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Volume XII, Number 176

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DFPI: Virtual Currency Platform is not Money Transmitter

On March 23, the California Department of Financial Protection and Innovation (DFPI) responded to a request for an interpretative legal opinion as to whether the virtual currency services offered by a company require it to obtain a license under the California Money Transmission Act (MTA).

The company’s software platform allows US customers to access the platform and buy and sell digital assets, including cryptocurrency, and access related services, within the platform.  Each customer must fund an account prior to buying cryptocurrency on the platform with either fiat currency (US dollars) or cryptocurrency.   The company offers three services that they asked the DFPI to examine. First, a customer may purchase cryptocurrency on the platform by sending fiat currency to the customer’s account on the platform. Second, a customer may sell cryptocurrency on the platform by transferring crypto onto its account. Third, a customer can buy crypto on the platform with another crypto in their wallet.  After execution of a purchase, sale, or exchange transaction, a customer may choose to withdraw all, part, or none of their fiat or cryptocurrency from the platform account.

The DFPI found that the company’s activities do not require licensure for several reasons, including the following:

  • The company’s activities do not facilitate the exchange of the fiat currency or cryptocurrency with a third party and do not meet the definition of money transmission because it does not involve the sale or issuance of a payment instrument, the sale or issuance of stored value, or receiving money for transmission.

  • The exchange of one cryptocurrency for another directly between two parties does not meet the definition of money transmission.

  • The transactions are “closed-loop” – meaning that customers can only redeem the monetary value stored in their accounts for digital currency sold on the company’s platform – which are excluded from the definition of money transmission under the MTA.

  • Finally, the DFPI stated that it “has not concluded whether a wallet storing cryptocurrency constitutes a form of monetary value representing a claim against the issuer and accepted for use as a means of redemption for money or monetary value or payment for goods or services.” Therefore, the DFPI will not require license the company to provide customers with an account to transfer and store cryptocurrency in order to exchange it directly with company

Putting It Into Practice: While the DFPI is not requiring an MTL license in this scenario, this decision is based entirely on the facts presented to the DFPI.  It may be the case in the future that a virtual currency business with similar but not identical facts may need to register pursuant to California’s MTA law.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 109
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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