Businesses that offer crypto financial services in California would need to get a license under a bill just approved by state legislators this week.
The bill, titled the Digital Financial Assets Law, would require companies that offer services that involve investing, lending or trading cryptocurrencies to register with the state’s Department of Financial Protection and Innovation.
The bill was approved by the state Senate on Monday, and by the state Assembly on Tuesday. If signed into law by Gov. Gavin Newsom, it would mark California’s move toward stricter regulation of the fast-growing industry, which has deep roots in the state. Some of crypto’s major players are based in California, including Coinbase and Ripple.
Assemblymember Timothy Grayson, who introduced the bill, said that with the vote, "California is now set to forge a path for responsible innovation."
The support for the bill "received reflects both the efforts we’ve taken to craft a smart, balanced policy and the Legislature’s understanding that a healthy cryptocurrency market can only exist if simple guardrails are established," Grayson said in a statement.
When he introduced the bill in June, Grayson had argued that “while the newness of cryptocurrency is part of what makes investing exciting, it also makes it riskier for consumers because cryptocurrency businesses are not adequately regulated and do not have to follow many of the same rules that apply to everyone else."
California had been known for taking a more hands-off approach to regulating cryptocurrencies than other states. It legalized bitcoin in 2014 and regulates the fiat-currency money-transmission activities of some cryptocurrency businesses but doesn't have an equivalent to New York's BitLicense, for example.
The crypto industry was critical of the proposal. The Blockchain Association, a major crypto lobby organization, had opposed the bill, which it said “would be detrimental to California’s efforts to support innovation in the crypto and Web3 ecosystem throughout the state.”
“The bill would effectively outlaw all of the crypto businesses that are currently thriving in California unless they are able to navigate an onerous, uncertain, and likely expensive licensing regime,” A. Jae Gnazzo, a senior policy manager at the Blockchain Association, said in a letter to California legislators.
The association warned that the proposal “would likely cut California off from the burgeoning crypto industry, forcing entrepreneurs to relocate to other jurisdictions with more tailored and appropriate regulatory requirements.”