Code Section Group

Financial Code - FIN

DIVISION 1.2. MONEY TRANSMISSION ACT [2000 - 2176]

  ( Division 1.2 added by Stats. 2011, Ch. 243, Sec. 4. )

CHAPTER 5. Eligible Securities [2081 - 2089]
  ( Chapter 5 added by Stats. 2011, Ch. 243, Sec. 4. )

2081.
  

(a) A licensee shall 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.

(b) If the commissioner finds that the financial condition of a licensee is impaired, or that the financial condition of a licensee is such that its business is being conducted in an unsafe and unsound manner, the commissioner, to protect the public interest, may issue an order, subject to the procedures set forth in Section 2148, doing one or both of the following:

(1) Increasing the amount of eligible securities that the licensee must maintain.

(2) Requiring the licensee to obtain, as security for the payment of outstanding money transmission obligations, additional security in the form of financial guarantees.

(c) Eligible securities, even if commingled with other assets of the licensee, are deemed to be held in trust for the benefit of the purchasers and holders of the licensee’s outstanding payment instrument and stored value obligations, and all senders of outstanding money received for transmission, in the event of bankruptcy or receivership of the licensee, or in the event of an action by a creditor against the licensee who is not a beneficiary of this statutory trust. No eligible securities impressed with a trust pursuant to this subdivision shall be subject to attachment, levy of execution, or sequestration by order of any court, except for a beneficiary of this statutory trust.

(d) All outstanding payment instruments and stored value issued or sold by a licensee or its agent, and all outstanding money received for transmission by a licensee or its agent, shall remain a liability of the licensee from the time money or monetary value is received by the licensee or its agent until the licensee receives confirmation that such money or monetary value was received by the beneficiary, or until the outstanding payment instrument or stored value obligation has been paid, or until the money is refunded to the customer.

(e) A licensee shall maintain a record in the United States of proof of receipt by the beneficiary or refund to the customer of money received for transmission.

(Added by Stats. 2011, Ch. 243, Sec. 4. Effective January 1, 2012.)

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.

(2) Any deposit in an insured bank or an insured savings and loan association or insured credit union.

(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.

(c) “Foreign currency eligible security” means any of the following that is denominated in a foreign currency:

(1) Cash.

(2) Any deposit in an office of a bank acceptable to the commissioner that is located in a foreign country.

(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.

(Amended by Stats. 2014, Ch. 499, Sec. 10. Effective January 1, 2015.)

2083.
  

(a) In computing for purposes of Section 2082 the aggregate value of eligible securities owned by a licensee, all of the following shall be excluded:

(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 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.

(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) 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, that exceeds 20 percent of the aggregate value of all eligible securities owned by the licensee.

(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.

(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).

(Amended by Stats. 2012, Ch. 356, Sec. 19. Effective January 1, 2013.)

2084.
  

(a) A licensee shall be deemed to own an eligible security only if the following apply:

(1) The licensee owns the eligible security solely and exclusively in its own right, both of record and beneficially.

(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 licensee shall be deemed not to own an eligible security solely on account of any 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.

(Amended by Stats. 2013, Ch. 533, Sec. 6. Effective January 1, 2014.)

2085.
  

If the commissioner finds that any eligible security or class of eligible securities is not of sufficient liquidity or quality to be eligible securities, the commissioner may by regulation or order declare the security or class of securities to be ineligible.

(Added by Stats. 2011, Ch. 243, Sec. 4. Effective January 1, 2012.)

2086.
  

If the commissioner finds that any security or class of securities that is not an eligible security is of sufficient liquidity and quality to be an eligible security, the commissioner may by regulation or order declare the security or class of securities to be eligible securities.

(Added by Stats. 2011, Ch. 243, Sec. 4. Effective January 1, 2012.)

2087.
  

(a) If the commissioner finds that a rating assigned to a class of securities by an eligible securities rating service indicates that the class of securities is of sufficient quality to be eligible securities, the commissioner may by regulation or order declare the rating to be an eligible rating.

(b) With respect to this division “eligible rating” means any rating assigned to such security or class of securities by such eligible securities rating service which the commissioner has by regulation or order declared to be an eligible rating.

(Amended by Stats. 2012, Ch. 356, Sec. 20. Effective January 1, 2013.)

2088.
  

(a) The commissioner may by regulation or order declare a credit rating agency to be an eligible securities rating service if the commissioner finds the following with respect to the securities rating service:

(1) It has been continuously engaged in the business of rating securities for a period of not less than three years.

(2) It is competent to rate securities and is nationally recognized for rating securities in a competent manner.

(3) It publishes its ratings of securities on a nationwide basis.

(b) With respect to this division “eligible securities rating service” means any credit rating agency that the commissioner by regulation or order declared to be an eligible securities ratings service.

(Amended by Stats. 2014, Ch. 499, Sec. 11. Effective January 1, 2015.)

2089.
  

A licensee shall maintain eligible securities that are adequately diversified, predominantly of a duration commensurate with the licensee’s outstanding money transmission obligations, and of sufficient liquidity and quality to promptly pay the outstanding money transmission obligations of the licensee.

(Added by Stats. 2011, Ch. 243, Sec. 4. Effective January 1, 2012.)

FINFinancial Code - FIN