Bill Text: CA AB1116 | 2023-2024 | Regular Session | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Money Transmission Act.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Passed) 2023-10-08 - Chaptered by Secretary of State - Chapter 463, Statutes of 2023. [AB1116 Detail]
Download: California-2023-AB1116-Introduced.html
may may, by order or regulation regulation, grant exemptions from this section in cases where in which the commissioner finds that the requirements of this section are not necessary or may be duplicative.2040. computing computing, for purposes of Section 2082 2082, the aggregate value of eligible securities owned by a licensee, all of the following shall be excluded:
Bill Title: Money Transmission Act.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Passed) 2023-10-08 - Chaptered by Secretary of State - Chapter 463, Statutes of 2023. [AB1116 Detail]
Download: California-2023-AB1116-Introduced.html
CALIFORNIA LEGISLATURE—
2023–2024 REGULAR SESSION
Assembly Bill
No. 1116
| Introduced by Assembly Member Grayson |
February 15, 2023 |
An act to amend Sections 2002, 2003, 2010, 2039, 2082, 2083, and 2084 of, to add Sections 2125 and 2127 to, and to repeal and add Section 2040 of, the Financial Code, relating to financial institutions.
LEGISLATIVE COUNSEL'S DIGEST
AB 1116, as introduced, Grayson.
Money Transmission Act.
The Money Transmission Act generally provides for the regulation of money transmission, as defined, by the Commissioner of Financial Protection and Innovation. The act provides for certain exemptions from the act, including an exemption for the United States or a department, agency, or instrumentality thereof, including a federal reserve bank and a federal home loan bank.
This bill would, among other things, additionally exempt from the act a person that acts as an intermediary by processing money transmission between an entity that has directly incurred an outstanding money transmission obligation to a sender and the sender’s designated recipient, if the entity meets certain criteria, including that the entity is properly licensed or exempt from licensing requirements under the act. The bill would also exempt a registered futures commission
merchant under the federal commodities laws to the extent of its operation as such a merchant.
The act requires a licensee to, not more than 45 days after the end of each calendar year quarter, file with the commissioner a report containing certain information, including the current address of each branch office of the licensee in this state, as specified, and the name of each person who acted as an agent in this state of the licensee during the calendar year quarter and the address for each agent branch office, as specified. The act makes a person that intentionally makes a false statement, misrepresentation, or false certification in a record filed or required to be maintained under the act or that intentionally makes a false entry or omits a material entry in such a record guilty of a felony.
This bill would instead require the information regarding each branch office of the licensee to be reported through NMLS, as
defined, and not directly to the commissioner. The bill would require a licensee to file additional information with the commissioner regarding a person who acted as an agent in this state of the licensee during the calendar year quarter, including the agent’s telephone number and email address. By expanding the scope of the crime described above, this bill would impose a state-mandated local program.
The act requires an applicant for a license to possess, and requires a licensee to maintain at all times, tangible shareholder’s equity of $250,000 to $500,000 depending on estimated or actual transaction volume, as determined by the commissioner, as prescribed.
This bill would delete that provision and would instead, subject to the commissioner’s discretion, require a licensee to maintain at all times a tangible net worth of the greater of $100,000 or 3 percent of total assets for the first $100,000,000, 2 percent of
additional assets for $100,000,000 to $1,000,000,000, and one-half of 1 percent of additional assets for over $1,000,000,000.
The act requires a licensee to, at all times, own eligible securities having an aggregate market value computed in accordance with United States generally accepted accounting principles of not less than the aggregate amount of all of its outstanding payment instruments and stored value obligations issued or sold in the United States and all outstanding money received for transmission in the United States. The act defines “eligible securities” to mean any United States currency eligible security or foreign currency eligible security and defines “United States currency eligible security” and “foreign currency eligible security” to mean specific securities.
This bill would, among other changes related to the determination of the value of eligible securities held by a licensee, revise and add to the
list of those securities, including by including in the list of United States currency eligible securities the full drawable amount of an irrevocable standby letter of credit for which the stated beneficiary is the commissioner that stipulates that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds up to the letter of credit amount within 7 days of presentation of certain items, including the original letter of credit.
This bill would also require a licensee adding or replacing a key individual, defined to mean a natural person ultimately responsible for establishing or directing policies and procedures of the licensee, including an executive officer, manager, director, or trustee, to take certain actions, including provide notice to the commissioner within 15 days after the effective date of the key individual’s appointment, as prescribed.
The bill would provide that,
before January 1, 2025, a person licensed under the act to engage in the business of money transmission is not subject to a provision of the bill to the extent that the provision conflicts with the law in effect on December 31, 2023, or to the extent the provision establishes new requirements not imposed under the law in effect on December 31, 2023.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YESBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 2002 of the Financial Code is amended to read:2002.
It is the intent of the Legislature that the provisions of this act accomplish all of the following:(a) Protect the interests of persons in this state who use money transmission services.
(b) Provide for the safe and sound conduct of the business of licensees.
(c) Maintain public confidence in licensees.
(d) Ensure states can coordinate in all areas of regulation, licensing, and supervision to eliminate unnecessary regulatory burden and more effectively utilize regulator resources.
(e) Standardize the types of activities that are subject to licensing or exempt from licensing.
(f) Authorize the utilization of Nationwide Multistate Licensing System and Registry forms, processes, and functionalities in accordance with this act.
SEC. 2.
Section 2003 of the Financial Code is amended to read:2003.
For purposes of this division, the following definitions shall apply:(a) “Affiliate,” when used with respect to a specified person, means any person controlling, controlled by, or under common control with, that specified person, directly or indirectly through one or more intermediaries. For purposes of subdivisions (s) and (x), a specified person is affiliated with another person if that person controls, is controlled by, or under common control through the ownership directly or indirectly of shares or equity securities possessing more than 50 percent of the voting power of that specified person.
(b) “Agent” means a person that is not itself licensed as a money transmitter in California and provides money transmission in
California on behalf of the licensee, provided that the licensee becomes liable for the money transmission from the time money or monetary value is received by that person. However, “agent” does not include any officer or employee of the licensee when acting as such at an office of a licensee.
(c) “Applicant” means a person that files an application for a license or for acquisition of control of a licensee under this division.
(d) “Average daily outstanding” means the amount of outstanding money transmission obligations in California at the end of each day in a given period of time, added together, and divided by the total number of days in that period of time.
(e) “Branch office” means any office in this state of a licensee or agent at which the licensee receives money or monetary value to provide money
transmission, either directly or through an agent.
(f) “Business day” means one of the following:
(1) When used with respect to any act to be performed in this state, any day other than Saturday, Sunday, or any other day that is provided for as a holiday in the Government Code.
(2) When used with respect to any act to be performed in any jurisdiction other than this state, any day other than a day that is a legal holiday under the laws of that jurisdiction.
(g) “Commissioner” means the Commissioner of Financial Protection and Innovation.
(h) “Control” has the meaning set forth in Section 1250.
(i) “Day” means calendar
day.
(j) “E-commerce” means any transaction where the payment for goods or services is initiated via a mobile application or an internet website.
(k) (1) “In California” or “in this state” means physically located in California, or with, to, or from persons located in California.
(2) For a transaction requested electronically or by phone, the provider of money transmission may determine if the person requesting the transaction is in this state by relying on other information provided by the person regarding the location of
the individual’s residential address or a business entity’s principal place of business or other physical address location and any records associated with the person that the provider of money transmission may have that indicate that location, including, but not limited to, an address associated with an account.
(l) “Issue” and “issuer” mean, with regard to a payment instrument, the entity that is the maker or drawer of the instrument in accordance with the California Commercial Code and is liable for payment. With regard to stored value, “issue” and “issuer” mean the entity that is liable to the holder of stored value and has undertaken or is obligated to pay the stored value. Only a licensee may issue stored value or payment instruments.
(m) “Key individual” means a
natural person ultimately responsible for establishing or directing policies and procedures of the licensee, including an executive officer, manager, director, or trustee.
(m)
(n) “Licensee” means a corporation or limited liability company licensed under this division.
(n)
(o) “Material litigation” means litigation
that according to United States generally accepted accounting principles is significant to an applicant’s or a licensee’s financial health and would be required to be disclosed in the applicant’s or licensee’s annual audited financial statements, report to shareholders, or similar records.
(o)
(p) “Monetary value” means a medium of exchange, whether or not redeemable in money.
(p)
(q) “Money” means a medium of exchange that is authorized or adopted by the United States or a foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.
(q)
(r) “Money transmission” means any of the following:
(1) Selling or issuing payment instruments to a person located in this state.
(2) Selling or issuing stored value to a person located in this state.
(3) Receiving money for transmission from a person located in this state.
(s) “Multistate licensing process” means an agreement entered into by and among state regulators relating to coordinated processing of applications for money transmission licenses, applications for the acquisition of control of a licensee, control determinations, or notice and information requirements for a change of key individuals.
(t) “NMLS” means the Nationwide Multistate Licensing System and Registry developed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators and owned and operated by the State Regulatory Registry, LLC, or any successor or affiliated entity, for the licensing and registration of persons in financial services industries.
(r)
(u) “Outstanding,” with respect to payment instruments and stored value, means issued or sold by the licensee in the United States and not yet paid or refunded by the licensee, or issued or sold on behalf of the licensee in the United States by its agent and reported as sold, but not yet paid or refunded by the licensee. “Outstanding,” with respect to receiving money for transmission means all money or monetary value received in the United States for transmission by the licensee or its agents but not yet paid to the beneficiaries or refunded to the person from whom the money or monetary value was received. All outstanding money transmission of a licensee is and shall remain a liability of the licensee until it is no longer outstanding.
(s)
(v) (1) “Payment instrument” means a check, draft, money order, traveler’s check, or other instrument for the transmission or payment of money or monetary value, whether or not negotiable. The term does not include a credit card voucher, letter of credit, or any instrument that is redeemable by the issuer for goods or services provided by the issuer or its affiliate.
(2) “Payment instrument” does not include a credit card voucher, letter of credit, or an instrument that is redeemable by the issuer for goods or services provided by the issuer, an affiliate of the issuer, or a franchisee of the
issuer or not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program.
(t)
(w) “Person” means an individual, corporation, business trust, estate, trust, partnership, proprietorship, syndicate, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or joint stock company, or any other organization or legal or commercial entity, provided, however, that “person,” when used with respect to acquiring control of or controlling a specified person, includes any combination of two or more persons acting in concert.
(u)
(x) “Receiving money for transmission” or “money received for transmission” means receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means. The term does not include sale or issuance of payment instruments and stored value.
(v)
(y) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(w)
(z) “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
(x)
(aa) (1) “Stored value” means 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. The term does not include a credit card voucher, letter of credit, or any stored value that is only redeemable by the issuer for goods or services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.
(2) “Stored value” does not include a credit card voucher, letter of credit, or any stored value that is redeemable only by the issuer for goods or services provided by the issuer, an affiliate of the issuer, or a franchisee of the issuer, except to the extent required by applicable law to be redeemable for either of the following:
(A) Cash for its cash value.
(B) Stored value not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program.
(y)
(bb) “Traveler’s check” means an instrument that meets all of the following:
(1) Is designated on its face by the term “traveler’s check” or by any substantially similar term or is commonly known and marketed as a traveler’s check.
(2) Contains a provision for a specimen signature of the purchaser to be completed at the time of
purchase.
(3) Contains a provision for a countersignature of the purchaser to be completed at the time of negotiation.
SEC. 3.
Section 2010 of the Financial Code is amended to read:2010.
This division does not apply to any of the following:(a) The United States or a department, agency, or instrumentality thereof, including any federal reserve bank and any federal home loan bank.
(b) Money transmission by the United States Postal Service or by a contractor on behalf of the United States Postal Service.
(c) A state, county, city, or any other governmental agency or governmental subdivision of a state.
(d) A commercial bank or industrial bank, the deposits of which are insured
by the Federal Deposit Insurance Corporation or its successor, or any foreign (other nation) bank that is licensed under Chapter 20 (commencing with Section 1750) or that is authorized under federal law to maintain a federal agency or federal branch office in this state; a trust company licensed pursuant to Section 1042 or a national association authorized under federal law to engage in a trust banking business; an association or federal association, as defined in Section 5102, the deposits of which are insured by the Federal Deposit Insurance Corporation or its successor; and any federally or state chartered credit union, with an office in California, the member accounts of which are insured or guaranteed as provided in Section 14858.
(e) Electronic funds transfer of governmental benefits for a federal, state, county, or local governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality
thereof, or a state or governmental subdivision, agency, or instrumentality thereof.
(f) A board of trade designated as a contract market under the federal Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as or for such a board.
(g) A person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from registration granted under the federal securities laws to the extent of its operation as such a provider.
(h) An operator of a payment system to the extent that it provides processing, clearing, or settlement services, between or among persons excluded by this section, in connection with wire transfers, credit card
transactions, debit card transactions, stored value transactions, automated clearing house transfers, or similar funds transfers, to the extent of its operation as such a provider.
(i) A person registered as a securities broker-dealer under federal or state securities laws to the extent of its operation as such a broker-dealer.
(j) A person that delivers wages or salaries on behalf of employers to employees or facilitates the payment of payroll taxes to state and federal agencies, makes payments relating to employee benefit plans, makes distribution of other authorized deductions from employees’ wages or salaries, or transmits other funds on behalf of an employer in connection with transactions related to employees. Notwithstanding this subdivision, a person described herein that offers money transmission services or provides stored value cards directly to individual customers
shall comply with this division to the extent of that activity.
(k) A person listed under subdivision (d) is exempted from all the provisions of this division, except Sections 2062 and 2063.
(l) A transaction in which the recipient of the money or other monetary value is an agent of the payee pursuant to a preexisting written contract and delivery of the money or other monetary value to the agent satisfies the payor’s obligation to the payee.
(1) For purposes of this subdivision, “agent” has the same meaning as that term is defined in Section 2295 of the Civil Code.
(2) For purposes of this subdivision, “payee” means the provider of goods or services, who is owed payment of money or other monetary value from the payor for the goods or services.
(3) For purposes of this subdivision, “payor” means the recipient of goods or services, who owes payment of money or monetary value to the payee for the goods or services.
(m) A person that acts as an intermediary by processing money transmission between an entity that has directly incurred an outstanding money transmission obligation to a sender and the sender’s designated recipient, if the entity meets all of the following criteria:
(1) The entity is properly licensed or exempt from licensing requirements under this act.
(2) The entity provides a receipt, electronic record, or other written confirmation to the sender identifying the entity as the provider of money
transmission in the transaction.
(3) The entity bears sole responsibility to satisfy the outstanding money transmission obligation to the sender, including the obligation to make the sender whole in connection with any failure to transmit the funds to the sender’s designated recipient.
(n) A registered futures commission merchant under the federal commodities laws to the extent of its operation as such a merchant.
SEC. 4.
Section 2039 of the Financial Code is amended to read:2039.
(a) The commissioner(b) In addition to any other reports as may be required pursuant to Sections 453, 454, and 455, each licensee shall, within 90 days after the end of each fiscal year, or within any extended time as the commissioner may prescribe, file with the commissioner an audit report for the fiscal year that shall comply with all of the following provisions:
(1) The audit report shall contain audited financial statements of the licensee for or as of the end of the fiscal year prepared in accordance with United States generally accepted accounting principles and any other information as the commissioner may require.
(2) The audit report shall be based upon an audit of the licensee conducted in accordance with United States generally accepted auditing standards and any other requirements as the commissioner may prescribe.
prescribes.
(3) The audit report shall be prepared by an independent certified public accountant or independent public accountant who is not unsatisfactory to the commissioner.
(4) The audit report shall include or be accompanied by a certificate of opinion of the independent certified public accountant or independent public accountant that is satisfactory in form and content to the commissioner. If the certificate or opinion is qualified, the commissioner may order the licensee to take any action as the commissioner may find finds necessary to enable the independent or certified public accountant or independent public accountant to remove the
qualification.
(c) Each licensee shall, not more than 45 days after the end of each calendar year quarter, or within a longer period as the commissioner may commissioner, by regulation or order specify, order, specifies, file with the commissioner a report containing all of the following:
(1) Financial statements, including balance sheet, income statement, statement of changes in shareholders’ equity, and statement of cashflows, for, or as of the end of, that calendar year quarter, verified by two of the
licensee’s principal officers. The verification shall state that each of the officers making the verification has a personal knowledge of the matters in the report and that each of them believes that each statement on the report is true.
(2) For issuers and sellers of payment instruments and stored value, a schedule of eligible securities owned by the licensee pursuant to Section 2081.
(3) Other information as the commissioner may commissioner, by regulation or order require. order, requires.
(d) Each licensee, not more than 45 days after the end of each calendar year quarter, shall file with the commissioner commissioner, except as provided in paragraph (1), a report containing all of the following:
(1) (A) The current address of each branch office of the licensee in this state. If a branch office was opened or closed during the calendar year quarter, the date it was opened or closed. If a branch office was relocated during the calendar year quarter, the addresses of the old and new locations and the date of relocation.
(2)The name of each person who acted as an agent in this state of the licensee during the calendar year quarter and the address for each agent branch office. If a person was appointed or terminated as an agent during the calendar year quarter, the date of appointment or termination. If an agent branch office relocated, the addresses for the old and new locations and the date of relocation.
(B) The information described by this paragraph shall be reported through NMLS and not directly to the commissioner.
(2) (A) All of the following information related to each agent who acted, in this state, as an agent of the licensee during the calendar year quarter:
(i) The agent’s name, telephone number, and email address.
(ii) The agent’s taxpayer employer identification number.
(iii) The agent’s principal provider identifier.
(iv) The agent’s physical address.
(v) The agent’s mailing address.
(vi) Any business
conducted in other states by the agent on behalf of the licensee.
(vii) Any fictitious or trade name used by the agent.
(viii) The date of appointment or termination of the agent in the calendar year, if applicable.
(ix) The addresses for the old and new locations and the date of relocation of any agent that relocated during the calendar year quarter.
(B) The information required by this paragraph shall be reported through NMLS and not directly to the commissioner:
(3) The total volume of activities, number of transactions conducted, and outstanding money transmission obligations in California under this division and in the United States in the calendar year
quarter categorized by type of money transmission, and, if feasible whether the transmission was conducted via a mobile application or an Internet Web site. internet website. For money received for transmission, a report of the average daily outstanding transmission liabilities in California, and, if applicable, a schedule of each foreign country to which money was sent, along with the total amount of money sent to that foreign country in that calendar year quarter. For payment instruments and stored value, a report of the average daily outstanding payment instruments and stored value liabilities in California in that calendar year quarter.
(4) Other information as the commissioner may
commissioner, by regulation or order require. order, requires.
(e) Each licensee shall file with the commissioner other reports as and when the commissioner may commissioner, by regulation or order require.
order, requires.
SEC. 5.
Section 2040 of the Financial Code is repealed.(a)An applicant shall possess, and a licensee shall maintain at all times, tangible shareholder’s equity of two hundred fifty thousand dollars ($250,000) to five hundred thousand dollars ($500,000), depending on estimated or actual transaction volume, as determined by the commissioner based on the factors described in subdivision (c).
(b)The commissioner may increase the amount of net worth required of an applicant or licensee if the commissioner determines, with respect to the applicant or licensee, that a higher net worth is necessary to achieve the purposes of this division based on the factors described in subdivision (c).
(c)When making a determination
pursuant to subdivision (a) or (b), the commissioner shall consider the following factors:
(1)The nature and volume of the projected or established business.
(2)The number of locations at or through which money transmission is or will be conducted.
(3)The amount, nature, quality, and liquidity of its assets.
(4)The amount and nature of its liabilities.
(5)The history of its operations and prospects for earning and retaining income.
(6)The quality of its operations.
(7)The quality of its management.
(8)The nature and quality of its principals.
(9)The nature and quality of the persons in control.
(10)The history of its compliance with applicable state and federal law.
(11)Any other factor the commissioner considers relevant.
(d)The commissioner at any time may require a licensee to write down any asset held by it to a valuation that will represent its then fair market value. Any receivable or debt due to a licensee that is past due and unpaid for the period of one year shall be charged off, unless it is well secured or is in process of collection.
(e)The aggregate value of a licensee’s accounts receivable, excluding money
transmission receivables, loans or extensions of credit to any one person, or that person’s affiliates, cannot exceed 50 percent of the licensee’s tangible shareholders’ equity without the advanced written approval of the commissioner. Whenever such amount equals or exceeds 20 percent of the licensee’s tangible shareholders’ equity, the licensee shall maintain records evidencing such amount and any security or other source of payment for the amount owed, and such other records as the commissioner may require by order or regulation.
(f)The commissioner shall adopt regulations to carry out and implement the factors described in subdivision (c).
SEC. 6.
Section 2040 is added to the Financial Code, to read:2040.
(a) Subject to subdivision (b), a licensee shall maintain at all times a tangible net worth of the greater of one hundred thousand dollars ($100,000) or 3 percent of total assets for the first one hundred million dollars ($100,000,000), 2 percent of additional assets for one hundred million dollars ($100,000,000) to one billion dollars ($1,000,000,000), and one-half of 1 percent of additional assets for over one billion dollars ($1,000,000,000).(b) The commissioner shall have the authority to exempt, in part or in whole, an applicant or licensee from the requirements of this section.
(c) If a licensee is subject to an order issued under Section 580 or 581, the commissioner may
require a licensee to maintain tangible net worth greater than the amount required by subdivision (a) of this section.
SEC. 7.
Section 2082 of the Financial Code is amended to read:2082.
(a) “Eligible security” means any United States currency eligible security or foreign currency eligible security.(b) For the purposes of this division, the following are United States currency eligible securities:
(1)Cash.
(1) Cash, cash in transit via armored car, cash in smart safes, and cash in licensee-owned locations.
(2) Any deposit in an insured bank or bank, an insured savings and loan association association, or an insured credit union.
union, including any deposit in an insured bank, an insured savings and loan association, or an insured credit union that is in an account held for the benefit of the licensee’s customers that is titled “(name of licensee) FBO Its (licensee’s customers or specific group of licensee’s customers)”.
(3) Any bond, note, or other obligation that is issued or is guaranteed by the United States or any agency of the United States.
(4) Any bond, note, or other obligation that is issued or guaranteed by any state of the United States or by any governmental agency of or within any state of the United States and that is assigned an eligible rating by an eligible securities rating service.
(5) Any bankers acceptance that is eligible for discount by a federal reserve bank.
(6) Any commercial paper that is assigned an eligible rating by an eligible rating securities service.
(7) Any bond, note, or other obligation that is assigned an eligible rating by an eligible securities rating service.
(8) Any share of an investment company that is an open-end management company, that is registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), that holds itself out to investors as a money market fund, and that operates in accordance with all provisions of the Investment Company Act of 1940, and the regulations of the Securities and Exchange Commission applicable to money market funds, including Section 270.2a-7 of the regulations of the Securities and Exchange Commission (17 C.F.R. 270.2a-7).
For purposes of this paragraph and
paragraph (9), “investment company,” “management company,” and “open-end” have the meanings set forth in Sections 3, 4, and 5, respectively, of the Investment Company Act of 1940 (15 U.S.C. Secs. 80a-4 and 80a-5, respectively).
(9) Any share of an investment company that is an open-end management company, that is registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), and that invests exclusively in securities that constitute eligible securities that comply with the valuation requirements of this division.
(10) Any account due to any licensee from any agent in the United States on account of the receipt of money on behalf of the licensee for money transmission by the agent, if the account is current and not past due or otherwise doubtful of collection.
(11) Any other security or class of
securities that the commissioner has by regulation or order declared to be eligible securities.
(12) Any receivable owed by a bank and resulting from an automated clearinghouse, debit, or credit-funded transmission. a debit card- or credit card-funded transmission, automated clearinghouse items in transit to the licensee, and automated clearinghouse items or international wires in transit to a payee.
(13) The full drawable amount of an irrevocable standby letter of credit for which the stated beneficiary is the commissioner that stipulates that the beneficiary need only draw a sight draft under the letter of
credit and present it to obtain funds up to the letter of credit amount within seven days of presentation of the items required by subparagraph (B).
(A) The letter of credit described by this paragraph shall meet all of the following criteria:
(i) The letter of credit is issued by an insured depository financial institution, a foreign bank that is authorized under federal law to maintain a federal agency or federal branch office in any state, or a foreign bank that is authorized under state law to maintain a branch in a state that bears an eligible rating or whose parent company bears an eligible rating and that is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks, credit unions, and trust companies.
(ii) The letter of credit is irrevocable,
unconditional, and indicates that it is not subject to any condition or qualifications outside of the letter of credit.
(iii) The letter of credit does not contain reference to any other agreements, documents or entities, or otherwise provide for any security interest in the licensee.
(iv) (I) The letter of credit contains an issue date and expiration date and expressly provides for automatic extension, without a written amendment, for an additional period of one year from the present or each future expiration date, unless the issuer of the letter of credit notifies the commissioner in writing by certified or registered mail or courier mail or other receipted means, at least 60 days before any expiration date, that the irrevocable letter of credit will not be extended.
(II) If the issuer
notifies, pursuant to subclause (I), the commissioner that a letter of credit will not be extended, the licensee shall demonstrate to the satisfaction of the commissioner at least 15 days before expiration that the licensee maintains, and will maintain, permissible investments in accordance with Section 2081 upon the expiration of the letter of credit. If the licensee is not able to do so, the commissioner may draw on the letter of credit in an amount up to the amount necessary to meet the licensee’s requirements to maintain permissible investments in accordance with Section 2081. Any such draw shall be offset against the licensee’s outstanding money transmission obligations. The drawn funds shall be held in trust by the commissioner or the commissioner’s designated agent, to the extent authorized by law, as agent for the benefit of the purchasers and holders of the licensee’s outstanding money transmission obligations.
(B) The letter of credit
shall provide that the issuer of the letter of credit will honor, at sight, a presentation made, on or before the expiration date of the letter of credit, by the beneficiary to the issuer of both of the following documents:
(i) The original letter of credit, including any amendments.
(ii) A written statement from the beneficiary stating that any of the following events have occurred:
(I) The filing of a petition by or against the licensee under Title 11 of the United States Code.
(II) The filing of a petition by or against the licensee for receivership or the commencement of any other judicial or administrative proceeding for its dissolution or reorganization.
(III) The seizure of assets
of a licensee by a commissioner pursuant to an emergency order issued in accordance with applicable law on the basis of an action, violation, or condition that has caused, or is likely to cause, the insolvency of the licensee.
(IV) The beneficiary has received notice of expiration or non-extension of a letter of credit, and the licensee failed to demonstrate to the satisfaction of the beneficiary that the licensee will maintain permissible investments in accordance with Section 2081 upon the expiration or non-extension of the letter of credit.
(C) (i) The letter of credit shall authorize the commissioner to designate an agent to serve on the commissioner’s behalf as beneficiary to a letter of credit if the agent and letter of credit meet requirements established by the commissioner.
(ii) An
agent designated pursuant to this subparagraph may serve as agent for multiple licensing authorities for a single irrevocable letter of credit if the proceeds of the drawable amount for the purposes of this section are assigned to the commissioner.
(c) “Foreign currency eligible security” means any of the following that is denominated in a foreign currency:
(1) Cash.
(2) Any deposit
deposit, made with the prior approval of the commissioner, in an office of a bank acceptable to the commissioner that is located in a foreign country. country, if the licensee has received a satisfactory rating in its most recent examination, and the foreign depository institution meets all of the following criteria:
(A) The foreign depository institution has an eligible rating.
(B) The foreign depository institution is registered under the federal Foreign Account Tax Compliance Act.
(C) The foreign depository institution is not located in a country subject to sanctions from the federal Office of Foreign Asset Control.
(D) The foreign depository institution is not located in a high-risk or non-cooperative jurisdiction as designated by the Financial Action Task Force.
(3) Any other security or class of securities that the commissioner has by regulation or order declared to be eligible securities pursuant to Section 2086.
(d) For the purposes of this division, “value” means the following:
(1) When used with respect to an eligible security owned by a licensee of the type described in paragraph (10) of subdivision (b), net carrying value as determined
in conformity with United States generally accepted accounting principles. However, in computing the value of the account, any amount that consists of money that has not been remitted to the licensee or refunded within 45 business days of receipt by the agent shall be excluded from the value of the account and shall be excluded from the calculation of eligible securities.
(2) Market value when used with respect to any other eligible security owned by a licensee.
SEC. 8.
Section 2083 of the Financial Code is amended to read:2083.
(a) In(1) The value of any eligible security if and to the extent that the value of the eligible security, when combined with the aggregate value of all other eligible securities owned by the licensee that are issued or guaranteed
by the same person or by any affiliate of the same person by whom the eligible security is issued or guaranteed, exceeds 10 percent of the aggregate value of all eligible securities owned by the licensee.
(2) The (A) Subject to subparagraph (B), the portion of the aggregate value of all eligible securities of the type described in paragraph (10) of subdivision (b) of Section 2082 that exceeds 25 percent of the aggregate value of all eligible securities owned by the licensee; and that portion of the aggregate value of agent receivables from any one person that exceeds 10 percent of the aggregate value of all eligible securities owned by the licensee, or any higher percentage that the commissioner may approve for the licensee, up to a maximum of 20 percent.
licensee.
(B) If the receivable due from an agent is less than seven days old, then that portion of the aggregate value of all eligible securities of the type described in paragraph (10) of subdivision (b) of Section 2082 that exceeds 50 percent of the aggregate value of all eligible securities owned by the licensee.
(3) The portion of the aggregate value of all eligible securities of the type described in paragraph (6) of subdivision (b) of Section 2082 that exceeds 20 percent of the aggregate value of all eligible securities owned by the licensee.
(4) The portion of the aggregate value of all eligible securities of the type described in paragraph (7) of subdivision (b)
of Section 2082 that exceeds 20 percent of the aggregate value of all eligible securities owned by the licensee.
(5) (A) The portion of the aggregate value of all eligible securities of the type described in paragraph (8) of subdivision (b) of Section 2082, except for a money market fund that invests exclusively in obligations issued or guaranteed by the United States or any agency of the United States, 2082 that exceeds 20 percent of the aggregate value of all eligible securities owned by the licensee.
(B) This paragraph does not apply to either of the following:
(i) A money market fund that invests exclusively in obligations issued or guaranteed by the United States or any agency of the United States.
(ii) A money market fund rated AAA by Standard & Poor’s Corporation or the equivalent rating from any eligible rating service.
(6) The portion of the aggregate value of all eligible securities of the type described in paragraphs (6), (7), and (8) of subdivision (b) of Section 2082 that exceeds 50 percent of the aggregate value of all eligible securities owned by the licensee.
(7) The
portion of the aggregate value of agent receivables from any one person that exceeds 10 percent of the aggregate value of all eligible securities owned by the licensee or any higher percentage that the commissioner may approve for the licensee up to a maximum of 20 percent.
(8) The portion of the aggregate value of all eligible securities of the type described in paragraph (2) of subdivision (c) of Section 2082 that exceeds 10 percent of the aggregate value of all eligible securities owned by the licensee.
(b) Subdivision (a) shall not be deemed to require the exclusion of the value of any of the following eligible securities, and each of the following eligible securities shall be exempted from the limitations of subdivision (a):
(1) The following eligible securities:
(A) Cash.
(B) Any deposit in an insured bank, insured savings and loan association, or insured credit union.
(C) Any bond, note, or other obligation for the payment of which the full faith and credit of the United States are pledged.
(2) Any eligible security that the commissioner, in view of the financial condition of the obligor or issuer and such other factors as may in the opinion of the commissioner be relevant, finds to be of such quality that exclusion of the value of such eligible security pursuant to subdivision (a) is not necessary for the purposes of this division and which the commissioner by regulation or order exempts, in whole or in part, from the limitations of subdivision (a).
SEC. 9.
Section 2084 of the Financial Code is amended to read:2084.
(a) A licensee shall be deemed to own an eligible security only if the following apply:(1) (A) The licensee owns the eligible security solely and exclusively in its own right, both of record and beneficially.
(B) Notwithstanding subparagraph (A), a licensee shall be deemed to own accounts held for the benefit of the licensee’s customers that otherwise meet the requirements of paragraph (2) of subdivision (b) of Section 2082.
(2) The eligible security is not subject to any pledge, lien, or security interest.
(3) The licensee can freely negotiate, assign, or otherwise transfer the eligible security.
(b) Notwithstanding subdivision (a), no a licensee shall not be deemed not to own an eligible security solely on account of any
either of the following facts, provided that, but for that fact, the licensee would be deemed to own the eligible security under the provisions of subdivision (a):
(1) The fact that the eligible security is owned of record by a documented nominee of the licensee or by a securities depository.
(2) The fact that the licensee has pledged the eligible security with the United States or any state of the United States to secure payment by the licensee of transmission money.
(3)The fact that the licensee holds the eligible security in a custodial capacity as an agent of its customers in a pooled account titled in the name of the licensee for the benefit of its customers.
(c)The commissioner shall make a determination of the application of paragraph (3) of subdivision (b) based on the
following:
(1)The amount, nature, quality, and liquidity of the licensee’s assets.
(2)The amount and nature of the licensee’s liabilities.
(3)The history of the licensee’s compliance with applicable state and federal law.
SEC. 10.
Section 2125 is added to the Financial Code, immediately following Section 2124, to read:2125.
A licensee adding or replacing a key individual shall do all of the following:(a) Provide notice to the commissioner within 15 days after the effective date of the key individual’s appointment.
(1) Within 90 days of compliance with this subdivision, the commissioner may issue a notice of disapproval of a key individual if the competence, experience, character, or integrity of the individual supports a determination by the commissioner that it is not in the best interests of the public or the licensee’s customers to permit the individual to be a key individual of the licensee.
(2) If the notice provided pursuant to this subdivision is not
disapproved within 90 days after the date on which the notice was provided, the key individual shall be deemed approved. This timeframe does not apply to applications filed pursuant to Section 2035.
(b) Provide information, as applicable, required by Sections 80.4105 and 80.4105.10 of Title 10 of the California Code of Regulations, as amended from time to time, within 45 days of the effective date.
