Relating to the regulation of virtual currency kiosks; providing an administrative penalty.

89(R) SB 1705 - House Committee Report version - Bill Text

By: Parker, et al.

S.B. No. 1705

(Plesa)

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of virtual currency kiosks; providing an

administrative penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle E, Title 3, Finance Code, is amended by

adding Chapter 161 to read as follows:

CHAPTER 161. VIRTUAL CURRENCY KIOSKS

Sec. 161.001. DEFINITIONS. In this chapter:

(1)

"Blockchain analytics" means the analysis of data

from blockchains or public distributed ledgers, including

associated transaction information.

(2)

"Blockchain analytics software" means a software

service that uses blockchain analytics data to provide

risk-specific information, including information relating to

virtual currency wallet addresses.

(3)

"Commissioner"

means the banking commissioner of

Texas or a person designated by the banking commissioner and acting

under the banking commissioner's direction and authority.

(4)

"Department" means the Texas Department of

Banking.

(5)

"Transaction hash" means a unique identifier made

up of a string of characters that act as a record of and provide

proof that the transaction was verified and added to the

blockchain.

(6)

"Virtual currency" has the meaning assigned by

Section 12.001, Business & Commerce Code.

(7)

"Virtual currency address" means an alphanumeric

identifier associated with a virtual currency wallet identifying

the location to which a virtual currency kiosk transaction can be

sent.

(8)

"Virtual currency business activity" means

exchanging, transferring, or storing virtual currency.

(9)

"Virtual currency kiosk" means an electronic

terminal operated by a virtual currency kiosk operator to enable

the operator to facilitate the exchange of virtual currency for

money, bank credit, or other virtual currency, including by:

(A)

connecting directly to a separate virtual

currency exchanger that performs the actual virtual currency

transmission; or

(B)

drawing on the virtual currency in the

possession of the electronic terminal's operator.

(10)

"Virtual currency kiosk operator" means a person

that engages in virtual currency business activity through a

virtual currency kiosk located in this state or a person that owns,

operates, or manages a virtual currency kiosk located in this state

through which virtual currency business activity is offered.

(11)

"Virtual currency kiosk transaction" means a

transaction conducted or performed, wholly or partly, by electronic

means on a virtual currency kiosk, including a transaction made at a

virtual currency kiosk to purchase virtual currency with fiat

currency or to sell virtual currency for fiat currency.

(12)

"Virtual currency wallet" means a software

application or other mechanism providing a means to hold, store, or

transfer virtual currency.

Sec.

161.002.

REGISTRATION REQUIRED. A virtual currency

kiosk operator may not locate, or allow a third party to locate, a

virtual currency kiosk in this state unless the virtual currency

kiosk operator:

(1) registers the kiosk with the department; and

(2)

obtains the prior approval of the department for

the activation of the kiosk.

Sec.

161.003.

REPORT REQUIRED. Not later than the 45th day

following the date of the end of each calendar quarter, a virtual

currency kiosk operator shall file with the department a report of

the location of each virtual currency kiosk of the operator in this

state. The report required under this section must include for each

virtual currency kiosk:

(1) company legal name;

(2) any fictitious or trade name;

(3) physical address;

(4)

start date of operation of the virtual currency

kiosk at a location;

(5)

end date of operation of the virtual currency

kiosk at a location, if applicable; and

(6)

each virtual currency address associated with the

virtual currency kiosk.

Sec.

161.004.

REQUESTS FOR CERTAIN INFORMATION.

(a)

Not

later than 72 hours after receiving a written request from a law

enforcement agency, a virtual currency kiosk operator shall provide

to the agency limited identifying information such as a virtual

currency wallet address or transaction hash.

(b)

A release of information under Subsection (a) does not

require a subpoena or court order.

A release of additional

identifying information requires a subpoena or court order.

Sec.

161.005.

DISCLOSURES ON MATERIAL RISK. (a)

A virtual

currency kiosk operator in this state shall disclose in a clear,

conspicuous, and easily readable manner all material risks

generally associated with virtual currency, including that:

(1)

virtual currency is not legal tender and is not

backed or insured by the government;

(2)

accounts and value balances of virtual currency

are not subject to Federal Deposit Insurance Corporation, National

Credit Union Administration, or Securities Investor Protection

Corporation protections;

(3)

some virtual currency kiosk transactions are

deemed to be made when recorded on a public ledger that may not be

the date or time when the person initiates the transaction;

(4)

virtual currency's value may be derived from the

continued willingness of market participants to exchange fiat

currency for virtual currency, which may result in the permanent

and total loss of a particular virtual currency's value if the

market for virtual currency disappears;

(5)

a person who accepts a virtual currency as payment

is not required to accept the currency as payment and may decline to

accept the currency in a future transaction;

(6)

the volatility and unpredictability of the price

of virtual currency relative to fiat currency may result in a

significant loss in value over a short period;

(7)

the nature of virtual currency means that any

technological difficulties experienced by a virtual currency kiosk

operator may prevent access to or use of the operator's customer's

virtual currency; and

(8)

any bond maintained by the virtual currency kiosk

operator for the benefit of customers may not cover all losses

incurred by customers.

(b)

In addition to the disclosures required under

Subsection (a), a virtual currency kiosk operator shall provide a

written disclosure that:

(1)

is written prominently and in bold type and must be

acknowledged by the customer;

(2)

is provided separately from the disclosures

required under Subsection (a); and

(3)

states: "WARNING: LOSSES DUE TO FRAUDULENT OR

ACCIDENTAL TRANSACTIONS ARE NOT RECOVERABLE AND TRANSACTIONS IN

VIRTUAL CURRENCY ARE IRREVERSIBLE. VIRTUAL CURRENCY TRANSACTIONS

MAY BE USED TO STEAL YOUR MONEY BY CRIMINALS IMPERSONATING THE

GOVERNMENT, ORGANIZATIONS, OR YOUR LOVED ONES. THEY CAN THREATEN

JAIL TIME, SAY YOUR IDENTITY HAS BEEN STOLEN, ALLEGE YOUR COMPUTER

HAS BEEN HACKED, INSIST YOU WITHDRAW MONEY FROM YOUR BANK ACCOUNT TO

PURCHASE VIRTUAL CURRENCY, OR A NUMBER OF OTHER SCAMS. IF YOU

BELIEVE YOU ARE BEING SCAMMED, CALL YOUR LOCAL LAW ENFORCEMENT.".

(c)

The disclosures required under Subsection (a) must be

displayed on the screen of the virtual currency kiosk with the

ability for a customer to acknowledge the receipt of the

disclosure.

Sec.

161.006.

TRANSACTION-RELATED DISCLOSURES.

(a)

A

virtual currency kiosk operator shall disclose all relevant terms

generally associated with virtual currency and with the products,

services, and activities of the virtual currency kiosk operator,

including:

(1)

the virtual currency kiosk operator's liability

for unauthorized virtual currency kiosk transactions;

(2)

the customer's liability for unauthorized virtual

currency kiosk transactions;

(3)

the customer's right to receive prior notice of a

change in the virtual currency kiosk operator's rules or policies;

and

(4)

under what circumstances the virtual currency

kiosk operator, without a court or government order, is authorized

to disclose a customer's account information to third parties.

(b)

Before a virtual currency kiosk transaction is entered

into for, on behalf of, or with a customer, a virtual currency kiosk

operator shall disclose the terms of the transaction in a clear,

conspicuous, and easily readable manner, including:

(1) the amount of the transaction denominated in:

(A) United States dollars; and

(B)

the applicable virtual currency involved in

the transaction;

(2)

any transaction fees, expenses, or charges,

including applicable exchange rates;

(3) the type and nature of the transaction;

(4)

a warning that once completed, the transaction may

not be reversed;

(5)

the daily virtual currency kiosk transaction limit

prescribed by Section 161.012; and

(6)

any other disclosures that are customarily

provided in connection with a virtual currency kiosk transaction.

Sec.

161.007.

ACKNOWLEDGMENT OF DISCLOSURES. Before

completing a transaction, a virtual currency kiosk operator shall

ensure that each customer who engages in a virtual currency kiosk

transaction using the operator's kiosk acknowledges receipt of all

disclosures required under this chapter by confirmation of consent.

Sec.

161.008.

RECEIPT REQUIRED. After a transaction is

completed, the virtual currency kiosk operator shall provide the

customer with a physical or digital receipt in the customer's

preferred language that contains:

(1)

the virtual currency kiosk operator's name and

contact information, including a telephone number to answer

questions and register complaints;

(2)

the type, value, date, and precise time of the

transaction, the transaction hash, and each applicable virtual

currency address;

(3) the name and contact information of the sender;

(4)

the name and contact information of the designated

recipient;

(5) the fees charged;

(6)

the exchange rate of the virtual currency to

United States dollars;

(7)

a statement of the virtual currency kiosk

operator's liability for nondelivery or delayed delivery;

(8)

a statement of the virtual currency kiosk

operator's refund policy; and

(9)

any additional information the department may

require.

Sec.

161.009.

PREVENTION OF FRAUDULENT ACTIVITY. A virtual

currency kiosk operator must use blockchain analytics software to

assist in the prevention of sending purchased virtual currency from

a virtual currency kiosk operator to a virtual currency wallet

known to be affiliated with fraudulent activity at the time of a

transaction. The department may request evidence from any virtual

currency kiosk operator of current use of blockchain analytics.

Sec.

161.010.

FRAUD POLICY. A virtual currency kiosk

operator shall take reasonable steps to detect and prevent fraud,

including establishing and maintaining a written antifraud policy.

The policy required by this section shall, at a minimum, include:

(1)

the identification and assessment of

fraud-related risk areas;

(2)

procedures and controls to protect against

identified risks;

(3)

allocation of responsibility for monitoring

risks; and

(4)

procedures for the periodic evaluation and

revision of the antifraud procedures, controls, and monitoring

mechanisms.

Sec.

161.011.

MEASURES TO ENSURE COMPLIANCE WITH LAWS. (a)

A virtual currency kiosk operator must designate and employ a

compliance officer who:

(1)

is qualified to coordinate and monitor compliance

with the requirements of this chapter and as otherwise provided by

federal and state laws, rules, and regulations;

(2)

is employed full time by the virtual currency

kiosk operator; and

(3)

does not own more than 20 percent of the virtual

currency kiosk operator.

(b)

Any compliance responsibilities required under federal

or state laws, rules, and regulations shall be completed by the

full-time employees of the virtual currency kiosk operator.

Sec.

161.012.

DAILY TRANSACTION LIMIT. A virtual currency

kiosk operator may not enter into a transaction or series of

transactions with a customer for a total amount having a value of

greater than $3,000 in a 24-hour period.

Sec.

161.013.

IDENTIFICATION REQUIRED. Before completing a

transaction, a virtual currency kiosk operator shall ensure that

each customer who engages in a virtual currency kiosk transaction

using the operator's kiosk scans the customer's driver's license or

personal identification card.

Sec.

161.014.

REGISTERED WALLET FOR RECIPIENTS REQUIRED.

(a) A virtual currency kiosk operator shall ensure that each

designated recipient of a virtual currency kiosk transaction using

the operator's kiosk has a virtual currency wallet registered with

the operator.

(b)

A virtual currency kiosk operator shall require a person

registering a virtual currency wallet to provide:

(1)

the person's driver's license or personal

identification card; and

(2) a photograph of the person's face.

Sec.

161.015.

TEMPORARY HOLD ON TRANSACTIONS BY CERTAIN

CUSTOMERS. A virtual currency kiosk operator shall place a 72-hour

hold on any transaction initiated by a first-time customer who

engages in a virtual currency kiosk transaction using the

operator's kiosk.

Sec.

161.016.

PERMITTED FEES. The aggregate fees and

charges, directly or indirectly, charged to a customer related to a

single transaction or series of related transactions involving

virtual currency effected through a virtual currency kiosk in this

state, including any difference between the price charged to a

customer to buy, sell, exchange, or convert virtual currency and

the prevailing market value of the virtual currency at the time of

the transaction may not exceed the greater of:

(1) $5; or

(2)

12 percent of the United States dollar equivalent

of virtual currency involved in the transaction or transactions.

Sec.

161.017.

CUSTOMER SERVICE. A virtual currency kiosk

operator that conducts business in this state must:

(1)

provide live customer service between the hours of

8 a.m. and 10 p.m. Monday through Friday; and

(2)

display on the virtual currency kiosk or screen of

the kiosk:

(A)

the customer service toll-free telephone

number;

(B)

the name, address, and telephone number of

the operator; and

(C)

the days on, time on, and method by which a

customer can contact the operator for assistance.

Sec.

161.018.

REVOCATION OF REGISTRATION. The department

shall revoke a registration of a virtual currency kiosk operator if

the virtual currency kiosk operator violates this chapter or a rule

adopted or order issued under this chapter.

Sec.

161.019.

CEASE AND DESIST ORDERS. (a)

If the

commissioner has reason to believe that a person has engaged or is

likely to engage in an activity in violation of this chapter, the

commissioner may order the person to cease and desist from the

violation.

The commissioner's order is subject to Section 161.022,

unless the order is issued as an emergency order.

The commissioner

may issue an emergency cease and desist order under Section 161.023

if the commissioner finds that the person's violation or likely

violation threatens immediate and irreparable harm to the public.

(b)

A cease and desist order under this section may require

the person to cease and desist from the action or violation or to

take affirmative action to correct any condition resulting from or

contributing to the action or violation, including the payment of

restitution to each resident of this state damaged by the

violation.

Sec.

161.020.

CONSENT ORDERS. (a)

The commissioner may

enter into a consent order at any time with a person to resolve a

matter arising under this chapter or a rule adopted or order issued

under this chapter.

(b)

A consent order must be signed by the person to whom the

order is issued or by the person's authorized representative and

must indicate agreement with the terms contained in the order.

However, a consent order may provide that the order does not

constitute an admission by a person that the person has violated

this chapter or a rule adopted or order issued under this chapter.

(c) A consent order is a final order and may not be appealed.

Sec.

161.021.

ADMINISTRATIVE PENALTY. (a)

After notice

and hearing, the commissioner may assess an administrative penalty

against a person who:

(1)

has violated this chapter or a rule adopted or

order issued under this chapter and has failed to correct the

violation not later than the 30th day after the date the department

sends written notice of the violation to the person;

(2) has engaged in a pattern of violations; or

(3)

has demonstrated wilful disregard for the

requirements of this chapter, the rules adopted under this chapter,

or an order issued under this chapter.

(b)

A violation corrected after a person receives written

notice from the department of the violation may be considered for

purposes of determining whether a person has engaged in a pattern of

violations under Subsection (a)(2) or demonstrated wilful

disregard under Subsection (a)(3).

(c)

The amount of the penalty may not exceed $5,000 for each

violation or, in the case of a continuing violation, $5,000 for each

day that the violation continues.

Each transaction in violation of

this chapter and each day that a violation continues is a separate

violation.

(d)

In determining the amount of the penalty, the

commissioner shall consider factors that include the seriousness of

the violation, the person's compliance history, and the person's

good faith in attempting to comply with this chapter, provided that

if the person is found to have demonstrated wilful disregard under

Subsection (a)(3), the trier of fact may recommend that the

commissioner impose the maximum administrative penalty permitted

under Subsection (c).

(e)

A hearing to assess an administrative penalty is

considered a contested case hearing and is subject to Section

161.024.

(f)

An order imposing an administrative penalty after

notice and hearing becomes effective and is final for purposes of

collection and appeal immediately on issuance.

(g)

The commissioner may collect an administrative penalty

assessed under this section in the same manner that a money judgment

is enforced in court.

Sec.

161.022.

NOTICE, HEARING, AND OTHER PROCEDURES FOR

NONEMERGENCY ORDERS.

(a)

This section applies to an order issued

by the commissioner under this chapter that is not an emergency

order.

(b)

An order to which this section applies becomes effective

only after notice and an opportunity for hearing.

The order must:

(1) state the grounds on which the order is based;

(2)

to the extent applicable, state the action or

violation from which the person subject to the order must cease and

desist or the affirmative action the person must take to correct a

condition resulting from the violation or that is otherwise

appropriate;

(3)

be delivered by personal delivery or sent by

certified mail, return receipt requested, to the person against

whom the order is directed at the person's last known address;

(4)

state the effective date of the order, which may

not be before the 21st day after the date the order is delivered or

mailed; and

(5)

include a notice that a person may file a written

request for a hearing on the order with the commissioner not later

than the 20th day after the date the order is delivered or mailed.

(c)

Unless the commissioner receives a written request for a

hearing from the person against whom the order is directed not later

than the 20th day after the date the order is delivered or mailed,

the order takes effect as stated in the order and is final against

and non-appealable by that person from that date.

(d)

A hearing on the order must be held not later than the

45th day after the date the commissioner receives the written

request for the hearing unless the administrative law judge extends

the period for good cause or the parties agree to a later hearing

date.

(e)

An order that has been affirmed or modified after a

hearing becomes effective and is final for purposes of enforcement

and appeal immediately on issuance.

The order may be appealed to

the district court of Travis County as provided by Section

161.024(b).

Sec.

161.023.

REQUIREMENTS FOR NOTICE AND HEARING

PROCEDURES FOR EMERGENCY ORDERS. (a)

This section applies to an

emergency order issued by the commissioner under this chapter.

(b)

The commissioner may issue an emergency order, without

prior notice and an opportunity for hearing, if the commissioner

finds that:

(1)

the action, violation, or condition that is the

basis for the order:

(A)

has caused or is likely to cause the

insolvency of the virtual currency kiosk operator;

(B)

has caused or is likely to cause the

substantial dissipation of the virtual currency kiosk operator's

assets or earnings;

(C)

has seriously weakened or is likely to

seriously weaken the condition of the virtual currency kiosk

operator; or

(D)

has seriously prejudiced or is likely to

seriously prejudice the interests of the virtual currency kiosk

operator, a customer of the virtual currency kiosk operator, or the

public; and

(2)

immediate action is necessary to protect the

interests of the virtual currency kiosk operator, a customer of the

virtual currency kiosk operator, or the public.

(c)

In connection with and as directed by an emergency

order, the commissioner may seize the records and assets of a

virtual currency kiosk operator or authorized delegate that relate

to the operator's virtual currency kiosk business.

(d) An emergency order must:

(1) state the grounds on which the order is based;

(2)

advise the person against whom the order is

directed that the order takes effect immediately, and, to the

extent applicable, require the person to immediately cease and

desist from the conduct or violation that is the subject of the

order or to take the affirmative action stated in the order as

necessary to correct a condition resulting from the conduct or

violation or as otherwise appropriate;

(3)

be delivered by personal delivery or sent by

certified mail, return receipt requested, to the person against

whom the order is directed at the person's last known address; and

(4)

include a notice that a person may request a

hearing on the order by filing a written request for hearing with

the commissioner not later than the 15th day after the date the

order is delivered or mailed.

(e)

An emergency order takes effect as soon as the person

against whom the order is directed has actual or constructive

knowledge of the issuance of the order.

(f)

A virtual currency kiosk operator or authorized

delegate against whom an emergency order is directed must submit a

written certification to the commissioner, signed by the operator

or authorized delegate, and their principals and responsible

individuals, as applicable, and each person named in the order,

stating that each person has received a copy of and has read and

understands the order.

(g)

Unless the commissioner receives a written request for a

hearing from a person against whom an emergency order is directed

not later than the 15th day after the date the order is delivered or

mailed, the order is final and non-appealable as to that person on

the 16th day after the date the order is delivered or mailed.

(h)

A request for a hearing does not stay an emergency

order.

(i)

A hearing on an emergency order takes precedence over

any other matter pending before the commissioner, and must be held

not later than the 10th day after the date the commissioner receives

the written request for hearing unless the administrative law judge

extends the period for good cause or the parties agree to a later

hearing date.

(j)

An emergency order that has been affirmed or modified

after a hearing is final for purposes of enforcement and appeal.

The order may be appealed to the district court of Travis County as

provided in Section 161.024(b).

Sec.

161.024.

ADMINISTRATIVE PROCEDURES. (a)

All

administrative proceedings under this chapter must be conducted in

accordance with Chapter 2001, Government Code, and 7 T.A.C. Chapter

9.

(b)

A person affected by a final order of the commissioner

issued under this chapter after a hearing may appeal the order by

filing a petition for judicial review in a district court of Travis

County.

A petition for judicial review filed in the district court

under this subsection does not stay or vacate the appealed order

unless the court, after notice and hearing, specifically stays or

vacates the order.

Sec.

161.025.

REFUND. (a)

Not later than the 14th day

after the date that a customer enters into a virtual currency kiosk

transaction, if the customer believes the transaction was

fraudulently induced, the customer may file a complaint with:

(1)

the virtual currency kiosk operator of the kiosk

used to complete the transaction; and

(2)

an appropriate governmental or law enforcement

agency.

(b)

A governmental or law enforcement agency that receives a

complaint under Subsection (a) shall:

(1) investigate the complaint; and

(2)

provide a report to the customer and the virtual

currency kiosk operator stating whether or not the virtual currency

kiosk transaction was fraudulently induced.

(c)

If the report provided under Subsection (b) states that

a virtual currency kiosk transaction was fraudulently induced, the

virtual currency kiosk operator shall issue to the customer a full

refund for any fees charged by the operator in connection with the

transaction.

Sec.

161.026.

PHYSICAL WARNING SIGNS. A virtual currency

kiosk operator in this state shall post at the location of each

virtual currency kiosk of the operator a written warning in the form

of a sign within readable sight of the kiosk that provides notice to

customers that law enforcement does not accept virtual currency

payments.

Sec.

161.027.

LAW ENFORCEMENT CONTACT. A virtual currency

kiosk operator in this state shall, at a minimum, have a dedicated

law enforcement contact and dedicated method of contact for the

applicable governmental or law enforcement agencies to contact the

operator.

The contact method shall be displayed and made available

on the virtual currency kiosk operator's Internet website and shall

be updated as necessary.

Sec.

161.028.

RULES. The Finance Commission of Texas shall

adopt rules necessary to implement, administer, and enforce this

chapter.

SECTION 2. As soon as practicable after the effective date

of this Act, the Finance Commission of Texas shall adopt rules

necessary to implement the changes in law made by this Act.

SECTION 3. This Act takes effect September 1, 2025.