Failure to comply with California’s Digital Financial Assets Law (DFAL) could expose businesses involved in activities with digital financial assets to significant legal penalties. The DFAL, which will become applicable on July 1, 2026, requires entities engaged in digital financial asset business activities to acquire a license from the California Department of Financial Protection and Innovation (DFPI).

Penalties for Noncompliance:

• Unlicensed Activity: If digital financial asset business activities are undertaken by an entity prior to licensing from the DFPI, the entity is subject to civil penalties of as much as $100,000 per day.
• Material Violations by Licensed Entities: Licensees who are in material violation of the DFAL are subject to civil penalties of up to $20,000 per day, for each violation.
• Specific Violations: For example, if a licensee lists an offering of a digital financial asset without certifying compliance, a licensee may be subject to penalties of up to $20,000 per day.

Additional Enforcement Actions:

In addition to fines, the DFPI may pursue enforcement action to obtain:

• Cessation Orders: Orders requiring the entity to cease and desist work that is out of compliance with the DFAL.
•  License Suspension or Revocation: The DFPI may suspend or revoke the licenses of individuals or entities found to be in violation of the DFAL.
•  Legal Action: The DFPI may take legal action which may include the appointment of a receiver to manage the entity.