O’Melveny Worldwide

Governor Newsom Vetoes the California BitLicense, Calling It Premature

September 27, 2022


As we addressed in a previous client alert, the California General Assembly passed legislation creating the state’s own BitLicense, which set the stage for California to adopt many of the onerous obligations of the New York BitLicense regime. Last week, California avoided this fate when Governor Gavin Newsom vetoed the bill. Governor Newsom pointed to his recent digital-assets executive order and re-emphasized his goal of making California “a transparent regulatory environment” that fosters responsible innovation and consumer protection within a “rapidly evolving federal regulatory picture.”

In our previous client alert, we described the substantial reporting and operational obligations that the California legislation would have imposed on BitLicense holders. The governor’s veto may facilitate the coordination of California and federal regulators concerning the digital assets industry, a goal that Governor Newsom has addressed repeatedly. In the E.O., Governor Newsom touched on how regulatory uncertainty has encumbered responsible innovation, and that California state agencies would work with the federal government to make the state a “comprehensive, thoughtful, and harmonized regulatory and business environment for crypto assets.” In explaining his veto, Governor Newsom stated that it was “premature to lock a licensing structure in statute without considering both this work and forthcoming federal actions.”

Governor Newsom stated that he supports a “flexible approach”, in which regulatory oversight keeps pace with evolving technology while also protecting consumers. As we observed, several digital-assets companies exited or never entered the New York market because of the New York BitLicense—an industry reaction that Governor Newsom presumably would not want to repeat in California. The governor expressed his commitment to work with the legislature “to achieve the appropriate regulatory clarity once federal regulations come into sharper focus.”

We will continue monitoring all regulatory updates in the digital-asset world. Do not hesitate to reach out to our experts for guidance in navigating this evolving space.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Michael Dreeben, an O’Melveny partner licensed to practice law in the District of Columbia, Steven J. Olson, an O’Melveny partner licensed to practice law in California, William K. Pao, an O’Melveny partner licensed to practice law in California, Sid Mody, an O’Melveny partner licensed to practice law in Texas, David L. Kirman, an O’Melveny partner licensed to practice law in California, Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, Bill Martin, an O’Melveny counsel licensed to practice law in New York, and Damilola G. Arowolaju, an O’Melveny associate licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2022 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.