18TH AUG 2016 | WRITTEN BY: CHRIS SIEROTY
California’s legislature has shelved proposals to introduce new regulations for virtual currency businesses, the bill’s author told PaymentsCompliance in a statement.
Reintroduced earlier this month, Assembly Bill 1326, or the California Bitcoin license bill, has been referred back to the Senate’s Rules Committee and the Assembly’s Committee on Banking and Finance.
“I have decided to remove AB 1326 from consideration for a vote this year,” said Democratic assemblyman Matt Dababneh, who is also the chairman of the Banking and Finance Committee.
“The use of virtual currency and the technology behind it is becoming more mainstream and prevalent as a payment option in communities throughout the state, but like any financial product or service, it comes with potential risks to customers,” Dababneh said.
Since Dababneh introduced AB 1326 in 2015, the bill has been amended five times in both the Assembly and Senate.
It was most recently amended by the Senate on August 8, when it was pulled from the inactive file.
Mark Farouk, chief consultant with the Assembly’s Committee on Banking and Finance, confirmed on Wednesday that at this point, with only about two weeks left in the current session, the bill “will not be brought up for a vote.”
Farouk said the next version of the bill should be introduced in January, and it will not look the same as the version pulled this week, although added he expected there to be “some form of regulation” of digital currency in California eventually.
The bill has been debated by lawmakers, technology advocacy groups, and industry representatives since its introduction last year.
The version of the bill introduced last week drew praise from legal experts for its “lighter touch” approach to the emerging payments technology.
Some virtual currency advocates, however, were concerned it would reduce California’s capability to support virtual currency start-ups.
In a letter to the Senate Banking and Financial Institutions Committee chairman Steven M. Glazer, Jerry Brito, the executive director of Coin Center, described the new bill as a completely re-written piece of legislation.
“The new bill is silent on the question of money transmission licensing — preserving that uncertainty — and instead sets up a new and separate enrollment scheme with which businesses will also have to comply,” Brito wrote.
He added that at the very least, Coin Center and its supporters would expect the creation of a new “enrollment program” would take the place of money transmission licensing, therefore providing clarity.
“If it does not,” Brito said, “then it is difficult to see what is the purpose of this bill.”
The bill no longer proposes to license businesses, but instead would create a new digital currency business enrollment program, lasting five years.
Brito’s seven-page letter took issue with that program, arguing that “enrollment should only be required of entities who present true risks to consumers.”
Dababneh’s statement did not address any of Brito’s concerns with the legislation, instead saying he pulled the bill because its current version does not create a lasting regulatory framework that protects consumers and allows this industry to thrive in California.
“Federal regulators have recently issued guidance for virtual currency businesses, the IRS has regulations addressing its tax status, and the FBI auctioned Bitcoin seized as part of the Silk Road case,” Dababneh said.
“All of these examples further demonstrate that digital currency is growing and here to stay.”
The Democrat from Santa Barbara stressed that a user of virtual currency in California has no protection from loss, and businesses that use, transmit or store virtual currency “live in an ecosystem of regulatory uncertainty.”
“Potential harm to consumers is not some remote possibility, but has already happened,” Dababneh added.
“Just recently a Bitcoin hack led to an estimated loss of $65m.
“Virtual currency businesses have a place at the financial services table, but like other financial services, California needs a set of minimum standards and protections.”