California Governor Gavin Newsom has officially signed into law the Digital Financial Assets Law, a controversial bill that establishes a regulatory framework for cryptocurrency companies operating within the state.
The legislation, passed by California’s legislature in September 2023, will require crypto firms to secure licenses from the state’s Department of Financial Protection and Innovation (DFPI) starting in 2025.
Under the new law, cryptocurrency companies will be required to obtain a license to operate in California, which is home to the largest economy in the United States. The DFPI has been tasked with overseeing industry compliance and developing detailed licensing qualifications, disclosure requirements, bonding regulations, and other standards within the next 18 months.
The DFPI has shown increasing involvement in the cryptocurrency space in recent times. In February 2023, it launched a cryptocurrency scam tracker to detect and report fraudulent activities. According to Clothilde Hewlett, the DFPI commissioner, scammers have exploited public interest in cryptocurrencies, often targeting vulnerable individuals.
Before this, the DFPI issued 17 consumer alerts in December 2022 concerning bogus websites and crypto brokers, including Yong Ying Investment, Unison FX, and Trade 1960, among others.
The introduction of this regulatory framework has stirred controversy within the cryptocurrency sector, with critics expressing concerns that the new rules could stifle innovation and deter cryptocurrency startups from setting up shop in California. Many have pointed to New York’s BitLicense as a cautionary example, as only about 30 firms have secured it since its inception in 2015.
The Blockchain Association, a cryptocurrency advocacy group, vehemently opposed the bill back in August 2023, urging lawmakers to reject it. They argued that the legislation was hastily drafted and lacked clarity.
Governor Newsom, while signing the bill into law, acknowledged these concerns and expressed the need for refinements to provide greater clarity for both businesses and consumers. Striking the right balance between regulating cryptocurrencies and fostering innovation was vital,” he emphasized.
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