What employers need to know as California passes new blockchain law, but rejects broader regulation – for now | Fisher Phillips

California just passed a new law that will continue to keep the state front and center in the continued use of blockchain technology. But at the same time, Governor Gavin Newsom vetoed broader legislation that would have established a licensing and regulatory framework for digital financial assets. What do these developments signal for California employers?

New law on vital records

Governor Newsom recently signed a bill that allows county registrars to issue a certified copy of a birth, death or marriage certificate using a verifiable credential using blockchain technology. Senate Bill 786, which would take effect on January 1, 2023, would require a county clerk issuing such documentation to “ensure that the release of the copy is subject to technical safeguards adequate to prevent fraud, and to protect the document and its contents from unauthorized or unlawful access, destruction, use, modification and disclosure.”

The legislative history of SB 786 discusses a 2020 report from the California blockchain task force that recommended the state consider using blockchain technology in the areas of vital records. Committee analyzes of SB 786 also noted that county recorders’ offices in other states (including Cook County in Illinois and Washoe County and Elk County in Nevada) have authorized or piloted the use of blockchain in vital records.

Governor Vetoes Broader Crypto License Law

While the governor signed SB 786, he also vetoed broader legislation (Assembly Bill 2269) that would have required digital asset companies to obtain a license to offer their services or assets to California residents. His veto noted a previous Executive Order he had signed (which we discussed here) to establish a transparent regulatory environment for digital assets.

He expressed concern with AB 2269, noting:

“It is premature to lock a licensing structure into statute without considering both this work and upcoming federal actions. A more flexible approach is needed to ensure that regulatory oversight can keep pace with rapidly evolving technology and use cases, and is tailored with the right the tools to address trends and reduce consumer harm.

Additionally, setting up a new regulatory program is an expensive undertaking, and this bill would require a general fund loan of tens of millions of dollars in the first few years. Such a significant commitment of general fund funds should be assessed and accounted for in the annual budget process.

I am committed to working with the Legislature to achieve appropriate regulatory clarity as federal regulations come into sharper focus for digital financial assets, while ensuring that California remains a competitive place for companies to invest and innovate.”

What this means for employers

These developments illustrate that California is eager to lead the way in identifying and adopting tangible use cases for blockchain technology and digital assets, which we discussed more fully in another recent Insight. State and county agencies in California adopting blockchain technology and “leading by example” can be a powerful incentive for businesses and employers to explore this new trend.

But while the state is moving forward aggressively in some areas, in other areas the state is more cautious and looking for federal conformity. California policymakers are thinking about broader regulatory issues involving digital assets, which makes sense given the complicated regulatory relationship between state and federal regulators.

In the long term, getting this “right” could be a real benefit to California businesses and employers if the state can harmonize state and federal regulation of this growing area – especially with regards to cryptocurrency or crypto-assets. Regulatory uncertainty is one of the biggest challenges to the push for mass adoption, and having a comprehensive set of federal and state rules to operate can further strengthen businesses’ willingness to incorporate blockchain technology into their operations.