California Warns SEC Crypto Exemptions Could Override State Securities Laws

California’s financial regulator is challenging a proposed SEC exemption for some crypto offerings, arguing it could displace state securities rules and reduce investor protections, in a comment letter filed with the agency.

The California Department of Financial Protection and Innovation (DFPI) objected to the SEC’s Regulation Crypto Assets proposal. The plan would exempt certain digital-asset offerings from securities registration. The DFPI argued that the exemptions could supersede state registration requirements, limiting the state’s ability to apply its own securities laws to those offerings.

In its filing, the department warned that investors could lose protections against offerings involving fraud or abuse. The issue it raised is whether an SEC exemption for covered offerings would also displace state registration laws, which California says help protect investors from abusive issuances.

The SEC released the proposal in August as part of its effort to advance crypto regulation while Congress had yet to pass the CLARITY Act at the time.