A proposed law in New Jersey could make it illegal for companies holding cryptocurrency on the behalf of clients to give out tokens in its custody.

A bill submitted to the New Jersey General Assembly by Assemblywoman Yvonne Lopez would prohibit companies that hold cryptocurrency on behalf of customers from lending those funds to other entities.

AB3817 would also require such firms to acquire the permission of New Jersey resident-clients prior to purchasing, be moving, or be assigning any digital resources it holds for all those clients.

In addition to its own restriction on lending, the bill will prohibit the companies from “hypothecating [and] pledging” cryptocurrency beneath their custodianship, with or without permission from these tokens’ rightful owners.

The proposed law would also require

any person, partnership, corporation, institution, trust, or other business combination or entity” that is “engaging in electronic money industry action” to register with the state’s Department of Banking and Insurance, so long as that activity involves “any person that resides, is situated, or is conducting business in New Jersey.”

On April 5, the day the bill was submitted, it had been referred to the Meeting Science, Innovation and Technology Committee.

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