Proposed California legislation would cripple the California blockchain industry and create dangerous precedent that could spread to other states.
The bill is sponsored by the Assembly Majority Leader, one of the most powerful members of the legislature.
Among other things, the bill would require a state issued license for exchanges, and potentially any business accepting virtual currency.
Obtaining a license would require among other things:
- Invasive background checks on company officers;
- Onerous security, net worth, and reserve requirements;
- Annual examinations of every aspect of the company’s business;
- Mandate that companies subject to the regulation pay for all of the costs of regulation, which could be an unlimited amount;
- Require companies to submit fingerprints of executives to state regulators;
- Create oppressive record keeping rules of every financial transaction the company engages in;
- Require expensive insurance for up to the full dollar equivalent amount of blockchain transactions;
- Subject mergers and consolidations to regulatory approval;
- Require private companies to report any material change in business strategies to regulators;
- Allow regulators to place any other conditions it chooses on the operation of a business;
- Create penalties of $50,000 per DAY for each violation;
The bill would allow state regulators to share all of the information they obtain about blockchain companies with federal regulators, regulators in other states, and even authorities from other countries. Read the bill here.
Origins of the CA BitLicense
The CA bill is modeled off of a proposal by the Uniform Law Commission. Other bills based on the model BitLicense have been introduced in Nevada, Hawaii, Oklahoma, and Rhode Island.
The Uniform Law Commission process was dominated by bank lawyers and federal and state banking regulators from throughout the country.
Even the most charitable interpretations of the bill would sell out blockchain users by subjecting their privacy to invasive government scrutiny, and create onerous regulatory requirements for segments of the industry.