AB 39: Digital financial asset businesses: regulatory oversight.

Existing law, the Money Transmission Act, generally prohibits a person from engaging in the business of money transmission, as defined, without a license from the Commissioner of Financial Protection and Innovation.

This bill, the Digital Financial Assets Law, would, on and after July 1, 2025, prohibit a person from engaging in digital financial asset business activity, or holding itself out as being able to engage in digital financial asset business activity, with or on behalf of a resident unless any of certain criteria are met, including the person is licensed with the Department of Financial Protection and Innovation, as prescribed. The bill would define digital financial asset to mean 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, except as specified. The bill would exempt activity by specified entities, and would authorize the commissioner, by regulation or order, to further exempt any person or transaction, if the commissioner finds the exemption to be in the public interest, as provided.

This bill would, among other things, authorize the department to conduct examinations of a licensee, as prescribed, and would require a licensee to maintain, for all digital financial asset business activity with, or on behalf of, a resident for 5 years after the date of the activity, certain records, including a general ledger maintained at least monthly that lists all assets, liabilities, capital, income, and expenses of the licensee.

This bill would authorize the department to take an enforcement measure against a licensee or person that is not a licensee but has engaged, is engaging, or is about to engage in digital financial asset business activity with, or on behalf of, a resident in any of certain instances, including the licensee or person materially violates the provisions of the bill, a rule adopted or order issued under the bill, or a law of this state other than the bill that applies to digital financial asset business activity of the violator with, or on behalf of, a resident. The bill would prescribe certain civil penalties for violations of its provisions.

This bill would require a covered person, before engaging in digital financial asset business activity with a resident, to make certain disclosures to the resident, including a schedule of fees and charges the covered person may assess, the manner by which fees and charges will be calculated if they are not set in advance and disclosed, and the timing of the fees and charges. The bill would define covered person to mean a person required to obtain a license under the Digital Financial Assets Law.

This bill would require an applicant, before submitting an application, to create and, during licensure, maintain in a record policies and procedures for, among other things, an information security program and an operational security program.

This bill would become operative only if SB 401 of the 202324 Regular Session is enacted and takes effect on or before January 1, 2024.