 The Californian regulators imposed a fine of 500 thousand dollars on Nexo Capital, which offered loans backed by crypto without a clear evaluation of the borrowers. The company will be required to transfer the funds to a licensed affiliate.
The California regulators fined Nexo Capital Inc. to the tune of 500,000 dollars. The site contravened the state financial regulations through the issuance of loans without due licensing.
The investigation was headed by the California Department of Financial Protection and Innovation. Between July 2018 and November 2022, Nexo provided crypto-backed loans to 5,456 California citizens.
Nexo Lending Free-for-All: No Safety Net. Â
Nexo Capital did not examine the repayment abilities of borrowers. The company, based in the Cayman Islands, evaded credit checks and avoided assessing its current debt and general financial status.
DFPI Commissioner KC Mohseni said that lenders should act within the law and not give risky loans that may impair consumers. The lending of crypto should pass the same regulatory criteria as lending in real life.
Lack of an underwriting policy raised the risk of default significantly. Borrowers borrowed with cryptocurrency as security on fiat or stablecoin loans, whereas in conventional financial systems, income verification and credit checks are needed.
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Forced Transfer and Compliance Mandate
Nexo needs to transfer all the California customer funds to Nexo Financial LLC, a U.S. affiliate with a valid California Financing Law license, within 150 days.
DFPI detected the California Financing Law and California Consumer Financial Protection Law violations. Nexo took part in illegal activities involving consumer financial products.
This is the second enforcement measure taken by Nexo according to the DFPI announcement. In 2022, the department spearheaded a several-state probe that resulted in a settlement of 50 U.S. jurisdictions to the tune of 22.5 million dollars.
The previous lawsuit was against the crypto-interest-earning scheme of Nexo, which was against the securities laws in various states. Nexo later pulled out of the American market.
Nexo was also criminally charged in Bulgaria, where the first accusation was organized crime and money laundering. The prosecutors subsequently dismissed those charges, and the company claimed an arbitration of 3 billion against Bulgaria.
The DFPI still oversees crypto-lending sites to ensure that they comply. The agency emphasizes the protection of consumers in all financial services, and now Nexo Financial is under pressure to fulfill strict disclosure standards.