The California Digital Financial Assets Law (DFAL) is now in effect and is reshaping how cryptocurrency and digital asset businesses operate in the Golden State. Originally enacted as Assembly Bill 39 (AB 39), the law establishes a comprehensive licensing and regulatory framework for businesses engaged in digital financial asset activities, drawing heavily from New York’s well-known virtual currency regulatory model.

On June 30, 2026, Governor Gavin Newsom signed Senate Bill 97 (SB 97) into law. The legislation clarifies the licensing transition period, expands the framework for stablecoin oversight, and defines the scope of activities covered by the law. The law provides regulatory certainty while reinforcing California’s commitment to consumer protection and responsible innovation.

Whether you are a cryptocurrency exchange, wallet provider, stablecoin issuer, or other digital asset business, understanding the Who, What, Where, Why, and When of the DFAL application process is essential.

WHO Needs to Apply?

DFAL casts a wide net over any entity conducting digital financial asset business activity involving a California resident. Location doesn’t matter; if your customer is in California, you may be subject to the law. 

The agency overseeing the application process is the California Department of Financial Protection and Innovation (DFPI). 

According to the California DFPI Digital Financial Assets Overview, a DFAL license is required if your business engages in:

• Exchanging or trading digital financial assets, including centralized crypto exchanges.
• Storing, holding, or maintaining custody of digital assets on behalf of others, such as hosted wallet providers.
• Transferring or issuing digital assets, including stablecoin-related activities.
• Operating cryptocurrency kiosks or digital asset ATMs, which are subject to additional disclosure requirements and transaction limits under the law.

Statutory Exemptions

The California legislature carved out several important exemptions. Under the Financial Code Division 1.25, a DFAL license is generally not required for:

• Traditional banks, credit unions, or trust companies.
• Businesses that provide only connectivity software, data storage, computing power, or security services without controlling or taking custody of digital financial assets.
• Merchants and consumers using digital financial assets solely for personal, academic, or non-financial business purposes.

SB 97 also further clarified the scope of the law by excluding certain in-game digital assets from the definition of digital financial asset business activity. This change helps distinguish virtual gaming assets from regulated digital financial assets and provides additional clarity for businesses operating in the gaming industry.

DFAL vs. the California Money Transmission License

One of the most common questions businesses have is whether they need both a California Money Transmission License (MTL) and a DFAL license. The answer depends on the activities your business performs.

Businesses licensed under the DFAL are generally exempt from California’s Money Transmission Act only for certain digital financial asset activities covered by the DFAL. These include:

• Transmitting payment for the purchase or exchange of a digital financial asset.
• Transmitting the proceeds of the sale or exchange of a digital financial asset.
• Issuing or selling stored value that is used exclusively to purchase, sell, or exchange digital financial assets.

This exemption is activity-based – not institution-based.

If your business conducts only digital financial asset activities covered by the DFAL, a separate California MTL is generally not required for those activities. However, if your business also engages in traditional fiat money transmission or other activities regulated under the Money Transmission Act, you may still be required to obtain and maintain a California MTL for those services.

For many fintech and digital asset businesses, this means:

• Digital asset activities only: DFAL license.
• Traditional fiat money transmission only: California MTL.
• Both digital asset and fiat money transmission activities: Potentially both licenses, depending on the products and services offered.

Because many companies operate hybrid business models, determining the appropriate licensing structure often requires a careful review of each business activity.

WHAT Is Required in the Application?

The DFAL application is comprehensive and requires significant operational transparency. The DFPI evaluates applicants under rigorous standards focused on safety, soundness, financial responsibility, and consumer protection. 

Applicants should be prepared to submit:

• Background Checks: Identity verification, fingerprints, and civil and criminal background checks for principal officers, directors, and individuals owning 10% or more of the company.
• Financial Documentation: Audited financial statements demonstrating sufficient net worth and liquidity, along with any required surety bond or other financial assurances.
• AML/CFT Program: Comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) policies and procedures, including customer due diligence, transaction monitoring, sanctions screening, suspicious activity reporting, and, where appropriate, blockchain analytics tools.
• Cybersecurity Program: Written cybersecurity policies designed to protect customer assets, secure sensitive information, respond to incidents, and support independent security assessments.
• Digital Asset Listing Policies: Exchanges must maintain documented procedures for evaluating digital financial assets before making them available to customers, including appropriate risk assessments and disclosures.

SB 97 also expands the factors the DFPI Commissioner may consider when determining whether a stablecoin is eligible for use under the DFAL. Businesses involved with stablecoins should carefully review these requirements when evaluating products offered to California residents. 

WHERE Do You Apply?

The application process is overseen by the California Department of Financial Protection and Innovation (DFPI), but applications are submitted electronically through the Nationwide Multistate Licensing System & Registry (NMLS) portal. 

Businesses that already hold Money Transmitter Licenses (MTLs) or other state licenses through NMLS will use their existing company profile to complete the California DFAL application checklist and upload all required supporting documentation. 

The DFPI maintains a dedicated site, DFAL Preparing for your Application FAQ, to help guide applicants through the specific NMLS upload fields.

WHY is it Mandatory?

The primary objective of the DFAL is to create a safer, more transparent digital asset marketplace while providing meaningful consumer protections and regulatory oversight.

Following years of cryptocurrency market volatility, exchange failures, and increased consumer losses, California is establishing clear licensing standards intended to improve financial stability, operational integrity, and accountability throughout the digital asset industry.

Failure to obtain a required license—or to qualify for the statutory transition period—may result in significant enforcement actions. The DFPI has broad authority to:

• Issue cease-and-desist orders.
• Assess substantial civil penalties.
• Impose daily fines for unlicensed activity.
• Restrict or prohibit companies from conducting digital financial asset business with California residents.

WHEN Are the Deadlines?

Timing is critical. 

• March 9, 2026: The DFPI officially began accepting applications through the NMLS portal.
• July 1, 2026: Full licensing and enforcement requirements take effect.

One of the most significant changes finalized by SB 97 concerns the transition period for businesses already operating in California. To continue operating after July 1, 2026, a company must either:

• Hold an approved DFAL license; or
• Have submitted a completed DFAL license application that is pending review by the DFPI.

How Capital Compliance Experts Can Help

Building a compliant infrastructure while managing your daily operations is a significant undertaking. Capital Compliance Experts is here to help you navigate California’s evolving regulatory requirements.

Our team specializes in complex NMLS filings, drafting compliant AML/CFT programs, developing risk-based compliance frameworks, implementing blockchain analytics solutions, and preparing digital asset firms for DFFI safety and soundness examinations. We ensure your application is airtight, complete, and filed the first time correctly.

Don’t risk your California market share. Contact Capital Compliance Experts today to kickstart your DFAL application process.

Tags: AML, Anti Money Laundering, California Digital Financial Assets Law, Crypto, Cryptocurrency, DFAL, Money Transmission, Money Transmitter License, MTL