Senate Standing Committee on Banking and Financial Institutions

The Senate Committee on Banking and Financial Institutions will come to order. Happy New Year, colleagues, or at least to those that are here for right now. I look forward to another year of working with you on this Committee, and it is appropriate at this time to welcome the Spencer Winkle, Republican Policy Consultant to the Committee.

Good to have you with us. Yay. Today, as my colleague says, we'll be gentle. Today, we will hear two-year bills that did not advance out of the Committee last spring. We have three bills on the agenda with two of those on the consent calendar. So, before we get started, we can actually establish a quorum.

Assistant, will you call roll?

[Roll Call]

We do have a quorum established. So, we do have two items on the consent calendar, SB 546 and SB 700. Do I have a motion? We do have a motion from Senator Strickland on the consent calendar. Okay. The motion to adopt the consent calendar has been made. Assistant, will you please call roll?

[Roll Call]

We have four. We will keep the consent calendar roll call open for absent members. We will now hear from our author and fellow Committee Member, Senator Richardson. You may present your Bill, SB 505, after, after you take a tour of the dais.

Then I need to go to Health Committee.

Senator Richardson, when you are ready, SB 505.

Thank you, sir. Well, good afternoon, Chairman Grayson and colleagues. First, I'd like to thank the Chair and Committee staff, in particular, Committee staff. You worked with us in the beginning of last year, made a commitment to help us to bring forward policy that would be effective but also appropriate.

And so, I want to especially thank you for all your hard work. Today, we're going to be talking about SB 505. We've taken a collaborative approach to ensure that the bill remains narrowly focused, but yet still addresses the key policy issues, and what are those?

Currently today, more than 1.6 million people in California rely upon digit payment platforms for everyday financial activity. Therefore, protecting account access at the login stage has become increasingly important. SB 505 is a straightforward consumer protection measure that strengthens the security for Californians who use digital wallets and money transmission services.

SB 505 focuses on prevention by ensuring that stronger identification is enacted before a user can access the account. Here are a few highlight points to consider. Number one, SB 505 requires the digital wallet providers and money transmitters operating in California to use a two factor or a multi factor authentication at the user login stage.

This has become pretty common with most of the things we do logging into your personal, you know, emails and things like that. But it's so critical, especially when we're talking about dealing with money. The second key point is that the bill clearly defines that the two factor and multi factor authentication is used to ensure consistency and clarity.

And by the way, this protects not only the consumer, but the businesses as well because if there's a claim and there's an issue, then the business sometimes may have to recoup those funds. By securing the account at the login stage, SB 505 helps prevent unauthorized access and account takeovers before financial harm occurs.

The bill is tailored and does not regulate transactions, fees, or data collection, only authentication at the point of login. Further, the Bill includes a delay operative date of January 1st, 2028, to give businesses sufficient and ample time to implement the required security measure.

Understanding this is very important and in this second year, as we're starting off the session, I wanted to acknowledge for the record that we have been actively working with a broad range of industry stakeholders to address many issues. One that is still potentially remaining has to do with the self-hosted crypto wallets.

We recognize that these wallets operate differently from centralized platforms and do not present the same profile. We remain open during the legislative process to work collaboratively on clarifying language such as the definition of digital wallet through a potential amendment if deemed necessary, while still maintaining the bill's objective, which is ultimately consumer protection.

In closing, SB 505 provides a simple proactive safeguard that strengthens consumer trust, protects personal financial information, and keeps pace with the growing use of digital payment platforms in California. I respectfully ask for your aye vote.

Thank you, Senator, for your presentation. We did receive one letter of support yesterday, but we do—congratulations. But I don't know if we have a primary witness that would like to speak. All right then. Anyone that would like to line up and express your support, your name, organization, and your position would be great.

That was my letter. Renee Bayardo representing Rise Economy in support.

Thank you.

Seeing no others, are there any—we had no registered, registered opposition of the bill, so is there anyone in the room that would like to express their opposition? Or maybe a tweener? Yes, please come forward.

Jamie Minor with the California Blockchain Advocacy Coalition. Thanks to your team and for the Senator for working on us with this, especially on some of the remaining definitions. Agree with some of the things pointed out in the analysis and appreciate the commitment and we look forward to working on it. And really, it's a laudable goal. So thank you.

Thank you.

Hi, Molly Corcoran, on behalf of Andreessen Horowitz, aligning our comments with CBAC. Appreciate the author and staff's work on the self-hosted wallet issue. So, thank you.

Good afternoon, Chair and Members. Jose Torres with TechNet, also a tweener. Appreciate—just wanted to appreciate the Senator's work and her office on this. Originally, we were opposed to the original language, but with the new amendments, we are reevaluating our position.

Fantastic. Thank you so very much. Seeing no other public comment, we will bring it back to the Committee for questions or comments. Seeing one question or comment, Vice Chair Niello.

Kind of a comment—the author may be, may want to comment on it.

Typically, I'd have concerns about us dictating this sort of detail with regard to anything but scams and organized abuse on the Internet, particularly regard to financial exposure has become so pervasive and the approaches so frequent and pervasive that I think it is appropriate for us to try to help as much as possible to mitigate and help prevent that.

So, I can support the bill, but there is that trepidation. But the other concern I have is that in technology, things are constantly evolving, and it is possible that there could be—well, first of all, nobody should be lulled to sleep that dual authentication is perfect. It's not. There is nothing that's perfect.

Plus, if somebody is appropriately duped, they're going to fall for phishing and the like in any case, regardless of how much protection we put out there. But to the extent that technology changes, it is certainly possible that dual authentication could be overridden by some other technological development that is even better.

Or there could be technological developments that completely eliminate the usefulness of this. We don't know because things do evolve and have significantly and rapidly. And I just want to make sure that we keep open, if we pass this bill, which I suspect we probably will, that in the future there could be a different approach.

And we can't be handcuffed to a different approach by virtue of existing law. That's the concern that I'd have. But I'm going to support the bill.

Well, as a good member, you said you're going to support the bill, so I'll be brief. But you do deserve an answer. I certainly concur. But the challenge is, as you said, scams and issues are happening now. And so, all we can do is be able to protect people as best as possible in the current state.

But that is why the bill very narrowly focused. Originally, we were looking at transactions and fees and fines and all this kind of stuff, and really, frankly, this is a moving target.

The train is moving and we're just trying to keep up and allow consumers the ability to just take five more seconds and make sure, hey, hopefully, you know, six out of 10 people know they haven't been hacked. And yes, this multi authentication or dual identification—authentication, excuse me—allows them that one more step of protection.

But yes, that's why we narrowly focused it and left it. When you look at it, it's being implemented in 2028. So, if, in the event, within the next two years, there's something else, I commit to you that I'll come back and bring something better that will be appropriate, if that's deemed necessary. Thank you, sir.

Seeing no further questions or comments. I would like to thank the author and share your concern with the proliferation of fraud that seems to be penetrating so many of our aspects of our lives and so many of our communities. So, I do support moving the bill forward to provide more time for conversation that's on this topic specifically.

And I think the Committee analysis raises reasonable considerations for the author. I do know that you will always, you're a worker, you will always continue to work with industry groups and consumer advocates to make this bill better along the way. With that, this bill does have an aye reco. Senator Richardson, would you like to close?

Thank you for your support.

Excellent close. Do we have a motion on SB 505? Senator Strickland makes the motion. Thank you. Motion is due pass and re-refer to Committee on appropriations. Assistant, please call the roll.

[Roll Call]

You do have five votes. We will keep roll call open for the absent member for just a few more minutes. Thank you. We can go back and revisit the consent calendar. If you can do that, please call roll on the consent calendar.

[Roll Call]

We have five. We will continue to keep roll call open on the consent calendar. Thank you to the members that were here. Appreciate it

For Senate Committee on Banking and Financial Institution, the consent calendar has five votes. Zero noes. The consent calendar is adopted. SB 505, Senator Richardson, has five votes.

And I need to announce where it goes. Okay. And that Bill is out. That concludes our business for the day. The Committee is adjourned.