Amended in Senate August 18, 2015

Amended in Senate July 6, 2015

Amended in Assembly June 1, 2015

Amended in Assembly April 20, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 1326

Introduced by Assembly Member Dababneh

February 27, 2015

An act to repeal Section 107 of the Corporations Code, and to add Section 2178 to, and to add Division 11 (commencing with Section 26000) to, the Financial Code, relating to currency.

LEGISLATIVE COUNSEL’S DIGEST

AB 1326, as amended, Dababneh. Virtual currency.

begin delete

Existing

end delete

begin insert (1) end insert begin insert   end insert begin insert Existing end insert law, the Money Transmission Act, prohibits a person from engaging in the business of money transmission in this state, or advertising, soliciting, or holding itself out as providing money transmission in this state, unless the person is licensed by the Commission of Business Oversight or exempt from licensure under the act. Existing law requires applicants for licensure to pay the commissioner a specified nonrefundable fee and to complete an application form requiring certain information. As security, existing law requires each licensee to deposit and maintain on deposit with the Treasurer cash in an amount not less than, or securities having a market value not less than, such amount as the commissioner may find and order from time to time as necessary to secure the faithful performance of the obligations of the licensee with respect to money transmission in this state. Existing law requires a licensee at all times to own eligible securities, as defined, in a specified aggregate amount not less than the amount of all of its outstanding money received for transmission, as specified.

This bill would enact the Virtual Currency Act. The bill would prohibit a person from engaging in any virtual currency business, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement, as provided. The bill would require applicants for licensure, including an applicant for licensure and approval to acquire control of a licensee, to pay the commissioner a specified nonrefundable application fee and complete an application form required to include, among other things, information about the applicant, begin delete prior end delete begin insert previous end insert virtual currency services provided by the applicant, a sample form of receipt for transactions involving the business of virtual currency, and specified financial statements. The bill would make these licenses subject to annual renewal and would require a renewal fee paid to the commissioner in a specified amount. The bill would require licensees to annually pay the commissioner a specified amount for each licensee branch office. The bill would require applicants and licensees to pay the commissioner a specified hourly amount for the commissioner’s examination costs, as provided. The bill would also require the commissioner to levy an assessment each fiscal year, on a pro rata basis, on licensees in an amount sufficient to meet the commissioner’s expenses in administering these provisions and to provide a reasonable reserve for contingencies.

This bill would require each licensee to maintain at all times such capital as the commissioner determines, subject to specified factors, is sufficient to ensure the safety and soundness of the licensee, its ongoing operations, and maintain consumer protection. The bill would require each licensee to maintain a bond or trust account in United States dollars for the benefit of its consumers in the form and amount as specified by the commissioner.

This bill would authorize the commissioner to examine the business and any branch office of any licensee to ascertain whether the business is being conducted in a lawful manner and all virtual currency is properly accounted for. The bill would require a licensee to file a report with the commissioner within a specified period of time after the licensee knows about the occurrence of certain events relating to the virtual currency business and those persons connected to that business, and to also maintain records as required by the commissioner for a specified period of time.

With regard to enforcement, among other things, this bill would, if it appears that a licensee is violating or failing to comply with these provisions or conducting business in an unsafe or injurious manner, authorize the commissioner to order the licensee to comply or discontinue those practices. The bill would also authorize the commissioner to issue an order suspending or revoking a license, or placing a licensee in receivership, if after notice and an opportunity for a hearing, the commissioner makes a specified finding. The bill would provide that every order, decision, or other official act of the commissioner is subject to review.

This bill would authorize the commissioner to impose a civil penalty for a violation of these provisions.

Within a specified period after the fiscal year, the bill would require a licensee to file with the commissioner a specified audit report. Within a specified period after the end of each calendar quarter, the bill would require a licensee to file with the commissioner a report containing financial statements verified by 2 of the licensee’s principal officers.

begin insert

By a specified date, the bill would require each licensee to file an annual report with the commissioner providing information regarding the licensee’s business and operations within the state, as specified. The bill would also require each licensee to make other special reports to the commissioner. The bill would require these reports to be kept confidential. The bill would require the commissioner to prepare a report for publication on his or her Internet Web site summarizing the information from those reports and enforcement action information.

end insert

This bill would require a licensee to provide a specified consumer protection disclosure and receipt to its consumers.

This bill would authorize a virtual currency licensee in good standing that plans to engage in activities permitted under the Money Transmission Act to request that the commissioner convert his or her license into a license under the Money Transmission Act, as specified. begin delete The end delete

begin insert This end insert bill would authorize a person or entity conducting virtual currency business with less than $1,000,000 in outstanding begin delete obligations end delete begin insert obligations, as defined, end insert and whose business model, as determined by the commissioner, represents low or no risk to consumers to begin delete register with a $500 license fee end delete begin insert pay a $500 application fee to the commissioner end insert and, if approved, receive a provisional license to conduct virtual currency business. begin insert The bill would authorize the commissioner to request reports and documents, to examine the provisional licensee, and gather information regarding the business and operations of provisional licensees. The bill would require reports and documents concerning the business and operations of provisional licensees to be kept confidential. end insert

This bill would require a licensee, under the Money Transmission Act, to report to the commissioner its plan to engage in any virtual currency business and request permission to engage in that business subject to specified requirements and conditions, as determined by the commissioner.

This bill would make these begin delete provisions end delete begin insert aforementioned provisions, end insert including the Virtual Currency begin delete Act end delete begin insert Act, end insert operative on July 1, 2016.

(2) Existing law, the General Corporation Law, prohibits a corporation, social purpose corporation, association, or individual from issuing or putting in circulation, as money, anything but the lawful money of the United States.

This bill would delete that prohibition.

begin insert

(3) Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

end insert begin insert

This bill would make legislative findings to that effect.

end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 107 of the Corporations Code is repealed.

SEC. 2.  

Section 2178 is added to the Financial Code, to read:

2178.  

(a) Nothwithstanding any other law and consistent with
subdivision (e) of Section 26004, a licensee shall report to the
commissioner its plan to engage in any virtual currency business
as described in Division 11 (commencing with Section 26000) and
request, on a form provided by the commissioner, permission to
engage in any virtual currency business without the issuance of a
virtual currency license issued under Division 11 (commencing
with Section 26000). However, the commissioner may require the
licensee to increase its surety bond or eligible securities amounts
in an amount necessary to ensure the consumer protection of the
additional business. The commissioner may also place, as a
condition on the authorization to engage in any virtual currency
business pursuant to Division 11 (commencing with Section
26000), any condition authorized by Section 2036.

(b) This section shall become operative on July 1, 2016.

SEC. 3.  

Division 11 (commencing with Section 26000) is added
to the Financial Code, to read:

 

Division 11.  Virtual Currency

 

Chapter  1. General Provisions

 

26000.  

For purposes of this division, the following definitions
shall apply:

(a) “Commissioner” means the Commissioner of Business
Oversight.

(b) (1) “Virtual currency” means any type of digital unit that
is used as a medium of exchange or a form of digitally stored value.

(2) Virtual currency does not include the following:

(A) Digital units that are used solely within online gaming
platforms with no market or application outside of those gaming
platforms.

(B) Digital units that are used exclusively as part of a consumer
affinity or rewards program.

(C) Digital units that can be redeemed for goods, services, or
for purchases with the issuer or other designated merchants, but
cannot be converted into, or redeemed for, fiat currency.

(c) “Virtual currency business” means maintaining full custody
or control of virtual currency in this state on behalf of others.

(d) “Fiat currency” means government-issued currency that is
designated as legal tender through government decree, regulation,
or law, that customarily refers to paper money and coin and is
circulated, used, and accepted as money.

26001.  

For the purposes of carrying out the provisions of this
division, the commissioner may adopt regulations pursuant to the
Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).

26001.5.  

This division shall be known and may be cited as the
Virtual Currency Act.

 

Chapter  2. Licenses

 

26002.  

A person shall not engage in any virtual currency
business in this state unless the person is licensed or exempt from
licensure under this division.

26004.  

The following are exempt from the licensing
requirement described in Section 26002:

(a) The United States or a department, agency, or instrumentality
thereof, including any federal reserve bank and any federal home
loan bank.

(b) Money transmission by the United States Postal Service or
by a contractor on behalf of the United States Postal Service.

(c) A state, city, county, city and county, or any other
governmental agency or governmental subdivision of a state.

(d) A commercial bank or industrial bank, the deposits of which
are insured by the Federal Deposit Insurance Corporation or its
successor, or any 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; a trust company licensed
pursuant to Section 1042 or a national association authorized under
federal law to engage in a trust banking business; 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; and any federally or state chartered credit union,
with an office in this state, the member accounts of which are
insured or guaranteed as provided in Section 14858.

(e) Subject to Section 2178, an entity licensed as a money
transmitter under the Money Transmission Act described in
Division 1.2 (commencing with Section 2000).

(f) A merchant or consumer that utilizes virtual currency solely
for the purchase or sale of goods or services.

(g) (1) A transaction in which the recipient of virtual currency
is an agent of the payee pursuant to a preexisting written contract
and delivery of the virtual currency to the agent satisfies the payor’s
obligation to the payee.

(2) For purposes of this subdivision, the following shall apply:

(A) “Agent” has the same meaning as that term is defined in
Section 2295 of the Civil Code.

(B) “Payee” means the provider of goods or services, who is
owed payment of money or other monetary value from the payor
for the goods or services.

(C) “Payor” means the recipient of goods or services, who owes
payment of money or monetary value to the payee for the goods
or services.

(h) A person or entity developing, distributing, or servicing a
virtual currency network software.

(i) A person or entity contributing software, connectivity, or
computing power to a virtual currency network.

(j) A person or entity providing data storage or cyber security
services for a licensed virtual currency business.

26006.  

(a) An applicant for licensure under this division shall
pay to the commissioner a nonrefundable application fee of five
thousand dollars ($5,000).

(b) An applicant for a license shall do so in a form and in a
medium prescribed by the commissioner by order or regulation.
The application shall state or contain all of the following:

(1) The legal name and residential business address of the
applicant and any fictitious or trade name used by the applicant in
conducting its business.

(2) A list of any criminal convictions of the applicant and any
material litigation in which the applicant has been involved in the
10-year period next preceding the submission of the application.

(3) A description of any virtual currency services previously
provided by the applicant and the virtual currency services that
the applicant seeks to provide in this state.

(4) A list of other states in which the applicant is licensed to
engage in the business of virtual currency and any license
revocations, suspensions, or other disciplinary action taken against
the applicant in another state.

(5) Information concerning any bankruptcy or receivership
proceedings affecting the licensee.

(6) A sample form of receipt for transactions that involve money
received for the business of virtual currency.

(7) The name and address of any bank through which the
applicant’s business will be conducted.

(8) A description of the source of money and credit to be used
by the applicant to provide virtual currency services.

(9) The date of the applicant’s incorporation or formation and
the state or country of incorporation or formation.

(10) A certificate of good standing from the state or country in
which the applicant is incorporated or formed.

(11) A description of the structure or organization of the
applicant, including any parent or subsidiary of the applicant, and
whether any parent or subsidiary is publicly traded.

(12) The legal name, any fictitious or trade name, all business
and residential addresses, and the employment, in the 10-year
period next preceding the submission of the application, of each
executive officer, manager, director, or person that has control, of
the applicant, and the educational background for each person.

(13) A list of any criminal convictions and material litigation
in which any executive officer, manager, director, or person in
control, of the applicant has been involved in the 10-year period
next preceding the submission of the application.

(14) A copy of the applicant’s audited financial statements for
the most recent fiscal year and, if available, for the two-year period
next preceding the submission of the application.

(15) A copy of the applicant’s unconsolidated financial
statements for the current fiscal year, whether audited or not, and,
if available, for the two-year period next preceding the submission
of the application.

(16) If the applicant is publicly traded, a copy of the most recent
report filed with the United States Securities and Exchange
Commission under Section 13 of the federal Securities Exchange
Act of 1934 (15 U.S.C. Sec. 78m).

(17) If the applicant is a wholly owned subsidiary of:

(A) A corporation publicly traded in the United States, a copy
of audited financial statements for the parent corporation for the
most recent fiscal year or a copy of the parent corporation’s most
recent report filed under Section 13 of the federal Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78m) and, if available, for
the two-year period next preceding the submission of the
application.

(B) A corporation publicly traded outside the United States, a
copy of similar documentation filed with the regulator of the parent
corporation’s domicile outside the United States.

(18) The applicant’s plan for engaging in the business of virtual
currency, including without limitation three years of pro forma
financial statements.

(19) Any other information the commissioner requires with
respect to the applicant.

(c) The commissioner may waive any of the information
required under subdivision (b) or permit an applicant to submit
other information instead of the required information.

(d) The nonrefundable application fee for filing an application
for licensure and approval to acquire control of a licensee is three
thousand five hundred dollars ($3,500). An applicant for licensure
and approval shall comply with subdivision (b).

(e) A licensee, including a licensee described in subdivision
(b), shall pay annually on or before July 1, a license renewal fee
of two thousand five hundred dollars ($2,500).

(f) A licensee shall pay annually on or before July 1, one
hundred twenty-five dollars ($125) for each licensee branch office
in this state.

(g) Whenever the commissioner examines a licensee, the
licensee shall pay, within 10 days after receipt of a statement from
the commissioner, a fee of seventy-five dollars ($75) per hour for
each examiner engaged in the examination plus, if it is necessary
for any examiner engaged in the examination to travel outside this
state, the travel expenses of the examiner.

(h) Whenever the commissioner examines an applicant, the
applicant shall pay, within 10 days after receipt of a statement
from the commissioner, a fee of seventy-five dollars ($75) per
hour for each examiner engaged in the examination plus, if it is
necessary for any examiner engaged in the examination to travel
outside this state, the travel expenses of the examiner.

(i) Each fee for filing an application shall be paid at the time
the application is filed with the commissioner. No fee for filing
an application shall be refundable, regardless of whether the
application is approved, denied, or withdrawn.

26008.  

(a) Each licensee shall maintain at all times such capital
as the commissioner determines is sufficient to ensure the safety
and soundness of the licensee and maintain consumer protection
and its ongoing operations. In determining the minimum amount
of capital that must be maintained by a licensee, the commissioner
shall consider a variety of factors, including, but not limited to:

(1) The composition of the licensee’s total assets, including the
position, size, liquidity, risk exposure, and price volatility of each
type of asset.

(2) The composition of the licensee’s total liabilities, including
the size and repayment timing of each type of liability.

(3) The actual and expected volume of the licensee’s virtual
currency business activity.

(4) Whether the licensee is already licensed or regulated by a
state or federal entity, and whether the licensee is in good standing
in such capacity.

(5) The amount of leverage employed by the licensee.

(6) The liquidity position of the licensee.

(7) The financial protection that the licensee provides for its
consumers through its trust account or bond.

(b) Each licensee shall maintain a bond or trust account in
United States dollars for the benefit of its consumers in the form
and amount specified by the commissioner.

 

Chapter  3. Examinations and Records

 

26009.  

(a) The commissioner may at any time and from time
to time examine the business and any branch office, within or
outside this state, of any licensee in order to ascertain whether that
business is being conducted in a lawful manner and whether all
virtual currency held or exchanged is properly accounted for.

(b) The directors, officers, and employees of any licensee being
examined by the commissioner shall exhibit to the commissioner,
on request, any or all of the licensee’s accounts, books,
correspondence, memoranda, papers, and other records and shall
otherwise facilitate the examination so far as it may be in their
power to do so.

26010.  

The commissioner may consult and cooperate with
other state or federal regulators in enforcing and administering
this division. They may jointly pursue examinations and take other
official action that they are otherwise empowered to take.

26011.  

A licensee shall file a report with the commissioner
within five business days after the licensee has reason to know of
the occurrence begin insert of end insert any of the following events:

(a) The filing of a petition by or against the licensee under the
United States Bankruptcy Code (11 U.S.C. Secs. 101-110, incl.)
for bankruptcy or reorganization.

(b) The filing of a petition by or against the licensee for
receivership, the commencement of any other judicial or
administrative proceeding for its dissolution or reorganization, or
the making of a general assignment for the benefit of its creditors.

(c) The commencement of a proceeding to revoke or suspend
its virtual currency business license in a state or country in which
the licensee engages in such business or is licensed to engage in
such business.

(d) The cancellation or other impairment of the licensee’s bond
or trust account as required by subdivision (b) of Section 26008.

(e) A charge or conviction of the licensee or of an executive
officer, manager, director, or person in control of the licensee for
a felony.

26012.  

A licensee shall maintain any records as required by
the commissioner for determining its compliance with this division
for at least three years.

 

Chapter  4. Enforcement

 

26013.  

Any licensee may surrender its license by filing with
the commissioner the license and a report with any information as
the commissioner requires. The voluntary surrender of the license
shall become effective at the time and upon the conditions as the
commissioner specifies by order.

26014.  

(a) The commissioner may prepare written decisions,
opinion letters, and other formal written guidance to be issued to
persons seeking clarification regarding the requirements of this
division.

(b) The commissioner shall make public on the commissioner’s
Internet Web site all written decisions, opinion letters, and other
formal written guidance issued to persons seeking clarification
regarding the requirements of this division. The commissioner
may, at his or her discretion or upon request by an applicant or
licensee, redact proprietary or other confidential information
regarding an applicant or licensee from any decision, letter, or
other written guidance issued in connection with an applicant or
licensee.

26015.  

The commissioner may offer informal guidance to any
prospective applicant for a license under this division, regarding
the conditions of licensure that may be applied to that person. The
commissioner shall inform any applicant that requests that guidance
of the licensing requirements that will be required of that applicant,
based on the information provided by the applicant concerning its
plan to conduct business under this division, and the factors used
to make that determination.

26016.  

At any time, if the commissioner deems it necessary
for the general welfare of the public, he or she may exercise any
power set forth in this division with respect to a virtual currency
business, regardless of whether an application for a license has
been filed with the commissioner, a license has been issued, or, if
issued, the license has been surrendered, suspended, or revoked.

(a) If it appears to the commissioner that a licensee is violating
or failing to comply with this division, the commissioner may
direct the licensee to comply with the law by an order issued under
the commissioner’s official seal, or if it appears to the
commissioner that any licensee is conducting its business in an
unsafe or injurious manner, the commissioner may in like manner
direct it to discontinue the unsafe or injurious practices. The order
shall require the licensee to show cause before the commissioner,
at a time and place to be fixed by the commissioner, as to why the
order should not be observed.

(b) If, upon any hearing held pursuant to subdivision (a), the
commissioner finds that the licensee is violating or failing to
comply with any law of this state or is conducting its business in
an unsafe or injurious manner, the commissioner may make a final
order directing it to comply with the law or to discontinue the
unsafe or injurious practices. A licensee shall comply with the
final order unless, within 10 days after the issuance of the order,
its enforcement is restrained in a proceeding brought by the
licensee.

26017.  

(a) The commissioner may issue an order suspending
or revoking a license, or taking possession of and placing a licensee
in receivership, if after notice and an opportunity for hearing, the
commissioner finds any of the following:

(1) The licensee is violating this division or a regulation adopted
or an order issued under this division, or a condition of approval
issued under this division.

(2) The licensee does not cooperate with an examination or
investigation by the commissioner.

(3) The licensee engages in fraud, intentional misrepresentation,
or gross negligence.

(4) The competence, experience, character, or general fitness
of the licensee, or any director, officer, employee, or person in
control of a licensee, indicates that it is not in the public interest
to permit the person to provide virtual currency services.

(5) The licensee engages in an unsafe or unsound practice.

(6) The licensee is insolvent, suspends payment of its
obligations, or makes a general assignment for the benefit of its
creditors.

(7) The licensee has applied for an adjudication of bankruptcy,
reorganization, arrangement, or other relief under any bankruptcy,
reorganization, insolvency, or moratorium law, or any person has
applied for any such relief under that law against the licensee and
the licensee has by any affirmative act approved of or consented
to the action or the relief has been granted.

(8) Any fact or condition exists that, if it had existed at the time
begin delete when end delete the licensee applied for its license, would have been grounds
for denying the application.

(b) In determining whether a licensee is engaging in an unsafe
or unsound practice, the commissioner may consider the size and
condition of the licensee’s provision of virtual currency services,
the magnitude of the loss, the gravity of the violation of this
division, and the previous conduct of the person involved.

26018.  

(a) Every order, decision, or other official act of the
commissioner is subject to review in accordance with law.

(b) Whenever the commissioner has taken possession of the
property and business of any licensee, the licensee, within 10 days
after that taking, if it deems itself aggrieved thereby, may apply
to the superior court in the county in which the head office of the
licensee is located to enjoin further proceedings. The court, after
citing the commissioner to show cause why further proceedings
should not be enjoined and after a hearing and a determination of
the facts upon the merits, may dismiss the application or enjoin
the commissioner from further proceedings and direct the
commissioner to surrender the property and business to the
licensee.

26019.  

(a) If the commissioner finds that any of the factors
set forth in Section 26017 is true with respect to any licensee and
that it is necessary for the protection of the public interest, the
commissioner may issue an order immediately suspending or
revoking the licensee’s license.

(b) Within 30 days after the license is suspended or revoked
pursuant to subdivision (a), the licensee may file with the
commissioner an application for a hearing on the suspension or
revocation.

(c) If the commissioner fails to commence a hearing within 15
business days after the application is filed with the commissioner
pursuant to subdivision (b) or within a longer period of time agreed
to by the licensee, the suspension or revocation shall be deemed
rescinded.

(d) Within 30 days after the hearing, the commissioner shall
affirm, modify, or rescind the suspension or revocation. Otherwise,
the suspension or revocation shall be deemed rescinded.

(e) The right of the licensee to petition for judicial review of
the suspension or revocation shall not be affected by the failure of
the licensee to apply to the commissioner for a hearing on the
suspension or revocation pursuant to subdivision (b).

26020.  

The commissioner may assess a civil penalty against
a person that violates this division or a regulation adopted or an
order issued under this division in an amount not to exceed one
thousand dollars ($1,000) for each violation or, in the case of a
continuing violation, one thousand dollars ($1,000) for each day
or part thereof during which the violation continues, plus this
state’s costs and expenses for the investigation and prosecution of
the matter, including reasonable attorney’s fees.

26022.  

The enforcement provisions of this division are in
addition to any other enforcement powers that the commissioner
may have under law.

26023.  

(a) The commissioner may by order or regulation grant
exemptions from this section in cases where the commissioner
finds that the requirements of this section are not necessary or may
be duplicative.

(b) A licensee shall, within 90 days after the end of each fiscal
year, or within any extended time as the commissioner may
prescribe, file with the commissioner an audit report for the fiscal
year that shall comply with all of the following provisions:

(1) The audit report shall contain audited financial statements
of the licensee for or as of the end of the fiscal year prepared in
accordance with United States generally accepted accounting
principles and any other information as the commissioner may
require.

(2) The audit report shall be based upon an audit of the licensee
conducted in accordance with United States generally accepted
auditing standards and any other requirements as the commissioner
may prescribe.

(3) The audit report shall be prepared by an independent certified
public accountant or independent public accountant who is not
unsatisfactory to the commissioner.

(4) The audit report shall include or be accompanied by a
certificate of opinion of the independent certified public accountant
or independent public accountant that is satisfactory in form and
content to the commissioner. If the certificate or opinion is
qualified, the commissioner may order the licensee to take any
action as the commissioner may find necessary to enable the
independent or certified public accountant or independent public
accountant to remove the qualification.

(c) Each licensee shall, not more than 45 days after the end of
each calendar year quarter, or within a longer period as the
commissioner may by regulation or order specify, file with the
commissioner a report containing all of the following:

(1) Financial statements, including balance sheet, income
statement, statement of changes in shareholders’ equity, and
statement of cashflows, for, or as of the end of, that calendar year
quarter, verified by two of the licensee’s principal officers. The
verification shall state that each of the officers making the
verification has begin delete a end delete personal knowledge of the matters in the report
and that each of them believes that each statement in the report is
true.

(2) Other information as the commissioner may by regulation
or order require.

begin insert

(d) Each licensee shall file an annual report with the
commissioner, on or before the 15th day of March, providing the
relevant information that the commissioner reasonably requires
concerning the business and operations conducted by the licensee
within the state during the preceding calendar year. Each licensee
shall also make other special reports to the commissioner that may
be required by the commissioner from time to time. The reports
required by this subdivision shall be kept confidential pursuant to
Chapter 3.5 (commencing with Section 6250) of Division 7 of Title
1 of the Government Code and any regulations adopted thereunder.

end insert begin insert

(e) The commissioner shall annually prepare a report for
publication on his or her Internet Web site, summarizing
consolidated information gained from the reports required
pursuant to subdivision (d), documenting the number of licenses,
including provisional licenses as described in Section 26032,
outstanding during the prior calendar year, and summarizing the
numbers and types of enforcement actions brought by the
commissioner pursuant to this division during the prior calendar
year.

end insert

26024.  

In addition to the fees provided in Section 26006, the
commissioner shall levy an assessment each fiscal year, on a pro
rata basis, on those licensees that at any time during the preceding
calendar year engaged in this state in the virtual currency business
in an amount that is, in his or her judgment, sufficient to meet the
commissioner’s expenses in administering the provisions of this
division and to provide a reasonable reserve for contingencies.

 

Chapter  5. Miscellaneous Provisions

 

26025.  

A licensee shall disclose to consumers the following
disclosure in a form and manner prescribed by the commissioner:

“Once submitted to the network, a virtual currency transaction
will be unconfirmed for a period of time (usually less than one
hour, but up to one day or more) pending sufficient confirmation
of the transaction by the network. A transaction is not complete
while it is in a pending state. Virtual currency associated with
transactions that are in a pending state will be designated
accordingly, and will not be included in your account balance or
be available to conduct transactions.

The risk of loss in trading or holding virtual currency can be
substantial. You should therefore carefully consider whether trading
or holding virtual currency is suitable for you in light of your
financial condition. In considering whether to trade or hold virtual
currency, you should be aware that the price or value of virtual
currency can change rapidly, decrease, and potentially even fall
to zero.

(Insert company name) is licensed by the Department of Business
Oversight to do business in California. If you have complaints
with respect to any aspect of the virtual currency business
conducted by (company name), you may contact the California
Department of Business Oversight at its toll-free telephone number,
1-800-622-0620, by email at [e-mail], or
by mail at the Department of Business Oversight, Consumer
Services, 1515 K Street, Suite 200, Sacramento, CA 95814.”

26026.  

(a) Upon completion of a transaction subject to this
division, the licensee shall provide to the consumer a receipt
containing the following information:

(1) The name and contact information of the licensee including
a telephone number of the licensee where consumers can contact
the licensee for questions or to register complaints.

(2) The type, value, date, and time of the transaction.

(3) The type and amount of any fees charged.

(4) The exchange rate, if applicable.

(5) A statement of the refund policy of the licensee.

(6) Additional information the commissioner may require.

(b) The receipt required by this section shall be made in English
and in the language principally used by that licensee to advertise,
solicit, or negotiate, either orally or in writing, if other than English.

(c) The receipt required by this section may be provided
electronically for transactions that are initiated electronically or
in which a consumer agrees to receive an electronic receipt.

26029.  

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. The commissioner shall post on the
commissioner’s Internet Web site a list of all persons, transactions,
or classes of person or transactions exempt pursuant to this section,
and the provision or provisions of this division from which they
are exempt.

26031.  

Notwithstanding any other law, a licensee in good
standing under this division that plans to engage in activities
permitted under the Money Transmission Act (Division 1.2
(commencing with Section 2000)) may request from the
commissioner in a form specified by the commissioner to convert
their license into a license under Division 1.2 (commencing with
Section 2000). A licensee's request to convert its license shall be
accompanied by documentation or other evidence as determined
by the commissioner that the licensee meets the requirements for
licensure under Division 1.2 (commencing with Section 2000). If
a licensee’s request for a converted license is granted, the licensee
shall be subject to Section 2178 in order to thereafter engage in
any virtual currency business.

26032.  

(a)  begin delete A end delete begin insert (1) end insert begin insert   end insert begin insert In lieu of Section 26006, a end insert person or entity
conducting virtual currency business with less than one million
dollars ($1,000,000) in outstanding obligations and whose business
model, as determined by the commissioner, represents low or no
risk to consumers may begin delete register with a five-hundred-dollar ($500)
license fee with the end delete begin insert pay an application fee of five hundred dollars
($500) to the end insert commissioner and, if approved, receive a provisional
license to conduct virtual currency business. A person or entity
that receives such a license shall also register with FinCEN as a
money services business, if applicable.

begin insert

(2) For the purposes of this section, “outstanding obligations”
means the value under the full custody and control of the person
or entity.

end insert

(b) In determining whether to issue a provisional license, the
commissioner shall consider a variety of factors, including, but
not limited to:

(1) The nature and scope of the applicant’s business.

(2) The anticipated volume of business to be transacted by the
applicant in California.

(3) The nature and scope of the risks that the applicant’s business
presents to consumers.

(4) The measures which the applicant has taken to limit or
mitigate the risks its business presents.

(5) Whether the applicant is regulated or otherwise authorized
by another governmental entity to engage in financial services or
other business activities.

(c)  begin delete The end delete begin insert Sections 26006, 26008, 26023, 26024, and 26031 shall
not apply to a person or entity to which a provisional license has
been issued. However, the end insert commissioner may require a provisional
licensee to certify adherence to certain risk based performance
standards related to safety, soundness, and consumer protection
as prescribed by the commissioner.

(d) Based upon the factors identified in subdivision (b) and the
provisional licensee’s history as a holder of a provisional license,
the commissioner may at any time renew such license for an
additional length of time or remove the provisional status from the
license if the licensee meets all the requirements of this division.
Unless the commissioner otherwise removes the provisional status
of or renews such license, a provisional license shall expire two
years after the date of issuance. If the commissioner renews a
provisional license, the licensee shall pay a five-hundred-dollar
($500) renewal fee.

(e) The commissioner may request reports and documents and
may begin delete audit end delete begin insert examine end insert the provisional licensee as needed to further
consumer begin delete protection and end delete begin insert protection, end insert enhance safety and begin delete soundness. end delete
begin insert soundness, and gather information regarding the business and
operations of provisional licensees. Reports and documents
concerning the business and operations of provisional licensees
shall be kept confidential pursuant to Chapter 3.5 (commencing
with Section 6250) of Division 7 of Title 1 of the Government Code
and any regulations adopted thereunder. The commissioner shall
include aggregated information about the business and operations
of provisional licensees in the report required by and subject to
subdivision (e) of Section 26023. end insert

(f) A provisional licensee shall notify the commissioner within
15 days of surpassing the threshold in subdivision (a) and shall,
within 30 days from that notice, apply for a license pursuant to
Chapter 2 (commencing with Section 26002).

(g) A provisional license may be suspended or revoked pursuant
to Section 26017.

 

Chapter  6. Operative Date

 

26040.  

This division shall become operative on July 1, 2016.

begin insert

begin insert SEC. 4. end insert   

end insert begin insert

The Legislature finds and declares that Section 3 of
this act, which adds Sections 26023 and 26032 to the Financial
Code, imposes a limitation on the public’s right of access to the
meetings of public bodies or the writings of public officials and
agencies within the meaning of Section 3 of Article I of the
California Constitution. Pursuant to that constitutional provision,
the Legislature makes the following findings to demonstrate the
interest protected by this limitation and the need for protecting
that interest:

end insert begin insert

In order to allow the Commissioner of Business Oversight of
the Department of Business Oversight to fully accomplish his or
her goals, it is imperative to protect the interests of those persons
submitting information to the department to ensure that any
personal or sensitive business information that this act requires
those persons to submit is protected as confidential information.

end insert

begin delete

SEC. 2.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end delete

begin delete

  

 

end delete