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Sept. 3 — A California bill designed to license virtual currency companies is being withdrawn from consideration this year after Bitcoin companies and the administration of Gov. Jerry Brown raised “additional concerns that we want to address,” the bill's sponsor, Democratic Assemblyman Matt Dababneh, said in a statement to Bloomberg BNA Sept. 3.
“Rather than rush this through to the Governor and attempt to clean it up later, we will hold the bill in the Senate and move the final product early next year,” Dababneh's statement said. “Better to take the time to get it right than rush with outstanding concerns.” Neither Dababneh nor the California Department of Business Oversight, which regulates the state’s financial institutions, detailed the nature of the concerns.
State financial regulators raised a number of objections, two sources involved in the debate told Bloomberg BNA.
“We look forward to providing Assemblyman Dababneh our expertise to help him craft the best bill possible,” DBO spokesman Tom Dresslar said in a Sept. 3 statement to Bloomberg BNA. The bill (AB 1326) passed the Assembly June 3 but faced a Sept. 11 deadline to clear the Senate before the legislature is scheduled to adjourn.
Though sources said the measure is expected to be brought back up next year, the national Bitcoin advocacy group Coin Center had hoped the California bill would serve as a model as other states begin determining how to regulate virtual currency.
Spokesmen for Coin Center and Coinbase, a Bitcoin exchange and one of the larger companies in the industry, declined comment Sept. 3. Both groups had backed the bill arguing throughout the debate that the bill would give Bitcoin companies regulatory certainty, because without a specific regulatory system for virtual currency, DBO could choose to regulate the companies under state money transmission regulations.
Regulation as money transmitters would have imposed stronger requirements than those in the bill, including mandating that Bitcoin companies hold securities equal to the total value of the virtual currency they secure, Coin Center Executive Director Jerry Brito wrote in an Aug. 7 blog post.
However, the Electronic Frontier Foundation, a San Francisco-based digital rights advocacy group, and smaller Bitcoin companies, which objected to the $5,000 license application fee and reporting requirements, launched an Aug. 7 online petition saying that the measure was aimed at helping established Bitcoin companies compete against small competitors. Dababneh, Coinbase and Coin Center said that was not the intent.
“I'm delighted this is going back to committee and turning into a two year bill. This gives the California legislature a chance to hear from the communities that have been missing from the conversation, including digital currency innovators, the academic community, free software advocates, and small start-ups,” EFF activism director Rainey Reitman said in a Sept. 3 e-mail to Bloomberg BNA. “We're going to use the extra time to educate staffers about the deep flaws in the current bill, and hopefully teach them a lot about virtual currency technology in the process,” she said.
It’s unclear whether DBO will now seek to regulate the companies as money transmitters. In its last public statement on virtual currency. Commissioner Jan Lynn Owen said in a statement Jan. 27 the agency had not decided whether to regulate virtual currency businesses under money transmission laws.
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