California Governor Gavin Newsom has recently given his approval to a new cryptocurrency regulation bill, signaling a significant shift in his stance on digital assets. The legislation, known as the Digital Financial Assets Law, introduces stricter regulations for crypto businesses operating in California. These regulations are set to take effect in July 2025 and aim to establish a more robust regulatory framework for the industry.
DFPI License Requirement for Digital Asset Activities
Under the Digital Financial Assets Law, individuals and businesses engaged in digital asset activities will be required to obtain a Department of Financial Protection and Innovation (DFPI) license to continue their operations in California. This requirement builds upon the state’s existing money transmission laws, which already mandate licenses for banking and transfer services.
One of the key provisions of the new regulation is the empowerment of the DFPI to impose rigorous audit requirements on cryptocurrency firms. Licensees will be obligated to maintain comprehensive financial records and retain them for a minimum of five years. These records must include a detailed general ledger updated on a monthly basis, covering all assets, liabilities, capital, income, and expenses of the licensee.
Enforcement Measures Against Non-compliant Firms
Non-compliance with the stringent requirements outlined in the Digital Financial Assets Law will result in enforcement measures against crypto businesses. The exact nature of these measures is not specified, but it is clear that firms failing to adhere to the regulations will face consequences.
The approval of the crypto regulation bill represents a significant change in Governor Newsom’s perspective on the regulation of digital assets. Previously, he rejected a similar bill in 2022 due to concerns about its lack of flexibility in adapting to the evolving crypto landscape. At that time, Newsom believed it was more prudent to wait for federal regulations before pursuing comprehensive licensing initiatives at the state level.
Federal Government’s Exploration of Regulatory Approaches
While California moves forward with its new regulatory framework, the federal government has also been exploring various regulatory approaches in the cryptocurrency industry. One notable measure being considered is the application of the Electronic Fund Transfer Act to cryptocurrencies to combat fraudulent transfers. The Consumer Financial Protection Bureau has expressed its intention to authorize this measure as a way to reduce harm from errors, hacks, and unauthorized transfers.
As California prepares to implement the Digital Financial Assets Law, it remains unclear how this new regulatory landscape will impact the cryptocurrency industry within the state. It could set a precedent for further regulatory developments in the broader U.S. market, as other states and the federal government observe the outcomes and implications of California’s stricter regulations.
Governor Newsom’s approval of the Digital Financial Assets Law marks a significant shift in his perspective on cryptocurrency regulation. The new regulation aims to establish a stricter regulatory framework for crypto businesses in California, introducing tough requirements such as the DFPI license and rigorous audit obligations. As the implementation of these regulations approaches, the industry awaits the impact and potential future developments this new regulatory landscape may bring.