In a significant move for cryptocurrency regulation, California’s SB 822 has officially integrated digital financial assets into the state’s Unclaimed Property Law. This legislation treats these assets similarly to traditional bank accounts and securities, ensuring that unclaimed digital assets remain intact and are not subject to forced liquidation. This protection means consumers will not face unintended tax consequences when their assets are transferred to state custody. Individuals can reclaim their original digital assets or the net proceeds if they have already been converted, provided they submit a valid claim to the State Controller.
### California Takes a Pioneering Step in Crypto Protection
California’s Governor Gavin Newsom has signed into law a groundbreaking measure that marks the state as the first in the nation to protect unclaimed cryptocurrencies from automatic liquidation. Instead of converting these digital assets into cash before they are handed over to the state, the legislation allows them to retain their original form. Senate Bill 822, introduced by Senator Josh Becker (D-Menlo Park), revises the state’s long-standing Unclaimed Property Law to encompass digital financial assets such as Bitcoin and Ethereum, placing them under the same legal framework as abandoned bank accounts and securities. The bill received unanimous support in both legislative chambers in September before being signed into law by Newsom.
### Clarifying Digital Financial Assets as Intangible Property
This new law clarifies that digital financial assets are classified as intangible property, which is subject to the Unclaimed Property Law. It addresses the ambiguity surrounding the management of dormant cryptocurrency accounts, specifically those that have not seen activity for three years or more after attempts to contact the owners have failed. Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition, highlighted that earlier iterations of the bill would have mandated exchanges and custodians to liquidate customers’ digital assets before transferring them to the State Controller’s Office. This would have inadvertently created taxable events for consumers without their knowledge, posing serious operational and legal challenges while providing minimal consumer protection.
### A Step Toward Regulatory Modernization
Ciccolo described the passage of this bill as a pivotal advancement towards updating California’s regulatory landscape to better accommodate the unique characteristics of digital financial assets. The legislation establishes requirements for holders of digital financial assets to inform apparent owners prior to escheatment. Companies are obligated to notify these owners six to twelve months in advance of reporting their assets, using a form approved by the Controller that allows for the reset of the escheatment timeline.
### Regulations for Digital Asset Management
SB 822 mandates that holders must transfer the exact type of digital asset, along with private keys and amounts, in their unliquidated state to the Controller’s designated crypto custodian within 30 days after the final reporting date. The Controller is authorized to appoint one or more licensed custodians for the safekeeping and management of these digital assets, with custodians required to hold valid licenses from the Department of Financial Protection and Innovation. The bill allows the Controller to convert unclaimed cryptocurrencies to fiat currency 18 to 20 months post-filing, ensuring that valid claimants can either retrieve their original assets or receive the proceeds from any sales.
### Ensuring Responsible Handling of Digital Assets
Ciccolo emphasized that SB 822 delivers much-needed clarity by extending the current Unclaimed Property Law framework to digital financial assets, ensuring they are managed in a consistent and responsible manner. He noted the ongoing commitment of the California Blockchain Advocacy Coalition to monitor the application of this law, ensuring it aligns with its consumer-protection objectives. Additionally, over the weekend, Governor Newsom signed Senate Bill 243, establishing California as the first state to create explicit regulations for AI “companion” chatbots.
