BILL NUMBER: S8408
SPONSOR: KRUEGER
 
TITLE OF BILL:
An act to amend the financial services law, in relation to prohibited
unlicensed activities
 
PURPOSE OF THE BILL:
This bill will resolve faults in penalty provisions of the Banking Law
("BL") and Financial Services Law ("FSL") that illogically advantage
persons who disregard licensing, registration, and similar authorization
requirements over those persons who comply with such requirements. The
bill does this imposing a penalty for a "prohibited unlicensed act,"
which is defined as (1) " 
Engaging in an activity in this state for
which a license, certification, registration, authorization, charter,
accreditation or incorporation is required by" the FSL or the BL, or the
regulations promulgated thereunder, without being so authorized, and (2)
"any act or omission by a person who is required by (the FSL or the BL
or the regulations promulgated thereunder, to be" authorized by to do
such business and is not so authorized, "if such act or omission would
constitute a violation of (the FSL or the BL) or the regulations promul-
gated thereunder, subject to monetary penalty if such person were so
(authorized)."
 
SUMMARY OF PROVISIONS:
Section 1 states the purpose of the bill.
Section 2 provides that the Superintendent of Financial Services may
hold adjudicatory proceedings to assess civil penalties against persons
who have committed prohibited unlicensed acts, as the Superintendent
currently may do for other violations of the BL and FSL.
Section 3 authorizes the Superintendent of Financial Services to inves-
tigate activities that may constitute prohibited unlicensed acts, as the
Superintendent currently may do with respect to other activities within
the Superintendent's jurisdiction.
Section 4 creates a new section of law, FSL § 408-a, which defines
"prohibited unlicensed act" and establishes the applicable penalties,
which may be assessed by the Superintendent after notice and a hearing.
The penalties are as follows
For a prohibited unlicensed act that relates to the requirements of the
BL or the regulations promulgated thereunder, a new § 408-a(a)(1) estab-
lishes that the penalty is the same as the penalty provided in BL § 44
for any violation of the BL. This is consistent with the policy
expressed in existing FSL § 408(a)(3)(A)
For a prohibited unlicensed act that relates to the requirements of the
FSL or the regulations promulgated thereunder, a new FSL § 408-a(a)(2)
establishes that the penalty is the same as the penalty provided for in
FSL § 408(a) for violations of the FSL or the regulations promulgated
thereunder.
Additionally, for a prohibited unlicensed act that results in consumer
harm, the Superintendent may impose a penalty up to double the amount
applicable to such violation provided in FSL §§ 408- a(a)(1) and (a)(2),
and the Superintendent may order restitution.
Consistent with exiting law, FSL § 408(a)(3)(B), section 4 of the bill
also provides that a particular act or omission constituting a prohibit-
ed unlicensed act cannot be penalized twice. If the Superintendent
imposes a fine for a prohibited unlicensed act pursuant to FSL §
408-a(a)(1) (providing for penalties in connection with BL violations),
the Superintendent may not additionally impose a penalty for the same
act or omission pursuant to FSL § 408-a(a)(2) (providing for penalties
in connection with FSL violations). If the Superintendent imposes a
penalty pursuant to FSL § 408(a)(1) or (2), the Superintendent may not
impose a penalty pursuant to FSL § 408-a(a)(2).
Also consistent with existing law, this section establishes that the
civil penalties that the Superintendent collects for prohibited unli-
censed acts must be applied in the same manner as civil penalties
received by the Superintendent for other violations of the FSL.
Section 5 of the bill provides, consistent with existing law, that if
the Superintendent believes that a violation of the newly created FSL
§ 408-a has been attempted or committed, the Superintendent, in their
discretion, may report such activity to the appropriate licensing
authority or district attorney or to the New York State Attorney Gener-
al.
Section 6 of the bill provides an immediate effective date.
 
JUSTIFICATION:
Currently, unlicensed entities engaging in most types of business
requiring a license under the Banking Law and certain types of business
requiring a license under the Financial Services Law and regulations are
not subject to the Superintendent's power to impose civil monetary
penalties for a failure to be properly licensed or for violations of
other provisions of the Banking Law and Financial Services Law that
govern the conduct of those businesses. In other words, a person or
entity lacking a required license is not subject to penalty for acts
that would constitute violations subject to penalty if the person did
have proper authorization. Furthermore, the entity is not subject to a
financial penalty for failure to be properly licensed. This bill will
resolve these faults that disincentivize compliance with licensing
requirements by illogically advantaging persons who disregard licensing,
registration, and similar authorization requirements over those persons
who comply with such requirements by obtaining proper authorization and
subjecting themselves to Departmental supervision.
 
PRIOR LEGISLATIVE HISTORY:
This is a new bill.
 
FISCAL IMPLICATIONS:
None.  
EFFECTIVE DATE:
Immediate

Statutes affected:
S8408: 404 financial services law, 404(a) financial services law, 409 financial services law, 409(a) financial services law