Cryptocurrency Exchange Platform

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IN REPLY REFER TO: _________

FILE NO: _________

February 25, 2020
 

Re:       Request for Interpretive Opinion – _____________ and _____________

 

Dear Mr. ­­­________:

Thank you for your letter dated August 23, 2019, supplemented by your letter dated November 13, 2019, requesting an interpretive opinion from the Department of Business Oversight (“Department”) as to whether _____________________ (“______________”) and ____________ (“_____________”) are required to obtain a license under the Money Transmission Act (“MTA”).[1]

______________, a Delaware limited liability company, and its affiliate ______________, a South Dakota-chartered trust company, propose to offer clients in California (“Clients”) virtual currency exchange services.  Each Client may load virtual currency into a custodial digital wallet maintained by ______________ and U.S. dollars into a bank account held by ______________ for the benefit of its Clients.  These amounts, associated with each Client’s account, can only be used to exchange digital currency or U.S. dollars through ______________ with third-party exchanges, over-the-counter counterparties, or ______________’s own inventory.  ______________, which provides brokerage services, receives orders from Clients, finds the most appropriate venue for a Client’s order, and instructs ______________ to execute Client transfers to settle the Client’s order.

The Department has been studying the cryptocurrency industry closely.  Whether cryptocurrencies are a viable form of money or a speculative non-money asset is widely debated.  Given this ongoing debate, the Department has not concluded whether cryptocurrencies are a form of money.  Likewise, the Department has not determined whether exchange and wallet services, like those provided by ______________ and ______________, trigger the application of California’s banking laws or MTA.

Accordingly, the Department is not requiring _____________ or _____________ to be licensed and supervised under these laws at this time.  Please be aware, however, this is subject to change.  At any time, the Department may determine these activities are subject to regulatory supervision.  The Department may also adopt regulations or issue interpretive opinions that significantly restrict these business operations.  If ______________ and _____________ choose to operate in California, they would do so subject to these risks.

Furthermore, to the extent any cryptocurrencies are securities or commodities, _____________ and ______________ may have legal obligations under California’s securities or commodities laws.  The Department reserves the right to take enforcement action if it later determines ______________ or ______________ are trading in violation of California law.  Therefore, ______________ and ______________ proceed at their own risk by providing these services in California.

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

 

Sincerely,

 

Manuel P. Alvarez

Commissioner

Department of Business Oversight

 

By _______________________

Senior Counsel

cc:        Robert Venchiarutti, Department of Business Oversight, San Francisco


[1] Fin. Code, § 2000 et. seq.  All further statutory references in this letter are to the Financial Code unless otherwise indicated.

Last updated: Feb 27, 2020 @ 11:52 am