ENTITLED An Act to revise provisions regarding money transmission.
Be it enacted by the Legislature of the State of South Dakota:
Section 1. That chapter 51A-17 be amended with a NEW SECTION:
Terms used in this Act mean:
(1) "Acting in concert," persons knowingly acting together with a common goal of jointly acquiring control of a licensee whether or not pursuant to an express agreement;
(2) "Authorized delegate," a person a licensee designates to engage in money transmission on behalf of the licensee;
(3) "Average daily money transmission liability," the amount of the licensee's outstanding money transmission obligations in this state at the end of each day in a given period of time, added together, and divided by the total number of days in the given period of time. For purposes of calculating average daily money transmission liability under this Act for any licensee required to do so, the given period of time is the quarters ending March thirty-first, June thirtieth, September thirtieth, and December thirty-first;
(4) "Bank Secrecy Act," the Bank Secrecy Act, 31 U.S.C. 5311, et seq. and its implementing regulations (January 1, 2024);
(5) "Closed loop stored value," stored value that is redeemable by the issuer only for goods or services provided by the issuer or its affiliate or franchisees of the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value;
(6) "Control:"
(a) The power to vote, directly or indirectly, at least twenty-five percent of the outstanding voting shares or voting interests of a licensee or person in control of a licensee; the power to elect or appoint a majority of key individuals or executive officers, managers, directors, trustees; other persons exercising managerial authority of a person in control of a licensee; or the power to exercise, directly or indirectly, a controlling influence over the management or policies of a licensee or person in control of a licensee;
(b) A person is presumed to exercise a controlling influence when the person holds the power to vote, directly or indirectly, at least ten percent of the outstanding voting shares or voting interests of a licensee or person in control of a licensee. A person presumed to exercise a controlling influence as defined by this section can rebut the presumption of control if the person is a passive investor;
(c) For purposes of determining the percentage of a person controlled by any other person, the person's interest shall be aggregated with the interest of any other immediate family member, including the person's spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and any other person who shares the person's home;
(7) "Eligible rating," a credit rating of any of the three highest rating categories provided by an eligible rating service, whereby each category may include rating category modifiers, such as "plus" or "minus" for S&P or the equivalent for any other eligible rating service. Long-term credit ratings are deemed eligible if the rating is equal to A- or higher by S&P or the equivalent from any other eligible rating service. Short-term credit ratings are deemed eligible if the rating is equal to or higher than A-2 or SP-2 by S&P or the equivalent from any other eligible rating service. In the event that ratings differ among eligible rating services, the highest rating shall apply when determining whether a security bears an eligible rating;
(8) "Eligible rating service," any nationally recognized statistical rating organization as defined by the U.S. Securities and Exchange Commission, and any other organization designated by the director by rule or order;
(9) "Federally insured depository financial institution," a bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank, or industrial loan company organized under the laws of the United States or any state of the United States, when the bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank, or industrial loan company has federally insured deposits;
(10) "In this state," at a physical location within this state for a transaction requested in person. For a transaction requested electronically or by phone, the provider of money transmission may determine if the person requesting the transaction is "in this state" by relying on other information provided by the person regarding the location of the individual's residential address or a business entity's principal place of business or other physical address location and any records associated with the person that the provider of money transmission may have that indicate the location, including but not limited to an address associated with an account;
(11) "Individual," a natural person;
(12) "Key individual," any individual ultimately responsible for establishing or directing policies and procedures of the licensee, such as an executive officer, manager, director, or trustee;
(13) "Licensee," a person licensed under this Act;
(14) "Material litigation," litigation that, according to United States generally accepted accounting principles, is significant to a person's financial health and would be required to be disclosed in the person's annual audited financial statements, report to shareholders, or similar records;
(15) "Money," a medium of exchange that is authorized or adopted by the United States or a foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments. Money does not include any central bank digital currency;
(16) "Monetary value," a medium of exchange, whether or not redeemable in money;
(17) "Money transmission," any of the following:
(a) Selling or issuing payment instruments to a person located in this state;
(b) Selling or issuing stored value to a person located in this state; or
(c) Receiving money for transmission from a person located in this state.
The term includes payroll processing services. The term does not include the provision solely of online or telecommunications services or network access;
(18) "MSB accredited state," a state agency that is accredited by the Conference of State Bank Supervisors and Money Transmitter Regulators Association for money transmission licensing and supervision;
(19) "Multistate licensing process," any agreement entered into by and among state regulators relating to coordinated processing of applications for money transmission licenses, applications for the acquisition of control of a licensee, control determinations, or notice and information requirements for a change of key individuals;
(20) "NMLS," the Nationwide Multistate Licensing System and Registry developed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators and owned and operated by the State Regulatory Registry, LLC, or any successor or affiliated entity, for the licensing and registration of persons in financial services industries;
(21) "Outstanding money transmission obligations," must be established and extinguished in accordance with applicable state law and:
(a) Any payment instrument or stored value issued or sold by the licensee to a person located in the United States or reported as sold by an authorized delegate of the licensee to a person that is located in the United States that has not yet been paid or refunded by or for the licensee, or escheated in accordance with applicable abandoned property laws; or
(b) Any money received for transmission by the licensee or an authorized delegate in the United States from a person located in the United States that has not been received by the payee or refunded to the sender, or escheated in accordance with applicable abandoned property laws;
(c) For purposes of this section, "in the United States" shall include, to the extent applicable, a person in any state, territory, or possession of the United States; the District of Columbia; the Commonwealth of Puerto Rico; or a U.S. military installation that is located in a foreign country;
(22) "Passive investor," a person that:
(a) Does not have the power to elect a majority of key individuals or executive officers, managers, directors, trustees, or other persons exercising managerial authority of a person in control of a licensee;
(b) Is not employed by and does not have any managerial duties of the licensee or person in control of a licensee;
(c) Does not have the power to exercise, directly or indirectly, a controlling influence over the management or policies of a licensee or person in control of a licensee; and
(d) Either attests to (a), (b), and (c) in a form and in a medium prescribed by the director or commits to the passivity characteristics of (a), (b), and (c) in a written document;
(23) "Payment instrument," a written or electronic check, draft, money order, traveler's check, or other written or electronic instrument for the transmission or payment of money or monetary value, whether or not negotiable. The term does not include stored value or any instrument that is redeemable by the issuer only for goods or services provided by the issuer or its affiliate or franchisees of the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value, or is not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program;
(24) "Payroll processing services," receiving money for transmission pursuant to a contract with a person to deliver wages or salaries, make payment of payroll taxes to state and federal agencies, make payments relating to employee benefit plans, or make distributions of other authorized deductions from wages or salaries. The term payroll processing services does not include an employer performing payroll processing services on its own behalf or on behalf of its affiliate or a professional employment organization subject to regulation under other applicable state law;
(25) "Person," any individual, general partnership, limited partnership, limited liability company, corporation, trust, association, joint stock corporation, or other corporate entity identified by the director;
(26) "Receiving money for transmission" or "money received for transmission," receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means;
(27) "Stored value," monetary value representing a claim against the issuer evidenced by an electronic or digital record and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services. The term includes, but is not limited to, "prepaid access" as defined by 31 C.F.R. 1010.100 (January 1, 2024). Notwithstanding the foregoing, the term "stored value" does not include a payment instrument, closed loop stored value, or stored value not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program; and
(28) "Tangible net worth," the aggregate assets of a licensee excluding all intangible assets, less liabilities, as determined in accordance with United States generally accepted accounting principles.
Section 2. That chapter 51A-17 be amended with a NEW SECTION:
This Act does not apply to:
(1) An operator of a payment system to the extent that it provides processing, clearing, or settlement services, between or among persons exempted by this section or licensees, in connection with wire transfers, credit card transactions, debit card transactions, stored-value transactions, automated clearing house transfers, or similar funds transfers;
(2) 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 the money transmission itself, provided to the payor by the payee, provided that:
(a) There exists a written agreement between the payee and the agent directing the agent to collect and process payments from payors on the payee's behalf;
(b) The payee holds the agent out to the public as accepting payments for goods or services on the payee's behalf; and
(c) 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;
(3) 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, provided that the entity:
(a) Is properly licensed or exempt from licensing requirements under this Act;
(b) 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
(c) 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;
(4) The United States, a department, agency, or instrumentality thereof, or its agent;
(5) Money transmission by the United States Postal Service or by an agent of the United States Postal Service;
(6) A state, county, city, or any other governmental agency or governmental subdivision or instrumentality of a state, or its agent;
(7) A federally insured depository financial institution, bank holding company, office of an international banking corporation, foreign bank that establishes a federal branch pursuant to the International Bank Act, 12 U.S.C. 3102 (January 1, 2024), corporation organized pursuant to the Bank Service Corporation Act, 12 U.S.C. 1861-1867 (January 1, 2024), or corporation organized under the Edge Act, 12 U.S.C. 611-633 (January 1, 2024);
(8) Electronic funds transfer of governmental benefits for a federal, state, county, or governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality thereof, or on behalf of a state or governmental subdivision, agency, or instrumentality thereof;
(9) A board of trade designated as a contract market under the federal Commodity Exchange Act, 7 U.S.C. 1-25 (January 1, 2024), or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as or for the board;
(10) A registered futures commission merchant under the federal commodities laws to th