Chapter 1 - General Provisions - California Financial Code

Sections (3)

Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.

This division shall be known as the Digital Financial Assets Law.

Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.

For purposes of this division:

(a)“Applicant” means a person that applies for a license under this division.

(b)“Bank” means a bank, savings bank, savings and loan association, savings association, or industrial loan company chartered under the laws of this state or any other state or under the laws of the United States.

(c)“Control” means both of the following:

(1)When used in reference to a transaction or relationship involving a digital financial asset, power to execute unilaterally or prevent

indefinitely a digital financial asset transaction.

(2)When used in reference to a person, the direct or indirect power to do either of the following:

(A)Vote 25 percent or more of any class of the voting securities issued by a person.

(B)Direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, other than a commercial contract for goods or nonmanagement services, or otherwise, if no individual is deemed to control a person solely on account of being a director, officer, or employee of such person.

(d)“Covered person” means a person required to obtain a license pursuant to

this division.

(e)“Credit union” means a credit union licensed under the laws of this state, or any other state, or a federal credit union chartered under the laws of the United States.

(f)“Department” means the Department of Financial Protection and Innovation.

(g)(1) “Digital financial asset” means a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender.

(2)“Digital financial asset” does not include any of the following:

(A)A transaction in which

a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for legal tender, bank or credit union credit, or a digital financial asset.

(B)A digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.

(C)A security registered with or exempt from registration with the United States Securities and Exchange Commission or a security qualified with or exempt from qualifications with the department.

(h)“Digital financial asset administration” means issuing a digital financial asset with the authority to

redeem the digital financial asset for legal tender, bank or credit union credit, or another digital financial asset.

(i)“Digital financial asset business activity” means any of the following:

(1)Exchanging, transferring, or storing a digital financial asset or engaging in digital financial asset administration, whether directly or through an agreement with a digital financial asset control services vendor.

(2)Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals.

(3)Exchanging one or

more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:

(A)A digital financial asset offered by or on behalf of the same publisher from which the original digital representation of value was received.

(B)Legal tender or bank or credit union credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.

(j)“Digital financial asset control services vendor” means a person that has control of a digital financial asset solely under an agreement with a person that, on behalf of another person, assumes control of the

digital financial asset.

(k)“Exchange,” when used as a verb, means to assume control of a digital financial asset from, or on behalf of, a resident, at least momentarily, to sell, trade, or convert either of the following:

(1)A digital financial asset for legal tender, bank or credit union credit, or one or more forms of digital financial assets.

(2)Legal tender or bank or credit union credit for one or more forms of digital financial assets.

(l)“Executive officer” includes, but is not limited to, an individual who is a director, officer, manager, managing member, partner, or trustee of a person that is not an individual, or any other person who performs

similar policymaking or policy implementation functions.

(m)“Insolvent” means any of the following:

(1)Having generally ceased to pay debts in the ordinary course of business other than as a result of a bona fide dispute.

(2)Being unable to pay debts as they become due.

(3)Being insolvent within the meaning of federal bankruptcy law.

(n)“Legal tender” means a medium of exchange or unit of value, including the coin or paper money of the United States, issued by the United States or by another government.

(o)“Licensee” means a person

licensed or conditionally licensed under this division.

(p)(1) “Person” means an individual, partnership, estate, business or nonprofit entity, or other legal entity.

(2)“Person” does not include a government-sponsored enterprise, government, or governmental subdivision, agency, or instrumentality.

(q)“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

(r)(1) “Resident” means any of the following:

(A) A person who is domiciled in this state.

(B) A person who is physically located in this state for more

than 183 days of the previous 365 days.

(D) A legal representative of a person that is domiciled in this state.

(2)Notwithstanding paragraph (1), “resident” does not include a licensee or an affiliate, as defined in subdivision (a) of Section 90005, of a licensee.

(s)“Responsible individual” means an individual who has direct control over, or significant management policy and decisionmaking authority with respect to, a licensee’s digital financial asset business activity in this state.

(t)“SAFE Act” means the federal Secure

and Fair Enforcement for Mortgage Licensing Act of 2008 (Public Law 110-289).

(u)“Sign” means, with present intent to authenticate or adopt a record, either of the following:

(1)To execute or adopt a tangible symbol.

(2)To attach to, or logically associate with, the record an electronic symbol, sound, or process.

(v)“State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.

(w)“Store,” except in the phrase “store of value,” means to maintain

control of a digital financial asset on behalf of a resident by a person other than the resident. “Storage” and “storing” have corresponding meanings.

(x)“Transfer” means to assume control of a digital financial asset from, or on behalf of, a resident and to subsequently do any of the following:

(1)Credit the digital financial asset to the account of another person.

(2)Move the digital financial asset from one account of a resident to another account of the same resident.

(3)Relinquish control of a digital financial asset to another person.

(y)“United States dollar equivalent of digital

financial assets” means the equivalent value of a particular digital financial asset in United States dollars shown on a digital financial asset exchange based in the United States for a particular date or period specified in this division.

§ 3103

Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.

(a)Except as otherwise provided in subdivision (b), this division governs the digital financial asset business activity of a person doing business in this state or, wherever located, who engages in or holds itself out as engaging in the activity with, or on behalf of, a resident.

(b)This division does not apply to activity by any of the following:

(1)The United States, a state, political subdivision of a state, agency, or instrumentality of federal, state, or local government, or a foreign government or a subdivision, department, agency, or instrumentality of a foreign government.

(2)A bank that is one of the following:

(A)A commercial bank or industrial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation or its successor.

(B)A foreign (other nation) bank that is licensed under Chapter 20 (commencing with Section 1750) of Division 1.1 or that is authorized under federal law to maintain a federal agency or federal branch office in this state.

(C)An association or federal association, as defined in Section 5102, the deposits of which are insured by the Federal Deposit Insurance Corporation or its successor.

(3)A trust company licensed

pursuant to Section 1042 or a national association authorized under federal law to engage in a trust banking business.

(4)A federally chartered or state-chartered credit union, with an office in California, the member accounts of which are insured or guaranteed as provided in Section 14858.

(5)A person whose participation in a payment system is limited to providing processing, clearing, or performing settlement services solely for transactions between or among persons that are exempt from the licensing requirements of this division.

(6)A person engaged in the business of dealing in foreign exchange to the extent the person’s activity meets the definition in Section 1010.605(f)(1)(iv) of Title 31 of the Code of Federal Regulations.

(7)A person that is any of the following:

(A)A person that contributes only connectivity software or computing power to securing a network that records digital financial asset transactions or to a protocol governing transfer of the digital representation of value.

(B)A person that provides only data storage or security services for a business engaged in digital financial asset business activity and does not otherwise engage in digital financial asset business activity on behalf of another person.

(C)A person that provides only to a person otherwise exempt from this division a digital financial asset as one or more enterprise solutions used solely among each

other and that does not have an agreement or a relationship with a resident that is an end user of a digital financial asset.

(8)A person using a digital financial asset, including creating, investing, buying or selling, or obtaining a digital financial asset as payment for the purchase or sale of goods or services, solely on the person’s own behalf for personal, family, or household purposes or for academic purposes.

(9)A person whose digital financial asset business activity with, or on behalf of, residents is reasonably expected to be valued, in the aggregate, on an annual basis at fifty thousand dollars ($50,000) or less, measured by the United States dollar equivalent of digital financial assets.

(10)An

attorney to the extent of providing escrow services to a resident.

(11)A title insurance company to the extent of providing escrow services to a resident.

(12)A secured creditor under Division 9 (commencing with Section 9101) of the Commercial Code or a creditor with a judicial lien, or lien arising by operation of law, on collateral that is a digital financial asset, if the digital financial asset business activity of the creditor is limited to enforcement of the security interest in compliance with Division 9 (commencing with Section 9101) of the Commercial Code or lien in compliance with the law applicable to the lien.

(13)A person that does not receive compensation, either directly or indirectly, for

providing digital financial asset products or services or for conducting digital financial asset business activity or that is engaged in testing products or services with the person’s own funds.

(14)Any entity or futures commission merchant, swap dealer, or introducing broker registered under the federal Commodity Exchange Act (7 U.S.C. Sec. 1, et seq.)

to the extent those activities are conducted under authority of that act, are actually regulated by the Commodity Futures Trading Commission, and are entitled to preemption.

(15)A person registered as a securities broker-dealer under federal or state securities laws to the extent of its operation as a broker-dealer.

(16)A person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from registration granted under the federal securities laws to the extent of its operation as such a provider.

(17)A merchant that accepts a digital financial asset as payment for the purchase or

sale of goods or services, which does not include digital financial assets.

(c)(1) The commissioner may, by regulation or order, either unconditionally or upon specified terms and conditions or for specified periods, exempt from all or part of this division any person or transaction, or class of persons or transactions, if the commissioner finds such action to be in the public interest and that the regulation of such persons or transactions is not necessary for the purposes of this division.

(2)The commissioner shall post on the commissioner’s internet website a list of all persons, transactions, or classes of person or transactions exempt pursuant to this section, and the part or parts of this division from which they are exempt.

(3)The commissioner may, by regulation or order, amend or rescind any exemption made pursuant to this subdivision.