USA – TEXAS Trends and Developments Contributed by: Chris Davis, Joshua Smeltzer and Suhani Patel, Gray Reed
regarding the policies and procedures credit unions may need to consider when adding digital assets to their portfolio. While the Texas Finance Code and Commission Rules do not explicitly reference “digital assets”, several pro- visions can be interpreted broadly enough to encom- pass them along with other permissible investments. Recent legislative and regulatory developments in Texas and at the federal level suggest a trend towards greater acceptance and integration of digital assets within the traditional financial services industry. For example, 3 Texas Finance Code Section 124.351 (a) (10) allows for other investments authorised by rules adopted by the Commission. If the Commission adopts rules that recognise digital assets as permis- sible investments, they could be included under this statutory provision. As digital assets become more integrated into traditional financial services, the exist- ing provisions could be interpreted or revised to spe- cifically include digital assets. This would provide much needed clarity and guidance to Texas credit unions seeking to offer digital asset-related services to their members. For Texas banks and credit unions, the convergence of state and federal regulatory clarity represents both a competitive advantage and a challenge. Institutions that develop compliant and robust digital asset cus- tody and stablecoin capabilities early will be well posi- tioned to serve the growing market. The UCC and Digital Asset Property Rights Perhaps the most foundational – and underappreci- ated – development in Texas’s digital asset legal land- scape is the evolution of property rights under the UCC. In 2021, Texas became one of the first states to amend its version of the UCC to define “virtual cur- rency” and explicitly set forth how to perfect a secu- rity interest in cryptocurrency. House Bill 4474 (“HB 4474”), the Texas Virtual Currency Act, defines virtual currency as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value” that is “not legal tender”. Critically, the Act codifies property rights for virtual currency buy- ers and establishes the concept of “control” as the mechanism for perfecting a security interest in digital
assets, paralleling control concepts used for deposit accounts and investment property. At the federal level, the 2022 amendments to the mod- el UCC (ie, introducing Article 12) are titled “Control- lable Electronic Records”. Article 12 creates a new category of assets called a “controllable electronic record” (CER), which encompasses cryptocurren- cies, NFTs and similar digital assets. The significance of Article 12 lies in its establishment of a “take-free” rule: a “qualifying purchaser” who obtains control of a CER for value, in good faith, and without notice of a property claim takes free of other property rights in the CER. Before Article 12, there was no take-free rule for digital assets, and it was often nearly impos- sible to check for pre-existing claims – a fundamental obstacle to the free transferability of digital assets in commerce. Comparing the Texas and Federal Frameworks While both the Texas UCC (HB 4474) and the fed- eral model UCC Article 12 share the same objective – establishing clear property rights and perfection mechanisms for digital assets – they differ in impor- tant ways. First, the frameworks differ in terminology and scope. Texas’s UCC uses the term “virtual currency”, defined as “a digital representation of value” used as a “medi- um of exchange, unit of account, or store of value” that is “not legal tender”. The federal Article 12, by contrast, employs the broader concept of a “control- lable electronic record”, or CER, which encompasses not only cryptocurrencies but also NFTs and other digital assets that can be subjected to “control”. Thus, the federal approach is more expansive, designed to accommodate digital asset categories that may not fit neatly within the Texas definition of virtual currency. Second, while both frameworks adopt “control” as the preferred perfection mechanism – defined in substantially similar terms – they diverge on priority rules. Under federal Article 12 and revised Article 9, a secured party perfected by control expressly takes priority over one perfected solely by filing, regard- less of timing. Importantly, Texas’s HB 4474 lacks an equivalent explicit priority rule but reaches a similar result by declaring that a filed financing statement
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