On April 4, the California Department of Financial Protection and Innovation (DFPI) issued proposed regulations under the Digital Financial Assets Law (DFAL). The proposal provides clarification on DFAL’s licensing framework and identifies when digital asset activity may qualify for exemptions under California’s Money Transmission Act.

The proposal builds on legislation passed in 2023 and 2024—including Assembly Bill 39, Senate Bill 401, and Assembly Bill 1934—which established the DFAL and later pushed back its implementation deadline. Beginning July 1, 2026, companies engaging in covered digital financial asset business activity with or on behalf of California residents must be licensed by DFPI, have a pending application on file, or qualify for an exemption.

The proposed regulations aim to implement the Digital Financial Assets Law by clarifying licensing procedures, exemptions, and reporting obligations. The rule is intended to enhance transparency, improve oversight, and support the development of a safe, regulated digital asset market in California. Key provisions include:

• License application procedures. The proposed regulations detail how covered persons must apply for licensure, including the use of the Nationwide Multistate Licensing System and Registry (NMLS) and required supporting materials.
• Surety bond requirements. The proposal explains how licensees must demonstrate compliance with DFAL’s surety bond obligations, including documentation standards.
• Material change notifications. Applicants and licensees must notify the DFPI of any changes to application information, including business addresses and control persons.
• Kiosk disclosures. Operators of digital financial asset kiosks must report locations and provide updates to the Department as changes occur.
• Exemption from MTA Licensure. The rule clarifies that money transmission incidental to digital asset activity does not trigger licensure under California’s Money Transmission Act.

The DFPI has invited written public comment through May 19, 2025, and will hold a hearing if requested by April 30. The Department estimates that compliance with the proposed regulations will cost approximately $8,190.18 in the first full year, with $150 in annual fees thereafter.

Putting It Into Practice: The proposed regulations represent California’s first substantive rulemaking under DFAL and reinforce the state’s intent to become a leader in digital financial asset oversight. The move follows several digital asset regulations enacted by several states (previously discussed here and here). With California now entering the crypto regulatory space, other states are likely to follow.