California Governor Gavin Newsom has given the green light to a new cryptocurrency regulation bill that aims to establish a stricter regulatory framework for crypto businesses — set to take effect in July 2025.
The legislation — known as the Digital Financial Assets Law — will mandate individuals and businesses engaged in digital asset activities to obtain a Department of Financial Protection and Innovation (DFPI) license if they want to continue operating in California.
Digital Financial Assets Law
The new regulation builds upon the state’s existing money transmission laws, which currently prohibit banking and transfer services from operating without a valid license issued by the DFPI commissioner.
The Digital Financial Assets Law introduces additional measures by empowering the DFPI to impose rigorous audit requirements on cryptocurrency firms and obliging them to maintain comprehensive financial records.
Specifically, the bill stipulates that licensees must maintain records for a period of at least five years following the date of any activity. These records must include a detailed general ledger updated at least monthly, encompassing all assets, liabilities, capital, income, and expenses of the licensee.
Failure to adhere to these requirements will result in enforcement measures against non-compliant firms.
Newsom shifts stance amid evolving regulatory landscape
Approval of the crypto regulation bill marks a significant shift from Governor Newsom’s previous perspective on the matter.
In 2022, Newsom rejected a similar bill aimed at establishing a regulatory framework for digital assets within California and returned it without signing due to concerns that it lacked the flexibility necessary to adapt to the rapidly evolving crypto landscape.
At the time, Newsom said it was wiser to wait for federal regulations before pursuing comprehensive crypto licensing initiatives in cooperation with the state legislature.
Meanwhile, the federal government has been exploring various regulatory approaches to enhance security and oversight in the cryptocurrency industry.
One notable measure being considered involves applying the Electronic Fund Transfer Act to cryptocurrencies as a means of combatting fraudulent transfers. The Consumer Financial Protection Bureau recently announced its intention to authorize the measure to “reduce harm from errors, hacks, and unauthorized transfers.”
As California prepares to implement its Digital Financial Assets Law, it remains to be seen how this new regulatory landscape will impact the cryptocurrency industry within the state and whether it will set a precedent for further regulatory developments in the broader U.S. market.
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