California Assembly Revisits Virtual Currency Legislation

On March 30, 2017, California Assembly Bill 1123 (“AB 1123”) was amended to set forth a proposed virtual currency licensing scheme. If passed, the Bill would enact the Virtual Currency Act, which would require any business that maintains full custody or control of virtual currency to obtain a license from the Commissioner of Business Oversight. As there is no current licensing requirement of this sort in California, the legislation will greatly impact virtual currency businesses in the state.

AB 1123 was introduced on February 17, 2017, and contained a credit-union-related amendment, which was unrelated to virtual currency. ETHNews spoke with Bill Herms, chief consultant with the California Assembly Banking and Finance Committee, who clarified that the deadline to introduce new bills had already passed and so an already-introduced bill was amended to contain the virtual currency licensing framework.

According to Herms, “this version of the bill was amended with language that the Department of Business Oversight felt would be more palatable to the administration.” Assemblymember Matt Dababneh (D) has previously attempted to pass a virtual currency licensing scheme, which was unsuccessful after much criticism from the virtual currency community for failing to sufficiently protect consumers while allowing for continued innovation. “The strategy for this session is to introduce the bill as a placeholder bill to let people know the chair is working on virtual currency issues.” Herms emphasized that the California Assembly has no plans to move the bill forward quickly, but rather to take time to talk to stakeholders about the most appropriate way to amend the bill so “we can do something that works well with everyone.”

The current draft of AB 1123 requires businesses to first complete a lengthy application form and submit a nonrefundable application fee. If approved, businesses would be required to maintain capital and a bond or trust account, make specific consumer protection disclosures, and comply with a transaction receipt requirement. The bill also allows businesses that pose low or no risk to consumers and that operate with less than $1 million in outstanding obligations to pay a $500 application fee for a two-year provisional license. All licensees are also subject to annual renewals/examinations and fees.

The bill is now being considered by the California Assembly Banking and Finance Committee.