Blockchain-Friendly Executive Order Issued By California Governor – Fin Tech & More News Here

On May 4, 2022, Gavin Newsom, the governor of California, issued
an govt order (the “CA EO”)
directing a number of state companies to undertake initiatives to help
the accountable growth of blockchain expertise.¹
The CA EO is broadly modeled on the same govt order that US
President Joe Biden issued in March 2022 (“Federal EO”)
and emphasizes in a number of locations that California will base its
actions off of these of the US federal authorities.² As
with the Federal EO, the CA EO doesn’t present a lot perception into
what the end result of the assorted initiatives will likely be and tempers its
enthusiasm for blockchain expertise with the countervailing
issues of shopper safety and local weather change.

In this Legal Update, we focus on the important thing factors of the CA
EO.

Innovation Report

The CA EO directs the California Office of Business and Economic
Development (“GO-Biz”), California Department of
Financial Protection and Innovation (“DFPI”) and
California Government Operations Agency (“GovOps”) to
concern a report back to the governor recommending subsequent steps on
blockchain innovation. The report will likely be based mostly on 4 workstreams
that include:

1. Collecting enter from
stakeholders

2. Creating a regulatory method to
crypto belongings that harmonizes the roles of federal and state
authorities

3. Developing use circumstances for the
utility of blockchain expertise in state operations

4. Building analysis and workforce
pipelines

The report should be issued inside 60 days of the publication of
the “report on the future of money and payment systems”
outlined in part 4 of the Federal EO.

Interestingly, the report beneath the CA EO seems to cowl all
makes use of of blockchain expertise, whereas the report contemplated by the
Federal EO is targeted totally on the suitability of a US central
financial institution digital foreign money, which isn’t usually the area of US
states. Therefore, the linkage of the CA EO report back to the issuance
of the Federal EO report seems to mirror merely a timing
consideration.

Stakeholder Engagement Workstream

The CA EO directs GO-Biz to gather data from
stakeholders on potential blockchain purposes and ventures,
with explicit consideration to crypto belongings and associated monetary
applied sciences. The vary of related stakeholders is broad and
contains conventional expertise builders and people involved
primarily with group outcomes (e.g., these considering
systemic inequities, power consumption and environmental
impression).

The CA EO additionally directs the DFPI to have interaction in a public course of to
develop a complete regulatory method to crypto belongings that
is “harmonized with the course of federal laws and
steerage.” This engagement will embrace interplay with
federal companies, together with as outlined within the Federal EO;
California-chartered banks and credit score unions; crypto-asset
corporations; and the general public at massive. Notably, the DFPI is required
to train its authority beneath the California Consumer Financial
Protection Law to develop steerage and, as acceptable, regulatory
readability and supervision of personal entities providing crypto
asset-associated monetary services in California. It
is also required to concern public shopper safety rules for
corporations providing crypto asset-associated monetary merchandise and
companies, which can embrace provisions on disclosures and error
decision.

Federal Coordination Workstream

The CA EO acknowledges the federal authorities’s main position
within the growth of digital belongings regulation. This is in
distinction to different states which have expressed a need for states to
take the main position in regulating this space.³

Specifically, the CA EO directs the governor’s workplace in
Washington DC to “have interaction in and encourage regulatory readability
through progress on the processes outlined within the Federal EO.”
Therefore, we count on the California companies to behave in a method that
leaves ample room for federal motion and that avoids creating true
conflicts between the state and federal regimes (e.g., issuing
broad rules as a substitute of detailed guidelines).

State Operations Workstream

The CA EO directs GovOps to concern a request for remark for
concepts on how state companies can use blockchain to handle
challenges. This a part of the workstream focuses on deploying
blockchain expertise to handle particular and recognized challenges
and builds off of the work of the California Blockchain Working
Group.

This workstream additionally instructs GovOps so as to add blockchain to the
listing of applied sciences thought-about beneath relevant future
solicitations, which is able to allow California companies to work with
distributors to acquire revolutionary technological options. Notably, it
explicitly tells GovOps and different state companies to contemplate
sustainability and power consumption when assessing the health of
explicit blockchain applied sciences.

Training Workstream

The CA EO encourages the members of the California Council for
Postsecondary Education to determine alternatives to create a
analysis and workforce setting to “energy innovation in
blockchain expertise.” This encouragement is meant to
tackle each the event of a pipeline of expertise for the
blockchain trade and help of fundamental and utilized analysis.

Takeaway

As with the Federal EO, the CA EO doesn’t embrace definitive
suggestions or binding interpretations of how California will
tackle blockchain expertise. However, if the CA EO ends in
company motion that’s pragmatic and aligned with federal efforts,
then it may assist lay the muse for authorized certainty for the
regulation of digital belongings. Therefore, market members ought to
take into account partaking with the California companies by means of the general public
remark course of.

Footnotes 

1 Press Release, Governor Newsom Signs Blockchain
Executive Order to Spur Responsible Web3 Innovation, Grow Jobs, and
Protect Consumers (May 4, 2022), https://www.gov.ca.gov/2022/05/04/governor-newsom-signs-blockchain-executive-order-to-spur-responsible-web3-innovation-grow-jobs-and-protect-consumers/.

2 Please see our Legal Update on the Federal EO: https://www.mayerbrown.com/en/perspectives-events/publications/2022/03/biden-executive-order-calls-for-regulatory-proposals-on-digital-assets-and-central-bank-digital-currency.

3 See e.g., Cynthia Lummis, The Fed Battles
Wyoming on Cryptocurrency, WSJ (Nov. 30, 2021), https://www.wsj.com/articles/the-fed-battles-wyoming-cryptocurrency-powell-brainard-bitcoin-digital-assets-spdi-fintech-11638308314;
SEC, Staff Statement on WY Division of Banking’s “NAL
on Custody of Digital Assets and Qualified Custodian
Status” (Nov. 9, 2020), https://www.sec.gov/news/public-statement/statement-im-finhub-wyoming-nal-custody-digital-assets.

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