LOS ANGELES – California’s top financial regulator has taken the first step toward oversight of cryptocurrency financial products by releasing a wide public request for insight into the rapidly growing but volatile crypto market.
California’s Department of Financial Protection and Innovation said Wednesday that it wants information about the risks posed by crypto financial products and how it can better protect consumers from fraud and scams. The contribution will help the agency develop guidance, regulatory clarity, and oversight of crypto financial products and services in California.
The investigation follows a sweeping executive order that Democratic Gov. Gavin Newsom signed last month directing the state’s DFPI to conduct a crypto market oversight investigation.
“We know this is a time when we need to act,” said Suzanne Martindale, the department’s senior deputy commissioner, in an interview Thursday with American Banker. “Due to the dynamic, evolving and volatile nature of this space, we try to adapt and base our thinking on the data, market research and stakeholder feedback we get.”
The move comes as federal agencies struggle to coordinate crypto oversight 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 cryptocurrencies and digital assets.
“We try to be very smart and coordinate closely with our fellow regulators so that we don’t accidentally come into conflict in developing terms or deciding whether to apply certain laws,” Martindale said.
The Financial Protection Department has provided a list of 16 questions for public comment.
Among the questions being asked are whether crypto businesses 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 come up because crypto shows up in loan agreements and we have bank licensees and companies involved in crypto from one way or another,” Martindale said. .
Martindale was a key architect of California’s Consumer Financial Protection Act that went into effect last year, giving the department expanded oversight and enforcement authority over previously unregulated industries, including debt collectors, fintech companies and credit reporting agencies.
The department already oversees digital wallets and exchanges, including financial products involved in “the buying, selling and storing of crypto assets,” Martindale said.
Some of the questions posed to crypto companies are familiar to regulated banks and involve the main tools the state regulator can use to punish companies that violate consumer protection laws.
For example, the state agency asked, “Are regulations needed to identify any illegal, 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, for businesses seeking to operate nationwide?”
The request will update the ministry as it develops best practices related to consumer disclosures, error resolution and complaint handling procedures.
“There are core principles that we can develop to provide early guidance, especially to startups and people considering starting a new business, to think about early to be on the best side of their regulator,” Martindale said. “That’s the kind of stuff we want to see companies building into their practices to be consumer-friendly.”
The public comment period ends on August 5.