California DFPI Proposes Rules Regarding Licensing Under Digital Financial Assets Law (DFAL)

On April 4, 2025, the California Department of Financial Protection and Innovation (“DFPI”) issued a notice of proposed rulemaking to implement portions of the State’s Digital Financial Assets Law (“DFAL”) related to licensure requirements. Enacted on October 13, 2023, DFAL established a comprehensive regulatory framework—including licensing and enforcement authority—for certain crypto-related activities. Subsequently, on September 29, 2024, Governor Newsom signed legislation extending the effective date for licensure under DFAL from July 1, 2025, to July 1, 2026.

Beginning July 1, 2026, the DFAL prohibits any person from engaging in digital financial asset business activity, or from representing that they may do so, with or on behalf of California residents unless the person: (1) is licensed by the DFPI; (2) has submitted a license application by July 1, 2026, and is awaiting a decision; or (3) qualifies for an exemption.

The proposed rulemaking aims to elaborate on the DFAL’s licensing provisions and clarify the applicability of the State’s Money Transmission Act (“MTA”) to certain digital asset business activities. If adopted in its current form, the rulemaking would:

• Clarify how the MTA applies to those who engage in incidental money transmission involving legal tender in connection with digital financial asset activities;
• Set forth the process and requirements for obtaining a DFAL license;
• Require applicants to apply for and maintain their licenses through the Nationwide Multistate Licensing System & Registry (“NMLS”), and identify California-specific documents, fees, and other required information, along with applicable filing deadlines;
• Specify the non-refundable application fee;
• Detail the information DFPI will use to evaluate whether an applicant meets DFAL’s licensure standards; and
• Outline procedures for: contesting information entered into NMLS by the Commissioner; submitting and maintaining a surety bond; surrendering a license; and updating license information, including changes related to digital financial asset kiosks, business locations, or key personnel.

We will continue to monitor DFAL and this proposed rulemaking as we approach the effective date of required licensure. If you would like to read the text of the proposed rules and other accompanying documents, you may do so using the following link: https://dfpi.ca.gov/rules-enforcement/laws-and-regulations/digital-financial-assets-law-regulations-opinions-releases/.