On June 30, California enacted SB 97, an “urgency statute” amending California’s Digital Financial Assets Law (DFAL) (established by AB 39 and previously covered by InfoBytes here) before its July 1 effective date. The law repeals Chapter 6 of Division 1.25 of the Financial Code, which had permitted a covered person to exchange, transfer or store a stablecoin, or to engage in digital financial asset administration of a stablecoin, if the stablecoin was approved by the commissioner and complied with certain conditions. The bill also revises the definition of “digital financial asset business activity” to remove the exchange of digital representations of value used within online games, game platforms, or a family of games, and clarifies that a “digital financial asset” does not include digital representations of value primarily related to an affinity or rewards program, or digital representations of value issued by or on behalf of a publisher and used primarily within online games or game platforms.

The bill makes several additional changes to the law, including revising the criterion under which a person may operate while a license application is pending to require submission of a “completed application,” and extending, from January 2023 to January 2025, the deadline by which a New York virtual currency business license must have been issued or approved for an applicant to qualify for a conditional license in California. The bill also narrows an annual reporting requirement to cover only “material” data security breaches or cybersecurity events, and similarly limits a separate reporting requirement to changes that raise “material” safety and soundness or operational concerns. In addition, the law exempts from the DFAL’s 14-day advance notice requirement any changes to terms, conditions or policies that are reasonably necessary to address a risk of loss, so long as the change does not relate to the fee schedule, and exempts transactions in which a resident receives a stablecoin in exchange for legal tender or bank or credit union credit from the law’s prohibition on interjecting a third party between a covered exchange and the “best market” for a digital financial asset.