California Governor Gavin Newsom has approved a bill that, when it comes into force in 2025, will require digital asset firms to adhere to licensing requirements, provide disclosures, and maintain financial records, as well as give the state financial regulator the authority to enforce rules and prosecute those who violate them.
Newsom approved the bill aimed at creating a regulatory framework for businesses and persons engaged in digital asset activities in the state. Assembly Bill 39, also titled the Digital Financial Assets Law, will make it mandatory for individuals and firms to obtain a license for digital asset business activities.
“Beginning July 1, 2025, this bill requires the Department of Financial Protection and Innovation (DFPI) to create a robust regulatory framework, including licensure and enforcement authority, for certain crypto activities,” said Newsom in a statement.
The DFPI is a California agency that regulates a range of financial services, businesses, products, and professionals, operating under the California Business, Consumer Services and Housing Agency.
“This bill appropriately provides DFPI with rulemaking authority and an 18-month implementation date to ensure the adopted regulatory framework can be thoughtfully tailored to address industry trends and mitigate consumer harm,” added Newsom.
The regulatory framework in question would, amongst other things, define “digital financial asset” as a digital representation of value used as a medium of exchange, a unit of account, or a store of value that is not legal tender. It also gives the DFPI authority to audit digital asset firms:
“This bill would authorize the department to conduct examinations of a licensee… and would require a licensee to maintain, for all digital financial asset business activity… for 5 years after the date of the activity, certain records, including a general ledger maintained at least monthly that lists all assets, liabilities, capital, income, and expenses of the licensee.”
As well as conducting audits, the DFPI will be authorized to take enforcement measures against persons or businesses that violate the bill’s provisions.
In his statement to members of the California State Assembly, Newsom thanked the bill’s author for their effort to create a “clear and comprehensive approach” to regulating the digital assets market.
“Stronger consumer and investor protections will prevent fraud and ensure bad actors are held accountable,” said the governor.
However, Newsom did suggest that the ambiguity of certain terms in the bill would require further refinement to provide clarity to consumers, regulators, and businesses subject to this new licensure framework.
“It is essential that we strike the appropriate balance between protecting consumers from harm and fostering a responsible innovation environment, and I look forward to working with the author to achieve this,” concluded Newsom.
The Democratic California Governor’s cautious pro-innovation approach falls somewhere in between partisan takes on the digital asset industry in U.S. Congress. Recent debates on national digital asset legislation and enforcement have seen party political battle lines drawn, with Democrats largely favoring increased regulation or increased support for existing regulators, while pro-innovation Republicans favor more of a soft touch approach to oversight of the space.
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