The bill, AB-39, was authored by Assembly Banking and Finance Chair Timothy Grayson, along with several other Democrat state legislators, and was passed in both the state Senate and Assembly with bipartisan support. If signed, the law would create a licensing program within the state’s Department of Financial Protection and Innovation with the aim of facilitating innovation in the crypto space and shielding residents from malicious actors, according to Grayson’s office.
“To me it’s simple: the government has a duty to respond when people are being hurt, and until we license crypto companies, Californians will continue to be frequent targets of financial scams,” Grayson said. “Licensure is the next natural step for this industry, and AB 39 strikes the right balance of fostering innovation while providing strong consumer protections.”
The bill also enjoys support from the California Bankers Association, which lauded it for treating cryptocurrency for what it is: an entrenched part of the financial consumer landscape.
“The California Bankers Association is pleased to support AB 39, which creates important consumer protections for Californians,” reads its statement. “The banking industry is highly regulated with a licensing and examination framework to protect customer assets and ensure the safety and soundness of the financial system. Similar regulatory oversight is needed for digital assets as crypto currencies are now a ubiquitous part of the economy.”
However, the Crypto Council for Innovation (CCI), a global digital asset advocacy coalition, has taken exception to parts of the bill’s language and penned a letter to Newsom on Monday, Sept. 25, to express those concerns. “We have a number of ongoing concerns that must be addressed, including through subsequent clean-up legislation, in order to ensure California can remain a hub of digital asset innovation,” reads information from the Council. Per the group, despite steps taken during the bill’s initial drafting, the definitions of certain terms like “digital financial asset business activity,” “executive officer,” and “control” remain problematic.
“These overly broad and imprecise definitions could unintentionally pigeonhole a wide range of unrelated activity, technology, and individuals into the bill’s purview, creating operational challenges for both licensees and regulators,” says the CCI. “These include smart contract protocols, storage providers, and web3 gaming, a burgeoning, $10 billion industry estimated to host almost a million daily users.”
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Further, the CCI also indicated that while there were notable concessions to the bill’s ban on “algorithmic stablecoins,” it is still advocating for additional protections against regulatory overreach and the expansive authority given to the Department of Financial Protection and Innovation through the legislation.
If passed, the bill will require crypto companies to apply for or obtain a license by the beginning of July of 2025 in order to conduct business in the state of California, according to Grayson’s office. Based on provisions in the law, its enactment hinges on the successful passage of SB 401, adds the announcement.
