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California's Digital Financial Assets Law; G20 adopts IMF - FSB joint framework

California Governor Approved Bill on Stricter Crypto Regulation

What happened?

On October 13, California Governor Gavin Newsom announced that he was signing legislation for entities engaging in “digital financial asset business activit[ies].” The legislation, the Digital Financial Assets Law, requires individuals and corporations to obtain a license from the Department of Financial Protection and Innovation (DFPI) in order to conduct said business activities and lays out certain obligations for licensees.

According to the bill, licensees would need to meet capital, bonding, and liquidity requirements set by the DFPI based on various factors. Licensees will also need to establish policies and procedures including anti-fraud and anti-money laundering measures among others. The bill also requires disclosures on fees, risks, insurance coverage, and service outages.

Additionally, regulations are imposed around stablecoins pegged to national currencies. For instance, the bill prohibits covered entities from dealing with stablecoins unless the stablecoin issuer is licensed or exempt (like a bank). The issuer must also hold eligible securities “computed in accordance with United States generally accepted accounting principles” no less than the value of outstanding stablecoins issued or sold. Violations may result in penalties of up to $100,000 per day.

The law is set to take effect on July 1, 2025.

What does this mean?

The scope of “digital asset business activities,” in other words the extent of the bill’s applicability, is limited to instances in which a person engaged in covered activities “assume[s] control of a digital financial asset from, or on behalf of, a resident, at least momentarily.” While the bill does not explicitly exclude DeFi from its application, the definitions are limited to CeFi.

G20 adopts IMF - FSB joint framework

What happened?

On Friday last week, the G20 adopted a synthesis framework, developed by the International Monetary Fund (IMF) and Financial Stability Board (FSB), called the “G20 Roadmap on Crypto Assets.”

The IMF-FSB policy and regulatory recommendations seek to identify and respond to macroeconomic and financial stability concerns associated with crypto-assets, including DeFi-related risks.

The FSB’s high-level recommendations for crypto-assets include:

  • Granting appropriate regulatory powers to relevant authorities and applying comprehensive and effective regulation, supervision, and oversight requirements.

  • Implementation of comprehensive governance frameworks, by crypto-asset issuers and service providers, including clear and direct lines of responsibility and accountability for all functions and activities being conducted.

  • Development of effective risk management frameworks addressing all material risks associated with the functions and activities that are being performed.

  • Ensuring proper regulation, supervision, and oversight via data frameworks. These frameworks should include systems and processes for the collecting, storing, safeguarding, and timely and accurate reporting of data.

  • Provision of comprehensive, clear, and transparent information about crypto-asset markets and services to users and relevant stakeholders.

  • Adherence to the Financial Action Task Force (FATF) Standards in the virtual-asset sector to protect financial systems and the global economy from threats of money laundering, and terrorism financing.

What does this mean?

The adoption of the IMF-FSB framework is not a legally binding matter but a commitment by G20 nations to align their domestic policies with international standards. For that reason, the guidance is broad, focusing on the crypto-asset industry as a whole but explicitly includes DeFi. Unfortunately, the framework overlooks the innovation opportunities brought by DeFi and takes a skeptical stance towards the crypto industry. This approach could potentially stifle the growth and development of DeFi and hinder its ability to explore its full potential while amplifying perceived risks associated with cryptocurrency.


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