On October 13, 2023, California Governor Gavin Newsom signed Assembly Bill 39 (Grayson) establishing the Digital Financial Assets Law (DFAL). This hallmark legislation which passed with bi-partisan support, becomes fully effective on July 1, 2025, and seeks to impose a comprehensive regulatory framework on digital financial transactions, including cryptocurrency. The new law will be codified in California Financial Code 3100, et seq. California becomes the second state (after New York) to establish strict regulations and requirements on providers of digital financial services.
The new legislation seeks to strengthen and grow the fledgling California Department of Financial Protection and Innovation (DFPI) (which was created in 2020) to implement the requirements set forth in the new law. Among the requirements of A.B. 39:
- Mandating that any provider of digital financial services maintain sufficient liquid capital to ensure the financial integrity of its transactions with consumers;
- Mandating that any provider of digital financial services maintain a surety bond or establish a trust account in an amount to be determined by the DFPI for the protection of customers who rely on digital currency transactions; and
- Mandating that any provider of digital financial services maintain a sufficient financial reserve equal to the amount of liabilities of the holders of digital assets.
The new law also includes provisions applicable to further insulate customers from creditor claims in the event of a provider bankruptcy—a previously murky area of law. Digital currency provides must also pay a yearly fee and provide certain written disclosures, annually, to customers like those found in the financial services industry.
Previous attempts to bring regulatory coverage to the digital financial industry had stalled in the State Legislature. However, with the much-publicized failure of FTX Cryptocurrency and the ongoing criminal proceedings against its head, Sam Bankman-Fried, the Legislature was forced to act. The July 2025 effective date was included to provide DFPI and State regulators with sufficient time to iron-out the details of this comprehensive regulatory scheme and establish industry-wide standards to adhere to.
As with most laws that attempt to regulate an entire section of industry, there are many details to be worked out before A.B. 39’s effective date. Many questions remain about what additional obligations the DFPI will impose on digital financial service providers in addition to those specifically set forth in A.B. 39 and what penalties will be imposed against those providers who fail to meet the standards set forth in the new law.