California Governor Gavin Newsom has signed a crypto licensing bill, set to take effect in July 2025. This bill is considered California’s answer to New York’s "BitLicense."
The bill, titled the Digital Financial Assets Law, faced heavy industry criticism but was passed by the U.S. state’s Assembly in September 2022. It is set to enforce a structural framework for businesses conducting operations in the crypto industry.
The recently signed law extends the state’s existing money transmission laws, which presently prohibit banking and transfer services from operating without proper licensing from the Department of Financial Protection and Innovation (DFPI) commissioner.
Stricter Regulations and Audit Requirements
The Digital Financial Assets Law takes it a step further by authorizing the DFPI to impose stringent audit requirements on cryptocurrency firms and obligating them to maintain comprehensive financial records.
Specifically, the bill dictates that license holders must retain records for at least five years from the date of any activity. These records should include a detailed general ledger updated monthly, encompassing all assets, liabilities, capital, income, and expenses of the licensee.
Non-compliance with these requirements will lead to enforcement measures against the non-compliant firms.
Governor Newsom’s Perspective
"Ambiguity of certain terms and the scope of this bill will require further refinement in both the regulatory process and in statute to provide clarity to both consumers, regulators, and businesses subject to this new licensure framework," Governor Gavin Newsom said in a letter. "It is essential that we strike the appropriate balance between protecting consumers from harm and fostering responsible innovation. I look forward to working with the author of the bill to achieve this."
Further refinements could include clarifications on certain terms or adjustments to the scope of the law. It will be important for stakeholders to stay informed about any changes or updates.
Approval of the crypto regulation bill marks a significant shift from Governor Newsom’s previous perspective on the matter. In 2022, Newsom withheld his signature from a similar bill that sought to establish a licensing and regulatory framework for digital assets within the state.
Implications for Crypto Businesses
The signing of this bill has already had an impact on the crypto market. The broader crypto market returned just over 1.24% on average in the past 24 hours.
Crypto businesses operating in California will need to adapt to these new regulations. They will need to ensure they have robust systems in place for record-keeping and auditing. Businesses that fail to comply could face enforcement actions.
