The QI File

California · Cal. Fin. Code Div. 20.5 · not legal advice

California exchange-facilitator rules

California does not issue a qualified-intermediary license. Division 20.5 of the Financial Code (Exchange Facilitators, §§51000–51013) defines who is an “exchange facilitator,” requires a $1 million fidelity path or a qualified escrow/trust with dual written authorization, requires $250,000 errors-and-omissions coverage (or a deposit), and sets a prudent-investor / no-commingle conduct rule. This page reports the LegInfo text as fetched. It is not a conclusion that a firm is compliant, and it is not tax or legal advice. Overview table:state QI bonding.

Who is covered

§51000(b)(1): a person is an exchange facilitator if the person, for a fee, enters a QI agreement on California relinquished property, takes California title as an exchange accommodation titleholder under Rev. Proc. 2000-37, or acts as qualified trustee/escrow holder under Treas. Reg. §1.1031(k)-1(g)(3); or maintains a California office to solicit that business; or advertises those services to the general public in this state.

Exclusions in §51000(b)(2) include the taxpayer and disqualified persons, a financial institution or title/escrow company acting solely as qualified escrow/trustee and not facilitating exchanges, seminar teachers, a QI holding funds from relinquished property located outside California, and a 100-percent-owned EAT vehicle.

License

None on the cited division. There is no California “QI license number” in Division 20.5. Change-of-control notice to existing California-property clients is required within ten business days (§51001). Civil suit is the enforcement hook in §51013.

Financial assurance and E&O

§51003 (pick one or more). $1 million fidelity bond (authorized or eligible surplus-line insurer); or $1 million cash/securities/irrevocable LOC on deposit; or all exchange funds in a (g)(3) qualified escrow or qualified trust at a financial institution, with withdrawals requiring that person’s and the client’s written authorization.

§51007 (separately). $250,000 E&O or a $250,000 deposit. Named-insured language in both sections lets a parent policy count if the facilitator is listed.

Ask the QI which §51003 alternative applies to this file and for a current certificate or QEA. A marketing “we are bonded” line is not the statute.

How funds must be handled

§51009: the facilitator is custodian of exchange funds (other than its compensation); invest under a prudent-investor standard aimed at liquidity and preservation of principal. A prudent-investor violation is deemed if funds are knowingly commingled with operating accounts; loaned or transferred to an affiliate other than a financial institution (EAT transfers under an exchange contract excepted); or invested without enough liquidity or principal preservation. Exchange funds are not subject to execution or attachment on a claim against the facilitator.

What to ask on a California file

  • Which §51003 path are you on — bond, deposit, or qualified escrow/trust — and can you show current evidence?
  • If QEA/QTA: exact account title, who must sign a withdrawal, and a specimen authorization.
  • Current §51007 E&O certificate (named insured, limit, expiry).
  • Does Division 20.5 attach because of California property, a California office, or California advertising?

FAQ

Does California license qualified intermediaries?

Division 20.5 of the California Financial Code does not create a state QI license or a published roster of licensed facilitators. It imposes financial-assurance, E&O, change-of-control notice, and conduct rules on a person who is an “exchange facilitator” as defined in §51000.

What financial assurance does California require?

Cal. Fin. Code §51003: at all times, a fidelity bond of not less than $1 million; or a $1 million cash/securities/irrevocable letter-of-credit deposit; or all exchange funds in a qualified escrow or qualified trust under Treas. Reg. §1.1031(k)-1(g)(3) with dual written authorization (facilitator and client) for withdrawals. Being a named insured on one or more fidelity bonds totaling at least $1 million satisfies the bond path.

Does California require errors-and-omissions insurance?

Yes, separately from the §51003 fidelity/QEA choice. §51007: $250,000 E&O or a $250,000 cash/securities/LOC deposit. Named-insured status on a $250,000 E&O policy satisfies the insurance path.

Does the statute apply only if the property is in California?

No. §51000(b)(1) covers a person who (A) facilitates, for a fee, an exchange of like-kind property involving California relinquished property (or California property taken as EAT, or QEA/QTA on California facts as written), or (B) maintains a California office to solicit facilitator business, or (C) holds itself out as a facilitator by advertising those services to the general public in this state. A QI that holds funds from property located entirely outside California is excluded under §51000(b)(2)(E). Ask counsel which prong attaches to this file.

Other state deep-dives

Related

Sources

This is a QI custody explainer, not a securities offering and not legal advice. Statutes change.