California Gov. Gavin Newsom has refused to sign a bill that would have created a licensing and regulatory framework for cryptocurrency firms in the state, stressing the need for a more flexible approach to “keep up with rapidly evolving technology and use cases” for digital assets.
“Digital assets are becoming increasingly popular in our financial ecosystem, with more consumers buying and selling cryptocurrencies each year,” said Newsom in a letter to the state Assembly. “It is premature to lock a licensing structure in statute without considering … forthcoming federal actions.”
The governor’s veto of the Assembly bill comes as more stringent crypto regulation is being considered at the national level. Legislation that could ban stablecoins could be decided on by the House as early as this week, Bloomberg reported. Meanwhile, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler hinted earlier this month that proof-of-stake (PoS) cryptocurrencies could be regulated as securities.
California’s proposed crypto regulation bill, AB 2269, coined “Digital financial asset businesses: regulation,” was introduced by a California Assembly member earlier this year, passing in the Assembly and California State Senate at the end of August.
As of Jan. 1, 2025, AB 2269 would bar a person from engaging in digital financial asset business activity without a license from the California Department of Financial Protection and Innovation (DFAI). The DFAI, in addition, would require businesses to maintain records of all California client activity for at least five years.
Many industry representatives had vehemently opposed the bill. In a statement, the Blockchain Association said the bill’s licensing and reporting regime would impede local growth in the sector and push the industry out of California.
The governor added that the veto followed “extensive research and outreach” by his administration on the issue of cryptocurrency. “A more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases and is tailored with the proper tools to address trends and mitigate consumer harm.”