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Financial Services Law Insights and Observations

California governor orders state to create blockchain regulatory framework

State Issues California Digital Assets Blockchain Fintech DFPI CCFPL

State Issues

On May 4, the California governor issued an executive order calling on the state to create a transparent and consistent framework for companies operating in blockchain, cryptocurrency, and related financial technologies. This framework, the governor stated, should harmonize federal and California laws and balance innovation with consumer protection. The executive order outlined several priorities, including:

  • The framework should include input from a range of stakeholders for potential blockchain applications and ventures;
  • The Department of Financial Protection and Innovation (DFPI) should engage in a public process, including with federal agencies, to “develop a comprehensive regulatory approach to crypto assets harmonized with the direction of federal regulations and guidance” and should “exercise its authority under the California Consumer Financial Protection Law (CCFPL) to develop guidance and, as appropriate, regulatory clarity and supervision of private entities offering crypto asset-related financial products and services” in the state;
  • DFPI should publish consumer protection principles that include model disclosures, error resolution, and other criteria, and “seek input from stakeholders and licensees in order to publish guidance for California state-chartered banks and credit unions”;
  • DFPI should engage in actions to protect consumers, including initiating enforcement actions to enforce the CCFPL, enhancing its review of consumer complaints related to crypto asset-related financial products and services and working with companies to remedy such complaints, and publishing consumer education materials;
  • GovOps should issue a request for innovative ideas to explore opportunities for deploying blockchain technologies that address public-serving and emerging needs; and
  • Members of the Governor's Council for Postsecondary Education should “identify opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets” to “expose students to emerging opportunities.”

The governor emphasized that while blockchain technology over the past decade “has laid the foundation for a new generation of innovation, spurring a rise in entrepreneurialism in sectors including financial technology,” among others, its impact “is both uncertain and profound” and carries risks and legal implications.