California Governor Gavin Newsom has given his approval to a cryptocurrency bill that will introduce stricter regulations for cryptocurrency-related businesses operating in the state. These regulations are set to take effect in July 2025.
The Digital Financial Assets Law
The bill, known as the Digital Financial Assets Law, mandates that both individuals and businesses engaged in digital asset-related activities must obtain a license from the Department of Financial Protection and Innovation (DFPI) to operate legally. It builds upon California’s existing money transmission laws, which require licenses for financial services and transfers.
California Governor Gavin Newsom signing message, October 13. Source: CA.gov
One significant aspect of the new crypto bill is that it empowers the DFPI to impose stringent audit requirements on crypto firms. It obliges these firms to maintain comprehensive financial records, including a general ledger updated at least monthly. This ledger must encompass all assets, liabilities, capital, income, and expenses, and these records must be preserved for five years following the date of the activity.
Enforcement Measures for Non-Compliance
The bill also outlines enforcement measures for businesses that fail to comply with these regulations, signaling a more proactive approach to regulating the cryptocurrency industry in California.
This marks a change from Governor Newsom’s previous stance on cryptocurrency regulation. In 2022, Newsom declined to sign a similar bill aimed at establishing a licensing and regulatory framework for digital assets in California. At the time, he expressed concerns that the bill lacked the flexibility to adapt to the rapidly evolving crypto landscape. He preferred to wait for federal regulations to materialize before collaborating with the legislature on cryptocurrency licensing initiatives.
Federal Measures to Combat Fraud
Notably, the United States is considering applying the Electronic Fund Transfer Act to cryptocurrency as a means to combat fraudulent transfers. Rohit Chopra, the director of the Consumer Financial Protection Bureau, has shown intent to authorize this move to reduce the harm caused by errors, hacks, and unauthorized transfers.