Eligible Securities/FBO Accounts
November 3, 2016
Re: Request for Approval of Money Transmission Funds Maintained in Deposit Accounts as Eligible Securities Under Financial Code section 2084, subdivision (c)
Thank you for your letter dated July 27, 2016 to the Commissioner of Business Oversight, as supplemented with information provided by your emails dated September 1 and October 20, 2016. As Counsel in the Legal Division, the Commissioner requested that I respond to this matter. You request a determination that ______________ account titled “______________, FBO ITS CUSTOMERS” at ______________ Bank qualifies as an eligible security.
MONEY TRANSMISSION ACT
Financial Code section 2081 provides, in relevant part, that a money transmitter must own eligible securities with an aggregate market value that is the same as or more than all its outstanding money transmission liabilities. This requirement ensures that money transmitters adequately safeguard the funds entrusted to them by their customers.
Financial Code section 2084, subdivision (b)(3) allows money transmitters to count as eligible securities the transmission money that is held in an account titled in the name of the money transmitter for the benefit of its customers. Additionally, the money transmitter must hold the money in a custodial capacity as an agent of its customers. Subdivision (c) of the same section provides that the Commissioner shall decide whether subdivision (b)(3) applies.
______________ holds its customers’ funds in an account titled “______________, FBO ITS
CUSTOMERS.” The Master Services Agreement between ______________ Bank and ______________ states that ______________’s accounts designated “for the benefit” of ______________’s customers is evidence of a custodial relationship. Additionally, ______________’s User Agreement for California residents was revised on October 18, 2016, and now contains a clause that states the customer consents to ______________ acting as his or her agent with respect the customer’s funds held in this FBO Account.
Based on these factors, this FBO Account meets the naming, custodial, and agency requirements set forth in Financial Code section 2084, subdivision (b)(3). Based on a review of the financial statements and other factors submitted by ______________, the Department grants the request to include these FBO accounts as eligible securities pursuant to Financial Code section 2084, subdivision (c).
______________ should continue to evaluate the amount, nature, quality, and liquidity of its assets, amount and nature of its liabilities, and compliance with applicable state and federal law. If there is any material deterioration in ______________’s status with respect to the requirements of Financial Code section 2084, subdivision (c), ______________risks losing the ability to count these FBO accounts as eligible securities.
This opinion is based solely on the facts presented in your correspondence. Any changes in the facts or circumstances, as we understand them, could lead to a different conclusion.
Please call me at ______________ with any questions.
Jan Lynn Owen
Commissioner of Business Oversight
Julie L. Jacob
cc: Robert Venchiarutti, Department of Business Oversight, San Francisco