3104. Unless displaced by the particular provisions of this division, the principles of law and equity supplement its provisions.

(c) The department may determine that a person or class of persons, given facts particular to the person or class, are exempt from this division, whether the person or class is covered by requirements imposed under federal law on a money-service business.

(14) A person that does not receive compensation from a resident for providing virtual currency products or services or for conducting virtual currency business activity, or that is engaged in testing products or services with the person’s own funds.

(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 virtual currency, if the virtual currency 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.

(11) A securities intermediary, as defined in Section 8102 of the Commercial Code, or a commodity intermediary, as defined in Section 9102 of Commercial Code, that does not engage in the ordinary course of business in virtual currency business activity with, or on behalf of, a resident, in addition to maintaining securities accounts or commodities accounts and is regulated as a securities intermediary or commodity intermediary under federal law, law of this state other than this division, or law of another state, and affords a resident protections comparable to those set forth in Chapter 7 (commencing with Section 8701) of Division 8 of the Commercial Code.

(9) An attorney to the extent of providing escrow services to a resident.

(8) A person whose virtual currency business activity with, or on behalf of, residents is reasonably expected to be valued, in the aggregate, on an annual basis at five thousand dollars ($5,000) or less, measured by the United States dollar equivalent of virtual currency.

(7) A person using virtual currency, including creating, investing, buying or selling, or obtaining virtual currency 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.

(C) A person that provides only to a person otherwise exempt from this division virtual currency as one or more enterprise solutions used solely among each other and that has no agreement or relationship with a resident that is an end-user of virtual currency.

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

(A) A person that contributes only connectivity software or computing power to a decentralized virtual currency or to a protocol governing transfer of the digital representation of value.

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

(5) 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.

(4) 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 or registration requirements of this division.

(3) A person engaged in money transmission that holds a license under the Money Transmission Act (Division 1.2 (commencing with Section 2000)), is authorized by the department to engage in virtual currency business activity, and complies with Chapter 2 (commencing with Section 3201), Chapter 3 (commencing with Section 3301), Chapter 5 (commencing with Section 3501), and Chapter 6 (commencing with Section 3601).

(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.

(b) This division does not apply to the exchange, transfer, or storage of virtual currency or to virtual currency administration to the extent the Electronic Fund Transfer Act of 1978 (15 U.S.C. Secs. 1693 through 1693r), the Securities Exchange Act of 1934 (15 U.S.C. Secs. 78a through 78oo), the Commodities Exchange Act of 1936 (7 U.S.C. Secs. 1 through 27f), or the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) govern the activity. This division does not apply to activity by any of the following:

3103. (a) Except as otherwise provided in subdivision (b) or (c), this division governs the virtual currency business activity of a person, wherever located, who engages in or holds itself out as engaging in the activity with, or on behalf of, a resident.

(b) Other definitions applicable to this division are found in Section 8702 of the Commercial Code.

(26) “Virtual currency control services vendor” means a person that has control of virtual currency solely under an agreement with a person that, on behalf of another person, assumes control of virtual currency.

(ii) Legal tender or bank 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.

(i) Virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received.

(C) 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:

(B) 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.

(A) Exchanging, transferring, or storing virtual currency or engaging in virtual currency administration, whether directly or through an agreement with a virtual currency control services vendor.

(24) “Virtual currency administration” means issuing virtual currency with the authority to redeem the currency for legal tender, bank credit, or other virtual currency.

(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.

(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 credit, or virtual currency.

(23) “Virtual currency” 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. “Virtual currency” does not include either of the following:

(22) “United States dollar equivalent of virtual currency” means the equivalent value of a particular virtual currency in United States dollars shown on a virtual currency exchange based in the United States for a particular date or period specified in this division.

(C) To relinquish control of virtual currency to another person.

(B) To move the virtual currency from one account of a resident to another account of the same resident.

(A) To credit the virtual currency to the account of another person.

(21) “Transfer” means to assume control of virtual currency from, or on behalf of, a resident and any of the following:

(20) “Store,” except in the phrase “store of value,” means to maintain control of virtual currency on behalf of a resident by a person other than the resident. “Storage” and “storing” have corresponding meanings.

(19) “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.

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

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

(17) “Responsible individual” means an individual who has managerial authority with respect to a licensee’s or registrant’s virtual currency business activity with, or on behalf of, a resident.

(iii) A person who has a place of business in this state.

(ii) A person who is physically located in this state for more than 183 days of the previous 365 days.

(13) “Registrant” means a person that has registered with this state under Section 3207 to conduct virtual currency business activity.

(12) “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.

(11) “Reciprocity agreement” means an arrangement between the department and the appropriate licensing agency of another state which permits a licensee operating under a license granted by the other state to engage in virtual currency business activity with or on behalf of a resident.

(10) “Person” means an individual, partnership, estate, business or nonprofit entity, or other legal entity. The term does not include a public corporation, government, or governmental subdivision, agency, or instrumentality.

(8) “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.

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

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

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

(6) “Executive officer” means an individual who is a director, officer, manager, managing member, partner, or trustee of a person that is not an individual.

(B) Legal tender or bank credit for one or more forms of virtual currency.

(A) Virtual currency for legal tender, bank credit, or one or more forms of virtual currency.

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

(B) When used in reference to a person, the direct or indirect power to direct the management, operations, or policies of the person through legal or beneficial ownership of voting power in the person or under a contract, arrangement, or understanding.

(A) When used in reference to a transaction or relationship involving virtual currency, power to execute unilaterally or prevent indefinitely a virtual currency transaction.

(B) A trust company or limited-purpose trust company chartered by a state with which this state does not have a reciprocity agreement governing trust-company activities.

(A) An industrial loan company, state-chartered trust company, or a limited-purpose trust company, unless incorporated as a bank or the department has authorized the company to engage in virtual currency business activity.

(2) “Bank” means a federally chartered or state-chartered depository institution or holder of a charter granted by the Office of the Comptroller of the Currency to a person engaged in the business of banking other than deposit-taking. The term does not include either of the following:

3101. This division shall be known and may be cited as the Uniform Regulation of Virtual Currency Businesses Act.

CHAPTER 2. Licensure

3201. A person shall not engage in virtual currency business activity, or hold itself out as being able to engage in virtual currency business activity, with or on behalf of a resident unless the person is one of the following: (a) Licensed in this state by the department under Section 3202. (b) Licensed in another state to conduct virtual currency business activity by a state with which this state has a reciprocity agreement and has qualified under Section 3203. (c) Registered with the department and operating in compliance with Section 3207. (d) Exempt from licensure or registration under this division by subdivision (b) or (c) of Section 3103.

3202. (a) Except as otherwise provided in Section 3203, an application for a license under this division shall satisfy all of the following: (1) Be in a form and medium prescribed by the department. (2) Except as otherwise provided in subdivision (b), provide the following information relevant to the applicant’s proposed virtual currency business activity: (A) The legal name of the applicant, each current or proposed business United States Postal Service address of the applicant, and any fictitious or trade name the applicant uses or plans to use in conducting its virtual currency business activity with or on behalf of a resident. (B) The legal name, any former or fictitious name, and the residential and business United States Postal Service address of each executive officer and responsible individual of the applicant, and each person that has control of the applicant. (C) A description of the current and former business of the applicant for the five years before the application is submitted, or if the business has operated for less than five years, for the time the business has operated, including its products and services, associated internet website addresses and social media pages, principal place of business, projected user base, and specific marketing targets. (D) The name, United States Postal Service address, and telephone number of a person that manages each server the applicant expects to use in conducting its virtual currency business activity with, or on behalf of, a resident and a copy of any agreement with that person. (E) A list of all of the following: (i) Each money service or money transmitter license the applicant holds in another state. (ii) The date the license expires. (iii) Any license revocation, license suspension, or other disciplinary action taken against the licensee in another state and any license applications rejected by another state. (F) A list of any criminal conviction, deferred prosecution agreement, and pending criminal proceeding in any jurisdiction against all of the following: (i) The applicant. (ii) Each executive officer of the applicant. (iii) Each responsible individual of the applicant. (iv) Each person that has control over the applicant. (v) Each person over which the applicant has control. (G) A list of any litigation, arbitration, or administrative proceeding in any jurisdiction in which the applicant, or an executive officer or a responsible individual of the applicant has been a party for the five years before the application is submitted, determined to be material in accordance with generally accepted accounting principles and, to the extent the applicant would be required to disclose the litigation, arbitration, or administrative proceeding in the applicant’s audited financial statements, reports to equity owners, and similar statements or reports. (H) A list of any bankruptcy or receivership proceeding in any jurisdiction for the 10 years before the application is submitted in which any of the following was a debtor: (i) The applicant. (ii) Each executive officer of the applicant. (iii) Each responsible individual of the applicant. (iv) Each person that has control over the applicant. (v) Each person over which the applicant has control. (I) The name and United States Postal Service address of each bank in which the applicant plans to deposit funds obtained by its virtual currency business activity. (J) The source of funds and credit to be used by the applicant to conduct virtual currency business activity with, or on behalf of, a resident and documentation demonstrating that the applicant has the net worth and reserves required by Section 3204. (K) The United States Postal Service address and electronic mail address to which communications from the department may be sent. (L) The name, United States Postal Service address, and electronic mail address of the registered agent of the applicant in this state. (M) A copy of the certificate, or a detailed summary acceptable to the department, of coverage for each liability, casualty, business-interruption or cyber-security insurance policy maintained by the applicant for itself, an executive officer, a responsible individual, or the applicant’s users. (N) If applicable, the date on which, and the state where, the applicant is formed and a copy of a current certificate of good standing issued by that state. (O) If a person has control of the applicant and the person’s equity interests are publicly traded in the United States, a copy of the audited financial statement of the person for the most recent fiscal year or most recent report of the person filed under Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78m). (P) If a person has control of the applicant and the person’s equity interests are publicly traded outside the United States, a copy of the audited financial statement of the person for the most recent fiscal year of the person or a copy of the most recent documentation similar to that required in subparagraph (O) filed with the foreign regulator in the domicile of the person. (Q) If the applicant is a partnership or a member-managed limited liability company, the names and United States Postal Service addresses of general partners or members. (R) If the applicant is required to register with the Financial Crimes Enforcement Network of the United States Department of the Treasury as a money service business, evidence of the registration. (S) A set of fingerprints for each executive officer and responsible individual of the applicant. (T) If available, for each executive officer and responsible individual of the applicant, for the five years before the application is submitted, employment history and history of any investigation of the individual or legal proceeding to which the individual was a party. (U) The plans through which the applicant will meet its obligations under Chapter 6 (commencing with Section 3601). (V) Other information the department reasonably requires by rule. (3) The application be accompanied by a nonrefundable fee in the amount determined by the department to cover the reasonable costs of regulation. (b) For good cause, the department may waive a requirement of subdivision (a) or permit the applicant to submit other information instead of the required information. (c) An application for a license under this section is not complete until the department receives all information required by this division and completes its investigation under subdivision (d). (d) (1) On receipt of a completed application, the department shall investigate all of the following: (A) The financial condition and responsibility of the applicant. (B) The relevant financial and business experience, character, and general fitness of the applicant. (C) The competence, experience, character, and general fitness of each executive officer, each responsible individual, and any person that has control of the applicant. (2) At the option the department, it may investigate the business premises of an applicant. (e) Not later than 30 days after an application is complete, the department shall send the applicant notice of its decision to approve, conditionally approve, or deny the application. If the department does not send the applicant notice of its decision within 31 days of completion of the application, the application is deemed denied. If the department does not receive notice from the applicant that the applicant accepts conditions specified by the department within 31 days following the department’s notice of the conditions, the application is deemed denied. (f) A license takes effect on the later of the following: (1) The date on which the department issues the license. (2) The date the licensee provides the security required by Section 3204. (g) An applicant shall pay the reasonable costs of the department’s investigation under this section.

3203. (a) A person licensed by another state to engage in virtual currency business activity in that state may engage in virtual currency business activity with or on behalf of a resident to the same extent as a licensee if all of the following are true: (1) The department determines that the state in which the person is licensed has in force laws regulating virtual currency business activity which are substantially similar to, or more protective of rights of users than, this division. (2) At least 30 days before the person commences virtual currency business activity with, or on behalf of, a resident, the person submits to the department all of the following: (A) A notice containing a statement that the person will rely on reciprocal licensing, a copy of the license to conduct virtual currency business activity issued by the other state, and certification of license history from the agency responsible for issuing the license to conduct virtual currency business activity in the other state. (B) A nonrefundable reciprocal license fee in the amount specified by the department, not to exceed the reasonable costs of regulation. (C) Documentation demonstrating that the applicant complies with the security and net worth reserve requirements of Section 3204. (D) A certification signed by an executive officer of the applicant affirming that the applicant will conduct its virtual currency business activity with, or on behalf of, a resident in compliance with this division. (3) Subject to subdivision (b), the department does not deny the application not later than 15 days after receipt of the items submitted under paragraph (2). (4) Subject to subdivision (b), the applicant does not commence virtual currency business activity with, or on behalf of, a resident until at least 31 days after complying with paragraph (2). (b) For good cause, the department may modify a period in this section.

3204. (a) Before a license is issued under this division: (1) An applicant shall deposit with the department funds or investment property, a letter of credit, a surety bond, or other security satisfactory to the department that secures the applicant’s faithful performance of its duties under this division and is in an amount the department specifies based on the nature and extent of risks in the applicant’s virtual currency business model. (2) The department shall not require a surety bond as security under this division unless a surety bond is generally available in the state at a commercially reasonable cost. (3) Security deposited under this section shall be payable to this state for the benefit of a claim against the licensee on account of the licensee’s virtual currency business activity with, or on behalf of, a resident. (4) Security deposited under this section shall cover claims for the period the department specifies by rule and for an additional period the department specifies after the licensee ceases to engage in virtual currency business activity with or on behalf of a resident. (5) For good cause, the department may require the licensee to increase the amount of security deposited under this section, and the licensee shall deposit the additional security not later than 15 days after the licensee receives notice in a record of the required increase. (6) For good cause, the department may permit a licensee to substitute or deposit an alternate form of security satisfactory to the department if the licensee at all times complies with this section. (7) A claimant does not have a direct right to recover against security deposited under this section. (8) Only the department may recover against the security, and the department may retain the recovery for no longer than five years and may process claims and distribute recoveries to claimants in accordance with rules adopted by the department under the Money Transmission Act (Division 1.2 (commencing with Section 2000)). (b) In addition to the security required under subdivision (a), a licensee and a registrant, at the time of the application for a license under this act or filing of registration, shall submit to the department evidence of and maintain a minimum net worth of twenty-five thousand dollars ($25,000) and sufficient unencumbered reserves for winding down the licensee’s or registrant’s operations, as agreed to by the department considering the nature and size of expected virtual currency business activity with, or on behalf of, residents. (c) A licensee or registrant may include in its calculation of net worth virtual currency, measured by the average value of the virtual currency in United States dollar equivalent over the prior six months, other than the virtual currency over which it has control for a resident entitled to the protections of Chapter 7 (commencing with Section 8701) of Division 8 of the Commercial Code. (d) For good cause, the department may require a licensee or registrant to increase the net worth or reserves required under this section. The licensee or registrant shall submit to the department evidence that it has the additional net worth or reserves not later than 15 days after the licensee or registrant receives notice in a record of the required increase.

3205. (a) Absent good cause, the department shall issue a license to an applicant if the applicant complies with this chapter and pays the costs of the investigation under subdivision (g) of Section 3202 and the initial licensee fee under paragraph (3) of subdivision (a) of Section 3202 in an amount specified by the department. (b) An applicant may appeal a denial of its application under Section 3202 or 3203, under the Administrative Procedure Act, as defined in Section 11370 of the Government Code, not later than 30 days after the department notifies the applicant of the denial or the application is deemed denied.

3206. (a) Subject to subdivision (g), not later than 15 days before the anniversary date of issuance of its license under this division, a licensee may apply for renewal of the license by paying a renewal fee determined by the department, not to exceed the reasonable costs of regulation, and submitting to the department a renewal report under subdivision (b). (b) A renewal report required by subdivision (a) shall be submitted in a form and medium prescribed by the department. The report shall contain all of the following: (1) Either a copy of the licensee’s most recent reviewed annual financial statement, if the licensee’s virtual currency business activity in this state was ____ dollars ($____) or less for the fiscal year ending before the anniversary date of issuance of its license under this division, or audited annual financial statement if the licensee’s virtual currency business activity in this state amounted to more than ____ dollars ($____) for the fiscal year ending before the anniversary date. (2) If a person other than an individual has control of the licensee, a copy either of the following: (A) The person’s most recent reviewed annual financial statement if the person’s gross revenue was ____ dollars ($____) or less in the previous fiscal year, measured as of the anniversary date of issuance of its license under this division. (B) The person’s most recent audited consolidated annual financial statement if the person’s gross revenue was more than ____ dollars ($____) in the previous fiscal year, measured as of the anniversary date of issuance of its license under this division. (3) A description of any of the following: (A) Material change in the financial condition of the licensee. (B) Material litigation involving the licensee or an executive officer, or responsible individual of the licensee. (C) License suspension or revocation proceeding commenced, or other action taken, involving a license to conduct virtual currency business activity issued by another state on which reciprocal licensing is based. (D) Federal or state investigation involving the licensee. (E) Data security breach involving the licensee. (4) Information or records required by Section 3305 that the licensee has not reported to the department. (5) The number of virtual currency business activity transactions with, or on behalf of, residents for the period since, subject to subdivision (g), the later of the date the license was issued or the date the last renewal report was submitted. (6) (A) The amount of United States dollar equivalent of virtual currency in the control of the licensee at, subject to subdivision (g), the end of the last month that ends not later than 30 days before the date of the renewal report. (B) The total number of residents for whom the licensee had control of United States dollar equivalent of virtual currency on that date. (7) Evidence that the licensee continues to satisfy Section 3502. (8) Evidence that the licensee continues to satisfy Section 3204. (9) A list of each location where the licensee operates its virtual currency business activity. (10) The name, United States Postal Service address, and telephone number of each person that manages a server used by the licensee in conducting its virtual currency business activity with or on behalf of a resident. (c) If a licensee does not timely comply with subdivision (a), the department may use enforcement measures provided under Chapter 4 (commencing with Section 3401). Notice or hearing is not required for a suspension or revocation of a license under this division for failure to pay a renewal fee or file a renewal report. (d) If the department suspends or revokes a license under this division for noncompliance with subdivision (a), the department may end the suspension or rescind the revocation and notify the licensee of the action if, subject to subdivision (g), not later than 20 days after the license was suspended or revoked, the licensee files a renewal report and pays a renewal fee and pays any penalty assessed under Section 3404. (e) The department shall give prompt notice to a licensee of the lifting of a suspension or rescission of a revocation after the licensee complies with subdivision (d). (f) Suspension or revocation of a license under this section does not invalidate a transfer or exchange of virtual currency for, or on behalf of, a resident made during the suspension or revocation and does not insulate the licensee from liability under this division. (g) For good cause, the department may extend a period under this section. (h) The department shall review the renewal of a license issued under Section 3203 to ensure that the state that issued the original license has not suspended, revoked, or limited the license. (i) A licensee that does not comply with this section shall cease operations with, or on behalf of, a resident on or before the anniversary date of issuance of its license under this division. (j) A licensee shall pay the reasonable and necessary costs of the department’s investigation under this section.

3207. (a) A person whose volume of virtual currency business activity in United States dollar equivalent of virtual currency will not exceed thirty-five thousand dollars ($35,000) annually may engage in virtual currency business activity with, or on behalf of, a resident under a registration without first obtaining a license under this division if the person does all of the following: (1) Files with the department a notice in the form and medium prescribed by the department of its intention to engage in virtual currency business activity with, or on behalf of, a resident. (2) Provides the information for an investigation under Section 3202. (3) States the anticipated virtual currency business activity for its next fiscal quarter. (4) Pays the department a registration fee in an amount determined by the department, not to exceed the reasonable costs of regulation. (5) If required to register with the Financial Crimes Enforcement Network of the United States Department of the Treasury as a money service business, provides the department evidence of the registration. (6) Provides evidence that the person has policies and procedures to comply with the Bank Secrecy Act (31 U.S.C. Sec. 5311 et seq.) and other applicable laws. (7) Describes the source of funds and credit to be used by the person to conduct virtual currency business activity with, or on behalf of, a resident and provides evidence of, and agrees to maintain, the minimum net worth and reserves required by Section 3204 and sufficient unencumbered reserves for winding down operations. (8) Provides the department with evidence that the person has in place policies and procedures to comply with Chapter 3 (commencing with Section 3301), Chapter 5 (commencing with Section 3501), and Chapter 6 (commencing with Section 3601) and other provisions of this division designated by the department. (9) Provides the department with a copy of its most recent financial statement, whether reviewed or audited. (b) Before the virtual currency business activity of a registrant with, or on behalf of, residents exceeds thirty-five thousand dollars ($35,000) annually in United States dollar equivalent of virtual currency, the registrant shall file an application for a license under this division and may continue to operate after the activity exceeds thirty-five thousand dollars ($35,000) annually while its application for license is pending. (c) For good cause, the department may suspend or revoke a registration without a prior hearing or opportunity to be heard. (d) A registrant shall cease all virtual currency business activity with, or on behalf of, residents in the event of any of the following: (1) If the department denies the registrant’s application for a license under this division, one day after the registrant receives notice in a record that the department has denied the application. (2) If the department suspends or revokes the registration, one day after the department sends notice of the suspension or revocation to the registrant in a record by a means reasonably selected for the notice to be received by the recipient in one day, to the address provided for receiving communications from the department. (3) If the virtual currency business activity of the registrant with, or on behalf of, residents exceeds thirty-five thousand dollars ($35,000) annually in United States dollar equivalent of virtual currency and the registrant has not filed an application for a license under this division. (4) On the second anniversary date of the registration.

3208. A license or registration under this division is not transferable or assignable.