Cryptocurrency Exchange Platform – 10/28/19

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October 28, 2019

IN REPLY REFER TO: ______________
FILE NO: ______________

VIA EMAIL AND FIRST-CLASS MAIL

 
Dear Mr. _____:
 
Thank you for your letter, dated October 4, 2019, requesting an interpretive opinion from the Department of Business Oversight (“Department”) as to whether _________ and ________ (collectively, “_____”) are required to obtain a license under the California Money Transmission Act (“MTA”) prior to operating an online cryptocurrency exchange with _____’ customers (“Customers”).

Your letter describes two types of transactions that will occur directly between _____ and its Customers as part of _____’ online cryptocurrency[1] exchange.  The first is a two-party transaction where _____, as a seller, transfers its own virtual currency directly to the Customer’s digital wallet in exchange for fiat currency transferred by the Customer to _____’ bank account via a third-party payment processor.[2]  The second is a two-party transaction where _____, as a buyer, transfers its own fiat currency to the Customer’s bank account via a third-party money transmitter[3] in exchange for virtual currency transferred directly by the Customer to _____’ digital wallet.  Each transaction is independent from all other transactions, no transaction automatically triggers another transaction on the exchange or elsewhere, _____ never takes possession of virtual currency or fiat currency as a custodian for Customers, and _____ does not offer any wallet services.

The Department has been studying the cryptocurrency industry closely.  Whether cryptocurrencies are a viable form of money or speculative non-money asset is widely debated.  Given this ongoing debate, the Department has not concluded whether cryptocurrencies are a form of money.

Notwithstanding the foregoing, the exchange of currency between _____ and its Customers from their own respective inventories does not constitute “receiving money for transmission”[4] by _____.  The phrase “for transmission” refers to the temporary entrustment of money or monetary value with a transmitter before it is forwarded to another person or entity.  In both transactions described in your letter, _____ might receive money or monetary value but does not forward it to another person or entity.  Rather, _____ keeps for its own account the virtual currency or fiat currency it receives from Customers.  Therefore, _____’ proposed activities do not constitute “receiving money for transmission” and are not subject to licensing under the MTA.[5]

The Department’s determination is limited to the activities described herein and does not extend to any other activities in which _____ may engage.  Any change to the facts or circumstances could lead to a different determination.

Nothing in this letter should be interpreted to relieve _____ from any obligation under laws administered by FinCEN or any other agency of the federal government.

Please contact me at ____________ with any questions.

Sincerely,

 

Manuel P. Alvarez

Commissioner

Department of Business Oversight

By

________________________

Senior Counsel

 

cc:        Department of Business Oversight, Money Transmitter Division, San Francisco


[1] The crytpocurrencies bought and sold by _____ in California through _____’ website will include Bitcoin, Ethereum, Litecoin, Ripple, Bitcoin Cash, Stellar, Binance Coin, NEO, Tron, Eos, and Tether.

[2] The third-party payment processor uses payment networks, including Visa and MasterCard, to process Customer’s fiat payment cards or otherwise deliver payment for Customers to _____.

[3] The third-party money transmitter is locally registered and licensed in the United Kingdom or the European Union to provide remittance services for _____ to deliver Fiat Currency to Customers in the United States or elsewhere.

[4] Fin. Code, § 2003, subd. (u).

[5] This opinion focuses on “receiving money for transmission” because it does not appear _____ sells or issues payment instruments or stored value.

Last updated: Dec 2, 2019 @ 10:15 am