CHAPTER 3. Examination [3301 - 3311]
( Chapter 3 added by Stats. 2023, Ch. 792, Sec. 1. )
(a) (1) (A) The department may, at any time and from time to time, examine the business and any office, within or outside this state, of any licensee, or any agent of a licensee, in order to ascertain whether the business is being conducted in a lawful manner and whether all digital financial asset business activity is properly accounted for.
(B) The directors, officers, and employees of a licensee, or agent of a licensee, being examined by the department shall exhibit to the department, on request, any or all of the licensee’s accounts, books, correspondence, memoranda, papers, and other records and shall otherwise facilitate
the examination so far as it may be in their power to do so.
(2) The department may examine a licensee pursuant to this subdivision without prior notice to the licensee.
(b) A licensee shall pay the reasonable and necessary costs of an examination under this section to the commissioner and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of the examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(a) A licensee shall maintain, for all digital financial asset business activity with, or on behalf of, a resident for five years after the date of the activity, a record of all of the following:
(1) Any transaction of the licensee with, or on behalf of, the resident or for the licensee’s account in this state, including all of the following:
(A) The identity of the resident.
(B) The form of the transaction.
(C) The amount, date, and payment instructions given by the resident.
(D) The account number, name, and United States Postal Service mailing address of the resident, and, to the extent feasible, other parties to the transaction.
(2) The aggregate number of transactions and aggregate value of transactions by the licensee with, or on behalf of, the resident and for the licensee’s account in this state expressed in United States dollar equivalent of digital financial assets for the previous 12 calendar months.
(3) Any transaction in which the licensee exchanged one form of digital financial asset for legal tender or another form of digital financial asset with, or on behalf of, the resident.
(4) A general ledger maintained at
least monthly that lists all assets, liabilities, capital, income, and expenses of the licensee.
(5) Any business call report the licensee is required to create or provide to the department.
(6) Bank statements and bank reconciliation records for the licensee and the name, account number, and United States Postal Service mailing address of any bank the licensee uses in the conduct of its digital financial asset business activity with, or on behalf of, the resident.
(7) A report of any dispute with the resident.
(b) A licensee shall maintain records required by subdivision (a) in a form that enables the department to determine whether the licensee is in
compliance with this division, any court order, and the laws of this state.
(c) If a licensee maintains records outside this state that pertain to transactions with, or on behalf of, a resident, the licensee shall make the records available to the department not later than three days after request, or, on a determination by the department, at a later time.
(d) All records maintained by a licensee are subject to inspection by the department.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
The department may cooperate, coordinate, jointly examine, consult, and share records and other information with a self-regulatory organization, a federal or state agency, law enforcement, or a regulator of a jurisdiction outside the United States, concerning the affairs and conduct of a licensee in this state.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(a) A licensee shall file with the department a report of the following, as may be applicable:
(1) A material change in information in the application for a license under this division or the most recent annual report of the licensee under this division.
(2) A change in the licensee’s business for the conduct of its digital financial asset business activity with, or on behalf of, a resident that meets one of the following criteria:
(A) The change may raise a legal or regulatory issue about the permissibility of the licensee’s digital financial
business activity.
(B) The proposed change may raise safety and soundness or operational concerns.
(C) The proposed change is to digital financial business activity that may cause such activity to be materially different from that previously listed on the application for licensing by the commissioner.
(3) A change of an executive officer, responsible individual, or person in control of the licensee.
(b) A report required by this section shall be filed not later than 15 days after the change described in subdivision (a).
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(a) For purposes of this section, “proposed person to be in control” means the person that would control a licensee after a proposed transaction that would result in a change in control of the licensee.
(b) The following rules apply in determining whether a person has control over a licensee:
(1) There is a rebuttable presumption of control if a person directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the then outstanding voting securities issued by the licensee.
(2) A
person has control over a licensee if the person’s voting power in the licensee constitutes or will constitute at least 25 percent of the total voting power of the licensee.
(3) A person has control over a licensee if the person’s voting power in another person constitutes or will constitute at least 10 percent of the total voting power of the other person and the other person’s voting power in the licensee constitutes at least 10 percent of the total voting power of the licensee.
(4) A person does not have control over a licensee solely because that person is an executive officer of the licensee.
(c) Before a proposed change in control of a licensee, the proposed person to be in control shall submit to the department in a
record both of the following:
(1) An application in a form and medium prescribed by the department.
(2) The information and records that Section 3203 would require if the proposed person to be in control already had control of the licensee.
(d) The department shall not approve an application unless the commissioner finds all of the following:
(1) The proposed person to be in control and all executive officers of the proposed person to be in control, if any, are of good character and sound financial standing.
(2) The proposed person to be in control is competent to engage in the business of
digital financial business activity.
(3) It is reasonable to believe that, if the person acquires control of the licensee, the proposed person to be in control and the licensee will comply with all applicable provisions of this division and any regulation or order issued under this division.
(4) The proposed person to be in control plans, if any, to make any major change in the business, corporate structure, or management of the licensee are not detrimental to the safety and soundness of the licensee.
(e) The department, in accordance with Section 3203, shall approve, approve with conditions, or deny an application for a change in control of a licensee. The department, in a record, shall send notice of its decision to the
licensee and the person that would be in control if the department had approved the change in control. If the department denies the application, the licensee shall abandon the proposed change in control or cease digital financial asset business activity with or on behalf of residents.
(f) If the department applies a condition to approval of a change in control of a licensee, and the department does not receive notice of the applicant’s acceptance of the condition specified by the department not later than 31 days after the department sends notice of the condition, the application is deemed denied. If the application is deemed denied, the licensee shall abandon the proposed change in control or cease digital financial asset business activity with, or on behalf of, residents.
(g) The department may revoke or modify a determination under subdivision (d), after notice and opportunity to be heard, if, in its judgment, revocation or modification is consistent with this division.
(h) If a change in control of a licensee requires approval of an agency of the state, and the action of the other agency conflicts with that of the department, the department shall confer with the other agency. If the proposed change in control cannot be
completed because the conflict cannot be resolved, the licensee shall abandon the change in control or cease digital financial asset business activity with, or on behalf of, residents.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(a) Before a proposed merger or consolidation of a licensee with another person, the licensee shall submit all of the following, as applicable, to the department in a record:
(1) An application in a form and medium prescribed by the department.
(2) The plan of merger or consolidation in accordance with subdivision (e).
(3) In the case of a licensee, the information required by Section 3203 concerning the person that would be the surviving entity in the proposed merger or consolidation.
(b) If a proposed merger or consolidation would change the control of a licensee, the licensee shall comply with Section 3309 and this section.
(c) The department shall not approve the application for a merger or consolidation unless the commissioner finds all of the following:
(1) That the merger or consolidation will not result in a monopoly and will not be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize digital financial business activity in this state.
(2) That the merger or consolidation will not have the effect in any section of this state of substantially lessening competition, tending to create a monopoly, or otherwise being in restraint of trade, or that the
anticompetitive effect is clearly outweighed in the public interest by the probable effect of the merger in meeting the convenience and needs of the community to be served.
(3) That the financial condition of the surviving entity, including its capital and liquidity, will be satisfactorily based on the factors listed in subdivision (b) of Section 3207.
(4) That the executive officers of the surviving entity are of good character and sound financial standing and are competent to engage in digital financial business activity.
(d) The department, in accordance with Section 3203, shall approve, conditionally approve, or deny an application for approval of a merger or consolidation of a licensee. The department, in a record,
shall send notice of its decision to the licensee and the person that would be the surviving entity. If the department denies the application, the licensee shall abandon the merger or consolidation or cease digital financial asset business activity with, or on behalf of, residents.
(e) The department may revoke or modify a determination under subdivision (c), after notice and opportunity to be heard, if, in its judgment, revocation or modification is consistent with this division.
(f) A plan of merger or consolidation of a licensee with another person shall do all of the following:
(1) Describe the effect of the proposed transaction on the licensee’s conduct of digital financial asset business activity with, or on
behalf of, residents.
(2) Identify each person to be merged or consolidated and the person that would be the surviving entity.
(3) Describe the terms and conditions of the merger or consolidation and the mode of carrying it into effect.
(g) If a merger or consolidation of a licensee and another person requires approval of an agency of this state, and the action of the other agency conflicts with that of the department, the department shall confer with the other agency. If the proposed merger or consolidation cannot be completed because the conflict cannot be
resolved, the licensee shall abandon the merger or consolidation or cease digital financial asset business activity with, or on behalf of, residents.
(h) The department may condition approval of an application under subdivision (a). If the department does not receive notice from the parties that the parties accept the department’s condition not later than 31 days after the department sends notice in a record of the condition, the application is deemed denied. If the application is deemed denied, the licensee shall abandon the merger or consolidation or cease digital financial asset business activity with, or on behalf of, residents.
(i) If a licensee acquires substantially all of the assets of a person, whether or not the person’s license was approved by the department,
the transaction is subject to this section.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)