SESSION OF 2024 SUPPLEMENTAL NOTE ON SENATE BILL NO. 406 As Amended by House Committee on Financial Institutions and Pensions
Brief* SB 406, as amended, would repeal and replace the Kansas Money Transmitter Act (KSA 9-508 et seq.) with the Kansas Money Transmission Act (Act). The bill would require the State Bank Commissioner (Commissioner) to provide oversight of the electronic transmission of money and establish the powers, duties, and responsibilities of the Commissioner under the Act. The bill would also establish a licensing and renewal process for persons licensed under the Act. Additionally, the bill would establish penalties for violations of the Act. The bill would become effective and be in force from and after January 1, 2025, and its publication in the statute book. Kansas Money Transmission Act Definitions (Section 1) The bill would define terms as used in the Act, including: ● “Money” would mean a medium of exchange that is authorized or adopted by the United States or a foreign government. “Money” includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments; ____________________ *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.kslegislature.org ● “Money transmission” would mean any of the following: ○ Selling or issuing payment instruments to a person located in Kansas; ○ Selling or issuing stored value to a person located in Kansas; ○ Receiving money for transmission from a person located in Kansas; or ○ Payroll processing services. “Money transmission” would not include the provision of solely online or telecommunications services or network access. ● “Person” would mean any individual, general partnership, limited partnership, limited liability company, corporation, trust, association, joint stock corporation, or other corporate entity identified or recognized by the Commissioner; and ● “Tangible net worth” would mean the aggregate assets of a licensee excluding all intangible assets, less liabilities, as determined in accordance with United States generally accepted accounting principles. Exemptions (Section 2) The bill would provide a list of entities the Act would not apply to: ● An operator of a payment system to the extent that such operator provides processing, clearing, or settlement services between persons exempted under this subsection or licensees in connection with wire transfers, credit card transactions, debit card transactions, stored value transactions,
2- 406 automated clearing house transfers, or similar funds transfers; ● A person appointed as an agent of a payee to collect and process a payment from a payor to the payee for goods or services other than money transmission provided to the payor by the payee if: ○ A written agreement exists between the payee and the agent directing the agent to collect and process payments from payors on the payee’s behalf; ○ The payee holds the agent out to the public as accepting payments for goods and services on the payee’s behalf; and ○ Payment for the goods and services is treated as received by the payee upon receipt by the agent so that the payor’s obligation is extinguished and there is no risk of loss to the payor if the agent fails to remit the funds to the payee; ● A person that acts as an intermediary by processing payments between an entity that has directly incurred an outstanding money transmission obligation to a sender and the sender’s designated recipient, if the entity: ○ Is properly licensed or exempt from licensing requirements under this act; ○ Provides a receipt, electronic record, or other written confirmation to the sender identifying the entity as the provider of money transmission in the transaction; and ○ Bears sole responsibility to satisfy the outstanding money transmission obligation to the sender, including the obligation to make the sender whole in connection with any failure to transmit the funds to the sender’s designated recipient; 3- 406 ● The U.S. government and any agency, bureau, department, office, or instrumentality, corporate or otherwise, thereof, including any official, employee, or agent of any such entity; ● Money transmission by the U.S. Postal Service (USPS) or by an agent of the USPS; ● Any state office or officer, department, board, commission, bureau, division, authority, agency, or institution of this state, including any political subdivision thereof, and any county, city, or other municipality; ● A federally insured depository financial institution, bank holding company, office of an international banking corporation, foreign bank that establishes a federal branch pursuant to federal law; a corporation organized pursuant to the federal Bank Service Company Act, or a corporation organized to do foreign banking under federal law; ● Electronic funds transfer of governmental benefits for a federal, state, county, or governmental agency or instrumentality thereof or on behalf of a state or governmental subdivision, agency, or instrumentality thereof; ● A board of trade designated as a contract market under federal law or a person that in the ordinary course of business provides clearance and settlement services for a board of trade to the extent of the board of trade’s operation as or for such a board; ● A futures commission merchant registered under federal commodities law to the extent of the registrant’s operation as such a futures commission merchant;
4- 406 ● A person registered as a securities broker-dealer under federal or state securities law to the extent of such registrant’s operation as such a securities broker-dealer; ● An individual employed by a licensee, authorized delegate, or any person exempted from the licensing requirements of the Act when acting within the scope of employment and under the supervision of the licensee, authorized delegate, or exempted person as an employee and not as an independent contractor; ● A person expressly appointed as a third-party service provider to or agent of a state office or officer, department, board, commission, bureau, division, authority, agency, or institution of this state, including any political subdivision thereof, and any county, city, or other municipality, solely to the extent that: ○ Such service provider or agent is engaging in money transmission on behalf of and pursuant to a written agreement with the exempt entity that sets forth the specific functions that the service provider or agent is to perform; and ○ The exempt entity assumes all risk of loss and all legal responsibility for satisfying the outstanding money transmission obligations owed to purchasers and holders of the outstanding money transmission obligations upon receipt of the purchaser’s or holder’s money or monetary value by the service provider or agent; ● A person engaging in the practice of law, bookkeeping, accounting, real estate sales, or brokerage;
5- 406 ● A person appointed as an agent of a payor for purposes of providing payroll processing services for which such agent would otherwise need to be licensed if: ○ There is a written agreement between the payor and the agent that directs the agent to provide payroll processing services on the payor’s behalf; ○ The payor holds the agent out to employees and other payees as providing payroll processing services on the payor’s behalf; and ○ The payor’s obligation to a payee, including an employee or any other party entitled to receive funds via the payroll processing services provided by the agent, is not extinguished if such agent fails to remit such funds to the payee; and ● A person exempt by any rules or regulations adopted or by an order issued if the Commissioner finds such exemption to be in the public interest and that the regulation of such person is not necessary for the purposes of this Act. The Commissioner would be permitted to require that any person claiming to be exempt from licensing provide information and documentation to the Commissioner demonstrating that such person qualifies for any claimed exemption.
Implementation—State Bank Commissioner (Section 3) To carry out the purposes of the Act, the Commissioner could: ● Enter into agreements or relationships with other government officials or federal and state regulatory 6- 406 agencies and regulatory associations to improve efficiencies and reduce regulatory burden by standardizing methods or procedures and sharing resources, records, or related information under this act; ● Use hire, contract, or employ analytical systems, methods, or software to examine or investigate any person subject to this act; ● Accept from other state or federal government agencies or officials, licensing, examination, or investigation reports made by such state or federal government agencies or officials; and ● Accept audit reports made by an independent certified public accountant or other qualified third- party auditor for an applicant or licensee and incorporate the audit report in any report of examination or investigation. The Commissioner would have the broad administrative authority to: ● Administer, interpret, and enforce this act; ● Promulgate rules and regulations necessary to implement this act; and ● Set proportionate and equitable fees and costs associated with applications, examinations, investigations, and other actions required to provide sufficient funds to meet the budget requirements of administering and enforcing the Act for each fiscal year and to achieve the purposes of this act.
7- 406 Confidentiality (Section 4) Except as otherwise provided, the following documents would be deemed confidential and not subject to disclosure under the Kansas Open Records Act (KORA): ● All information or reports obtained by the Commissioner from an applicant, licensee, or authorized delegate; and ● All information contained in or related to an examination, investigation, operating report, or condition report prepared by, or on behalf of, or for use of the Commissioner or financial statements, balance sheets, or authorized delegate information. The provisions of this act providing for confidentiality of public records would expire on July 1, 2030, unless the Legislature reviewed and reenacted such provisions in accordance with KORA prior to that date. The Commissioner would be permitted to disclose information not otherwise subject to disclosure to representatives of state or federal agencies who promise in a record that such representatives will maintain the confidentiality of the information or where the Commissioner finds that the release is reasonably necessary for the protection and interest of the public in accordance with KORA. Public Information The bill would state the following information contained in the records of the Office of the State Bank Commissioner (OSBC) is not confidential and may be made available to the public: ● The name, business address, telephone number, and unique identifier of a licensee;
8- 406 ● The business address of a licensee’s registered agent for service; ● The name, business address, and telephone number of all authorized delegates; ● The terms of or a copy of any bond filed by a licensee, provided that confidential information, including, but not limited to, prices and fees for such bond is redacted; or ● Copies of any orders of the OSBC relating to any violation of or regulations implementing this act. This section would not be construed to prohibit the Commissioner from disclosing to the public a list of all licensees or the aggregated financial or transactional data concerning those licensees.
Examination (Section 5) The bill would authorize the Commissioner to conduct an examination or investigation of a licensee or authorized delegate or otherwise take independent action authorized by this act, by any rules and regulations adopted, or by an order issued under this act as reasonably necessary or appropriate to administer and enforce the Act, regulations implementing this act, and other applicable federal law. Under this authority, the Commissioner could: ● Conduct an examination on-site or off-site as the Commissioner may reasonably require; ● Conduct an examination in conjunction with an examination conducted by representatives of other state agencies, agencies of another state, or the federal government;
9- 406 ● Accept the examination report of another state agency, an agency of another state, or the federal government, or a report prepared by an independent accounting firm, which, on being accepted, would be considered an official report of the Commissioner; and ● Summon and examine under oath or subpoena a key individual or employee of a licensee or authorized delegate and require such individual or employee to produce records regarding any matter related to the condition and business of the licensee or authorized delegate. Provision of Records A licensee or authorized delegate would be required to provide the Commissioner with full and complete access to all records the Commissioner would reasonably require to conduct a complete examination. The records would be provided at the location and in the format specified by the Commissioner. The Commissioner could utilize multistate record production standards and examination procedures when such standards would reasonably achieve these requirements. Unless otherwise directed by the Commissioner, the licensee would be required to pay all costs reasonably incurred in connection with an examination.
Multistate Supervision (Section 6) To administer and enforce the provisions of the Act and minimize the regulatory burden, the Commissioner would be authorized to participate in multistate supervisory processes established between states and coordinated through the Conference of State Bank Supervisors (CSBS), money transmitter regulators associations, and affiliates and successors thereof for all licensees that hold licenses in 10- 406 Kansas or other states. As a participant in such established multistate supervisory processes, the Commissioner could: ● Cooperate, coordinate, and share information with other state and federal regulators in accordance with examination provisions of the Act (Section 5); ● Enter into written cooperation, coordination, or information-sharing contracts or agreements with organizations, the membership of which is made up of state or federal governmental agencies; and ● Cooperate, coordinate, and share information with organizations, the membership of which is made up of state or federal governmental agencies, if the organizations agree in writing to maintain the confidentiality and security of the shared information in accordance with disclosure provisions of the Act (Section 4). The Commissioner could not waive, and nothing in the Act would constitute a waiver of, the Commissioner’s authority to conduct an examination or investigation or otherwise take independent action authorized by the Act, rules and regulations adopted, or an order issued under the Act to enforce compliance with applicable state or federal law. A joint examination, investigation, or acceptance of an examination or investigative report would not be construed to waive an examination assessment provided for in this act.