Cryptocurrency Exchange Platform
IN REPLY REFER TO: _________
FILE NO: _________
November 3, 2022
VIA EMAIL ONLY
Re: ___________________________ – Request for Interpretive Opinion
Thank you for your letters to the Commissioner of Financial Protection and Innovation, Clothilde V. Hewlett, dated __________ and _________________. In your letter, you request an interpretive opinion from the Department regarding whether _________________________ (the “Company”) will require a license under the Money Transmission Act for its proposed business activities in California.
In your letter you explain that the Company will offer the purchase, sale, and trading of various cryptocurrencies using a platform provided by its affiliate and in conjunction with another affiliate that is a ______ and ______ registered broker-dealer.
Transactions on the platform will involve the use of the Company’s tokenized version of the U.S. Dollar, the “______,” and each ______ is equal to one U.S. Dollar held in the Firm’s ________ account. Once a customer deposits funds into the Company’s _______ account, an equivalent amount of _____ will be created and used to facilitate a trade for cryptocurrency. After the transaction, or upon request, the ______ can be exchanged for U.S. Dollars. Alternatively, the customer can hold the ______ in their wallet.
You state that the company does not take custody of its client’s currencies or offer digital wallets. Rather, the client’s digital wallet is directly linked to the platform and transacts on a peer-to-peer basis with other clients.
You also explain that in addition to trading cryptocurrencies such as Bitcoin, Ethereum, USDC, or USDT, a customer can also trade in cryptographic representations of publicly listed securities (“______ Tokens”). When a customer buys a security, the Company holds the security in its ________ brokerage account and mints and gives the customer one ______ Token representing that share. The customer will then be able to transact using the ______ Token on the platform in the same manner as cryptocurrency such as Bitcoin (e.g. purchase, sell, trade). If a customer wants to retrieve their actual share or remove the share from the platform, you state that the Company will transfer the share to the customer’s traditional brokerage account. You also explain that transactions of the ______ Tokens, as securities, will be covered by the Company’s affiliate’s broker-dealer license.
Money Transmission Act
Financial Code section 2030 prohibits a person from engaging in the business of money transmission in this state unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.
Financial Code section 2003, subdivision (q), defines “money transmission” to include receiving money for transmission and issuing stored value. “Stored value” is monetary value representing a claim against the issuer that is stored on an electronic or digital medium and evidenced by an electronic or digital record, and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services, but does not include value that is only redeemable by the issuer for goods or services provided by the issuer.
The Department has not determined whether the issuance of tokenized versions of the U.S. Dollar or securities, or their use to trade cryptocurrencies, is money transmission. Therefore, Department does not currently require the Company to obtain a license under the MTA to perform the described platform trading services or to issue tokenized versions of the U.S. Dollar or securities.
Please be aware, however, these conclusions are subject to change. 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. In addition, this letter does not address whether your proposed activities require licensure or registration under other laws, such as the Corporate Securities Law of 1968.
Please also note, the Department recently invited the public to comment on developing guidance and regulation of crypto asset-related financial products and services in California. To receive notices of future rulemaking or invitations for comments, please sign up here: https://public.govdelivery.com/accounts/CADFI/subscriber/new.
If you have any questions, please feel free to contact me at ______________________.
Clothilde V. Hewlett
Department of Financial Protection and Innovation
cc: Robert Venchiarutti, Deputy Commissioner, Money Transmitter Division
Fin. Code, § 2003, subd. (x).
 Corp. Code, § 25000 et seq.