Texas Moves Closer to Enacting Proof of Reserve Legislation

• The legislation is now awaiting the governor’s signature to be enacted.
• Exchanges are also required to maintain sufficient reserves to accommodate all potential withdrawals.

Under the proposed legislation, exchanges in Texas may soon be mandated to hold reserves “in an amount sufficient to fulfill all obligations to customers.” The state Senate endorsed the measure on May 15, and it now awaits the signature of Governor Greg Abbott to become law.

Earlier this year, the Texas House of Representatives passed House Bill 1666, which amended the Texas Finance Code. There have been no significant alterations to the bill’s language following three readings in the Senate.

Mandatory Sufficient Reserves

The amendments restrict digital asset providers with over 500 customers in the state and more than $10 million in customer funds from utilizing customer funds for purposes other than the specific transaction requested by the customer, as well as from mixing customer funds with any other operational capital.

Crypto exchanges must also maintain adequate reserves to cover all potential withdrawals at any given time. Companies operating in Texas are obligated to report their outstanding customer debt to the Texas Department of Banking within 90 days following the conclusion of each fiscal year.

If a service provider fails to comply with these requirements, the regulatory agency may revoke its permit. In the realm of cryptocurrency, Texas politicians are among the most proactive in the nation. In April, the Senate approved a measure aimed at limiting cryptocurrency mining incentives alongside the proof-of-reserves legislation.

In a related development, Texas lawmakers approved an amendment to the state’s Bill of Rights that would incorporate a provision safeguarding individuals’ rights to own, retain, and utilize virtual currency.