California Governor Gavin Newsom has taken steps to establish a regulatory framework for the emerging crypto industry. The Digital Financial Asset Law, signed into law on October 13, outlines the roadmap for this initiative.
The new law designates the state’s Department of Financial Protection and Innovation (DFPI) as the regulatory authority responsible for licensing and enforcing specific crypto activities.
California’s Digital Asset Framework
It grants the DFPI rulemaking authority and an 18-month implementation window, allowing adaptability to industry trends and enhanced consumer protection.
Governor Newsom emphasizes that this regulatory framework will enhance consumer and investor protections, reduce fraud, and increase accountability for illicit activities. He stated:
“It is essential that we strike the appropriate balance between protecting consumers from harm and fostering a responsible innovation environment.”
The governor also conceded that the bill might still need some work. He said:
“[The] ambiguity of certain terms and the scope of this bill will require further refinement in both the regulatory process and in statute to provide clarity to both consumers, regulators and businesses subject to this new licensure framework.”
Last year, the DFPI consulted with Coinbase executives on crypto regulations. At the time, the exchange proffered several suggestions, including that the regulator clarify which digital assets would be classified as financial products or services.
Meanwhile, the bill continues several pro-crypto moves made by the state recently. Last year, Governor Newsom declined to endorse a bill due to its lack of adaptability to the rapidly evolving crypto industry.
Challenges in U.S. Crypto Regulation Persist
The absence of clear and comprehensive crypto regulations in the United States has persisted despite ongoing calls for government action. While lawmakers have tried to establish regulatory guidelines, no concrete framework has emerged.
This regulatory ambiguity has resulted in legal disputes, with Coinbase’s petition against the SEC being a prominent case. This year, the SEC took action against Coinbase for alleged security rule violations related to its crypto products. In response, Coinbase petitioned the regulator to create a well-defined regulatory framework for the crypto industry.
It should be noted that this lack of regulatory clarity in the U.S. has led several crypto-related firms to close operations in the jurisdiction. Several crypto stakeholders argue that this exodus could continue unless the government works towards developing crypto-friendly legislation.
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