Digital Financial Asset Banking Act.

The definition of 'staking reward' was changed from 'compensation earned by a customer from staking' to 'compensation earned from staking,' removing the limitation to customers. This broadens the scope of what qualifies as a staking reward under the bill.

Fixed a typo in the act description where 'Section 25019 of of' was corrected to 'Section 25019 of.'

Removed a duplicate 'SEC. 3.' section number that appeared before the reimbursement provision (now correctly numbered SEC. 4).

Introduced apparent drafting errors: the chapter heading now reads 'General provisions Provisions' (duplicated word) and an extraneous 'services.' was appended to the end of a fee disclosure sentence in Section 3921.

Adds an entirely new Division 1.26 (Sections 3910-3949) to the Financial Code, creating the Digital Financial Asset Banking Act that regulates banks and credit unions under DFPI examination authority for their digital asset custody, staking, and transaction services.

The original Section 3201 amendment (prohibiting unlicensed digital financial asset business activity) is retained but renumbered as Section 2 of the bill, now following the new Division 1.26 rather than being the sole content of the bill.

Adds approximately 20 new definitions including active staking, passive staking, slashing, subcustodian, pooled custody, segregated custody, material cybersecurity incident, fiduciary capacity, nonfiduciary capacity, digital wallet, key, and others to establish the regulatory vocabulary.

Requires financial institutions to maintain a one-to-one full reserve of each digital asset owed to passive staking customers (Section 3916) and to individually account for and fully reserve each type of digital asset even in pooled custody arrangements (Section 3917).

Caps staking service fees at $5 or 5 percent of the reward (whichever applies) for rewards over $100, requires written disclosure before staking begins, and mandates payment of staking rewards within two business days (Section 3927).

Requires annual audits of custodial activities that are either independent or conducted by the board of directors with each member signing under penalty of perjury (Section 3918).

Mandates a risk-based anti-money-laundering program aligned with the Bank Secrecy Act and a cybersecurity program aligned with FFIEC and NIST standards, with 72-hour notification to DFPI for material cybersecurity incidents and 7-year record retention (Sections 3935-3936).

Requires written custodial agreements with prominent disclosures about insurance coverage and whether assets are deposits or obligations of the institution, with 45-day notice before any changes to the agreement (Section 3915).

Prohibits financial institutions from recording staked customer digital assets as their own assets or liabilities, requires safeguarding staked assets from creditor claims, and mandates insurance coverage adequate to protect against slashing, cybersecurity breaches, and theft (Section 3928).

Creates enforcement mechanisms including corrective orders (10-day response), cease and desist orders after a 15-day hearing, temporary emergency orders effective upon service with expedited 10-day hearings, civil penalties of up to $5,000 for first violations and $10,000 for subsequent violations, and authority to suspend or revoke a financial institution's digital asset service authority (Sections 3945-3949).

Fiscal committee applicability changed from 'no' to 'yes' and state-mandated local program changed from 'no' to 'yes' due to the expansion of the perjury crime through the board audit signing requirement.

New Section 1 amends Corporations Code Section 25019 to add a staking reward (as defined in Financial Code Section 3910) to the list of items excluded from the definition of 'security.' This removes staking rewards from securities regulation, meaning financial institutions offering staking services do not need to register those rewards as securities offerings.

Section 3927(b)(1) fee cap threshold corrected from 'greater than one hundred dollars ($100)' to 'less than one hundred dollars ($100)' (though the text contains a typo reading 'greater less than'). The old version incorrectly applied both the flat $5 cap and the 5 percent cap to rewards over $100. The correction creates a logical two-tier structure: rewards under $100 are capped at a flat $5 fee, while rewards over $100 are capped at 5 percent of the reward.

The former Section 1 (adding Division 1.26 to the Financial Code) is renumbered as Section 2 to accommodate the new Corporations Code amendment as Section 1. The bill title and legislative counsel's digest are updated to reflect the dual-code amendment.

Fiscal committee designation changed from 'no' to 'yes' and state-mandated local program changed from 'no' to 'yes,' reflecting that the perjury expansion in the audit provisions now triggers state-mandated local program reimbursement analysis under the California Constitution.

New Part 9 (Section 25710) added to Division 1 of Title 4 of the Corporations Code, stating that the distribution of staking rewards is not subject to Sections 25110, 25120, and 25130 (corporate securities registration provisions). This creates a clear statutory exemption for staking reward distributions from corporate securities law.

The definition of 'security' in Section 25019 was restructured: the exclusions previously embedded in a single paragraph are now separated into a distinct subsection (b) with clearly numbered items. The staking reward exclusion is now item (5) in this new subsection, making it more prominent and unambiguous.

Typo corrected in the staking fee cap: 'greater less than one hundred dollars' changed to 'less than one hundred dollars' in the provision limiting fees on small staking rewards.

Section numbering updated (SEC. 2 became SEC. 3, SEC. 3 became SEC. 4) to accommodate the newly inserted Part 9 section.