB has taken the time to lay down a very pro-cryptocurrency regulatory atmosphere in Texas.  It is not foolish to expect other states to follow suit.  California’s State Legislature is currently faced with legislature that would clarify the status of some centralized and decentralized virtual currencies within the state; however, action from their DOB would be preferable in the eyes of many.

 

I have included the full text of the Statement of Policy, with added emphasis:

Statement of Policy
Because cryptocurrency is not money under the Money Services Act, receiving it in exchange for
a promise to make it available at a later time or different location is not money transmission.
Consequently, absent the involvement of sovereign currency in a transaction, no money
transmission can occur. However, when a cryptocurrency transaction does include sovereign
currency, it may be money transmission depending on how the sovereign currency is handled. A
licensing analysis will be based on the handling of the sovereign currency.

To provide further guidance, the regulatory treatment of some common types of transactions
involving cryptocurrency can be determined as follows.

  • Exchange of cryptocurrency for sovereign currency between two parties is not money
    transmission. This is essentially a sale of goods between two parties. The seller gives
    units of cryptocurrency to the buyer, who pays the seller directly with sovereign
    currency. The seller does not receive the sovereign currency in exchange for a promise to
    make it available at a later time or different location.
  • Exchange of one cryptocurrency for another cryptocurrency is not money transmission.
    Regardless of how many parties are involved, there is no receipt of money, and therefore
    no money transmission occurs.
  • Transfer of cryptocurrency by itself is not money transmission. Because cryptocurrency
    is not money or monetary value, the receipt of it in exchange for a promise to make it
    available at a later time or different location is not money transmission. This includes
    intermediaries who receive cryptocurrency for transfer to a third party, and entities who,
    akin to depositories, hold cryptocurrency on behalf of customers.
  • Exchange of cryptocurrency for sovereign currency through a third party exchanger is
    generally money transmission. For example, most Bitcoin exchange sites, such as the
    failed Mt. Gox, facilitate exchanges by acting as an escrow-like intermediary. In a typical
    transaction, the buyer of cryptocurrency sends sovereign currency to the exchanger who
    holds the funds until it determines that the terms of the sale have been satisfied before
    remitting the funds to the seller. Irrespective of its handling of the cryptocurrency, the
    exchanger conducts money transmission by receiving the buyer’s sovereign currency in
    exchange for a promise to make it available to the seller.
  • Exchange of cryptocurrency for sovereign currency through an automated machine is
    usually but not always money transmission. For example, several companies have begun
    selling automated machines commonly called “Bitcoin ATMs” that facilitate
    contemporaneous exchanges of bitcoins for sovereign currency. Most such machines
    currently available, when operating in their default mode act as an intermediary between
    a buyer and seller, typically connecting through one of the established exchange sites.
    When a customer buys or sells bitcoins through a machine configured this way, the
    operator of the machine receives the buyer’s sovereign currency in exchange for a
    promise to make it available to the seller. However it is worth noting that at least some
    Bitcoin ATMs can be configured to conduct transactions only between the customer and
    the machine’s operator, with no third parties involved. 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.

 

Texans Interested In Bitcoin?

If you are a Houstonian interested in learning more about Bitcoin.  The Texas Coinitiative founded by members of the Houston Bitcoin Meetup Group are hosting an event at the University of Houston 4/3/14 at 7PM.  This event will feature a fully functional bi-directional Robocoin Bitcoin ATM, courtesy of Texas’s own CoinVault ATM.

Here’s the event blurb!

Texas Coinitiative and UH ISACA are hosting an information session for students, professors, and professionals interested in Bitcoin.

Wondering what Bitcoin is? What new developments have happened in the Bitcoin world? Want to hear about new start-ups and regulations in the area? Have a friend you want to introduce to the cryptocurrency space? Come to our Houston Bitcoin Information Session to learn about the thriving new technology.

If you are interested in attending, please RSVP at the eventbrite link.

Last modified (UTC): April 20, 2014 18:34

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