California DFPI Fines Kiosk Operator $675,000 for Digital Asset Law Violations ∞ Regulation

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Briefing

The California Department of Financial Protection and Innovation (DFPI) issued an enforcement order against crypto kiosk operator Coinhub and others, confirming the operational authority of the state’s Digital Financial Assets Law (DFAL) and establishing a clear precedent for regulating physical-to-digital asset conversion points. This action requires Virtual Asset Service Providers (VASPs) to immediately integrate compliance checks for statutory fee caps and cash transaction limits, directly addressing systemic consumer harm and illicit finance risks. The order mandates a total payment of $675,000, including consumer restitution, directly quantifying the cost of non-compliance with statutory fee and transaction limits.

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Context

Prior to the DFPI’s recent actions under the expanded 2023 DFAL authority, the crypto kiosk sector operated within a patchwork of ambiguous money transmission laws, leading to inconsistent application of consumer protection standards and AML/KYC protocols. This regulatory vacuum allowed certain operators to impose excessive, non-transparent fees and ignore federal anti-money laundering requirements, creating a high-risk channel for illicit finance and consumer harm. The DFAL was specifically enacted to close these gaps by introducing clear licensing, fee, and transaction rules.

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Analysis

This enforcement action fundamentally alters the compliance architecture for all Virtual Asset Service Providers (VASPs) utilizing physical terminals, imposing an immediate requirement to integrate real-time compliance checks into the core transaction system. Specifically, operators must ensure strict adherence to the $1,000 daily cash transaction limit and statutory fee caps, which were primary points of violation. The systemic failure to collect sufficient identifying information underscores the necessity for robust, automated Customer Due Diligence (CDD) modules that align state and federal AML/BSA standards. This is a critical update because it operationalizes DFAL’s consumer-centric provisions, forcing a shift from a permissive environment to a strictly regulated one and demanding immediate updates to compliance software stacks.

Parameters

Total Penalty & Restitution ∞ $675,000. Explanation: The combined fine and refund amount paid by Coinhub for systemic DFAL violations, including overcharging consumers.
Statutory Cash Limit ∞ $1,000 Daily. Explanation: The maximum cash transaction amount permitted per customer per day under the Digital Financial Assets Law.
Jurisdiction ∞ California DFPI. Explanation: The state regulator enforcing the Digital Financial Assets Law (DFAL).
Regulatory Precedent ∞ Fourth DFPI Kiosk Enforcement. Explanation: This action is the fourth of its kind in recent months, signaling sustained regulatory focus on the sector.

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Outlook

The immediate outlook is a sector-wide compliance scramble as kiosk operators must rapidly update their hardware and software to enforce the strict DFAL parameters, setting a potential standard for other US states considering similar consumer protection-focused digital asset legislation. This decisive state-level action, paired with FinCEN’s prior warnings, signals a unified regulatory focus on closing the AML loopholes presented by high-volume, low-transparency cash-to-crypto conversion points. The precedent established here will likely inform future federal rulemaking on money transmission and VASP operational requirements, particularly concerning physical access points.

The DFPI’s decisive enforcement action establishes a non-negotiable compliance floor for physical digital asset access points, proving that state-level regulators are now fully equipped to impose systemic operational risk controls.

state regulation, digital asset law, crypto kiosk compliance, VASP licensing, AML CFT controls, consumer protection, fee transparency, transaction limits, enhanced due diligence, regulatory enforcement, money transmission, DFAL compliance, operational risk, cash transactions, virtual asset service provider, financial innovation, licensing mandate, compliance framework, customer identification, risk based approach Signal Acquired from ∞ ca.gov