On June 5, the California Department of Financial Protection and Innovation (DFPI) published a Notice of Second Modification to Text of Proposed Regulation under the Digital Financial Assets Law (DFAL). The modifications respond to the Office of Administrative Law’s (OAL) disapproval of the rulemaking: OAL issued a Notice of Disapproval on May 12 and, on May 19, published a Decision of Disapproval describing the deficiencies the DFPI must resolve. Originally proposed on April 4, 2025, the regulations went through a public comment period that closed May 19, 2025, and a first modification on September 29, 2025, which renumbered the rules, modified the Money Transmission Act (MTA) exemption, and made other technical changes. The DFPI submitted its final rulemaking file to OAL on March 30, 2026. It accepted comments on the second modifications from June 5 through June 22, 2026.

Background

The DFAL, enacted October 13, 2023, prohibits any person from engaging in digital financial asset business activity with or on behalf of a California resident unless licensed by the DFPI, or unless the person has submitted a completed application by July 1, 2026, and is awaiting a decision. The proposed regulations implement the DFAL’s licensing provisions, establish the application process through the Nationwide Multistate Licensing System & Registry (NMLS), clarify exemptions from the MTA for certain incidental money transmission activity, and set requirements for surety bonds, token listing certifications, and ongoing reporting.

Key Modifications

The second modifications are narrowly targeted at the deficiencies OAL identified. The substantive clarifications are:

• License application (Section 1212): clarifies that an applicant must complete Form MU1 as part of a DFAL license application, and removes former subdivision (d), which would have let the Commissioner deem an application abandoned if the applicant did not correct a deficiency within 60 calendar days of written notice. The DFPI explained that such failures will instead be resolved through methods already in the DFAL, not a new mechanism in the regulations.
• Executive officers and control persons (Section 1221): clarifies that a change to an executive officer, control person, or responsible person is subject to the regulation, and revises the section heading to “Executive Officers, Control Persons, and Responsible Persons,” dropping the prior reference to directors and partners.
• Surety bond (Section 1230): clarifies that the Commissioner will weigh only the factors in Financial Code section 3207, subdivision (b), when setting a bond amount case by case; specifies the claims period by reference to the bond form in Title 11, section 25 (31.30) of the California Code of Regulations; and confirms that a surety bond is not the only security that can satisfy section 3207.

The remaining changes are non-substantive or grammatical: an explanatory note clarifying that only a portion of MTA section 80.3002 was reproduced in the noticed text, conforming headings for sections 1214 and 1221, and updated Authority and Reference notes across the Money Transmission (Subchapter 80) and Digital Financial Assets Law (Subchapter 5) rules. The DFPI also added an Initial Statement of Reasons Addendum, first published September 29, 2025, to the rulemaking file.

Next Steps

The modifications are not yet effective and will not take effect until OAL approves them and they are filed with the Secretary of State. The DFPI accepted written comments on the modifications and the added document through June 22, 2026, and its next step is to resubmit the revised rulemaking file to OAL.

The timing matters. The DFAL’s July 1, 2026, licensing deadline has passed. A person that did not submit a completed application by that date must obtain a license before engaging in digital financial asset business activity in California. The regulations, once final, will govern how pending applications are processed and the ongoing obligations licensees must meet. Applicants awaiting a decision should review the second modified proposed text and watch OAL’s review timeline closely.