California Introduces New Bill to Regulate Bitcoin and Crypto Businesses, Calls for $50,000 Penalty for Violations
Assembly Majority Leader Ian Calderon has introduced Assembly Bill 1489, which would govern virtual currency business activity that takes place with or on behalf of residents. The bill is similar to New York’s BitLicense, and would require companies to go through an approval process to conduct crypto-related activities in the state.
According to the legislation,
“This bill would enact the Uniform Regulation of Virtual Currency Businesses Act. The bill would prohibit a person from engaging in virtual currency business activity, or holding itself out as such, unless licensed or registered with the Department of Business Oversight, subject to a variety of exemptions.”
The bill does not consider virtual currencies (also known as cryptocurrencies and digital assets) to be legal tender, whether or not it is denominated in legal tender. It says virtual currency is a representation of value for exchange, storage of value, or unit of account.
It defines virtual currency business activity in section 25,
“Exchanging, transferring, or storing virtual currency or engaging in virtual currency administration, whether directly or through an agreement with a virtual currency control services vendor.”
“Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals.”
“Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:
Virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received.
Legal tender or bank credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.”
If passed into law, virtual currency businesses would have to meet requirements for licensure with stipulations on net worth, security and reserves. Entities may be subject to examination, consolidations and data sharing to maintain compliance.
Section 3103 of AB-1489 suggests several groups may be exempt from provisions, including banks. People with money transmission licenses or who provide only data storage or security services for crypto-related business, as well as anyone conducting crypto investments and transactions for personal use would be exempt as well.
“A person using virtual currency, including creating, investing, buying or selling, or obtaining virtual currency as payment for the purchase or sale of goods or services, solely on the person’s own behalf for personal, family, or household purposes or for academic purposes.”
People conducting crypto-related businesses that make up to $5,000 annually are also exempt.
Chapter six of AB-1489 requires applicants to create and maintain policies and procedures.
- An information security program and an operational security program
- A business continuity program
- A disaster recovery program
- An antifraud program
- An anti-money laundering program
- A program to prevent funding of terrorist activity
Civil penalties of $10,000 for each day of violation of provisions may be incurred by virtual currency businesses. Engagement in such activities without a license may incur a penalty of up to $50,000 for each day of violation.
Regulators are tasked with trying to protect consumers against crypto-related scams and frauds while also supporting innovation as opposed to stifling big companies and small-to-medium sized businesses that use cryptocurrencies to avoid hefty bank wire fees. These include an increasing number of merchants who are exploring cryptocurrency payment options where consumers can spend crypto like regular cash to pay for goods and services.
Under the bill, California residents with personal crypto investments are still permitted to hold Bitcoin and the myriad of other cryptocurrencies, and keep possession of their own private keys.
In 2018, Calderon helped introduce Assembly Bill 2658 which provides definitions of blockchain technology and smart contract. The bill also revises definitions like “electronic record” and “electronic signature”.
You can check out the full legislation here.