On 2 October 2024, the California Department of Financial Protection and Innovation (DFPI), issued draft proposed rules to implement the state’s new cryptocurrency licensing regime, the Digital Financial Assets Law (DFAL). DFPI is seeking comments on the proposed rules and set a deadline of 18 November 2024.

Although Governor Gavin Newsom just extended the date for DFAL licensure until July of 2026, cryptocurrency ATM operators had initial compliance duties in January of 2024 (concerning transaction limits), and will have more requirements starting in January of 2025 (concerning charges and disclosures).

The DFPI’s new draft rules come with a request for comment, which is in addition to the DFPI’s previous request for comment in November 2023. Initial commenters were largely cryptocurrency businesses and industry groups.

The draft rules concern the following topics:

• An exemption from the Money Transmission Act for fiat money transmission by a person licensed under the DFAL if such fiat money transmission is incidental to regulated digital financial asset business activity;
• The process and requirements to apply for a license;
• The requirement for applicants to apply for a license and maintain the license through the Nationwide Multistate Licensing System and Registry (NMLS);
• The California-specific documents, fees, and other information that must be filed through NMLS and the timeframes for filing the information;
• A non-refundable application fee of US$20,000 required of applicants (note that this application fee does not include the investigation fee or annual assessment fees);
• The information required to enable DFPI to investigate applicants to determine whether they meet the standards for licensure; and
• The processes to challenge information entered in NMLS by DFPI; submit and maintain a surety bond; surrender a license; and change information in the license application.