California Governor Gavin Newsom has given his approval to a newly passed crypto licensing bill, known as the Digital Financial Assets Law, which is set to come into effect in July 2025. This bill aims to establish a structural framework for businesses operating in the crypto industry within the state.
Requirements for Obtaining a License
Under the Digital Financial Assets Law, both individuals and firms will be required to obtain a license from the Department of Financial Protection and Innovation (DFPI) in order to continue operating in California. This regulation is California’s version of New York’s “BitLicense” and extends the state’s existing money transmission laws.
The DFPI will have the authority to impose strict audit requirements on cryptocurrency firms and will require them to maintain comprehensive financial records. License holders must retain records for at least five years and include a detailed general ledger updated monthly, covering all assets, liabilities, capital, income, and expenses.
Non-compliance with these requirements will result in enforcement measures against the non-compliant firms.
Governor Newsom’s Perspective
Governor Gavin Newsom’s approval of the crypto regulation bill represents a significant shift from his previous stance on the matter. In 2022, Newsom chose not to sign a similar bill, stating the need for more flexibility to adapt to the rapidly changing cryptocurrency market.
However, with the approval of the Digital Financial Assets Law, Newsom acknowledges the importance of establishing a licensing and regulatory framework for digital assets in collaboration with the state legislature.
Newsom’s primary concern was the need to await federal regulations before implementing comprehensive crypto licensing initiatives.
Federal Government’s Regulatory Strategies
While California moves forward with its new crypto licensing bill, the federal government is also actively pursuing various regulatory strategies to enhance security and oversight in the cryptocurrency industry.
One significant measure under consideration is the evaluation of the application of the Electronic Fund Transfer Act (EFTA) to cryptocurrency platforms by the US Consumer Financial Protection Bureau (CFPB). This evaluation aims to combat fraudulent transfers and reduce harm from errors and hacks.
The application of the EFTA to crypto platforms would require electronic fund facilitators to inform users about their liabilities regarding unauthorized transfers.
