California’s Department of Financial Protection and Innovation (DFPI) has ordered virtual currency lending firm MyConstant to stop offering digital asset products that are not in compliance with local securities regulations.
In a statement, the DFPI pointed out that as an online platform, MyConstant’s peer-to-peer lending services and accounts bearing interest violated the Californian securities law. The regulator disclosed that the peer-to-peer lending service amounted to unlicensed loan brokering, an offense under the law as it incentivizes lenders to operate without licenses.
The DFPI surmised that MyConstant offered unqualified non-exempt securities stemming from the offer to give interests on the deposits of virtual currencies, including stablecoins and even fiat. Individuals with complaints about the firm’s flagged operations are encouraged to file an official complaint with the DFPI.
“The DFPI expects any person offering securities, lender, or other financial services provider that operates in California to comply with our financial laws,” read the press release.
The word that the DFPI was investigating the firm reached the public via a press release in early December but back in July, the regulator disclosed that it was looking into the activities of virtual currency interest providers. The department stated that it had reasonable cause to believe service providers were “violating laws under the Department’s jurisdiction.”
The move by the DFPI against MyConstant caps a torrid year for the company as it had to grapple with a liquidity crisis. In a November 17 announcement, the company paused withdrawals of customers’ funds, citing “rapidly deteriorating market conditions” as its reason. Despite the chaos, MyConstant’s latest message to consumers indicated that the company would continue offering some of its services, including virtual currency-backed loans.
California regulators look to tighten the noose around digital currencies
The DFPI has been at the forefront of sounding the alarm against the dangers of digital currencies to investors unaware of the risks. In a July warning, the regulator urged consumers to remain wary about responding to any “solicitation offering investment or financial services.
The regulator highlighted a number of digital asset firms with liquidity issues were involved in offering unregistered securities. It urged citizens to carry out due diligence before sinking funds into virtual currencies because digital asset interest account providers are not protected like banks and other mainstream financial institutions.
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