The recently approved new crypto regulation bill has been designed to usher in a stricter regulatory framework for crypto businesses operating in the state.
Digital Financial Assets Law: A Closer Look
In a significant move, California Governor Gavin Newsom has approved the Digital Financial Assets Law, a cryptocurrency regulation bill, which is set to take effect in July 2025 and will put in place a specific framework of operations for all individuals and businesses participating in activities involving digital assets.
The Digital Financial Assets Law, often likened to New York's "BitLicense," has garnered both support and criticism within the cryptocurrency industry. Nevertheless, it was passed by the California State Assembly in September 2022. This legislation mandates that entities involved in digital asset activities must obtain a Department of Financial Protection and Innovation (DFPI) license if they intend to continue operating within California.
Building Upon Existing Laws
The new regulation builds upon the state's existing money transmission laws, which already prohibit banking and transfer services from operating without a valid license issued by the DFPI commissioner.
Under this new law, the California Department of Financial Protection and Innovation will craft a regulatory framework for the cryptocurrency sector. This framework includes a licensing regime and grants the department enforcement and rulemaking authority over the crypto industry.
The DFPI will have an 18-month implementation period to ensure that the regulatory framework is thoughtfully tailored to address industry trends and mitigate potential consumer harm.
Stringent Requirements for Licensees
The bill places strict requirements on licensees, including the obligation to maintain records for a minimum of five years following any activity. These records must comprise a detailed general ledger updated at least monthly, encompassing all assets, liabilities, capital, income, and expenses of the licensee. Failure to adhere to these requirements will result in enforcement measures against non-compliant firms.
Governor Newsom's Shifting Stance
By approving the crypto regulation bill, Governor Gavin Newsom has made a complete 180 to his previous stance on the crypto industry. On the matter of the bill, Newsom wrote,
“ It is essential that we strike the appropriate balance between protecting consumers from harm and fostering a responsible innovation and I look forward to working with the author of the bill to achieve this."
Just last year, he had rejected a similar bill aimed at establishing a regulatory framework for digital assets within California. At the time, Newsom expressed concerns that the proposed legislation lacked the flexibility needed to adapt to the rapidly evolving crypto landscape. He suggested it would be wiser to wait for federal regulations and work with the state legislature on comprehensive crypto licensing initiatives.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
