California Governor Gavin Newsom has given the green light to a cryptocurrency regulation bill, known as the ‘Digital Financial Assets Law,’ aimed at imposing stricter regulations on cryptocurrency businesses operating in the state. The legislation, set to take effect in 18 months, mandates that both individuals and firms engaging in digital asset business activities must obtain a license from the Department of Financial Protection and Innovation (DFPI). This move represents a significant step towards regulating the rapidly evolving cryptocurrency industry in California.
Under the newly approved bill, cryptocurrency firms will be required to adhere to licensing requirements, maintain comprehensive financial records, and grant regulators the authority to conduct audits. The legislation draws parallels with California’s existing money transmission laws, which prohibit banking and transfer services from operating without a DFPI Commissioner-granted license.
The Digital Financial Assets Law empowers the DFPI to impose stringent audit requirements on cryptocurrency firms. These firms will also be obligated to maintain detailed financial records for a period of five years, including a monthly general ledger that lists assets, liabilities, capital, income, and expenses. Non-compliance with these provisions will result in enforcement measures.
California governor’s crypto regulatory reversal signals state independence
This development marks a notable shift in Governor Newsom’s stance on cryptocurrency regulation. Approximately a year ago, Newsom declined to sign a similar bill that sought to establish a licensing and regulatory framework for digital assets within California. At that time, he expressed concerns about the legislation’s flexibility in adapting to the rapidly changing landscape of cryptocurrencies.
Newsom had indicated that he was awaiting federal regulations to emerge before collaborating with the legislature to create a more comprehensive regulatory framework for the cryptocurrency industry in California. However, this latest approval demonstrates the state’s determination to establish its own regulatory framework in the absence of federal action.
Beyond California, the United States is actively exploring additional regulatory measures to address the challenges posed by the cryptocurrency industry. One such measure under consideration is the application of the Electronic Fund Transfer Act (ETFA) to cryptocurrencies. This potential move is intended to enhance consumer protection and reduce the risk of fraudulent transfers in the cryptocurrency space.
Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), recently expressed his intention to authorize the use of ETFA in the crypto sphere. This regulatory development is driven by a desire to mitigate the harm caused by errors, hacks, and unauthorized transfers in the cryptocurrency market.
