In recent weeks, Texas and Louisiana became the latest states to enact legislation establishing licensure requirements for digital asset service providers.

In June, Texas enacted HB 1666, which adds practice restrictions to digital asset service providers, defined as electronic platforms that facilitate the trading of digital assets on behalf of a digital asset customer and maintain custody of the customer’s digital assets. Specifically, HB 1666 will require digital asset service providers to verify in an annual report to the Texas Department of Banking that they are, among other things:

• Maintaining reserves sufficient to fulfill their obligations to consumers;

• Ensuring customers are able to withdraw their funds at any time;

• Allowing customers to view any outstanding liabilities owed to the digital asset customer and any assets held in custody by the digital asset service provider; and

• Not commingling customer funds with funds belonging to the digital asset service provider.

The Texas Department of Banking will have the authority to suspend and revoke a license if these requirements are not met and may impose penalties for violations. HB 1666 will apply to digital asset service providers conducting business in Texas that hold a money transmission license and either service more than 500 digital asset customer in the state or have at least $10 million in customer funds.

Similarly, on June 13, Louisiana enacted SB 185, which became immediately effective and amends existing Louisiana laws relating to the regulation and licensure of virtual currency businesses (see our previous blog post here). Before obtaining a license to operate in the state, virtual currency businesses must now provide a copy of their business plan to regulators detailing, among other things, their anticipated volume of virtual currency business activities in the state and their expected number of virtual currency locations in the state. Applicants must also provide audited financial statements, certificates evidencing insurance coverage, and their financial services-related regulatory history, including information concerning money transmission, securities, banking, insurance, and mortgage-related industries.

Putting it into Practice: Both federal and state regulatory agencies and legislatures remain focused on their primary objectives of maintaining the safety and soundness of the financial system and ensuring the adequacy of investor and consumer protections in any decision-making related to digital asset activity. Accordingly, digital asset service providers in Texas and Louisiana should review the newly enacted legislation and ensure they are maintaining compliance with all licensing requirements.