We published a follow up to this blog post on September 19, 2023: California Cryptocurrency Legislation Sets the Stage for Future Regulation of Crypto
Senate Bill 401 (SB401), was voted “Do pass” by the California State Senate Banking and Financial Institutions Committee, and was referred to the Committee on Appropriations.
Background
SB401 requires kiosk operators to be licensed by the California Department of Financial Protection & Innovation (DFPI), a significant change considering kiosk operators are currently not required to obtain a license from the state. Additionally, as we previously discussed, the bill would require kiosk operators to comply with certain specific per customer transaction limits and fee caps.
Committee Hearing for SB401
During the California State Senate Banking and Financial Institutions Committee hearing on March 29, 2023, both the bill’s proponents and those that spoke in opposition agreed on the need for licensure, but there is still much debate about the specific requirements and regulatory expectations that should be mandated for licensees. Proponents suggested a willingness to discuss specific requirements and expressed apparent flexibility as it pertains to the fee and/or transaction caps. This is welcome news and builds on the seemingly mutual agreement and interest in licensing kiosk operators and protecting consumers.
There is no denying the need for some form of regulatory oversight of the crypto industry in California, kiosk operators included. As digital financial assets become more mainstream, it is essential that consumers are protected from scams, bad faith actors, and other risks. However, there is also a need to ensure that regulation does not stifle innovation, make it more difficult for businesses to operate in the state, or, worse still, push consumers into the gray or black market.
What comes next?
As bills move through the legislative process, they face various stages of scrutiny to ensure their feasibility, impact, assessment of taxpayer cost, and alignment with the state’s goals and values. One of the key stages that bills must pass through is the Committee on Appropriations, which generally reviews legislation appropriating money, resulting in substantial expenditure of state money, or resulting in a substantial loss of revenue to the state.
The role of this unique committee is to assess the financial implications of proposed bills and determine which ones are of priority. This involves reaching out to the bills’ authors to gain a better understanding of their political priorities, objectives, and potential outcomes. This ensures that bills that have significant financial implications have been more thoroughly evaluated and are aligned with the state’s priorities and resources.
In essence, the Committee on Appropriations serves as a checkpoint for bills, ensuring that they are financially feasible and aligned with the state’s goals. By prioritizing bills, the committee helps to ensure that the state’s resources are allocated effectively and efficiently.
Once bills have been reviewed and prioritized through the Committee on Appropriations, they are referred to the Senate floor, ultimately for a vote.
SB401, as currently written, has raised many questions about the future of crypto kiosks in California. While the bill aims to protect consumers, it could also make it more challenging for crypto kiosk operators to do business in the state or drive them out of the state entirely. Any potential changes to the bill’s language remain to be seen, and the future of crypto kiosks in California is still uncertain.
Our Founder & President, Joe Ciccolo, testified in opposition of the bill but noted that he and others would support the bill, in particular its licensing provision, if some thoughtful amendments were made that would help protect consumers, strengthen regulatory oversight, and enable kiosk operators to continue operating in the state. Joe’s concerns focused on the bill’s current inclusion of transaction limits and fee caps, rather than consumer protections and other risk management safeguards. He also shared with the Banking and Financial Institutions Committee that kiosk operators are subject to federal regulatory requirements, examined by FinCEN and IRS, and are required to cooperate with law enforcement investigating potential money laundering, scams, and other illicit activities.
Bill’s author signals openness for changes
The bill’s co-sponsor, Senator Limón, stated on the record that she is open to some language changes to the bill, though the specifics of those changes are still unknown. This is a positive step, as it shows that there is a willingness to consider feedback and make changes to the legislation to ensure that it is effective and beneficial for all concerned. Once again, a welcome sign.
SB401 may signal regulatory leanings for the crypto industry and could set a precedent for other states, possibly leading to increased regulation of the industry and kiosk operators more specifically. While some may view this as a negative development, it is essential to remember that regulation can be a positive force for change. By creating a regulatory framework that protects consumers while supporting innovation and growth, the crypto industry can continue to evolve and expand.
In conclusion…
SB401 has raised many questions about the future of crypto kiosks in California. While the bill aims to protect consumers, it is imperative to ensure that the regulation does just that: protect consumers, not stifle innovation, make it more difficult for businesses to operate in the state, or, worse still, push consumers into the gray or black market.
We will be watching SB401 closely as the ongoing legislative proceedings unfold for this important bill that will have direct ramifications for kiosk proprietors, innovators, and consumers alike. It is crucial to strike a balance that creates a regulatory framework which protects consumers while supporting the growth and evolution of the crypto industry.
At BitAML, we will continue to stay on top of California regulatory developments right here in our backyard of Sacramento. If you’d like to learn more or discuss the regulatory goings-on in California, signup for a free consultation.
