CFC Sponsors Bill in CA Legislature to Protect Consumers by Licensing and Regulating Crypto Companies
2022 Bill Vetoed by Gov. Newsom: Then Crypto Crashed, Leaving Consumers Holding the Bag
For Immediate Release: Monday, January 30, 2023
SACRAMENTO – The Consumer Federation of California (CFC) will attempt a second time to make the cryptocurrency industry follow common sense consumer protections by sponsoring a bill to license and regulate digital financial assets such as cryptocurrency companies. The bill is Assembly Bill 39, authored by Assemblymember Timothy Grayson (D – Concord).
“The Consumer Federation of California applauds Assemblymember Grayson for leading the way by proposing fundamental consumer protections in the cryptocurrency industry. The bankruptcies and scams of the past year only bolster our collective interest in ensuring basic and foundational consumer protections in this marketplace, which has up to now looked like the Wild West in terms of ‘anything goes’ behavior by key players in the cryptocurrency industry,” said CFC Executive Director, Robert Herrell. “How many more Californians have to get scammed and be victims of fraud before California reasserts our leadership and takes the reasonable step of licensing these activities? We look forward to working with Assemblymember Grayson in seeing strong licensing and enforcement actions to protect consumers in the crypto space in 2023.”
Digital financial assets, including cryptocurrencies and crypto exchanges, have exponentially grown over the past few years without proper regulation or consumer protections. This has directly led to massive scams, so-called “rug pulls” where asset prices are manipulated, investment-related frauds, and substantial losses that significantly target low-and-moderate income communities and communities of color. Overall evaluation of the crypto market went from approximately $3 trillion before crashing down to less than $1 trillion in less than a year.
In November of last year, FTX, one of the largest global cryptocurrency trading and exchange companies, filed for bankruptcy with a debt of about $8 billion to clients. FTX’s founder, 30-year-old Sam Bankman-Fried, was arrested and is facing a myriad of federal charges alleging that FTX was a fraudulent endeavor for most of its existence. With other crypto-related companies such as Celsius and Genesis also filing for bankruptcy, tens of thousands of investors have been locked out of their accounts and will be lucky to see pennies on the dollar.
“It’s clear that licensure is the next natural step for this industry and it is equally clear that until we take that step, Californians will continue to be vulnerable to prevalent and preventable financial scams,” said Assemblymember Grayson. “As we now know, the costs of lax oversight are so much higher: real people are getting hurt. We need to do more.”
AB 39 will license digital financial assets companies under the California Department of Financial Protection and Innovation (DFPI), giving industry necessary regulatory clarity on how to operate safely while protecting consumers. In 2022 alone, $3.7 billion was lost to crypto scams, and FTX’s bankruptcy was just one of five within the crypto market. AB 39 seeks to boost transparency, adopt a regulatory framework, and, above all, protect consumers.
AB 39 is generally similar to the approach taken by 2022’s bipartisan Assembly Bill 2269, also authored by Grayson. That bill was alarmingly vetoed last year by Governor Newsom, who has received criticism for the veto. This action left California consumers with far less protections than those of New York consumers, for example. The 2023 legislation includes some modifications meant to ensure a timely and efficient ramping up of DFPI’s licensing activity while accounting for certain efficiencies to make DFPI’s activities clear and transparent.
The bill will likely have its first hearing in the Assembly this April.