California’s crypto exchanges that were criticized or shifted owing to NewYork’s 2015 BitLicense provide perspectives concerning the state’s new regulation.
California has imitated New York by signing its BitLicense bill for the crypto sector. The Digital Financial Assets Law was signed last week by Gavin Newsom, California’s governor, and may come into action from July next year.
The bill intends to implement a ‘string regulatory structure’ for California. Further, this bill is similar to New York’s 2015 BitLicense bill, meaning it does not excite all persons working in the space.
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New York’s dropping of the bill in 2015 resulted in criticism from the digital asset sector. At the time, Kraken, one of the United States’ major crypto exchanges, called the situation ‘offensive.’ Alongside Bitfinex and LocalBitcoins, it was among the numerous firms that exited New York.
Coinbase, the nation’s biggest crypto exchange, also slammed the bill for copying recommended changes and national anti-money laundering (AML) obligations.
Coinbase would this year settle a $50M fine to regulators for alleged vulnerabilities in its compliance program. A major consideration is whether California’s BitLicense will be different. Some industry stakeholders believe it might be possible. Paul Grewal, Coinbase’s chief legal officer, claimed he was ‘inspired’ by what was happening.
Currently, California is the home to 25% of the nation’s blockchain companies. This includes major ones such as Jack Dorsey’s Block. The early concern is that, similar to New York’s BitLicense, unclear regulations may chase digital asset firms.
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Meanwhile, the bill only allows an individual to participate in digital financial asset business activity after meeting specific criteria. This criterion is relatively strict since one requires a permit from the Department of Financial Protection and Innovation to run a firm.
According to experts, the bill’s present phrasing is vague. Peter Herzog, the associate director of government affairs at the Crypto Council for Innovation, said phrases might ‘inadvertently pigeonhole’ unassociated activity.
Decentralized systems must also acquire approval simply because their smart contracts comprise an emergency pause feature. The inclusion of nonfungible tokens (NFTs) and the non-fiat stablecoin’s fate remains unclear.
This is why most in the sector were glad when Governor Gavin, who earlier turned down a prior blockchain bill with the same proposal, claimed the bill would ‘need additional improvement’ owing to its vagueness. On Twitter Friday, the chief legal officer at the nation’s biggest exchange, Paul Grewal, said that despite being worried by the obscurities in what was ratified, they are motivated by Gavin’s highlighting the matter.
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In an email, the exchange claimed it did not intend to exit the state. Kraken’s view concerning the California bill is quite measured compared to when it termed New York’s law ‘a foul and harsh creature.’
The San Francisco-founded firm revealed to a media outlet that ‘it is still dedicated to partnering with California legislators and the Department of Financial Protection and Innovation to ensure the state’s clients get constant access to the highest quality services.
Consensys, a blockchain and software firm with a significant share of its workers in California, also claimed it was monitoring the bill.
The company’s senior attorney and director of international regulatory matters, Bill Hughes, said that despite financial legislation being ‘nearly constantly ambiguous,’ close monitoring of the bill’s advancement was necessary.
Hughes claimed there is adequate time to ensure the regulator gains sufficient knowledge concerning the risks involved. Additionally, crypto ecosystem participants would aid in shaping the law. He also said the industry must count on and partner with the DAFL to ensure the promulgation of the laws.
Herzog said that despite the state still having ‘more to do to ensure that everything is right,’ the council was ‘encouraged by Governor Newsom’s acknowledgment that the law should strive to narrow the scope and improve clarity for future licensees via further legislation.’