Veto of CA Crypto Law Cold Comfort for FinTech

The cryptocurrency lobby industry won another victory on Friday (September 23) when California’s governor vetoed a bill that would have created a crypto regulatory framework that it said would force smaller and startup FinTechs out of the state where much of the tech talent and most of the early-stage funding is localized.

But the victory may be very short-lived.

The Digital Financial Assets Law that overwhelmingly passed both houses of the state legislature last month has been dubbed a California BitLicense law, referring to New York’s crypto-licensing regime blamed for driving businesses out of the state — the most high-profile being cryptocurrency exchange Kraken. , who moved to San Francisco.

Read more: Calif. Governor Newsom Vetoes Crypto License Bill

The Blockchain Association, a crypto industry lobby group, praised Gov. Gavin Newsom’s veto, saying the legislation “threatened to stifle innovation and stop California’s burgeoning crypto industry in its tracks.”

While the New York Department of Financial Services’ BitLicense is widely regarded as the gold standard in regulation, it is so cost- and labor-intensive that industry opponents say it is not feasible for startups and smaller firms.

See more: California Crypto Bill would be as tough as New York’s BitLicense, say critics

That has, the Blockchain Association noted in urging the veto, “created an environment where only the biggest and most wealthy can manage to comply, while those just getting off the ground are left out in the cold.”

Beyond that, many larger firms choose not to do business in New York. Aside from Kraken, the US arms of the two largest crypto exchanges, FTX US and Binance.US, do not serve New Yorkers.

FTX US’s terms give a sense of industry opinion on New York’s BitLicense: “FTX US does not onboard or provide services to personal accounts of current residents of the State of New York (USA), Ontario (Canada), Cuba, Crimea and Sevastopol, Luhansk People’s Republic, Donetsk People’s Republic, Iran, Afghanistan, Syria, North Korea or Antigua and Barbuda.”

Given the high concentration of FinTechs in California and New York, if crypto-focused companies thought they were facing unworkable requirements in either of the two largest FinTech markets, it would be at a huge disadvantage. It will also force the industry to test the arguments of a growing number of states like Wyoming, Texas and North Carolina that FinTechs need not be clustered as much as they are around California’s tech hub and New York’s financial hub. traditional finance.

Round two

It’s worth noting that while Newsom’s veto message on Friday used the standard political language of crypto regulation — calling for a regulatory framework that “fosters responsible innovation and protects consumers” — it didn’t actually say the Digital Financial Assets Act was bad in any way manner.

Noting that research and outreach under his May executive order to establish such a framework is still ongoing, as well as that under President Joe Biden’s own order, it is “premature to lock a licensing structure into statute without considering both this work and upcoming federal actions,” Newsom wrote.

First and foremost, it spoke of the need to ensure that the final rules “incorporate California values ​​such as equity, inclusion and environmental protection” and provide a sufficiently “flexible approach … to ensure that regulatory oversight can keep pace with rapidly evolving technology and use cases and are tailored with the right tools to meet trends and reduce consumer harm.”

What it did not do was suggest that the overall approach to the Digital Financial Assets Act was flawed or that it threatened to stifle innovation, suggesting that the cryptofintech business will fight regulations that it says will again be too much for small startups soon.

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