USA – CALIFORNIA Trends and Developments Contributed by: Ryan David Williams, Betsie Stukenborg and Lauren Simon, Ashbury Legal
Additionally, the DFAL allows the DFPI to issue a con- ditional licence to certain applicants who hold a New
• policies and procedures relating to information security, business continuity, risk management, fraud prevention, prevention of money laundering, prevention of terrorist activities and compliance; • minimum capital and liquidity amounts; • a surety bond or trust account; and • records, preparation of reports, and submission to supervision and examination by the DFPI. DFAL licensees and applicants will also be required to provide disclosures to California residents. These disclosures include: • a schedule of fees and charges to be paid by Cali- fornia residents; • whether the licensee’s products and services are insured; • whether a licensee is liable for unauthorised, mis- taken or accidental transfers or exchanges; • whether a resident has a right to stop a pre-author- ised payment or revoke authorisation for a transfer; and • a list of instances in the past 12 months when the licensee’s service was unavailable for 10,000 or more customers due to a service outage. DFAL licensees and applicants will need to consider the interplay of California’s existing Money Trans- mission Act (MTA) with the DFAL. The MTA provides for California’s general licensing regime for “money transmission” in legal tender, and DFAL licensees and applicants may have dual compliance obligations under the MTA and the DFAL. The DFPI’s proposed regulations under the DFAL exempt most DFAL-cov- ered digital financial asset transactions from addition- al MTA licensure. Stablecoins The DFAL creates more stringent compliance obli- gations for businesses that exchange, transfer or store stablecoins on behalf of California residents. Businesses must be a DFAL licensee/applicant or an exempt regulatory entity (which includes banks, Cal- ifornia-licensed trust companies and national banks with trust power), and they must back outstanding stablecoins with a 1:1 reserve of “eligible securities” (as defined in the DFAL).
York BitLicense. DFAL licensing
DFAL license applications are filed through the Nation- wide Multistate Licensing System (NMLS), which is the system used by state regulators to license certain financial services businesses. Application require- ments include: • identifying information about the business, includ- ing control persons, bank information, fingerprints of executive officers and a certificate of good standing; • details of any other licences that the business holds and any FinCEN registration; • details regarding the digital financial asset activity that the business engages in, including how many California residents they have done, and intend to do, business with; and • plans for compliance with the policies required by the DFAL, as described below. Upon application, the DFPI will investigate the busi- ness to determine if it complies with all required criteria under the DFAL, and may be permitted to investigate the business premises. In making a determination, the DFPI will also consider the financial condition of the business, its general fitness for conducting the intend- ed activity and the reasonable likelihood of success. Businesses currently operating in California who apply for a licence by the 1 July 2026 deadline can continue to operate while their application is under DFPI review. The DFPI has proposed several regulations under the DFAL to clarify certain components of the licensing framework, so new applicants should review the cur- rent regulations in effect at the time of application. Obligations of DFAL licensees DFAL licensees and applicants have significant go- forward obligations, similar to those of traditional financial institutions. These obligations include main- taining:
741 CHAMBERS.COM
Powered by FlippingBook