USA – CALIFORNIA Trends and Developments Contributed by: Alexander Lindgren, Karl Lindgren and Daniel TeJumson, Lindgren, Lindgren, Oehm & You LLP
Brief Note on Jurisdiction and California Nexus California takes an expansive approach to the scope of DFAL coverage. California Financial Code Section 3103 (a) provides that the DFAL governs the digital financial asset business activity of a person doing business in California or, wherever located, who engages in or holds itself out as engaging in the activ - ity with, or on behalf of, a resident. For example, so- called white-labelled services offered through a third party to California residents which would otherwise be covered by the DFAL are likely to trigger licensure obligations; market participants relying on these busi - ness models would be well-advised to ensure that their agreements provide sufficient visibility into their partners’ end users to ensure they can identify and comply with DFAL licensure and, if licensed, record- keeping and other regulatory obligations as they arise. In practical terms, the DFAL can therefore apply to firms with limited physical presence in California if they serve California residents or market DFAL-cov - ered services into California. From 1 July 2026, a cov - ered person must be licensed, have a timely applica - tion pending, or qualify for an exemption (California Financial Code Section 3201).
not collect charges (directly or indirectly) in a single transaction exceeding the greater of USD5 or 15% of the USD equivalent of the digital financial assets involved, calculated by reference to the market price on a licensed digital financial asset exchange at the time the customer initiates the transaction (California Financial Code Sections 3901 (a) and 3904). Since 1 January 2024, an operator must provide the DFPI with various information, such as the locations of all digital financial asset transaction kiosks (California Financial Code Section 3906). From 1 January 2025, before a digital financial asset transaction, an operator must provide a clear written disclosure in English and in the same language principally used by the operator to advertise, solicit, or negotiate with a customer. The disclosure must include, at a minimum, the amount of the digital financial asset involved and the amount (in USD) of any fees, expenses and charges collected by the operator (California Financial Code Section 3905 (a)).
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