California Governor Gavin Newsom has given his approval to a new cryptocurrency bill that will impose stricter regulations on businesses engaged in cryptocurrency operations. This bill, known as the Digital Financial Assets Law, is set to take effect in July 2025. The primary objective of this legislation is to require both individuals and companies involved in digital asset business activities to obtain a license from the Department of Financial Protection and Innovation (DFPI).
This move aligns with California’s existing money transmission laws, which mandate that banking and transfer services must be licensed by the DFPI commissioner to operate legally. However, the Digital Financial Assets Law introduces additional measures by granting the DFPI the authority to enforce more rigorous audit requirements on cryptocurrency firms and obliging them to maintain specific financial records.
Under this new law, licensees will be required to maintain records for a minimum of five years after the date of the activity. These records must include a detailed general ledger updated at least on a monthly basis, listing all assets, liabilities, capital, income, and expenses of the licensee. The goal of these requirements is to enhance transparency and accountability in the cryptocurrency industry.
Failure to comply with the provisions of the bill will result in enforcement measures being taken against the non-compliant firms. This could involve penalties or even the revocation of their licenses. By introducing these regulatory measures, California aims to create a more secure and reliable environment for cryptocurrency-related businesses to operate in.
It’s worth noting that Governor Newsom’s stance on cryptocurrency regulation has evolved. In 2022, he declined to sign a similar bill aimed at establishing a licensing and regulatory framework for digital assets in California. At that time, he cited concerns about the bill’s flexibility in adapting to the rapidly changing landscape of the cryptocurrency industry.
Newsom had also expressed a preference for waiting until federal regulations were in place before pursuing state-level initiatives. This demonstrates the complex nature of cryptocurrency regulation, as state and federal governments grapple with how to best oversee this emerging industry.
In the broader context of cryptocurrency regulation in the United States, there is ongoing exploration of various approaches. For example, there have been discussions about applying the Electronic Fund Transfer Act to cryptocurrency. This would involve treating certain cryptocurrency transactions similarly to electronic fund transfers to combat fraudulent transfers and enhance consumer protection.
Rohit Chopra, the director of the Consumer Financial Protection Bureau, has expressed a desire to grant authorization for such measures. The aim is to reduce the potential harm caused by errors, hacks, and unauthorized transfers in the cryptocurrency space. This further underscores the growing importance of regulatory oversight in the cryptocurrency industry to safeguard both businesses and consumers.
In summary, California is taking steps to tighten regulation of the cryptocurrency industry with the Digital Financial Assets Law, requiring licenses for digital asset business activities and imposing stricter record-keeping and auditing requirements. While Governor Newsom’s earlier reservations about cryptocurrency regulation have evolved, the approach to regulating cryptocurrencies in the United States remains a dynamic and evolving landscape with both state and federal actors working to strike the right balance between fostering innovation and ensuring consumer protection.
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