California Assembly Passes Crypto Regulation Bill That Requires Bank-Issued Stablecoins
The Digital Financial Assets Law, which is similar to New York’s BitLicense, has been criticized by industry stakeholders.
California Gov. Gavin Newsom is set to sign a recently passed bill that would require digital asset exchanges and other crypto companies to obtain a license to operate in the state.
The Digital Financial Assets Law, dubbed California’s "BitLicense," takes after New York’s BitLicense regulation, which came into effect in 2015. California’s law, if signed by Newsom, a Democrat, would go into effect in January 2025.
“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,” Assembly Member Timothy Grayson (D-Concord), the bill’s sponsor, said in a prior statement.
Among the requirements is a prohibition, which would be phased out in 2028, on California-licensed entities dealing with stablecoins, unless that stablecoin is issued by a bank or is licensed by the California Department of Financial Protection and Innovation. This is similar to a proposed (and never passed) bill in the U.S. Congress that would require stablecoin issuers to have a bank charter.
Another clause in the stablecoin section of the bill would require stablecoin issuers that hold securities as a reserve to have an amount "not less than the aggregate amount of all of its outstanding stablecoins issued or sold in the United States." In addition, the bill stipulates that the aggregate market value must be computed using the generally accepted accounting principles (GAAP) of the United States. GAAP is a common set of accounting rules, standards and procedures issued by the Financial Accounting Standards Board (FASB).
The Blockchain Association, an industry trade group, tweeted that the bill would “create shortsighted and unhelpful restrictions that would impede crypto innovators’ ability to operate and push many out of the state.”
This is the second attempt California has made to create a "BitLicense" regime. The first, in 2015, failed and was made dormant after opposition from a state senator.
Within California's assembly, the bill received 71 yes votes and zero no votes. Nine members of the assembly abstained from voting. On the Senate floor, the bill received 31 yes votes and six no votes, with all six no votes coming from Republican senators.
Newsom has until Sept. 30 to sign or veto the bill.
UPDATE (Sept. 1, 2022, 02:15 UTC) – Updates headline, adds information throughout.
CORRECTION (Sept. 1, 2022, 03:15 UTC) – Clarifies that stablecoins would be required to have been issued by a bank or a California- licensed financial institution.
CORRECTION (Sept. 1, 2022, 03:15 UTC) – Corrects phrasing regarding the implementation of the stablecoin clause. It will be phased out in 2028 rather than implemented.
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