California Crypto Bill Will License and Regulate Cryptocurrency Businesses
On Tuesday, the Digital Financial Assets Law, also known as AB 2269, was approved by the California State Assembly 71-0. This would tighten rules for cryptocurrency businesses in the state and require stablecoins to be issued from a bank.
This law mandates that cryptocurrency businesses and exchanges obtain an operating license from the Department of Financial Protection and Innovation of the state of California. Any operations outside the scope of such a license are forbidden. Gavin Newsom, the governor of the state, will either sign the bill into law or veto it entirely at this point. On or after January 1, 2025, it would go into effect, if signed.
The measure mandates that all cryptocurrency companies and exchanges operating within the state apply for licenses from the state’s Department of Financial Protection and Innovation. For each day of violation, a $100,000 daily fee would be imposed immediately on any company operating in California without a permit.
Money transmission activities are currently prohibited in California without a valid license from the Commissioner of Financial Protection and Innovation under the Money Transmission Act.
Stablecoins, a subset of cryptocurrencies that preserve one-to-one parity with other currencies like US dollars, are covered under another clause as well. A stablecoin cannot be used by a California-licensed crypto firm unless it is issued by a bank or has a license from the Department of Financial Protection and Innovation, according to the proposed legislation. Additionally, the measure mandates that stablecoin issuers maintain a reserve of securities equal to at least the sum of all "outstanding stablecoins issued or traded in the United States."
The new law, if submitted, would permit the agency to investigate a licensee among other things. An executive order to align the state and federal regulatory frameworks for blockchain was signed by Newsom in May. Additionally, state lawmakers warned citizens to handle with interest-bearing crypto-asset accounts with "great caution." This comes as a recent survey based on internet search data suggests that California is the state most interested in Bitcoin (BTC) and Ether (ETH).
The impending bill is known as California's "BitLicense" because it has characteristics with New York's BitLicense, a set of laws that went into effect in 2015 and mandated a license for cryptocurrency exchanges and businesses.
The Blockchain Association, a nonprofit advocacy group for the cryptocurrency sector, stated in an open letter that it disagreed with the law because it was unnecessary and would hinder California's blockchain technology progress. The association noted New York's notorious BitLicense, prompted several well-known exchanges to leave the state, and demanded that California instead adopt less stringent regulations.
Since the fall of the TerraUSD "algorithmic" stablecoin, which lost its parity to the USD and its sister currency Luna lost 99% of its value in a week, stablecoins have been under heightened regulatory scrutiny.
CBW - External Analyst