LOS ANGELES — California’s top financial regulator took the first step toward oversight of cryptocurrency financial products by issuing a broad public
California’s Department of Financial Protection and Innovation said Wednesday that it wants input on the risks posed by crypto financial products and how it can better protect consumers from frauds and scams. The input will help the agency develop guidance, regulatory clarity and supervision of crypto financial products and services in California.
The inquiry comes on the heels of a broad executive order that Democratic Gov. Gavin Newsom signed last month directing the state’s DFPI to conduct a market-monitoring inquiry of crypto.
“We know that this is a moment where we need to act,” Suzanne Martindale, the department’s senior deputy commissioner, said in an interview Thursday with American Banker. “Because of the dynamic, evolving and unsettled nature of this space, we're trying to be adaptive and base our thinking on the data, the market research and the stakeholder input we’re getting.”
The move comes as federal agencies are scrambling to coordinate oversight of crypto with a fragmented response so far. In March, the Biden administration directed the Treasury Department and other agencies to respond to the rapid growth of
“We are trying to be very smart and closely coordinated with our fellow regulators so that we’re not accidentally conflicting in developing terms, or deciding to apply certain laws,” Martindale said.
The financial protection department provided a list of 16 questions for public comment.
Among the questions asked are whether crypto firms should be required to be licensed in the state and what rules are needed to ensure that certain features of crypto products — such as fees or other hidden charges — are properly disclosed to consumers.
“What we’re going to be looking at as a financial regulator is the different use cases that show up, because crypto is showing up in lending arrangements and we have bank licensees and companies that are involved in crypto in some way,” Martindale said.
Martindale was a key architect of California’s Consumer Financial Protection Law that went into effect last year giving the department expanded oversight and enforcement authority of previously unregulated industries, including debt collectors, fintech firms and credit reporting agencies.
The department already has oversight of digital wallets and exchanges including financial products involved in “the buying, selling and storing of crypto assets,” Martindale said.
Some of the questions being asked of crypto companies are well known to regulated banks and involve the key tools the state regulator may use to punish firms for violating consumer protection laws.
For example, the state agency asked: “Are regulations needed to identify any unlawful, unfair, deceptive or abusive acts or practices in connection with the offering of crypto-related financial products and services?”
The financial protection agency also asked how it should promote consumer protection efforts and “reduce unnecessary burdens, if any, on companies seeking to operate nationwide?”
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“There are basic principles that we can develop to provide early guidance particularly for startups and people thinking of starting a new business to think about early on to be on the better side of their regulator,” Martindale said. “These are the kinds of things that we want to see companies bake into their practices to be friendly to consumers.”
The public comment period ends Aug. 5.
