Bill Summary – FastDemocracy

General Assembly                       Raised Bill No. 5489
       February Session, 2020                LCO No. 2640
     Referred to Committee on COMMERCE
     Introduced by:
       (CE)
 AN ACT ESTABLISHING A REGULATORY SANDBOX PROGRAM.
 Be it enacted by the Senate and House of Representatives in General
 Assembly convened:
       Section 1. (NEW) (Effective October 1, 2020) (a) For the purposes of this
    section:
       (1) "Applicable agency" means a department or agency of this state
    that may regulate the type of financial product or service that comprises
    an innovative product or service in the state and persons who provide
    such product or service, including issuances of licenses or other types of
    authorization, which the Department of Economic and Community
    Development determines would otherwise regulate a sandbox
    participant;
     (2) "Applicant" means an individual or entity that is applying to
   participate in the regulatory sandbox;
      (3) "Blockchain technology" means the use of a digital database
   containing records of financial transactions, which can be
   simultaneously used and shared within a decentralized, publicly
   accessible network and can record transactions between two parties in
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 a verifiable and permanent way;
   (4) "Commissioner" means the Commissioner of Economic and
 Community Development;
    (5) "Consumer" means a person that purchases or otherwise enters
 into a transaction or agreement to receive an innovative product or
 service that is being tested by a sandbox participant;
   (6) "Department" means the Department of Economic and
 Community Development;
     (7) "Financial product or service" means (A) a financial product or
 service that requires state licensure or registration, or (B) a financial
 product or service that includes a business model, delivery mechanism
 or element that may require a license or other authorization to act as a
 financial institution, enterprise or other entity that is regulated by the
 provisions of title 36a of the general statutes or other related provisions.
 "Financial product or service" does not include a product or service that
 is regulated by the provisions of title 38a or chapter 672a of the general
 statutes;
    (8) "Innovation" means the use or incorporation of a new or emerging
 technology or a new use of existing technology, including, but not
 limited to, blockchain technology, to address a problem, provide a
 benefit or otherwise offer a product, service, business model or delivery
 mechanism that is not known by the department to have a comparable
 widespread offering in the state;
    (9) "Innovative product or service" means a financial product or
 service that includes an innovation;
    (10) "Person" means any person, including individuals, firms,
 partnerships, associations, cooperatives, limited liability companies or
 corporations, public or private, for profit or nonprofit, organized or
 existing under the laws of the state or any other state;
   (11) "Regulatory sandbox" means the program established in
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 subsection (b) of this section, which allows a person to temporarily test
 an innovative product or service on a limited basis without otherwise
 being licensed or authorized to act under any other provision of the
 general statutes;
    (12) "Sandbox participant" means a person whose application to
 participate in the regulatory sandbox is approved in accordance with
 the provisions of this section; and
    (13) "Test" means to provide an innovative product or service in
 accordance with the provisions of this section.
    (b) There is established within the Department of Economic and
 Community Development the regulatory sandbox program. Said
 program shall enable a person to obtain limited access to the market in
 this state to test innovative financial products or services without
 obtaining a license or other authorization that otherwise might be
 required.
    (c) (1) Notwithstanding any provision of the general statutes, any
 person may submit an application to the Commissioner of Economic
 and Community Development to enter the regulatory sandbox to test
 an innovation, provided such person is subject to the jurisdiction of the
 state and has established a physical location in the state, from which
 testing will be developed and performed and where all records,
 documents and data relating to such innovation will be maintained.
 Applications to enter the regulatory sandbox shall be submitted to the
 commissioner at such times and on such forms as the commissioner may
 prescribe.
    (2) Each application shall include, but need not be limited to: (A)
 Relevant personal and contact information for the applicant, including
 legal name, address, telephone number, email address, Internet web site
 address and any other information required by the commissioner; (B)
 disclosure of any criminal convictions of the applicant and other
 personnel who will participate in the testing of the innovation; (C)
 documentation that demonstrates to the commissioner's satisfaction
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 that the applicant has the necessary personnel, financial and technical
 expertise, access to capital and a plan to test, monitor and assess the
 innovative product or service; (D) a description of the innovative
 product or service to be tested, including statements regarding the
 following: (i) How the innovative product or service is subject to
 licensing or other authorization requirements outside of the regulatory
 sandbox; (ii) how the innovative product or service would benefit
 consumers; (iii) how the innovative product or service is different from
 other products or services available in this state; (iv) what risks may
 confront consumers that use or purchase the innovative product or
 service; (v) how participating in the regulatory sandbox would enable a
 successful test of the innovative product or service; (vi) a description of
 the proposed testing plan, including estimated time periods for
 beginning the test, ending the test and obtaining licensure or
 authorizations after the testing is complete; (vii) a description of how
 the applicant will end the test and protect consumers if the test fails; and
 (viii) how the applicant will employ cybersecurity measures to avoid
 breaches and protect consumer and transaction data. After an
 application is filed, the commissioner may request any additional
 information from the applicant that the commissioner deems necessary
 to assess such application.
   (3) The Department of Economic and Community Development may
 charge any applicant an application fee in an amount determined by the
 commissioner.
    (4) An applicant shall submit a separate application for each
 innovative product or service that the applicant intends to test.
    (5) In reviewing an application under this subsection, the
 commissioner shall: (A) In consultation with each applicable agency,
 determine (i) whether the applicable agency has previously issued a
 license or other authorization to the applicant, (ii) whether the
 applicable agency has previously investigated, sanctioned or pursued
 legal action against the applicant, (iii) whether the applicant could
 obtain a license or other authorization from the applicable agency after
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 exiting the regulatory sandbox, and (iv) whether certain licensure or
 other regulations should not be waived even if the applicant is accepted
 into the regulatory sandbox; (B) obtain approval from each applicable
 agency for the applicant to enter the regulatory sandbox; and (C)
 consider whether a competitor to the applicant is or has been a sandbox
 participant and, if so, favor allowing the applicant to become a sandbox
 participant.
   (6) If the commissioner and each applicable agency approve
 admitting an applicant into the regulatory sandbox, such applicant may
 become a sandbox participant.
   (7) The commissioner may deny any application submitted under this
 subsection for any reason, at the commissioner's discretion.
    (8) Not later than ninety days after a complete application is received
 by the commissioner, the commissioner shall inform the applicant as to
 whether such application is approved, except that the commissioner and
 the applicant may mutually agree to extend the time period for the
 commissioner to determine whether an application is approved. If the
 commissioner denies an application, the commissioner shall provide a
 written description of the reasons for the denial to the applicant.
    (d) (1) If the commissioner approves an application under subsection
 (c) of this section, the sandbox participant may test the innovative
 product or service described in such sandbox participant's application
 for twenty-four-months after the date of such application's approval.
    (2) An innovative product or service that is tested within the
 regulatory sandbox is subject to the following limitations: (A)
 Consumers of such innovative product or service shall be residents of
 the state; (B) the department may, on a case-by-case basis, specify the
 maximum number of consumers that may transact through or enter into
 an agreement to use the innovative product or service; (C) for a sandbox
 participant testing a consumer loan, the department may, on a case-by-
 case basis, specify the maximum amount of an individual loan that may
 be issued to an individual consumer or the maximum amount of
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 aggregate loans that may be issued to an individual consumer; and (D)
 for a sandbox participant testing an innovative product or service that
 would normally require a money transmission license under section
 36a-597 of the general statutes, the department may, on a case-by-case
 basis, specify the maximum amount of a single transaction for an
 individual consumer or the maximum aggregate amount of transactions
 for an individual consumer.
    (3) This subsection shall not be construed to restrict a sandbox
 participant who holds a license or other authorization in another
 jurisdiction from acting in accordance with such license or other
 authorization.
    (4) A sandbox participant shall be deemed to possess an appropriate
 license under the laws of this state for the purposes of any provision of
 federal law requiring state licensure or authorization.
    (5) Except as otherwise provided in this section, a sandbox
 participant that is testing an innovative product or service is not subject
 to state laws that regulate financial products and services.
    (6) (A) The commissioner may apply any provision of the general
 statutes that regulates a financial product or service to a sandbox
 participant if the commissioner determines that: (i) An applicant's plan
 to protect consumers will not adequately protect consumers from the
 harm that such provision addresses; and (ii) the benefits to consumers
 of applying such provision outweigh the potential benefits to
 consumers from increased competition, innovation and consumer
 access that waiving such provision, in conjunction with the applicant's
 ability to compensate consumers who may be harmed, would provide;
 and (B) if the commissioner determines that certain provisions of the
 general statutes that regulate a financial product or service apply to a
 sandbox participant, the commissioner shall notify the sandbox
 participant of such applicable provisions.
   (7) Notwithstanding any other provision of this section, a sandbox
 participant shall not have immunity related to any criminal offense
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 committed during the sandbox participant's participation in the
 regulatory sandbox.
    (8) By written notice, the commissioner may end a sandbox
 participant's participation in the regulatory sandbox at any time and for
 any reason, including if the commissioner determines a sandbox
 participant is not operating in good faith to bring an innovative product
 or service to market.
    (e) (1) Before providing an innovative product or service to a
 consumer, a sandbox participant shall disclose the following to the
 consumer: (A) The name and contact information of the sandbox
 participant; (B) that the innovative product or service is authorized
 pursuant to the provisions of this section and, if applicable, that the
 sandbox participant does not have a license or other authorization to
 provide such product or service under any other provision of the
 general statutes; (C) that the innovative product or service is undergoing
 testing and may not function as intended and may expose the customer
 to financial risk; (D) that the provider of the innovative product or
 service may be civilly liable for any losses or damages caused by the
 innovative product or service; (E) that the state does not endorse or
 recommend the innovative product or service; (F) that the innovative
 product or service is a temporary test that may be discontinued at the
 end of the testing period; (G) the expected end date of the testing period;
 and (H) that a consumer may contact the Department of Economic and
 Community Development to file a complaint regarding the innovative
 product or service being tested and provide the department's telephone
 number and Internet web site address where a complaint may be filed.
    (2) The disclosures required pursuant to subdivision (1) of this
 subsection shall be provided to a consumer in a clear and conspicuous
 form and, for an Internet or application-based innovative product or
 service, a consumer shall acknowledge receipt of the disclosure before a
 transaction may be completed.
   (3) The department may require that a sandbox participant make
 additional disclosures to a consumer.
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    (f) (1) At least thirty days before the end of the twenty-four-month
 regulatory sandbox testing period, a sandbox participant shall: (A)
 Notify the department that the sandbox participant will exit the
 regulatory sandbox discontinue the test and will cease offering any
 innovative product or service in the regulatory sandbox within sixty
 days after the day on which the twenty-four-month testing period ends;
 or (B) seek an extension in accordance with subsection (g) of this section.
    (2) Subject to the provisions of subdivision (3) of this subsection, if
 the department does not receive notification as required by subdivision
 (1) of this subsection, the regulatory sandbox testing period shall end at
 the end of the twenty-four-month testing period and the sandbox
 participant shall immediately cease offering each innovative product or
 service being tested.
    (3) If a test includes offering an innovative product or service that
 requires ongoing duties, such as servicing a loan, the sandbox
 participant shall continue to fulfill those duties or arrange for another
 person to fulfill those duties after the date on which the sandbox
 participant exits the regulatory sandbox.
    (g) (1) A sandbox participant shall retain records, documents and
 data produced in the ordinary course of business regarding an
 innovative product or service tested in the regulatory sandbox.
    (2) If an innovative product or service fails before the end of a testing
 period, the sandbox participant shall notify the Department of
 Economic and Community Development and report on actions taken by
 the sandbox participant to ensure consumers have not been harmed as
 a result of the failure.
    (3) The commissioner may establish periodic reporting requirements
 for a sandbox participant.
    (4) The commissioner may request records, documents and data from
 a sandbox participant and, upon the department's request, a sandbox
 participant shall make such records, documents and data available for
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 inspection by the department.
    (5) If the commissioner determines that a sandbox participant has
 engaged in, is engaging in or is about to engage in any practice or
 transaction that is in violation of this section or that constitutes a
 violation of state or federal criminal law, t