On May 4, 2022, California Gov. Gavin Newsom signed Executive Order N-9-22 (EO) to create a regulatory approach for cryptocurrency companies and to determine how to use blockchain technology for state and public institutions. Through the EO, California is becoming a leader in developing new rules of the road for emerging digital currencies and related crypto technologies.
The EO observes that “responsible innovation has been encumbered by regulatory uncertainty, especially with regard to federal law,” and, as such, “state agencies should work with, and concurrently to, the federal government to make California the first state to establish a comprehensive, thoughtful, and harmonized regulatory and business environment for crypto assets.”
Under the EO, the state has seven priorities:
California state agencies, including the Department of Financial Innovation and Protection (DFPI) as specified in the EO, will likely be at the forefront of proposing and implementing new regulatory structures for companies and consumers, in conjunction with federal agencies such as the CFPB, CFTC, and SEC. Pursuant to the terms of the governor’s EO, California may also seek to foster further blockchain innovation for projects like implementing smart contracts and encouraging sustainability through its state Blockchain Working Group and Go-BIZ economic development initiatives. The state may also facilitate and encourage the use of various blockchain technologies by state agencies via procurements with vendor companies.
In particular, the EO requires DFPI and Go-BIZ to engage with and gather input from interested stakeholders within 30 days (in the case of DFPI) and instructs DFPI to ramp up its enforcement activities pursuant to the California Consumer Financial Protection Law (CCFPL). The mandate for increased enforcement indicates that regulation by enforcement of crypto-asset-related financial products and services will remain a key strategy as the EO’s mandate for careful study and thoughtful crypto-asset-related regulation develops.
In addition, a pair of bills in the California State Legislature would make cryptocurrency legal tender for government services. Both bills have been met with resistance and may not pass this session, but they do signal the changing views on integrating cryptocurrency and blockchain technology into California society.
