A year ago, Governor Newsom vetoed a bill, AB 2269, which would have established a Digital Financial Assets Law.  At the time, the Governor claimed that it was "premature to lock a licensing structure in statute".   What a difference a 12 months make.  As we reported in February, the author of AB 2269, Timothy Grayson, took another run at locking a a licensing structure in statute by introducing AB 39.   This time he met with more success.

On or after July 1, 2025, AB 39 will prohibit a person from engaging in digital financial asset business activity without a license from Department of Financial Protection & Innovation.  A "digital financial asset" is defined as "a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender".  A "digital financial asset" does not include the following:

• A transaction in which a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for legal tender, bank or credit union credit, or a digital financial asset.
• A digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.
• A security registered with or exempt from registration with the United States Securities and Exchange Commission or a security qualified with or exempt from qualifications with the DFPI.

The bill grants extensive authority to the DFPI to adopt regulations, provide guidance, conduct examinations and take enforcement actions.  Given the complexity of the subject and the scope of regulatory authority bestowed on the DFPI, I prognisticate a lengthy rulemaking process. 

Although Governor signed AB 39 into law, he expressed some concerns in his signing message and indicated that further legislation will be necessary: "However, 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".   

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