Supervisory Memorandum 1037 — Regulatory Treatment of Virtual Currencies Under the Money Services Modernization Act (rev.)
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TEXAS DEPARTMENT OF BANKING
Dedicated to Excellence in Texas Banking
SUPERVISORY MEMORANDUM – 1037
January 28, 2025 (rev.)
TO: All Virtual Currency Companies Operating or Desiring to Operate in Texas
FROM: Charles G. Cooper, Banking Commissioner
SUBJECT: Regulatory Treatment of Virtual Currencies Under the Money Services
Modernization Act1
PURPOSE
This supervisory memorandum outlines the policy of the Texas Department of Banking
(Department) with regard to virtual currencies. This policy expresses the Department's application
of the Money Services Modernization Act (MSMA), which was enacted in 2023,2 to various
activities involving virtual currency. While the popularity of virtual currency has sparked new
discourse on the nature of money and transferability of value, this memorandum seeks only to
clarify the regulatory treatment of virtual currency under existing statutory definitions and
framework.
TYPES OF VIRTUAL CURRENCY
In broad terms, virtual currency is an electronic medium of exchange typically used to purchase
goods and services from certain merchants or to exchange for other currencies, either virtual or
sovereign.3
One particular subclass of virtual currency is “stablecoin,” which can be pegged to various assets;
the MSMA (and this memo) apply to stablecoin that “(A) is pegged to a sovereign currency; (B)
is fully backed by assets held in reserve; and (C) grants a holder of the stablecoin the right to
redeem the stablecoin for sovereign currency from the issuer.”4 This redemption right may be
explicitly granted to a stablecoin holder through a user agreement with the issuer or it may be an
inherent right granted to the coin holder by the issuer guaranteeing it will buy back coins to keep
1
This memorandum revises and supersedes the policy issued on April 1, 2019 and addresses current trends in the
Virtual Currency field along with recent legislation.
2
TEX. FIN. CODE ch. 152.
3
In this memorandum the term “sovereign currency” means “the coin and paper money issued by the United States
or another country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of
exchange in the country of issuance.” See TEX. FIN. CODE § 152.003(9) (providing this definition for “currency” under
the Money Services Modernization Act).
4
TEX. FIN. CODE § 152.003(19). This law comports with the prior version of this Supervisory Memorandum, released
April 1, 2019, which also held that cryptocurrencies backed by sovereign currency redemption rights qualified as
“money” or “monetary value” potentially subject to money transmission regulation.
1
Supervisory Memorandum 1037 Texas Department of Banking
the value stable. The fact that a stablecoin issuer does not in fact hold sufficient sovereign currency
in reserve to fully back a stablecoin that is pegged to a sovereign currency does not remove that
stablecoin from the regulatory ambit of the MSMA.
One important characteristic of non-stablecoin virtual currency is its lack of intrinsic value. A unit
of virtual currency does not represent a claim on a commodity and is not convertible by law.
Further, unlike fiat currencies, there may not be governmental or central bank authority
establishing the value of the virtual currency through law or regulation. Its value is only what a
buyer is willing to pay for it.
ANALYSIS
Currency Exchange
Exchanging virtual currency for sovereign currency is not currency exchange under the Texas
Finance Code. As noted above, Finance Code § 152.003(9) defines currency as “the coin and paper
money issued by the United States or any country that is designated as legal tender, circulates, and
is customarily used and accepted as a medium of exchange in the country of issuance.” Finance
Code § 152.003(10) defines “currency exchange” as “receiving (A) the currency of one
government and exchanging it for the currency of another government; or (B) a negotiable
instrument, as defined by Section 3.104, Business & Commerce Code, and exchanging it for the
currency of another government.” As virtual currency is neither coin or paper money issued by the
government of a country, nor a negotiable instrument under Section 3.104, Business & Commerce
Code, the exchange of virtual currency for sovereign currency is not licensed as currency
exchange.
Money Transmission
In many instances, the factors that distinguish various virtual currencies are complicated and
nuanced. To make money transmission licensing determinations, the Department must
individually analyze virtual currency businesses on a case-by-case basis. Accordingly, this
memorandum does not offer generalized guidance on the treatment of virtual currencies, other than
stablecoins, under the MSMA.
Money transmission licensing determinations regarding transactions with virtual currency,
including stablecoins, turn on the question of whether the transaction involves “money or monetary
value” under the MSMA. Under Finance Code §152.003(22), “money transmission” includes
“receiving money for money transmission services from a person located in this state.” 5 As
indicated above, Finance Code § 152.003(19) provides that “money” or “monetary value'”
includes stablecoin that “(A) is pegged to a sovereign currency; (B) is fully backed by assets held
in reserve; and (C) grants a holder of the stablecoin the right to redeem the stablecoin for sovereign
currency from the issuer.”
5
“Receiving money for money transmission services” means (a) the receipt of money or monetary value by any means,
and (b) a reciprocal promise to make money or monetary value available at a later time or different location.
2
Supervisory Memorandum 1037 Texas Department of Banking
As already stated, other, non-stablecoin virtual currency is not “currency” as defined in the
MSMA. A unit of non-stablecoin virtual currency is also not a claim.6 It does not entitle its holder
to anything and creates no duties or obligations in a person who gives, sells, or transfers it. There
is no entity that must honor the value of a non-stablecoin virtual currency or exchange any given
unit of a non-stablecoin virtual currency for sovereign currency. For comparison, under federal
law, U.S. coin and paper currency must be honored for payment of all debts, public charges, taxes,
and dues, and the U.S. Treasury Department must redeem it for “lawful money.”7 The holder of a
unit of a non-stablecoin virtual currency has no right or guaranteed ability to convert that virtual
currency to sovereign currency. The only way to convert a unit of non-stablecoin virtual currency
to sovereign currency is to find a willing buyer. Therefore, except for stablecoin as noted above,
other virtual currencies are not considered money or monetary value under the MSMA.
In addition to the above, a licensee who engages in activity involving virtual currency may be
considered a “digital asset service provider” and be subject to additional requirements under
Finance Code, Chapter 160. A "digital asset service provider" is “an electronic platform that
facilitates the trading of digital assets on behalf of a digital asset customer and maintains custody
of the customer's digital assets.”8 Any questions regarding the applicability of Chapter 160 or
compliance with Chapter 160 should be directed to the Department’s legal or non-depository
supervision staff.
STATEMENT OF POLICY
Because non-stablecoin virtual currency is not money or monetary value under the MSMA,
receiving it for transmission, alone, is not money transmission. However, when a virtual currency
transaction does include sovereign currency or stablecoin, it may be money transmission
depending on how the sovereign currency or stablecoin is handled.
A virtual currency business that conducts money transmission must comply with all applicable
licensing provisions of both Chapter 152 of the Finance Code and Title 7, Chapter 33 of the Texas
Administrative Code. Of particular note, a licensee may only include virtual currency assets in
calculations for its permissible investments under Finance Code §152.356 if it is stablecoin, and
only “to the extent of outstanding transmission obligations received by the licensee in the same
kind of stablecoin.”9
Additionally, pursuant to Finance Code § 152.104(a)(10), the Commissioner requires license
applicants who handle virtual currency in the course of their money transmission activities to
submit a current third-party security assessment of their relevant computer systems. Due to the
level of risk from theft, loss, and cyberattacks, it is incumbent on a license applicant to demonstrate
that all virtual currency is secure while controlled by the applicant. Since security of a company’s
virtual currency operation is dependent upon the integrated components of its operations, the scope
6
A claim is defined as “the assertion of a right” or “an interest or remedy recognized at law.” Claim, Black’s Law
Dictionary (12th ed. 2024).
7
31 U.S.C. § 5103; 12 U.S.C. § 411 (“The said notes shall be obligations of the United States and shall be receivable
by all national and member banks and Federal Reserve banks and for all taxes, customs, and other public dues. They
shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of
Washington, District of Columbia, or at any Federal Reserve bank.”).
8
TEX. FIN. CODE § 160.001(6).
9
TEX. FIN. CODE § 152.356(a)(6).
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Supervisory Memorandum 1037 Texas Department of Banking
of the required independent third-party assessment, audit, test or combination of a license applicant
must include:
• Network security;
• Website and web application security;
• Application server security;
• Virtual currency wallet infrastructure security and controls;
• Information security policy assessment; and
• Application development controls and policy assessment.
4