Texas House of Representatives Passes Proof of Reserves’ Bill

Reports claim that on April 20, the Texas House of Representatives passed a law requiring cryptocurrency exchanges to have reserves “in an amount sufficient to fulfill all obligations to customers.” 

Decision Pending with Texas Governor 

The legislation would take effect on September 1st if it were to pass the Senate and be approved by the governor. 

The Texas Finance Code, specifically Section 160, is altered by the proposed legislation. 

Prohibition from Combing Consumer Money with Other Functioning Capital

The proposed changes would prohibit digital asset providers from combining consumer money with any additional kind of functioning capital and from using customer money for any additional use besides the initial transaction requested by the customer if they serve more than 500 customers in the state and have at least $10 million in customer funds.

The provider must be able to keep reserves that are sufficient to cover any potential money withdrawals at the moment. 

Crypto Firms in Texas will Have to Undergo Regular Auditing

Additionally, it has to “create a plan” that will enable auditors to examine the data provided to the client. An exchange must provide information to the State Banking Department regarding its remaining liabilities to clients by the 90th day after the last day of each fiscal year. The auditor’s verification should be included in the report as well. 

The Banking Department would have been given the ability to cancel the provider’s license if it did not adhere to the rules.

PoR Reports have Become Popular Following FTX Collapse

Proof-of-reserves (PoR) has been a hot topic following the 2022 crypto failures in general. After the recent FTX decline, exchanges have been rushing to demonstrate to their users that they have the financial capacity to support their assets. 

Concerns about financial contagion in crypto markets, as well as increased scrutiny by the U.S. Securities and Exchange Commission (SEC), prompted the statement that corporations with any type of exposure to crypto assets, including conducting business with crypto-related companies, must make such information public.