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California Jumps Back On The Regulation Bandwagon

California Regulation
California Regulation

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California has jumped back onto the regulation bandwagon after the Consumer Federation of California (CFC) took another stab towards regulating crypto companies, according to an official press release.

Protecting Californians From Scams

The crypto sector has experienced notable growth over the years, but the progress has been impeded by negative behaviors by scammers and bad actors who engage in operations such as insider trading and other ill behaviors in the market.

These activities cause consumers to suffer from financial insecurity, which fuels a lack of confidence in crypto-related activities, and, ultimately, annual losses reaching billions of dollars.

Initially, Assembly member Timothy Grayson(D-Concord) introduced the Digital Financial Assets Law under the Consumer Federation of California’s sponsorship to protect Californians from financial difficulties and promote responsible innovation in the process. In his words:

As we now know, the costs of lax oversight are so much higher: real people are getting hurt. We need to do more.

However, the CFC, a non-profit advocacy organization pushing for consumer rights protection, supported legislation seeking to license and regulate crypto exchanges’ activities.

According to Assemblyman Grayson, licensure is the next natural step for the cryptocurrency industry, noting:

…it is equally clear that until we take that step, Californians will continue to be vulnerable to prevalent and preventable financial scams.

California’s AB 39 To License Crypto Firms Under The California Department Of Financial Protection and Innovation

Notably, this is not the first time the CFC is trying to license and regulate digital assets and related firms. The first attempt traces back to 2022 when the bill (AB 39) was first introduced, although California Governor Gavin Newson rejected it.

If the bill is approved, it will be passed into law by January 1, 2025, barring Californians from participating in crypto activities until the concerned entity achieves “certain criteria.”

Assembly Bill AB 39 will see crypto businesses licensed under the California Department of Financial Protection and Innovation (DFPI). The law is expected to deliver regulatory clarity and investor protection for the ultimate good of California citizens. It will also guide industry players on how to conduct themselves securely.

Commenting on the matter and revealing the cause for the decision, Executive Director of the Consumer Regulation of California Robert Herrell said the bankruptcies and frauds that spanned the whole of 2022 played a role in highlighting the need for consumer protection in the crypto market.

The bankruptcies and scams of the past year only bolster our collective interest in ensuring basic and foundational consumer protections in this marketplace, which has looked like the Wild West in terms of ‘anything goes’ behavior by key players in the cryptocurrency industry.

Herrell also expressed his support for the legislation, noting, “the federation applauds Grayson for leading the charge in licensing and providing fundamental consumer protections in the cryptocurrency industry.”

It is worth mentioning that the CFC believes the bill’s first hearing in the Assembly will occur in April 2023.

Nevertheless, while the politicians in California make moves to introduce crypto regulations, the California Department of Motor vehicles (DMV) is testing “the digitization of car titles and title transfers” through a private Tezos blockchain, according to a report on Cointelegraph. Based on the report, California DMV’s chief digital officer Ajay Gupta said that the agency plans to streamline the shadow ledger within the next three months.

Additional Roles Of Assembly Bill 39 (AB 39)     

Besides giving the DFPI the mandate to issue licenses to firms dealing in digital financial assets, the AB 39 also sets guardrails for stablecoins and demands that cryptocurrency exchanges certify that any token they list has met the set criteria. The bill also stipulates that exchanges ensure that consumers are accessible to customer support, including a toll-free telephone line.

Finally, the bill wants a clearly defined path for organizations “with a New York State BitLicense to be conditionally licensed right away.”

The provisions featured in Assembly Bill 39 reflect ongoing discussions among industry stakeholders, issue area pundits, and consumer advocates following the rejection of AB 2269 (Grayson, 2022).

Several politicians have already demonstrated support for AB 39, including principal co-authors Senator Monique Limón, Senate Democratic Caucus Chair and Chair of the Senate Committee on Banking and Financial Institutions, and Assemblymember Cottie Petrie-Norris, member of the Assembly Committee on Banking and Finance.

Noteworthy, AB 39 has been presented for a hearing before the Assembly Banking and Finance Committee, with new, amended language for the bill to be published soon. The law intends to balance consumer protection and industry compliance while at the same time eliminating widespread financial fraud and fraudulent activities that are prevalent in the crypto playing field.

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