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

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

Crypto exchange Nexo has settled with California's financial regulator over allegations it operated as an unlicensed lender in the state and extended loans without assessing borrowers' ability to repay, according to a disclosure published this week.

The California Department of Financial Protection and Innovation fined Nexo for offering dollar-denominated loans secured by customers' cryptocurrency holdings without obtaining the required lending license. The settlement comes as the company attempts to re-enter the U.S. market after a two-year absence, creating a test case for how states will handle crypto lending platforms that straddle traditional banking regulations.

For finance chiefs at banks and fintechs watching the crypto lending space, the Nexo case highlights a persistent regulatory gray area: when does a crypto-collateralized loan become subject to state lending laws? The California regulator's answer appears to be "always," regardless of the platform's underwriting approach.

Nexo's business model during its previous U.S. operations allowed California consumers to borrow dollars against their crypto holdings on the platform. Rather than conducting traditional credit risk underwriting—the kind that would assess income, debt-to-income ratios, and credit scores—Nexo required users to overcollateralize their loans with cryptocurrency. If the value of the crypto collateral fell below certain thresholds, the platform could liquidate the holdings to cover the debt.

The company began exiting the U.S. market in mid-2023 amid mounting regulatory scrutiny of its "Earn Interest Product," which allowed users to deposit crypto and earn yields. That product drew attention from securities regulators who viewed it as potentially offering unregistered securities. By 2025, however, Nexo announced plans to return to the U.S. market, apparently betting that the regulatory environment had shifted in its favor.

The California settlement suggests that calculation may have been premature. While Nexo has not yet resumed U.S. operations, the fine indicates state regulators remain focused on crypto platforms' compliance with existing financial services laws, even as the federal regulatory landscape remains uncertain.

The case raises questions about how other states will treat similar crypto lending arrangements. If overcollateralized crypto loans still require lending licenses and ability-to-repay assessments, the compliance burden could significantly reshape the economics of crypto lending platforms attempting to serve U.S. customers.

For CFOs evaluating partnerships with crypto platforms or considering treasury applications of digital assets, the Nexo settlement serves as a reminder that crypto's regulatory treatment remains fragmented and unpredictable at the state level. What works in one jurisdiction may trigger enforcement action in another, even when the underlying product mechanics remain identical.

The settlement amount was not disclosed in the available materials. Nexo did not immediately respond to questions about whether the California action would affect its timeline for re-entering the U.S. market or its approach to state-by-state licensing.