What To Know:
- California’s DFPI penalized Nexo for issuing crypto-backed loans to at least 5,456 residents between 2018 and 2022 without holding the required state lending license.
- Regulators found Nexo failed to assess borrowers’ repayment capacity, existing debts, or credit histories, exposing users to elevated risk in a volatile crypto market.
- Nexo must transfer all California customer assets to a properly licensed US-affiliated entity within 150 days as regulators tighten oversight on crypto lending practices.
California regulators have imposed a $500,000 penalty against crypto lender Nexo over unlicensed lending activity that reached thousands of residents across the state. The enforcement was announced by the Department of Financial Protection and Innovation.
California Fines Crypto Firm Nexo
Nexo issued cryptocurrency-backed loans to at least 5,456 California customers without the state license needed to facilitate lending activity, according to the DFPI. These loans were made between July 2018 and November 2022 through Nexo Capital Inc., a Cayman Islands subsidiary.
Regulators say borrowers in those years were given credit without the very basic financial checks that California law requires for licensed lenders. The inquiry discovered that Nexo failed to sufficiently assess whether borrowers could pay back their loans. There was also a lack of reviews of existing debt levels and credit histories. For state officials, those omissions put consumers at risk — especially in a market that’s notorious for sharp price swings and sudden downturns.
DFPI Commissioner KC Mohseni framed the penalty as a matter of consumer safety rather than market innovation. He said lenders operating in California are expected to follow the same standards, regardless of whether loans are backed by dollars or digital assets.
High-risk lending, he added, exposes households to financial stress that regulation is designed to limit. Alongside the monetary penalty, the regulator issued corrective instructions. Nexo has been ordered to move all California customer funds to a US-affiliated entity that holds the proper licenses. The company has 150 days to complete that transfer, a requirement aimed at placing remaining users under direct regulatory oversight. The timing of the enforcement action carries added weight.
Nexo has said it’d be keen on coming back to the US market after quitting late last year in the face of pressure from state and federal officials. That earlier departure came after investigations into its interest-bearing and lending products, which regulators said fell squarely within existing securities and lending laws.
In 2023, Nexo agreed to pay $45 million to settle claims brought by the US Securities and Exchange Commission and several state regulators. The majority of those settlements concern the unregistered crypto lending and yield products offered to American clientele. The California fine is now one way that the regulatory record is being extended, by applying a different perspective in the context of the State of California, but by concentrating on lending practices across the state.
The case, industry observers say, has drawn attention to regulators noting that crypto lenders are also a priority for law enforcement agencies on the topic, especially with respect to consumer protection regulations. Unlike spot trading, lending has direct implications for households with respect to indebtedness and financial health. Regulators have repeatedly emphasized that credit platforms must comply with the same standards as conventional financial institutions. California has in recent years honed its approach to crypto control.
State law requires licensed lenders to assess a borrower’s ability to repay, examine existing obligations, and disclose loan terms in clear language. Interest rate limits and complaint resolution processes also form part of that framework. Operating without a license places those safeguards out of reach for consumers.
For borrowers who used Nexo’s services during the period under review, the enforcement action offers recognition of regulatory gaps that existed at the time. Even as the penalty does not include restitution, officials say it reinforces expectations for future conduct across the industry.
Nexo has yet to issue a public statement addressing the fine or the DFPI’s findings.
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