California Regulator Fines Crypto Lender Nexo Over Unlicensed Operations, as Platform Plans U.S. Return

Crypto exchange Nexo has settled with California's financial regulator over allegations it operated as an unlicensed lender in the state, marking the latest regulatory entanglement for a platform attempting to re-enter the U.S. market after a two-year retreat.

The California Department of Financial Protection and Innovation announced the settlement this week, alleging Nexo extended dollar-denominated loans to state residents without proper licensing and failed to assess borrowers' ability to repay—a fundamental consumer protection requirement under state lending law. The company, which began exiting the U.S. in mid-2023 amid regulatory pressure over its "Earn Interest Product," has not yet resumed American operations despite announcing plans to return in 2025.

The case highlights a persistent friction point between crypto platforms and state banking regulators: whether crypto-collateralized lending constitutes traditional lending activity subject to existing financial regulations. Nexo's model allowed users to borrow dollars against their cryptocurrency holdings on the platform, requiring borrowers to overcollateralize the loans but conducting no traditional credit underwriting. California regulators concluded this structure still triggered state lending license requirements.

For finance chiefs at traditional financial institutions watching the crypto sector's regulatory evolution, the settlement underscores that novel collateral structures don't exempt lenders from foundational regulatory frameworks. The ability-to-repay analysis—a cornerstone of responsible lending regulation since the 2008 financial crisis—applies regardless of whether loans are secured by real estate, securities, or digital assets, according to California's interpretation.

Nexo's regulatory troubles began intensifying in 2023 when multiple state and federal agencies scrutinized its interest-bearing product, which paid yields to users who deposited crypto on the platform. That product drew comparisons to unregistered securities offerings, prompting the company's U.S. withdrawal. The California settlement addresses a separate issue: the lending side of Nexo's business model, where users borrowed against their crypto rather than earning interest on deposits.

The timing of the settlement is notable given Nexo's stated intention to re-enter the U.S. market. The company announced in 2025 it would resume American operations, presumably betting that the regulatory environment had shifted favorably. The California action suggests that calculation may have been premature, or that legacy compliance issues from the platform's previous U.S. operations continue to surface.

The settlement terms were not disclosed in the available reporting, leaving open questions about financial penalties and whether Nexo admitted wrongdoing. Also unclear is whether the company will need to obtain California lending licenses before resuming operations in the state, or whether it plans to exclude California residents from its revamped U.S. offering.

For CFOs at crypto-adjacent companies or traditional firms considering blockchain-based lending products, the Nexo case reinforces that regulatory arbitrage through technological innovation has limits. State regulators appear increasingly willing to apply existing financial services law to crypto platforms, regardless of the underlying technology or collateral type.