This division shall be known as the Digital Financial Assets Law.
Chapter 1General Provisions
Section § 3101
This division is officially named the Digital Financial Assets Law. It deals with regulations and rules concerning digital financial assets.
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Section § 3102
This section provides definitions for terms related to digital financial assets in California. It explains who qualifies as an 'applicant' for a financial license, what constitutes a 'bank' or 'credit union,' and the concept of 'control' over digital financial transactions and entities. 'Digital financial assets' are defined broadly but exclude certain rewards programs and online game items. It also details what involves 'digital financial asset business activity,' which includes exchanging, transferring, or storing digital assets. Additionally, it explains terms like 'resident,' 'licensee,' 'responsible individual,' and other relevant terms related to financial laws. This aims to clarify roles, activities, and responsibilities involving digital financial assets.
For purposes of this division:
(a)CA Financial Code § 3102(a) “Applicant” means a person that applies for a license under this division.
(b)CA Financial Code § 3102(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)CA Financial Code § 3102(c) “Control” means both of the following:
(1)CA Financial Code § 3102(c)(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)CA Financial Code § 3102(c)(2) When used in reference to a person, the direct or indirect power to do either of the following:
(A)CA Financial Code § 3102(c)(2)(A) Vote 25 percent or more of any class of the voting securities issued by a person.
(B)CA Financial Code § 3102(c)(2)(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)CA Financial Code § 3102(d) “Covered person” means a person required to obtain a license pursuant to
this division.
(e)CA Financial Code § 3102(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)CA Financial Code § 3102(f) “Department” means the Department of Financial Protection and Innovation.
(g)Copy CA Financial Code § 3102(g)
(1)Copy CA Financial Code § 3102(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)CA Financial Code § 3102(g)(2) “Digital financial asset” does not include any of the following:
(A)CA Financial Code § 3102(g)(2)(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)CA Financial Code § 3102(g)(2)(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)CA Financial Code § 3102(g)(2)(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)CA Financial Code § 3102(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)CA Financial Code § 3102(i) “Digital financial asset business activity” means any of the following:
(1)CA Financial Code § 3102(i)(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)CA Financial Code § 3102(i)(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)CA Financial Code § 3102(i)(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)CA Financial Code § 3102(i)(3)(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)CA Financial Code § 3102(i)(3)(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)CA Financial Code § 3102(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)CA Financial Code § 3102(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)CA Financial Code § 3102(k)(1) A digital financial asset for legal tender, bank or credit union credit, or one or more forms of digital financial assets.
(2)CA Financial Code § 3102(k)(2) Legal tender or bank or credit union credit for one or more forms of digital financial assets.
(l)CA Financial Code § 3102(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)CA Financial Code § 3102(m) “Insolvent” means any of the following:
(1)CA Financial Code § 3102(m)(1) Having generally ceased to pay debts in the ordinary course of business other than as a result of a bona fide dispute.
(2)CA Financial Code § 3102(m)(2) Being unable to pay debts as they become due.
(3)CA Financial Code § 3102(m)(3) Being insolvent within the meaning of federal bankruptcy law.
(n)CA Financial Code § 3102(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)CA Financial Code § 3102(o) “Licensee” means a person
licensed or conditionally licensed under this division.
(p)Copy CA Financial Code § 3102(p)
(1)Copy CA Financial Code § 3102(p)(1) “Person” means an individual, partnership, estate, business or nonprofit entity, or other legal entity.
(2)CA Financial Code § 3102(p)(2) “Person” does not include a government-sponsored enterprise, government, or governmental subdivision, agency, or instrumentality.
(q)CA Financial Code § 3102(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)Copy CA Financial Code § 3102(r)
(1)Copy CA Financial Code § 3102(r)(1) “Resident” means any of the following:
(A)CA Financial Code § 3102(r)(1)(A) A person who is domiciled in this state.
(B)CA Financial Code § 3102(r)(1)(B) A person who is physically located in this state for more
than 183 days of the previous 365 days.
(C)CA Financial Code § 3102(r)(1)(C) A person who has a place of business in this state.
(D)CA Financial Code § 3102(r)(1)(D) A legal representative of a person that is domiciled in this state.
(2)CA Financial Code § 3102(r)(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)CA Financial Code § 3102(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)CA Financial Code § 3102(t) “SAFE Act” means the federal Secure
and Fair Enforcement for Mortgage Licensing Act of 2008 (Public Law 110-289).
(u)CA Financial Code § 3102(u) “Sign” means, with present intent to authenticate or adopt a record, either of the following:
(1)CA Financial Code § 3102(u)(1) To execute or adopt a tangible symbol.
(2)CA Financial Code § 3102(u)(2) To attach to, or logically associate with, the record an electronic symbol, sound, or process.
(v)CA Financial Code § 3102(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)CA Financial Code § 3102(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)CA Financial Code § 3102(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)CA Financial Code § 3102(x)(1) Credit the digital financial asset to the account of another person.
(2)CA Financial Code § 3102(x)(2) Move the digital financial asset from one account of a resident to another account of the same resident.
(3)CA Financial Code § 3102(x)(3) Relinquish control of a digital financial asset to another person.
(y)CA Financial Code § 3102(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.
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Section § 3103
This law controls digital financial asset businesses in California, affecting those either based in the state or doing business with state residents. However, there are exceptions. These include government entities, insured banks, licensed trust companies, certain credit unions, individuals using digital assets for personal reasons, and others whose business activities are under $50,000 annually.
Additionally, those providing specific auxiliary services or dealing in foreign exchange are exempt, along with registered securities brokers and dealers, payment system participants offering limited services, and certain merchants using digital assets for transactions.
The law also grants the commissioner the power to exempt other entities or transactions if deemed in the public interest, keeping a public list of such exemptions available online.
(a)CA Financial Code § 3103(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)CA Financial Code § 3103(b) This division does not apply to activity by any of the following:
(1)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(2) A bank that is one of the following:
(A)CA Financial Code § 3103(b)(2)(A) A commercial bank or industrial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation or its successor.
(B)CA Financial Code § 3103(b)(2)(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)CA Financial Code § 3103(b)(2)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(7) A person that is any of the following:
(A)CA Financial Code § 3103(b)(7)(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)CA Financial Code § 3103(b)(7)(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)CA Financial Code § 3103(b)(7)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(10) An
attorney to the extent of providing escrow services to a resident.
(11)CA Financial Code § 3103(b)(11) A title insurance company to the extent of providing escrow services to a resident.
(12)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)CA Financial Code § 3103(b)(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)Copy CA Financial Code § 3103(c)
(1)Copy CA Financial Code § 3103(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)CA Financial Code § 3103(c)(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)CA Financial Code § 3103(c)(3) The commissioner may, by regulation or order, amend or rescind any exemption made pursuant to this subdivision.
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