California Regulator Fines Crypto Lender Nexo Over Unlicensed Lending, Underwriting Lapses

The California Department of Financial Protection and Innovation has reached a settlement with cryptocurrency exchange Nexo over allegations the company operated as an unlicensed lender in the state and extended loans without properly assessing borrowers' ability to repay—a violation that highlights ongoing regulatory scrutiny of crypto lending platforms even as some prepare to re-enter U.S. markets.

The settlement, disclosed January 25, 2026, stems from Nexo's previous U.S. operations, which the company wound down in mid-2023 amid mounting regulatory pressure over its "Earn Interest Product." For CFOs at companies with crypto treasury operations or those evaluating digital asset lending relationships, the case underscores that state-level financial regulators remain focused on fundamental consumer lending protections, regardless of whether the collateral is digital or traditional.

During its earlier U.S. run, Nexo allowed California consumers to take dollar-denominated loans secured by crypto holdings on the platform. The company required borrowers to overcollateralize the debt but did not conduct typical credit risk underwriting—a practice the California DFPI determined violated state lending laws requiring assessment of repayment ability.

The timing is notable. Nexo announced in 2025 it would re-enter the U.S. market, presumably betting that the regulatory environment had shifted in its favor. The company has not yet resumed operations, and this settlement suggests that even in a potentially friendlier federal climate, state regulators are maintaining their enforcement posture on core consumer protection issues.

The case illustrates a tension that finance chiefs should understand: crypto-collateralized lending occupies an awkward space in existing regulatory frameworks. Traditional lenders must underwrite based on borrower creditworthiness. Nexo's model—requiring, say, $150 in Bitcoin to borrow $100—sidesteps credit risk in theory, since the lender can liquidate collateral if values drop. But California's position appears to be that the legal requirement to assess ability to repay exists independent of collateral arrangements.

This matters beyond crypto. As more companies explore digital asset strategies—whether holding Bitcoin on the balance sheet, accepting crypto payments, or offering crypto-related services to customers—they're discovering that "it's crypto" is not a regulatory exemption. State financial regulators, who often move more slowly than federal agencies but with equal enforcement authority, are applying existing consumer protection statutes to novel business models.

The settlement also arrives as other fintech firms navigate state-by-state licensing regimes. The same January 25 newsletter that disclosed the Nexo settlement noted that Affirm has applied for an industrial loan company charter in Nevada, a move that would provide federal deposit insurance and potentially streamline its state licensing requirements. Meanwhile, Australian AML regulators have issued warnings to payments firm Airwallex, demonstrating that crypto platforms aren't the only fintech companies facing heightened compliance scrutiny globally.

For finance leaders, the Nexo case is a reminder that regulatory arbitrage has limits. The company clearly believed overcollateralization eliminated the need for traditional underwriting. California disagreed, and the settlement suggests other states may take similar positions. Any CFO evaluating partnerships with crypto lenders or considering offering similar products should assume state regulators will apply existing lending laws, not grant exceptions for novel collateral types.

The question now is whether Nexo's planned U.S. re-entry will include California, and if so, whether the company will implement traditional credit underwriting for what was previously a purely collateral-based product. That operational change would fundamentally alter the economics and speed of crypto lending—which may be precisely the point regulators are trying to make.