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A law forcing businesses involved in cryptocurrencies to seek special licences is vetoed by the governor of California

The Digital Financial Assets Law, which would have required businesses providing services involving cryptocurrency lending, trading, or investing to register with the state’s Department of Financial Protection and Innovation, was rejected by California Governor Gavin Newsom.

In a statement defending his veto, Newsom stated, “On May 4, 2022, I issued Executive Order N-9-22 to position California as the first state to establish a transparent regulatory environment that both fosters responsible innovation and protects consumers who use digital asset financial services and products – all within the context of a rapidly evolving federal regulatory picture.”

In a letter to the California General Assembly, Newsome argued that licencing was an unnecessary next step in light of his May Executive Order and the federal regulations that are still in the works.

“Over the past few months, my administration has engaged in substantial study and outreach to seek feedback on strategies that balance consumer advantages and risks, adhere to federal regulations, and take into account California values like equity, inclusivity, and environmental protection.”

“A more flexible approach is needed,” he wrote. “Regulatory oversight must be tailored with the right capabilities to identify trends and reduce consumer harm.”

According to Newsom, he concurs with the bill’s author that “protecting Californians from possible financial harm while providing clear standards for crypto-businesses operating in our state” is a worthy goal, but that licencing is now going too far.

Detractors of the bill contend it would result in a burdensome process that would drive cryptocurrency businesses out of the state. This is a significant issue given that California is home to some significant crypto players, such as Coinbase and Ripple. Supporters of the bill have called it balanced and asserted that it established responsible guardrails to protect consumers.

The need for licensure, as well as the attendant worries and criticism, are not new: Despite complaints of excessive regulation and an onerous application process, New York’s BitLicense regime entered into operation in 2015 (the first such licence was awarded that year). Though the New York Department of Financial Services has accepted 31 credentials, including firms like Robinhood, Block and, allegedly, other companies have limited or departed New York as a result of the law.

News Summary:

  • A law forcing businesses involved in cryptocurrencies to seek special licences is vetoed by the governor of California
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