On May 4, 2022, California Governor Gavin Newsom signed an executive order aimed at creating a framework for both regulating and developing the quickly growing blockchain and cryptocurrency industry. The Order follows President Biden's March 9, 2022, Executive Order on Ensuring responsible Development of digital Assets. In a press release announcing the Order, the Governor's office cited the rapid growth of the crypto asset and blockchain technology business-from $14 billion five years ago to $3 trillion last November-as the impetus for issuing the Order.
The Order identified seven priorities for the state in how it intends to engage and regulate the blockchain and crypto asset industry:
- Create a transparent and consistent business environment for companies operating in blockchain. This includes crypto assets and related financial technologies.
- Collect feedback from a broad range of stakeholders and create a regulatory approach to crypto assets.
- Collect feedback from a broad range of stakeholders for potential blockchain applications and ventures, with particular attention to crypto assets and related financial technologies.
- Engage in a public process and exercise statutory authority to develop a comprehensive regulatory approach to crypto assets.
- Engage in and encourage regulatory clarity via progress on the processes outlined in the federal executive order, with state agencies coordinating closely with the Washington, D.C., Office of the California Governor.
- Explore opportunities to deploy blockchain technologies to address public-serving and emerging needs.
- Identify opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets.
Not surprisingly, California's recently created Department of Financial Innovation and Protection (DFPI) will be tasked with taking the lead in developing and implementing new regulations along with their federal counterparts at the CFPB, CFTC, and SEC. The Order also calls on the DFPI to (1) initiate enforcement actions to "stop violations of the California Consumer Financial Protection Law (CCFPL); (2) enhance collection and review of consumer complaints related to crypto asset-related financial products and services; (3) work with crypto asset-related financial products and services companies to remedy complaints; and (4) consult with law enforcement agencies regarding criminal activity.
While the Order further serves to confirm that blockchain and crypto asset companies are on their way to widespread usage and acceptance, it is also clear that these companies will soon have to contend with similar regulatory schemes as traditional financial institutions and companies.
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