California watchdog tries to regulate crypto firms againThe Consumer Federation of California is once again making an attempt to license and regulate the activities of cryptocurrency exchanges in the state.
Assemblymember Timothy Grayson (D-Concord) introduced the legislation, sponsored by the Consumer Federation of California, in an effort to protect Californians from financial hardship and foster responsible innovation in the crypto industry.
As we now know, the costs of lax oversight are so much higher: real people are getting hurt. We need to do more.
Timothy Grayson
Protecting Californians from scams and fraud
However, this development has been hampered by fraudulent operations, insider trading, and other negative behaviors by bad players in the market.
Cryptocurrency has witnessed substantial growth in recent years, but this progress has been hampered by these negative behaviors.
Consumers suffer from financial insecurity and a lack of confidence as a direct result of crypto scams, which cause annual losses of billions of dollars.
Assembly Bill 39 (AB 39) would give the Department of Financial Protection and Innovation (DFPI) the authority to grant licenses to companies dealing in digital financial assets.
This would provide long-overdue protections for consumers and regulatory clarity for industry actors regarding how to conduct themselves in a secure manner.
Robert Herrell, Executive Director of the Consumer Federation of California, expressed his support for the legislation, stating that the federation applauds Grayson for leading the charge in licensing and providing fundamental consumer protections in the cryptocurrency industry.
In addition, he said that the bankruptcies and frauds that occurred over the course of the previous year only served to highlight the need for consumer safeguards in the cryptocurrency market.
The bankruptcies and scams of the past year only bolster our collective interest in ensuring basic and foundational consumer protections in this marketplace, which has up to now looked like the Wild West in terms of ‘anything goes’ behavior by key players in the cryptocurrency industry.
Ribert Herrell
What more?
In addition to establishing a licensing process and DFPI enforcement mechanisms, AB 39 also establishes guardrails for stablecoins, requires crypto exchanges to self-certify that a listed token meets certain requirements, ensures consumers have access to basic customer assistance such as a toll-free telephone line and provides a path for companies with a New York State BitLicense to be conditionally licensed right away.
The provisions included in AB 39 reflect continued conversations with industry stakeholders, issue area experts, and consumer advocates after the veto of AB 2269 (Grayson, 2022).
Joining in support of AB 39 are principal coauthors Senator Monique Limón, Senate Democratic Caucus Chair and Chair of the Senate Committee on Banking and Financial Institutions, and Assemblymember Cottie Petrie-Norris, member of the Assembly Committee on Banking and Finance.
AB 39 has been referred to the Assembly Banking and Finance Committee for a hearing, and new, amended language for AB 39 will be published soon.
The law seeks to strike a compromise between consumer protection and industry compliance, and ideally, it will put a stop to the widespread financial fraud and fraudulent activities that are rampant in the cryptocurrency area.
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