California Governor Gavin Newsom has approved a new cryptocurrency law aimed at implementing stricter regulations for crypto businesses. The new law will come into effect in July 2025.
This law is known as the “Digital Financial Assets Act.” The act mandates individuals and businesses dealing with digital assets to obtain a license from the “Department of Financial Protection and Innovation” (DFPI) if they wish to operate in California.
Digital Financial Assets Act
The new regulation builds upon existing money transfer laws, which state that, as of now, banking and money transfer services cannot operate without a valid license issued by the DFPI commissioner.
The Digital Financial Assets Act empowers the DFPI by giving it the authority to closely regulate crypto companies and mandates these companies to maintain comprehensive financial records.
The law specifically requires license holders to keep records for a minimum of five years. These records must include a detailed ledger that is updated monthly, covering all assets, liabilities, capital, revenue, and expenses of the license holder.
Firms failing to comply with these requirements will face sanctions.
Newsom Changes His Stance
The approval of the crypto regulation law signifies a significant shift in Governor Newsom’s previous views on the subject.
In 2022, Newsom had returned a similar bill aiming to create a regulatory framework for digital assets within California, without signing it. He had cited a lack of flexibility to adapt to the rapidly changing crypto ecosystem as the reason. Newsom had stated that it would be wiser to wait for federal regulations before embarking on comprehensive crypto licensing initiatives.
Meanwhile, the federal government is working on various regulatory approaches to increase security and oversight in the crypto industry.
Notably, there is consideration for the Electronic Fund Transfer Act to be applied to cryptocurrencies, as a way to prevent fraudulent transfers. The Consumer Financial Protection Bureau recently announced plans to approve this measure with the aim of “reducing harm from errors, attacks, and unauthorized transfers.”
As California prepares to implement the Digital Financial Assets Act, it is still unclear what impact this new regulatory environment will have on the state’s crypto industry and whether it will serve as a model for further regulatory developments in the broader U.S. market.