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If you're preparing a DFAL application ahead of the July 1 deadline, there's a significant update you need to know about.
DFPI has adjusted the surety bond as a prerequisite for submitting a substantially complete application. Here's the full context on why that decision was made, and what it means for your timeline.
What the DFAL Surety Bond Requirement Looked Like on Paper
California's Digital Financial Assets Law requires applicants to obtain a surety bond as part of the licensing process. DFPI set the tangible net worth threshold for applicants at $100,000, a figure that seemed accessible for a broad range of fintechs and digital asset companies operating in California.
How the Bond's Language Created an Insurance Market Problem
Surety bonds don't exist in isolation. An applicant doesn't just agree to post a bond; they have to find an insurance company willing to write it. And insurers make their own determinations about whether they can price the risk involved.
DFPI sets minimum licensing requirements for applicants. Insurers set separate underwriting requirements based on their own risk models. In this case, those two thresholds diverged significantly.
Insurers were being asked to underwrite a new asset class under a new regulatory framework, without historical loss data to anchor their models. Insurance companies were pricing a genuinely novel risk. That's a function of how surety markets work, not a failure of the process. Insurers set their own underwriting thresholds accordingly.
Where DFPI asked for $100,000 in tangible net worth, insurers began requiring applicants to demonstrate net worth of at least $10 million, along with additional conditions like multiple years of positive earnings.
Related: How much do MTLs cost?
The Practical Effect: 75% of Applicants Couldn't Get Bonded
For companies that met DFAL's licensing requirements, this created a significant problem. They cleared the regulatory bar. But insurers, applying their own underwriting standards to an emerging asset class, set a different threshold, one most applicants couldn't meet.
By June 2025, approximately 75% of companies seeking the DFAL bond were expected to be turned away by insurers. With the deadline for a substantially complete application less than a month out, those companies were facing a hard stop.
Raising the Issue and Working Toward a Fix
DFPI engaged directly with industry practitioners throughout the development of DFAL's licensing process, including on concerns about the surety bond structure. Brico's VP of Compliance and Operations, Christina Luk, has been part of those ongoing conversations with the Department.
When the insurance market response in June confirmed those concerns at scale, DFPI's senior leadership moved to assess the policy and economic consequences and identify a path forward for applicants facing the July 1 deadline.
After careful consideration of the economic and policy consequences, the Department made the call to adjust the bond prerequisite for submitting a substantially complete application. That decision reflects DFPI's ongoing commitment to ensuring that qualified applicants can access the licensing process in a timely way. The goal was straightforward: companies that meet all other DFAL requirements should not be blocked from applying because of dynamics in the insurance market.
What DFPI's Decision Means for Applicants
If your DFAL application was stalled because you couldn't obtain the surety bond, you can now move forward.
The July 1 deadline for a substantially complete application has not changed. That window is short, and the other components of the application still need to be in place. What has changed is that the bond is no longer a condition you have to satisfy before submitting.
A few things worth noting:
The surety bond requirement has not been permanently eliminated. It's been removed as a prerequisite, not from the law. The underlying risk dynamic that shaped insurer thresholds hasn't changed. When the bond requirement returns, applicants will need to meet insurer standards alongside DFPI's. Companies should factor that into their planning now.
DFPI has signaled it will continue working with industry on a longer-term solution. Companies should stay close to Department guidance as that process develops.
Separately, companies should be aware that DFAL compliance obligations remain fully in effect. Companies that are non-compliant may face cease-and-desist orders, license revocation or suspension, and monetary penalties. California has made clear it will enforce the law actively — in May 2026, DFPI shut down a 42-kiosk Bitcoin ATM operator for AML failures and fee violations — so the relief on the bond prerequisite is not a signal that enforcement posture has softened.
The Bigger Takeaway
The surety bond episode illustrates a dynamic that comes up regularly in emerging asset class regulation: the rules that govern licensing and the markets that support compliance infrastructure don't always move in lockstep. Regulatory thresholds and underwriting thresholds serve different functions, and when a legal framework is new enough that insurers have limited historical data to work from, gaps like this one can emerge. That DFPI identified this dynamic and moved to address it before the July 1 deadline is a meaningful outcome for the industry.
The deadline is fixed. DFAL's requirements are continuing to take shape as the Department works through implementation of a first-of-its-kind framework. For companies navigating DFAL, the priority right now is getting a substantially complete application submitted before July 1.
If you have questions about what DFAL requires, Brico's compliance team is available to help. Book a consultation.
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or regulatory advice. Brico is not a law firm and does not provide legal counsel. Licensing requirements vary by state and depend on your specific business model and circumstances. You should consult with qualified legal counsel before making any licensing decisions or taking action based on this content.
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