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The California State Assembly has unanimously passed a ‘Digital Financial Assets Regulation’ bill. If signed into law by Governor Newsom, this bill would require businesses engaged in crypto financial services to be licensed before being able to conduct any business with a resident of the state of California.
The upcoming law is dubbed California’s “BitLicense” in that it has features similar to New York’s BitLicense, a set of regulations that the state put into effect in 2015 that required crypto exchanges and businesses to obtain a license.
The bill calls upon any digital asset exchanges and crypto businesses operating in the state to obtain a license from the state’s Department of Financial Protection and Innovation. Any business operating in California without a permit would be summarily subject to a daily fine of $100,000.
The bill is the work of Democrat party state assembly member Tim Grayson, who, according to his wikipedia page was a “Construction contractor before deciding to get involved in politics”.
Under a tweet with 11 likes, he states: “The overwhelming support AB 2269 has 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”.
Some in the cryptocurrency industry disagreed with this sentiment. The twitter account of “The blockchain Association”, a nonprofit cryptocurrency advocacy group tweeted: “The bill’s licensing provisions are designed to install the same type of onerous licensing and reporting regime that has stunted the growth of the crypto industry and limited access to safe and reliable crypto products and services in New York”.
After the BitLicense was introduced in New York many crypto businesses left the state and no longer serve customers in New York. One such business was crypto exchange Kraken which moved to San Francisco.
The bill defines “Digital financial assets” as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender”. And “Digital financial asset business activity” as the following.
● Exchanging, transferring, or storing a digital financial asset or engaging in digital financial asset administration, whether directly or through an agreement with a digital financial asset control services vendor.
● Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals.
● Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:
○ A digital financial asset offered by or on behalf of the same publisher from which the original digital representation of value was received.
○ Legal tender or bank or credit union credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.
The bill calls upon any digital asset exchanges and crypto businesses operating in the state to obtain a license from the state’s Department of Financial Protection and Innovation. Any business operating in California or serving customers/clients within the state without a permit would be summarily subject to a daily fine of $100,000.
Another clause deals with stablecoins, which are a type of cryptocurrency that maintains one-to-one parity with another currency such as U.S. dollars. Under the bill, California-licensed crypto businesses would be prohibited from dealing with stablecoins, unless they are issued by a bank or licensed by the Department of Financial Protection and Innovation.
The bill also stipulates that stablecoin issuers must hold securities in reserve that are not less than the total amount of all “outstanding stablecoins issued or sold in the United States.”
The bill comes into effect on January 1st 2025.
This bill sets a deadline for the cryptocurrency industry of California to become compliant or move from the state and stop serving customers there. California is the home of the global center of the tech industry, Silicon Valley.
When this bill is enforced the consequences could be wide reaching not only for California based crypto entrepreneurs but also for crypto users in California who will be restricted in the services they can use and the coins they can legally hold.
Many crypto businesses will undoubtedly decide to move to other countries or other US states before this bill comes into effect. For businesses operating globally, they will need to check whether their customers are California residents and possibly restrict the business carried out with California residents in order to stay compliant with US law.
Here at FAMEEX exchange, we like to stay up to date with the latest changes in the regulatory environment. This lets us make timely preparations and support our customers through any changes they may need to make. Doing this allows us to create a safe and secure ecosystem for our traders that will last through the ages.
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