Bill Text: CT HB05496 | 2018 | General Assembly | Introduced
Bill Title: An Act Concerning The Uniform Regulation Of Virtual-currency Businesses.
Spectrum: Committee Bill
Status: (Introduced - Dead) 2018-03-13 - Public Hearing 03/15 [HB05496 Detail]
Download: Connecticut-2018-HB05496-Introduced.html
General Assembly |
Raised Bill No. 5496 | ||
February Session, 2018 |
LCO No. 2228 | ||
*02228_______BA_* | |||
Referred to Committee on BANKING |
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Introduced by: |
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(BA) |
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AN ACT CONCERNING THE UNIFORM REGULATION OF VIRTUAL-CURRENCY BUSINESSES.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. (NEW) (Effective October 1, 2018) Sections 1 to 35, inclusive, of this act may be cited as the "Uniform Regulation of Virtual-Currency Business Act".
Sec. 2. (NEW) (Effective October 1, 2018) As used in sections 1 to 35, inclusive, of this act:
(1) "Applicant" means a person that applies for a license under section 6 or 7 of this act.
(2) "Bank" means a federally-chartered or state-chartered depository institution or holder of a charter granted by the Office of the Comptroller of the Currency to a person engaged in the business of banking other than deposit-taking. The term does not include: (A) An industrial loan company, a state-chartered trust company or a limited purpose trust company, unless the commissioner has authorized the company to engage in virtual-currency business activity; or (B) a trust company or limited-purpose trust company chartered by a state with which this state does not have a reciprocity agreement governing trust-company activities.
(3) "Control" means: (A) When used in reference to a transaction or relationship involving virtual currency, power to execute unilaterally or prevent indefinitely a virtual-currency transaction; and (B) when used in reference to a person, the direct or indirect power to direct the management, operations or policies of the person through legal or beneficial ownership of voting power in the person or under a contract, arrangement or understanding.
(4) "Commissioner" means the Banking Commissioner or any person appointed or designated by the Banking Commissioner to administer sections 1 to 35, inclusive, of this act.
(5) "Exchange" means to assume control of virtual currency from or on behalf of a resident, at least momentarily, to sell, trade or convert (A) virtual currency for legal tender, bank credit or one or more forms of virtual currency, or (B) legal tender or bank credit for one or more forms of virtual currency.
(6) "Executive officer" means an individual who is a director, officer, manager, managing member, partner or trustee of a person that is not an individual.
(7) "Insolvent" means (A) having generally ceased to pay debts in the ordinary course of business other than as a result of a bona fide dispute, (B) being unable to pay debts as they become due, or (C) being insolvent within the meaning of federal bankruptcy law.
(8) "Legal tender" means a medium of exchange or unit of value, including the coin or paper money of the United States, issued by the United States or by another government.
(9) "Licensee" means a person licensed under sections 5 to 13, inclusive, of this act.
(10) "Person" means an individual, partnership, estate, business or nonprofit entity, public corporation, government or governmental subdivision, agency or instrumentality or other legal entity.
(11) "Reciprocity agreement" means an arrangement between the commissioner and the appropriate licensing agency of another state that permits a licensee operating under a license granted by the other state to engage in virtual-currency business activity with or on behalf of a resident.
(12) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(13) "Registrant" means a person that has registered with this state under section 11 of this act to conduct virtual-currency business activity.
(14) "Registration" means the ability to conduct virtual-currency business activity under section 11 of this act.
(15) "System" has the same meaning as provided in section 36a-2 of the general statutes.
(16) "Resident" means (A) a person that (i) is domiciled in this state; (ii) is physically located in this state for more than one hundred eighty-three days of the previous three hundred sixty-five days; or (iii) has a place of business in this state; and (B) includes a legal representative of a person that satisfies subparagraph (A) of this subdivision.
(17) "Responsible individual" means an individual who has managerial authority with respect to a licensee's or registrant's virtual-currency business activity with or on behalf of a resident.
(18) "Sign" means, with present intent to authenticate or adopt a record: (A) To execute or adopt a tangible symbol; or (B) to attach to or logically associate with the record an electronic symbol, sound or process.
(19) "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
(20) "Store", except in the phrase "store of value", means to maintain control of virtual currency on behalf of a resident by a person other than the resident. "Storage" and "storing" have corresponding meanings.
(21) "Transfer" means to assume control of virtual currency from or on behalf of a resident and to: (A) Credit the virtual currency to the account of another person; (B) move the virtual currency from one account of a resident to another account of the same resident; or (C) relinquish control of virtual currency to another person.
(22) "United States dollar equivalent of virtual currency" means the equivalent value of a particular virtual currency in United States dollars shown on a virtual-currency exchange based in the United States for a particular date or period specified in sections 1 to 35, inclusive, of this act.
(23) "Virtual currency" means (A) a digital representation of value that (i) is used as a medium of exchange, unit of account or store of value; and (ii) is not legal tender, whether or not denominated in legal tender; and (B) does not include (i) a transaction in which a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for legal tender, bank credit or virtual currency; or (ii) a digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform or family of games sold by the same publisher or offered on the same game platform.
(24) "Virtual-currency administration" means issuing virtual currency with the authority to redeem the currency for legal tender, bank credit or other virtual currency.
(25) "Virtual-currency business activity" means: (A) Exchanging, transferring or storing virtual currency or engaging in virtual-currency administration, whether directly or through an agreement with a virtual-currency control-services vendor; (B) holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals; or (C) exchanging one or more digital representations of value used within one or more online games, game platforms or family of games for (i) virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received; or (ii) legal tender or bank credit outside the online game, game platform or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.
(26) "Virtual-currency control-services vendor" means a person that has control of virtual currency solely under an agreement with a person that, on behalf of another person, assumes control of virtual currency.
Sec. 3. (NEW) (Effective October 1, 2018) (a) Except as otherwise provided in subsection (b) or (c) of this section, the virtual-currency business activity of a person, wherever located, that engages in or holds itself out as engaging in such activity with or on behalf of a resident shall be subject to the provisions of sections 1 to 35, inclusive, of this act.
(b) The provisions of sections 1 to 35, inclusive, of this act shall not apply to the exchange, transfer or storage of virtual currency or to virtual-currency administration to the extent such activity is governed by Sections 1693 to 1693r, inclusive, of the Electronic Fund Transfer Act of 1978, as amended from time to time, Sections 78a to 78oo, inclusive, of the Securities Exchange Act of 1934, as amended from time to time, Sections 1 to 27f, inclusive, of the Commodities Exchange Act or sections 36b-2 to 36b-34, inclusive, of the general statutes. The provisions of sections 1 to 35, inclusive, of this act shall not apply to activity by:
(1) The United States, a state, a political subdivision of a state, an agency or instrumentality of federal, state or local government or a foreign government or subdivision, commissioner, agency or instrumentality of a foreign government;
(2) A bank;
(3) A person engaged in money transmission that (A) is licensed pursuant to sections 36a-595 to 36a-612, inclusive, of the general statutes; (B) is authorized by the commissioner to engage in virtual-currency business activity; and (C) complies with sections 5 to 20, inclusive, of this act and sections 28 to 34, inclusive, of this act;
(4) A person whose participation in a payment system is limited to providing processing, clearing or performing settlement services solely for transactions between or among persons that are exempt from the licensing or registration requirements of sections 1 to 35, inclusive, of this act;
(5) A person engaged in the business of dealing in foreign exchange to the extent the person's activity meets the criteria set forth in 31 CFR 1010.605(f)(1)(iv), as amended from time to time;
(6) A person that (A) contributes only connectivity software or computing power to a decentralized virtual currency or to a protocol governing transfer of the digital representation of value; (B) provides only data storage or security services for a business engaged in virtual-currency business activity and does not otherwise engage in virtual-currency business activity on behalf of another person; or (C) provides, to a person otherwise exempt from the provisions of sections 1 to 35, inclusive, of this act, virtual currency as one or more enterprise solutions used solely among each other and has no agreement or relationship with a resident that is an end user of virtual currency;
(7) A person using virtual currency, including creating, investing, buying or selling or obtaining virtual currency as payment for the purchase or sale of goods or services, solely (A) on such person's own behalf; (B) for personal, family or household purposes; or (C) for academic purposes;
(8) A person whose virtual-currency business activity with or on behalf of residents is reasonably expected to be valued, in the aggregate, on an annual basis at five thousand dollars or less, measured by the United States dollar equivalent of virtual currency;
(9) An attorney to the extent of providing escrow services to a resident;
(10) A title insurance company to the extent of providing escrow services to a resident;
(11) A securities intermediary, as defined in section 42a-8-102 of the general statutes, or a commodity intermediary, as defined in section 42a-9-102 of the general statutes, that (A) does not engage in the ordinary course of business in virtual-currency business activity with or on behalf of a resident while maintaining securities accounts or commodities accounts and is regulated as a securities intermediary or commodity intermediary under federal law, any law of this state other than the provisions of sections 1 to 35, inclusive, of this act or any law of another state; and (B) affords a resident protections comparable to those set forth in section 29 of this act;
(12) A secured creditor under sections 42a-9-101 to 42a-9-809, inclusive, of the general statutes or a creditor with a judicial lien or lien arising by operation of law on collateral that is virtual currency, if the virtual-currency business activity of the creditor is limited to enforcement of the security interest in compliance with sections 42a-9-101 to 42a-9-809, inclusive, of the general statutes or lien in compliance with any law applicable to the lien;
(13) A virtual-currency control-services vendor; or
(14) A person that (A) does not receive compensation from a resident for (i) providing virtual-currency products or services; or (ii) conducting virtual-currency business activity; or (B) is engaged in testing products or services with such person's own funds.
(c) The commissioner may consider facts particular to a person or class of persons and determine that such person or class of persons is exempt from the provisions of sections 1 to 35, inclusive, of this act whether such person or class is covered by any requirements imposed on a money-service business under federal law.
Sec. 4. (NEW) (Effective October 1, 2018) Unless displaced by the particular provisions of sections 1 to 35, inclusive, of this act, the principles of law and equity supplement its provisions.
Sec. 5. (NEW) (Effective October 1, 2018) No person may engage in virtual-currency business activity, or hold itself out as being able to engage in virtual-currency business activity, with or on behalf of a resident unless such person is (1) licensed by the commissioner pursuant to section 6 of this act; (2) licensed to conduct virtual-currency business activity by a state with which this state has a reciprocity agreement and has qualified under section 7 of this act; (3) registered with the commissioner and operating in compliance with section 11 of this act; or (4) exempt from licensure or registration under subsection (b) or (c) of section 3 of this act.
Sec. 6. (NEW) (Effective October 1, 2018) (a) Except as otherwise provided in section 7 of this act, an application for a license to conduct virtual-currency business activity in this state:
(1) Shall be made in a form and medium prescribed by the commissioner or the system;
(2) Except as otherwise provided in subsection (b) of this section, shall provide the following information relevant to the applicant's proposed virtual-currency business activity:
(A) The legal name of the applicant, each current or proposed business address of the applicant and any fictitious or trade name the applicant uses or plans to use in conducting its virtual-currency business activity with or on behalf of a resident;
(B) The legal name, any former or fictitious name and the residential and business addresses of each executive officer and responsible individual of the applicant, and each person that has control of the applicant;
(C) A description of the current and former business of the applicant for the five-year period before the application is submitted or if the business has operated for less than five years, for the time the business has operated, including its products and services, associated Internet web site addresses and social media pages, principal place of business, projected user base and specific marketing targets;
(D) The name, address and telephone number of a person that manages each server the applicant expects to use in conducting its virtual-currency business activity with or on behalf of a resident and a copy of any agreement with that person;
(E) A list of (i) each money-service or money-transmitter license the applicant holds in another state; (ii) the date the license expires; and (iii) any license revocation, license suspension, license denial or other disciplinary action taken against the licensee in another state;
(F) A list of any criminal conviction, deferred prosecution agreement or pending criminal proceeding in any jurisdiction against (i) the applicant; (ii) each executive officer of the applicant; (iii) each responsible individual of the applicant; (iv) each person that has control over the applicant; and (v) each person over which the applicant has control;
(G) A list of any litigation, arbitration or administrative proceeding in any jurisdiction in which the applicant, or an executive officer or a responsible individual of the applicant has been a party for the five-year period before the application is submitted, provided such proceeding is determined to be material in accordance with generally accepted accounting principles and, to the extent the applicant would be required to disclose such proceeding in the applicant's audited financial statements, reports to equity owners and similar statements or reports;
(H) A list of any bankruptcy or receivership proceeding in any jurisdiction for the ten-year period before the application is submitted in which any of the following was a debtor: (i) The applicant; (ii) any executive officer of the applicant; (iii) any responsible individual of the applicant; (iv) any person that has control over the applicant; and (v) any person over which the applicant has control;
(I) The name and address of each bank in which the applicant plans to deposit funds obtained by the applicant's virtual-currency business activity;
(J) The source of funds and credit to be used by the applicant to conduct virtual-currency business activity with or on behalf of a resident and documentation demonstrating that the applicant has the net worth and reserves required by section 8 of this act;
(K) The name, address and electronic mail address to which communications from the commissioner may be sent;
(L) The name, address and electronic mail address of the registered agent of the applicant in this state;
(M) A copy of the certificate, or a detailed summary acceptable to the commissioner, of coverage for each liability, casualty, business-interruption or cyber-security insurance policy maintained by the applicant for itself, an executive officer, a responsible individual or the applicant's users;
(N) If applicable, (i) the date on which the applicant is formed, (ii) the state where the applicant is formed, and (iii) a copy of a current certificate of good standing issued by the state where the applicant is formed;
(O) If a person has control of the applicant and the person's equity interests are publicly traded in the United States, a copy of the audited financial statement of the person for the most recent fiscal year or most recent report of the person filed under Section 13 of the Securities Exchange Act of 1934, as amended from time to time;
(P) If a person has control of the applicant and the person's equity interests are publicly traded outside the United States, a copy of the audited financial statement of the person for the most recent fiscal year or a copy of the most recent documentation similar to that required in subparagraph (O) of this subdivision filed with the foreign regulator in the domicile of the person;
(Q) If the applicant is a partnership or a member-managed limited-liability company, the names and addresses of general partners or members;
(R) If the applicant is required to register as a money-service business with the Financial Crimes Enforcement Network of the United States Department of the Treasury, evidence of such registration;
(S) A set of fingerprints for each executive officer and responsible individual of the applicant;
(T) If available, for each executive officer and responsible individual of the applicant, for the five-year period before the application is submitted: (i) Employment history; and (ii) history of any investigation of the individual or legal proceeding to which the individual was a party;
(U) The plans through which the applicant will meet its obligations under sections 30 and 31 of this act; and
(V) Other information the commissioner reasonably requires; and
(3) Shall be accompanied by a nonrefundable fee in the amount specified by the commissioner.
(b) For good cause, the commissioner may waive any requirement of subsection (a) of this section or permit the applicant to submit other information in lieu of the information required in subsection (a) of this section.
(c) An application for a license under this section is not complete until the commissioner receives all information required by the commissioner and completes an investigation under subsection (d) of this section.
(d) Upon receipt of a completed application: (1) The commissioner shall investigate (A) the financial condition and responsibility of the applicant; (B) the relevant financial and business experience, character and general fitness of the applicant; and (C) the competence, experience, character and general fitness of each executive officer, each responsible individual and any person that has control of the applicant; and (2) the commissioner may conduct an investigation of the business premises of the applicant.
(e) Not later than thirty days after an application is complete, the commissioner shall send the applicant notice of its decision to approve, conditionally approve or deny the application. If the commissioner does not send such notice within thirty-one days of completion of the application, the application is deemed denied. If the commissioner does not receive notice from the applicant that the applicant accepts the conditions specified by the commissioner within thirty-one days of the commissioner's notice of the conditions, the application is deemed denied.
(f) A license takes effect on the later of (1) the date on which the commissioner issues the license; or (2) the date the licensee provides the security required by section 8 of this act.
(g) An applicant shall pay the reasonable costs of the commissioner's investigation under this section.
Sec. 7. (NEW) (Effective October 1, 2018) (a) In lieu of submitting an application under section 6 of this act, a person licensed by another state to conduct virtual-currency business activity may file with the system an application for a license to conduct virtual-currency business activity in this state under this section.
(b) Upon filing an application under this section with the system, the applicant shall notify the commissioner of such filing in a record and submit to the commissioner: (1) A certification of license history from the agency responsible for issuing a license in each state in which the applicant has been licensed to conduct virtual-currency business activity; (2) a nonrefundable reciprocal licensing application fee in the amount specified by the commissioner; (3) documentation demonstrating that the applicant complies with the security and net worth reserve requirements of section 8 of this act; and (4) a certification signed by an executive officer of the applicant affirming that the applicant will conduct its virtual-currency business activity with or on behalf of a resident in compliance with sections 1 to 35, inclusive, of this act.
(c) The commissioner may issue to the applicant a license to conduct virtual-currency business activity in this state if such applicant complies with this section.
Sec. 8. (NEW) (Effective October 1, 2018) (a) Before a license may be issued under section 6 or 7 of this act:
(1) An applicant shall deposit with the commissioner funds or investment property, a letter of credit, a surety bond or other security satisfactory to the commissioner that (A) secures the faithful performance of the applicant's duties under sections 1 to 35, inclusive, of this act; and (B) is in an amount the commissioner specifies based on the nature and extent of risks in the applicant's virtual-currency business model;
(2) The commissioner may waive the surety bond requirement in subdivision (1) of this subsection, unless a surety bond is generally available in the state at a commercially reasonable cost;
(3) Security deposited under this section shall be payable to this state for the benefit of a claim against the licensee for the licensee's virtual-currency business activity with or on behalf of a resident;
(4) Security deposited under this section shall cover claims for the period the commissioner specifies and for an additional period the commissioner specifies after the licensee ceases to engage in virtual-currency business activity with or on behalf of a resident;
(5) For good cause, the commissioner may require the licensee to increase the amount of security deposited under this section, and the licensee shall deposit the additional security not later than fifteen days after the licensee receives notice in a record of the required increase;
(6) For good cause, the commissioner may permit a licensee to substitute or deposit an alternate form of security satisfactory to the commissioner if the licensee at all times complies with this section;
(7) A claimant does not have a direct right to recover against security deposited under this section; and
(8) Only the commissioner may recover against the security, and the commissioner may retain the recovery for not longer than five years from the date of such recovery, and may process claims and distribute any recoveries to claimants in accordance with rules adopted by the commissioner under sections 36a-595 to 36a-612, inclusive, of the general statutes.
(b) In addition to the security required under subsection (a) of this section, a licensee or registrant shall, at the time of the application for a license under the provisions of section 6 or 7 of this act, or filing of registration, maintain and submit evidence to the commissioner of (1) a minimum net worth of twenty-five thousand dollars; and (2) sufficient unencumbered reserves for winding down the licensee's or registrant's operations as agreed to by the commissioner considering the nature and size of expected virtual-currency business activity with or on behalf of residents.
(c) A licensee or registrant may include in its calculation of net worth virtual currency, measured by the average value of the virtual currency in United States dollar equivalent over the prior six months, except virtual currency over which such licensee or registrant has control for a resident entitled to the protections under section 29 of this act.
(d) For good cause, the commissioner may require a licensee or registrant to increase the net worth or reserves required under this section. Not later than fifteen days after the licensee or registrant receives notice from the commissioner of any such required increase, the licensee or registrant shall submit evidence to the commissioner of the additional net worth or reserves.
Sec. 9. (NEW) (Effective October 1, 2018) (a) The commissioner shall issue a license to an applicant if the applicant complies with sections 5 to 13, inclusive, of this act, and pays the costs of the investigation under subsection (g) of section 6 of this act and the initial licensing fee under subsection (a) of section 6 of this act.
(b) An applicant aggrieved by the denial of an application under section 6 or 7 of this act may appeal the denial as provided in chapter 54 of the general statutes.
Sec. 10. (NEW) (Effective October 1, 2018) (a) A licensee may apply for renewal of a license issued in accordance with sections 5 to 13, inclusive, of this act not later than fifteen days before the anniversary date of issuance of such license by (1) paying a renewal fee in an amount specified by the commissioner; and (2) submitting to the commissioner a renewal report under subsection (b) of this section.
(b) A renewal report required by subdivision (2) of subsection (a) of this section shall be submitted in a form and medium prescribed by the commissioner. The report shall contain:
(1) A copy of the licensee's most recent (A) reviewed annual financial statement if the licensee's virtual-currency business activity in this state amounted to one hundred fifty thousand dollars or less for the fiscal year ending before the anniversary date of issuance of the license; or (B) audited annual financial statement if the licensee's virtual-currency business activity in this state amounted to more than one hundred fifty thousand dollars for the fiscal year ending before the anniversary date of issuance of the license;
(2) If a person other than an individual has control of the licensee, a copy of the person's most recent (A) reviewed annual financial statement if the person's gross revenue was one hundred fifty thousand dollars or less in the previous fiscal year, measured as of the anniversary date of issuance of the license; or (B) audited consolidated annual financial statement if the person's gross revenue was more than one hundred fifty thousand dollars in the previous fiscal year, measured as of the anniversary date of issuance of the license;
(3) A description of any (A) material change in the financial condition of the licensee; (B) material litigation involving the licensee or an executive officer, or responsible individual of the licensee; (C) license suspension or revocation proceeding, or any other action taken, involving a license to conduct virtual-currency business activity issued by another state on which reciprocal licensing is based; (D) federal or state investigation involving the licensee; and (E) data security breach involving the licensee;
(4) Information or records required by section 18 of this act that the licensee has not reported to the commissioner;
(5) The number of virtual-currency business activity transactions with or on behalf of residents for the period since the later of the date the license was issued or the date the last renewal report was submitted;
(6) (A) The amount of United States dollar equivalent of virtual currency in the control of the licensee at the end of the last month that ends not later than thirty days before the date of the renewal report; and (B) the total number of residents for whom the licensee had control of United States dollar equivalent of virtual currency on that date;
(7) Evidence that the licensee continues to satisfy the provisions of section 29 of this act;
(8) Evidence that the licensee continues to satisfy the provisions of section 8 of this act;
(9) A list of each location where the licensee operates its virtual-currency business activity; and
(10) The name, address and telephone number of each person that manages a server used by the licensee in conducting its virtual-currency business activity with or on behalf of a resident.
(c) If a licensee does not timely comply with subsection (a) of this section, the commissioner may use enforcement measures provided under sections 21 to 27, inclusive, of this act. A notice or hearing is not required for the suspension or revocation of a license under this act for failure to pay a renewal fee or file a renewal report.
(d) If the commissioner suspends or revokes a license under this act for noncompliance with subsection (a) of this section, the commissioner may end the suspension or rescind the revocation if not later than twenty days after the license was suspended or revoked, the licensee (1) files a renewal report and pays a renewal fee; and (2) pays any penalty assessed under section 24 of this act.
(e) The commissioner shall promptly notify a licensee of the lifting of a suspension or the rescission of a revocation after the licensee complies with subsection (d) of this section.
(f) Suspension or revocation of a license under this section does not invalidate a transfer or exchange of virtual currency for or on behalf of a resident made during the suspension or revocation and does not insulate the licensee from liability under this act.
(g) For good cause, the commissioner may extend (1) the period of time for license renewal under subsection (a) of this section, (2) any reporting period described in subsection (b) of this section, and (3) the period of time to file a renewal report and pay a renewal fee under subsection (d) of this section.
(h) The commissioner shall review the renewal of a license issued under section 7 of this act to ensure that the state that issued the original license has not suspended, revoked or limited the license.
(i) A licensee that does not comply with this section shall cease operations with or on behalf of a resident on or before the anniversary date of issuance of its license.
(j) A licensee shall pay the reasonable and necessary costs of the commissioner's investigation under this section.
Sec. 11. (NEW) (Effective October 1, 2018) (a) A person whose volume of virtual-currency business activity in United States dollar equivalent of virtual currency does not exceed thirty-five thousand dollars annually may engage in virtual-currency business activity with or on behalf of a resident under a registration without first obtaining a license under sections 5 to 13, inclusive, of this act if such person (1) files with the commissioner a notice in the form and medium prescribed by the commissioner of such person's intention to engage in virtual-currency business activity with or on behalf of a resident; (2) provides the information for an investigation under section 6 of this act; (3) states the anticipated virtual-currency business activity for its next fiscal quarter; (4) pays the commissioner a registration fee in the amount specified by the commissioner; (5) if required to register with the Financial Crimes Enforcement Network of the United States Department of the Treasury as a money-service business, provides the commissioner evidence of such registration; (6) provides evidence that the person has policies and procedures to comply with the Bank Secrecy Act, 31 USC 5311 et seq., as amended from time to time, and other applicable laws; (7) describes the source of funds and credit to be used to conduct virtual-currency business activity with or on behalf of a resident and provides evidence of and agrees to maintain the minimum net worth and reserves required by section 6 of this act and sufficient unencumbered reserves for winding down operations; (8) provides the commissioner with evidence that the person has in place policies and procedures to comply with sections 14 to 20, inclusive, of this act, sections 28 to 31, inclusive, of this act and any other provisions of sections 1 to 35, inclusive, of this act designated by the commissioner; and (9) provides the commissioner with a copy of its most recent financial statement, whether reviewed or audited.
(b) Before the virtual-currency business activity of a registrant with or on behalf of residents exceeds thirty-five thousand dollars annually in United States dollar equivalent of virtual currency, the registrant shall file an application for a license under the provisions of section 6 or 7 of this act and may continue to operate after the activity exceeds thirty-five thousand dollars annually while its application for license is pending.
(c) For good cause, the commissioner may suspend or revoke a registration without a prior hearing or opportunity to be heard.
(d) A registrant shall cease all virtual-currency business activity with or on behalf of residents (1) if the commissioner denies the registrant's application for a license under section 6 or 7 of this act, one day after the registrant receives notice in a record that the commissioner has denied the application; (2) if the commissioner suspends or revokes the registration, one day after the commissioner sends notice of the suspension or revocation to the registrant in a record by a means reasonably selected for the notice to be received by the recipient in one day, to the address provided for receiving communications from the commissioner; (3) if the virtual-currency business activity of the registrant with or on behalf of residents exceeds thirty-five thousand dollars annually in United States dollar equivalent of virtual currency and the registrant has not filed an application for a license under section 6 or 7 of this act; or (4) on the second anniversary date of the registration.
Sec. 12. (NEW) (Effective October 1, 2018) A license or registration under sections 5 to 13, inclusive, of this act is not transferable or assignable.
Sec. 13. (NEW) (Effective October 1, 2018) The commissioner shall adopt such regulations, in accordance with chapter 54 of the general statutes, to implement the provisions of sections 1 to 35, inclusive, of this act.
Sec. 14. (NEW) (Effective October 1, 2018) (a) The commissioner may conduct, without prior notice to a licensee or registrant, (1) an annual examination of the licensee or registrant, and (2) for good cause, an additional examination of the licensee or registrant.
(b) A licensee or registrant shall pay the reasonable and necessary costs of an examination under this section.
(c) The commissioner shall not disclose information obtained during an examination under sections 14 to 20, inclusive, of this act, except as provided in section 17 of this act.
Sec. 15. (NEW) (Effective October 1, 2018) (a) A licensee or registrant shall maintain a record for all virtual-currency business activity with or on behalf of a resident for five years after the date of the activity. Such record shall include:
(1) Each transaction of the licensee or registrant with or on behalf of the resident or for the licensee's or registrant's account in this state, including: (A) The identity of the resident; (B) the form of the transaction; (C) the amount, date and payment instructions given by the resident; and (D) the account number, name and address of the resident, and, to the extent feasible, other parties to the transaction;
(2) The aggregate number of transactions and aggregate value of transactions by the licensee or registrant with or on behalf of the resident and for the licensee's or registrant's account in this state, expressed in United States dollar equivalent of virtual currency for the previous calendar year;
(3) Each transaction in which the licensee or registrant exchanges one form of virtual currency for legal tender or another form of virtual currency with or on behalf of the resident;
(4) A general ledger posted at least monthly that lists all assets, liabilities, capital, income and expenses of the licensee or registrant;
(5) Each business-call report the licensee or registrant is required to create or provide to the commissioner or system;
(6) Bank statements and bank reconciliation records for the licensee or registrant and the name, account number and address of each bank the licensee or registrant uses to conduct virtual-currency business activity with or on behalf of the resident;
(7) A report of any dispute with the resident; and
(8) A report of any virtual-currency business activity transaction with or on behalf of a resident that the licensee or registrant was unable to complete.
(b) A licensee or registrant shall maintain records required by subsection (a) in a form that enables the commissioner to determine whether the licensee or registrant is in compliance with sections 1 to 35, inclusive, of this act and any court order or law of this state.
(c) If a licensee or registrant maintains records outside this state that pertain to transactions with or on behalf of a resident, the licensee or registrant shall make the records available to the commissioner not later than three days after request, or, on a determination of good cause by the commissioner, at a time determined by the commissioner.
(d) All records maintained by a licensee or registrant are subject to inspection by the commissioner.
Sec. 16. (NEW) (Effective October 1, 2018) (a) Subject to section 17 of this act and any law of this state concerning privacy, consumer financial privacy, data protection, privilege and confidentiality, the commissioner may cooperate, coordinate, jointly examine, consult and share records and other information with the appropriate regulatory agency of another state, a self-regulatory organization, federal or state regulator of banking or nondepository providers, or a regulator of a jurisdiction outside the United States, concerning the affairs and conduct of a licensee or registrant in this state.
(b) The commissioner shall: (1) Establish or participate with another state that enacts a law substantially similar to sections 1 to 35, inclusive, of this act a central depository for filings required by law of this state other than the provisions of sections 1 to 35, inclusive, of this act; (2) cooperate in developing and implementing uniform forms for applications and renewal reports and the conduct of joint administrative proceedings and civil actions; (3) formulate joint rules, forms, statements of policy and guidance and interpretative opinions and releases; and (4) develop common systems and procedures.
(c) The commissioner shall not establish or participate in a central commercial depository that contains nonpublic personally identifiable information that does not comply with subdivision (5) or (8) of Section 6802(e) of the Gramm-Leach-Bliley Financial Modernization Act of 1999, 15 USC 6801, as amended from time to time, or with the Right to Financial Privacy Act, 12 USC 3401, as amended from time to time.
(d) In deciding whether and how to cooperate, coordinate, jointly examine, consult or share records and other information under subsection (a) of this section, the commissioner shall consider: (1) Maximizing effectiveness and uniformity of regulation, examination, implementation and enforcement for the benefit of residents and licensees and registrants; and (2) minimizing burdens on licensees and registrants without adversely affecting protection for residents.
Sec. 17. (NEW) (Effective October 1, 2018) (a) Except as otherwise provided in subsection (b) or (c) of this section, information (1) not contained in a report otherwise available to the public, (2) contained in reports obtained by the commissioner from an applicant, licensee or registrant, (3) related to an examination, investigation or operating or condition report prepared by, on behalf of, or for the use of the commissioner, and (4) other financial and operating information, is not subject to disclosure under the Freedom of Information Act, as defined in section 1-200 of the general statutes. If the commissioner determines the information or records are confidential under laws of a reciprocal licensing state, the information or records may not be disclosed.
(b) A trade secret of an applicant, a licensee or a registrant is confidential and not subject to disclosure under the Freedom of Information Act, as defined in section 1-200 of the general statutes. If the commissioner determines a trade secret is confidential under the law of a reciprocal licensing state, the trade secret may not be disclosed.
(c) Subsection (a) of this section does not prohibit disclosure of (1) general information about a licensee's or registrant's virtual-currency business activity with or on behalf of a resident; (2) a list of persons licensed or registered under sections 1 to 35, inclusive, of this act; or (3) aggregated financial data concerning licensees or registrants in this state.
Sec. 18. (NEW) (Effective October 1, 2018) (a) Each licensee and registrant shall file with the commissioner a report of any: (1) Material change in information in the application for a license or registration, or the most recent renewal report of the licensee or for the registrant; (2) material change in the licensee's or registrant's business for the conduct of its virtual-currency business activity with or on behalf of a resident; and (3) change of an executive officer, responsible individual or person in control of the licensee or registrant.
(b) A report required by subsection (a) of this section shall be filed not later than fifteen days after the date of the change.
Sec. 19. (NEW) (Effective October 1, 2018) (a) In this section, "proposed person to be in control" means the person that would control a licensee or registrant after a proposed transaction that would result in a change in control of the licensee or registrant.
(b) The following rules apply in determining whether a person has control over a licensee or registrant:
(1) There is a rebuttable presumption of control if the person's voting power in the licensee or registrant constitutes or will constitute at least twenty-five per cent of the total voting power of the licensee or registrant;
(2) There is a rebuttable presumption of control if: (A) The person's voting power in another person constitutes or will constitute at least ten per cent of the total voting power of the other person; and (B) the other person's voting power in the licensee or registrant constitutes at least twenty-five per cent of the total voting power of the licensee or registrant; and
(3) There is no presumption of control solely because an individual is an executive officer of the licensee or registrant.
(c) Not less than thirty days before a proposed change in control of a licensee or registrant, the proposed person to be in control shall submit to the commissioner in a record: (1) An application in a form and medium prescribed by the commissioner; (2) the information and records required in section 6 of this act if the proposed person to be in control already had control of the licensee; (3) a license application under section 6 of this act by the proposed person to be in control; (4) in the case of a registrant, the information required in section 11 of this act if the proposed person to be in control already had control of the registrant; and (5) in the case of a registration, a registration under section 11 of this act by the proposed person to be in control.
(d) The commissioner, in accordance with section 6 of this act, shall approve, approve with conditions or deny an application for a change in control of a licensee or registrant. The commissioner shall send notice of his or her decision in a record to the licensee or registrant and the person that would be in control if the commissioner had approved the change in control. If the commissioner denies the application, the licensee or registrant shall abandon the proposed change in control or cease virtual-currency business activity with or on behalf of residents.
(e) If the commissioner applies a condition to approval of a change in control of a licensee or registrant and the commissioner does not receive notice of the applicant's acceptance of such condition within thirty-one days after the commissioner sends notice of such condition, the application is deemed denied. If the application is deemed denied, the licensee or registrant shall abandon the proposed change in control or cease virtual-currency business activity with or on behalf of residents.
(f) Submission in good faith of records required by subsection (c) of this section shall relieve the proposed person to be in control from any obligation imposed by this section other than subsections (d), (e) and (h) of this section until the commissioner has acted on the application.
(g) The commissioner may revoke or modify a determination under subsection (d) of this section, after notice and opportunity to be heard, if, in the commissioner's judgment, revocation or modification is consistent with sections 1 to 35, inclusive, of this act.
(h) If a change in control of a licensee or registrant requires approval of an agency of this state or another state with which this state has a reciprocity agreement and the action of the other agency conflicts with that of the commissioner, the commissioner shall confer with the other agency. If the proposed change in control cannot be completed because the conflict cannot be resolved, the licensee or registrant shall abandon the change in control or cease virtual-currency business activity with or on behalf of residents.
Sec. 20. (NEW) (Effective October 1, 2018) (a) At least thirty days before a proposed merger or consolidation of a licensee or registrant with another person, the licensee or registrant shall submit to the commissioner in a record: (1) An application in a form and medium prescribed by the commissioner; (2) the plan of merger or consolidation in accordance with subsection (e) of this section; (3) in the case of a licensee, the information required by section 6 of this act concerning the person that would be the surviving entity in the proposed merger or consolidation; and (4) in the case of a registrant, the information required by section 11 of this act concerning the person that would be the surviving entity in the proposed merger or consolidation.
(b) If a proposed merger or consolidation would change the control of a licensee or registrant, the licensee or registrant shall comply with the provisions of this section and section 19 of this act.
(c) The commissioner, in accordance with section 6 of this act, shall approve, conditionally approve or deny an application for approval of a merger or consolidation of a licensee or registrant. The commissioner shall send notice of its decision in a record to the licensee or registrant and the person that would be the surviving entity. If the commissioner denies the application, the licensee or registrant shall abandon the merger or consolidation or cease virtual-currency business activity with or on behalf of residents.
(d) The commissioner may revoke or modify a determination under subsection (c) of this section after notice and opportunity to be heard, if, in its judgment, revocation or modification is consistent with the provisions of sections 1 to 35, inclusive, of this act.
(e) A plan of merger or consolidation of a licensee or a registrant with another person shall (1) describe the effect of the proposed transaction on the licensee's or registrant's conduct of virtual-currency business activity with or on behalf of residents; (2) identify each person to be merged or consolidated and the person that would be the surviving entity; and (3) describe the terms and conditions of the merger or consolidation and the mode of carrying it into effect.
(f) If a merger or consolidation of a licensee or registrant and another person requires approval of an agency of this state or another state with which this state has a reciprocity agreement pursuant to section 7 of this act and the action of the other agency conflicts with that of the commissioner, the commissioner shall confer with the other agency. If the proposed merger or consolidation cannot be completed because the conflict cannot be resolved, the licensee or registrant shall abandon the merger or consolidation or cease virtual-currency business activity with or on behalf of residents.
(g) The commissioner may conditionally approve an application under subsection (a) of this section. If the parties do not notify the commissioner that the parties accept such condition within thirty-one days of the date the commissioner sent notice of the condition in a record to the parties, the application is deemed denied. If the application is deemed denied, the licensee or registrant shall abandon the merger or consolidation or cease virtual-currency business activity with or on behalf of residents.
(h) If a licensee or registrant acquires substantially all the assets of a person, whether or not the person's license was approved by or registration was filed with the commissioner, the transaction shall be subject to this section.
(i) Submission in good faith of the records required by subsection (e) of this section shall relieve the proposed surviving entity from any obligation imposed by this section, except as provided in subsections (c), (f) and (g) of this section, until the commissioner has acted on the application.
Sec. 21. (NEW) (Effective October 1, 2018) As used in sections 21 to 27, inclusive, of this act, "enforcement measure" means an action to:
(1) Suspend or revoke a license or a registration under sections 1 to 35, inclusive, of this act;
(2) Order a person to cease and desist from doing virtual-currency business activity with or on behalf of a resident;
(3) Request the court to appoint a receiver for the assets of a person doing virtual-currency business activity with or on behalf of a resident;
(4) Request the court to issue temporary, preliminary or permanent injunctive relief against a person doing virtual-currency business activity with or on behalf of a resident;
(5) Assess a penalty under section 24 of this act;
(6) Recover the security under section 8 of this act and initiate a plan to distribute the proceeds for the benefit of a resident injured by a violation of sections 1 to 35, inclusive, of this act or any law of this state that applies to virtual-currency business activity with or on behalf of a resident; or
(7) Impose necessary or appropriate conditions on the conduct of virtual-currency business activity with or on behalf of a resident.
Sec. 22. (NEW) (Effective October 1, 2018) (a) The commissioner may take an enforcement measure against a licensee, registrant or person that is neither a licensee nor registrant but is engaging in virtual-currency business activity with or on behalf of a resident if:
(1) The licensee, registrant or person materially violates sections 1 to 35, inclusive, of this act any rule adopted or order issued under sections 1 to 35, inclusive, of this act or any law of this state that applies to virtual-currency business activity of such licensee, registrant or person with or on behalf of a resident;
(2) The licensee, registrant or person does not cooperate substantially with an examination or investigation by the commissioner, fails to pay a fee or fails to submit a report or documentation;
(3) The licensee, registrant or person, in the conduct of its virtual-currency business activity with or on behalf of a resident, engages in (A) an unsafe or unsound act or practice; (B) an unfair or deceptive act or practice; (C) fraud or intentional misrepresentation; (D) another dishonest act; or (E) misappropriation of legal tender, virtual currency or other value held by a fiduciary;
(4) An agency of the United States or another state takes an action against the licensee, registrant or person, provided such action would constitute an enforcement measure if taken by the commissioner;
(5) The licensee, registrant or person is convicted of a crime related to its virtual-currency business activity with or on behalf of a resident or involving fraud or felonious activity that, in the commissioner's discretion, makes the licensee, registrant or person unsuitable to engage in virtual-currency business activity; or
(6) The licensee, registrant or person (A) becomes insolvent; (B) makes a general assignment for the benefit of its creditors; (C) becomes the debtor, alleged debtor, respondent or person in a similar capacity in a case or other proceeding under any bankruptcy, reorganization, arrangement, readjustment, insolvency, receivership, dissolution, liquidation or similar law, and does not obtain from the court, within a reasonable time, confirmation of a plan or dismissal of the case or proceeding; or (D) applies for or permits the appointment of a receiver, trustee or other agent of a court for itself or for a substantial part of its assets; or
(7) The licensee, registrant or person makes a material misrepresentation to the commissioner.
(b) Upon application and for good cause, the commissioner may (1) extend the due date for filing a document or report under subdivision (2) of subsection (a) of this section; or (2) waive to the extent warranted by circumstances, such as a bona fide error notwithstanding reasonable procedures designed to prevent error, an enforcement measure under subsection (a) of this section if the commissioner determines that the waiver will not adversely affect the likelihood of compliance with sections 1 to 35, inclusive, of this act.
(c) In an enforcement action related to operating without a license or registration in this state under sections 1 to 35, inclusive, of this act, it is a defense to the action that the person has in effect a customer-identification program reasonably designed to identify whether a customer is a resident that failed to identify the particular customer as a resident.
(d) A proceeding under this subsection is subject to the provisions of chapter 54 of the general statutes.
Sec. 23. (NEW) (Effective October 1, 2018) (a) Except as otherwise provided in subsection (b) of this section, the commissioner may take an enforcement measure only after notice and opportunity for a hearing appropriate in the circumstances.
(b) The commissioner may take an enforcement measure other than the imposition of a civil penalty under section 24 of this act (1) without notice if the circumstances require action before notice can be given; (2) after notice and without a prior hearing if the circumstances require action before a hearing can be held; or (3) after notice and without a hearing if the person conducting virtual-currency business activity with or on behalf of a resident does not timely request a hearing.
(c) If the commissioner takes action under subdivision (1) or (2) of subsection (b) of this section, the person subject to the enforcement measure has the right to an expedited post-action hearing by the commissioner unless the person has waived the hearing.
Sec. 24. (NEW) (Effective October 1, 2018) (a) If a person other than a licensee or registrant engages in virtual-currency business activity with or on behalf of a resident in violation of sections 1 to 35, inclusive, of this act, the commissioner may assess a civil penalty against the person in an amount not to exceed fifty thousand dollars for each day such violation occurs.
(b) If a licensee or registrant materially violates a provision of sections 1 to 35, inclusive, of this act, the commissioner may assess a civil penalty in an amount not to exceed ten thousand dollars for each day such violation occurs.
(c) A civil penalty under this section continues to accrue until the earlier of (1) the date the violation ceases; or (2) a date specified by the commissioner.
Sec. 25. (NEW) (Effective October 1, 2018) (a) Revocation of a license issued under sections 5 to 13, inclusive, of this act is effective against a licensee one day after the commissioner sends notice in a record of the revocation to the licensee, by a means reasonably selected for the notice to be received by the recipient in one day, to the address provided for receiving communications from the commissioner.
(b) Suspension of a license issued under sections 5 to 13, inclusive, of this act, suspension of a registration or an order to cease and desist is effective against a licensee, registrant or other person one day after the commissioner sends notice in a record of the suspension or order to the licensee, registrant or other person, by a means reasonably selected for the notice to be received by the recipient in one day, to the address provided for receiving communications from the commissioner or, if no address is provided, to the recipient's last known address. A suspension or order to cease and desist remains in effect until the earliest of (1) entry of an order by the commissioner setting aside or limiting the suspension or order; (2) entry of a court order setting aside or limiting the suspension or order to cease and desist; or (3) a date specified by the commissioner.
(c) If, without reason to know of the commissioner's notice sent under subsection (a) or (b) of this section, a licensee, registrant or other person does not comply in accordance with the notice until the notice is actually received at the address provided, the commissioner may consider the delay in compliance in imposing a sanction for the failure.
Sec. 26. (NEW) (Effective October 1, 2018) The commissioner may enter into a consent order with a person regarding an enforcement measure under sections 1 to 35, inclusive, of this act. The order may provide that it does not constitute an admission of fact by a party.
Sec. 27. (NEW) (Effective October 1, 2018) (a) Except as otherwise provided in this section, nothing in sections 1 to 35, inclusive, of this act shall be construed to create a private cause of action.
(b) The commissioner may bring an action for restitution on behalf of a resident if the commissioner proves economic injury due to a violation of the provisions of sections 1 to 35, inclusive, of this act.
(c) Nothing in this section shall preclude an action by a resident to enforce rights under section 29 of this act or any other law of this state.
Sec. 28. (NEW) (Effective October 1, 2018) (a) A licensee or registrant shall provide to any resident who uses products or services of the licensee or registrant the disclosures required by subsection (b) of this section and any additional disclosure the commissioner determines reasonably necessary for the protection of residents. The commissioner shall determine the time and form required for disclosure. A disclosure required by this section shall be made separately from any other information provided by the licensee or registrant and in a clear and conspicuous manner in a record that may be saved. A licensee or registrant may propose for the commissioner's approval alternate disclosures as more appropriate for its virtual-currency business activity with or on behalf of residents.
(b) Before establishing a relationship with a resident, a licensee or registrant shall disclose, to the extent applicable to the virtual-currency business activity the licensee or registrant will undertake with the resident the following information:
(1) A schedule of fees and charges the licensee or registrant may assess, the manner by which fees and charges will be calculated if they are not set in advance and disclosed, and the timing of the fees and charges;
(2) Whether the product or service provided by the licensee or registrant is covered by (A) a form of insurance or is otherwise guaranteed against loss by an agency of the United States (i) up to the full United States dollar equivalent of virtual currency placed under the control of or purchased from the licensee or registrant as of the date of the placement or purchase, including the maximum amount provided by insurance under the Federal Deposit Insurance Corporation or otherwise available from the Securities Investor Protection Corporation; or (ii) if not provided at the full United States dollar equivalent of virtual currency placed under the control of or purchased from the licensee or registrant, the maximum amount of coverage for each resident expressed in the United States dollar equivalent of the virtual currency; or (B) private insurance against theft or loss by, including, but not limited to, cyber theft;
(3) The irrevocability of a transfer or exchange and any exception to irrevocability;
(4) A description of: (A) Liability for an unauthorized, mistaken or accidental transfer or exchange; (B) the resident's responsibility to provide notice to the licensee or registrant of the transfer or exchange; (C) the basis for any recovery by the resident from the licensee or registrant; (D) general error-resolution rights applicable to the transfer or exchange; and (E) the method for the resident to update the resident's contact information with the licensee or registrant;
(5) That the date or time when the transfer or exchange is made and the resident's account is debited may differ from the date or time when the resident initiates the instruction to make the transfer or exchange;
(6) Whether the resident has a right to stop a preauthorized payment or revoke authorization for a transfer and the procedure to initiate a stop-payment order or revoke authorization for a subsequent transfer;
(7) The resident's right to receive a receipt, trade ticket or other evidence of the transfer or exchange;
(8) The resident's right to at least thirty days' prior notice of a change in the licensee's or registrant's fee schedule, other terms and conditions of operating the licensee or registrant's virtual-currency business activity with the resident and the policies applicable to the resident's account; and
(9) That virtual currency is not legal tender.
(c) Except as otherwise provided in subsection (d) of this section, at the conclusion of a virtual-currency transaction with or on behalf of a resident, a licensee or registrant shall provide the resident a confirmation in a record that contains (1) the name and contact information of the licensee or registrant, including information the resident may need to ask a question or file a complaint; (2) the type, value, date, precise time and amount of the transaction; and (3) the fee charged for the transaction, including any charge for conversion of virtual currency to legal tender, bank credit or other virtual currency.
(d) If a licensee or registrant discloses that it will provide a daily confirmation in the initial disclosure under subsection (c) of this section, the licensee or registrant may elect to provide a single, daily confirmation for all transactions with or on behalf of a resident on that day instead of a per-transaction confirmation.
Sec. 29. (NEW) (Effective October 1, 2018) (a) A licensee or registrant that has control of virtual currency for one or more persons shall maintain in its control an amount of each type of virtual currency sufficient to satisfy the aggregate entitlements of the persons to the type of virtual currency.
(b) If a licensee or registrant violates subsection (a) of this section, the property interests of the persons in the virtual currency are pro rata property interests in the type of virtual currency to which the persons are entitled, without regard to the time the persons became entitled to the virtual currency or the licensee or registrant obtained control of the virtual currency.
(c) The virtual currency described in this section (1) is held for the persons entitled to the virtual currency; (2) is not property of the licensee or registrant; and (3) is not subject to the claims of creditors of the licensee or registrant.
Sec. 30. (NEW) (Effective October 1, 2018) (a) An applicant, before submitting an application, and a registrant, before registering, shall create and maintain in a record policies and procedures during the term of licensure or registration: (1) An information-security and operational-security program; (2) a business-continuity program; (3) a disaster-recovery program; (4) an anti-fraud program; (5) an anti-money-laundering program; (6) a program to prevent funding of terrorist activity; and (7) a program designed to (A) ensure compliance with the provisions of sections 1 to 35, inclusive, of this act and any other state or federal law relevant to the virtual-currency business activity contemplated by the licensee or registrant with or on behalf of residents; and (B) assist the licensee or registrant in achieving the purposes of state or federal law if a violation of such law has a remedy under sections 1 to 35, inclusive, of this act.
(b) Each policy required by subsection (a) of this section shall be in a record and designed to be adequate for a licensee's or registrant's contemplated virtual-currency business activity with or on behalf of residents, considering the circumstances of all participants and the safe operation of the activity. Each policy and implementing procedure shall be compatible with other policies and the procedures implementing them and not conflict with policies or procedures applicable to the licensee or registrant under law of this state other than sections 1 to 35, inclusive, of this act. A policy and implementing procedure may be one in existence in the licensee's or registrant's virtual-currency business activity with or on behalf of residents.
(c) A licensee's or registrant's policy for detecting fraud shall include: (1) Identification and assessment of the material risks of its virtual-currency business activity related to fraud; (2) protection against any material risk related to fraud identified by the commissioner or the licensee or registrant; and (3) periodic evaluation and revision of the anti-fraud procedure.
(d) A licensee's or registrant's policy for preventing money laundering and financing of terrorist activity shall include: (1) Identification and assessment of the material risks of its virtual-currency business activity related to money laundering and financing of terrorist activity; (2) procedures, in accordance with federal law or guidance published by federal agencies responsible for enforcing federal law, pertaining to money laundering and financing of terrorist activity; and (3) filing reports under the Bank Secrecy Act, 31 USC 5311 et seq., as amended from time to time, or 31 CFR Part X, as amended from time to time, and other federal or state laws pertaining to the prevention or detection of money laundering or financing of terrorist activity.
(e) A licensee's or registrant's information-security and operational-security policy shall include reasonable and appropriate administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of any nonpublic personal information or virtual currency it receives, maintains or transmits.
(f) A licensee or registrant is not required to file with the commissioner a copy of a report it makes to a federal authority unless the commissioner specifically requires such filing.
(g) A licensee's or registrant's protection policy under subsection (e) of this section for residents shall include (1) any action or system of records required to comply with sections 1 to 35, inclusive, of this act and any other law of this state applicable to the licensee or registrant with respect to virtual-currency business activity with or on behalf of a resident; (2) a procedure for resolving disputes between the licensee or registrant and a resident; (3) a procedure for a resident to report an unauthorized, mistaken or accidental virtual-currency business activity transaction; and (4) a procedure for a resident to file a complaint with the licensee or registrant and for the resolution of the complaint in a fair and timely manner with notice to the resident as soon as reasonably practical of the resolution and the reasons for the resolution.
(h) After the policies and procedures required under this section are created and approved by the commissioner and the licensee or registrant, the licensee or registrant shall engage a responsible individual with adequate authority and experience to monitor each policy and procedure, publicize each such policy or procedure as appropriate, recommend changes as desirable and enforce each policy or procedure.
(i) A licensee or registrant may (1) request advice from the commissioner as to compliance with this section; and (2) with the commissioner's approval, outsource functions other than compliance required under this section.
(j) Failure of a particular policy or procedure adopted under this section to meet its goals in a particular instance is not a ground for liability of the licensee or registrant if the policy or procedure was created, implemented and monitored properly. Repeated failures of a policy or procedure are evidence that the policy or procedure was not created or implemented properly.
(k) Policies and procedures adopted under this section shall be disclosed separately from other disclosures made available to a resident, in a clear and conspicuous manner and in the medium through which the resident contacted the licensee or registrant.
Sec. 31. (NEW) (Effective October 1, 2018) (a) An applicant, before submitting an application, and a registrant, before registering, shall establish and maintain in a record a policy or procedure designed to ensure compliance with (1) sections 1 to 35, inclusive, of this act; and (2) any other law of this state if (A) such other law is relevant to the virtual-currency business activity contemplated by the licensee or registrant or the scope of sections 1 to 35, inclusive of this act, or (B) the provisions of sections 1 to 35, inclusive, of this act could assist in the purpose of any such other law because violation of such other law has a remedy under sections 1 to 35, inclusive, of this act.
(b) A policy or procedure under subsection (a) of this section (1) shall be compatible, and not conflict, with requirements applicable to a licensee or registrant under law of this state and federal law; and (2) may be a policy or procedure in existence for the licensee's or registrant's virtual-currency business activity with or on behalf of a resident.
(c) After the policies and procedures required under this section are created by the licensee or registrant and approved by the commissioner, the licensee or registrant shall engage a responsible individual with adequate authority and experience to monitor each policy or procedure, publicize each policy or procedure as appropriate, recommend changes as desirable, and enforce each policy or procedure.
(d) A licensee or registrant may (1) request advice from the commissioner as to compliance with this section; and (2) with the commissioner's approval, outsource functions other than compliance required under this section.
(e) Failure of a particular policy or procedure adopted under this section to meet a licensee or registrant's goals in a particular instance is not a ground for liability of the licensee or registrant if the policy or procedure was created, implemented and monitored properly. Repeated failures of a policy or procedure are evidence that the policy or procedure was not created or implemented properly.
Sec. 32. (NEW) (Effective October 1, 2018) In applying and construing sections 1 to 35, inclusive, of this act consideration shall be given to the need to promote uniformity of the law with respect to such subject matter among the states that enact it.
Sec. 33. (NEW) (Effective October 1, 2018) The provisions of sections 1 to 35, inclusive, of this act modify, limit and supersede the Electronic Signatures in Global and National Commerce Act, 15 USC 7001, et seq., as amended from time to time, but do not modify, limit or supersede Section 101(c) of said act, 15 USC 7001(c), as amended from time to time, or authorize electronic delivery of any of the notices described in Section 103(b) of said act, 15 USC 7003(b), as amended from time to time.
Sec. 34. (NEW) (Effective October 1, 2018) (a) A license issued under sections 36a-595 to 36a-612, inclusive, of the general statutes on or before September 30, 2018, shall remain in effect as a license for its duration unless revoked or suspended by the licensing authority that issued the license. A person licensed under sections 36a-595 to 36a-612, inclusive, of the general statutes that does not intend to engage in virtual-currency business activity is not required to inform the commissioner of its intention.
(b) If the commissioner denies, suspends or revokes a license under sections 5 to 13, inclusive, of this act or suspends or revokes a registration to conduct virtual-currency business activity with or on behalf of a resident, the denial, suspension or revocation may not be used as a ground for suspension or revocation of a license granted under sections 36a-595 to 36a-612, inclusive, of the general statutes, unless sections 36a-595 to 36a-612, inclusive, of the general statutes independently provide a basis for action against the licensee or registrant.
(c) The provisions of sections 1 to 35, inclusive, of this act apply to virtual-currency business activity with or on behalf of a resident on or after October 1, 2018.
(d) A person is deemed to be conducting unlicensed virtual-currency business activity with or on behalf of a resident in violation of sections 1 to 35, inclusive, of this act, if the person engages in virtual-currency business activity on or after October 1, 2018, and the person does not hold a license issued or recognized under the provisions of sections 1 to 35, inclusive, of this act is not exempt from licensure under sections 1 to 35, inclusive, of this act and has not applied for a license or filed a registration. This subsection includes a person that: (1) Has obtained a license under sections 36a-595 to 36a-612, inclusive, of the general statutes whether or not the provisions of sections 36a-595 to 36a-612, inclusive, of the general statutes cover virtual-currency business activity or such person holds a charter as a trust company from this state; and (2) does not have permission to engage in virtual-currency business activity with or on behalf of a resident.
Sec. 35. (NEW) (Effective October 1, 2018) If any provision of sections 1 to 35, inclusive, of this act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or application of the provisions of sections 1 to 35, inclusive, of this act, which can be given effect without the invalid provision or application, and to this end the provisions of sections 1 to 35, inclusive, of this act are severable.
Sec. 36. Section 36a-596 of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):
As used in sections 36a-595 to 36a-612, inclusive:
(1) "Advertise" or "advertising" has the same meaning as provided in section 36a-485.
(2) "Authorized delegate" means a person designated by a person licensed pursuant to sections 36a-595 to 36a-612, inclusive, to provide money transmission services on behalf of such licensed person.
(3) "Control person" has the same meaning as provided in section 36a-485.
(4) "Electronic payment instrument" means a card or other tangible object for the transmission of money or monetary value or payment of money which contains a microprocessor chip, magnetic stripe, or other means for the storage of information, that is prefunded and for which the value is decremented upon each use, but does not include a card or other tangible object that is redeemable by the issuer in the issuer's goods or services.
(5) "Holder" means a person, other than a purchaser, who is either in possession of a payment instrument and is the named payee thereon or in possession of a payment instrument issued or endorsed to such person or bearer or in blank. "Holder" does not include any person who is in possession of a lost, stolen or forged payment instrument.
(6) "Licensee" means any person licensed or required to be licensed pursuant to sections 36a-595 to 36a-612, inclusive.
(7) "Monetary value" means a medium of exchange, whether or not redeemable in money.
(8) "Money transmission" means engaging in the business of issuing or selling payment instruments or stored value, receiving money or monetary value for current or future transmission or the business of transmitting money or monetary value within the United States or to locations outside the United States by any and all means including, but not limited to, payment instrument, wire, facsimile or electronic transfer.
(9) "Outstanding" means (A) in the case of a payment instrument or stored value, that: (i) It is sold or issued in the United States; (ii) a report of it has been received by a licensee from its authorized delegates; and (iii) it has not yet been paid by the issuer, and (B) for all other money transmissions, the value reported to the licensee for which the licensee or any authorized delegate has received money or its equivalent value from the customer for transmission, but has not yet completed the money transmission by delivering the money or monetary value to the person designated by the customer.
(10) "Payment instrument" means a check, draft, money order, travelers check or electronic payment instrument that evidences either an obligation for the transmission of money or monetary value or payment of money, or the purchase or the deposit of funds for the purchase of such check, draft, money order, travelers check or electronic payment instrument.
(11) "Permissible investment" means: (A) Cash in United States currency; (B) time deposits, as defined in section 36a-2, or other debt instruments of a bank; (C) bills of exchange or bankers acceptances which are eligible for purchase by member banks of the Federal Reserve System; (D) commercial paper of prime quality; (E) interest-bearing bills, notes, bonds, debentures or other obligations issued or guaranteed by: (i) The United States or any of its agencies or instrumentalities, or (ii) any state, or any agency, instrumentality, political subdivision, school district or legally constituted authority of any state if such investment is of prime quality; (F) interest-bearing bills or notes, or bonds, debentures or preferred stocks, traded on any national securities exchange or on a national over-the-counter market, if such debt or equity investments are of prime quality; (G) receivables due from authorized delegates consisting of the proceeds of the sale of payment instruments which are not past due or doubtful of collection; (H) gold; and (I) any other investments approved by the commissioner. Notwithstanding the provisions of this subdivision, if the commissioner at any time finds that an investment of a licensee is unsatisfactory for investment purposes, the investment shall not qualify as a permissible investment.
(12) "Prime quality" of an investment means that it is within the top four rating categories in any rating service recognized by the commissioner unless the commissioner determines for any licensee that only those investments in the top three rating categories qualify as "prime quality".
(13) "Purchaser" means a person who buys or has bought a payment instrument or who has given money or monetary value for current or future transmission.
(14) "Stored value" means monetary value that is evidenced by an electronic record. For the purposes of this subdivision, "electronic record" means information that is stored in an electronic medium and is retrievable in perceivable form.
(15) "Travelers check" means a payment instrument for the payment of money that contains a provision for a specimen signature of the purchaser to be completed at the time of a purchase of the instrument and a provision for a countersignature of the purchaser to be completed at the time of negotiation.
[(16) "Virtual currency" means any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology. Virtual currency shall be construed to include digital units of exchange that (A) have a centralized repository or administrator; (B) are decentralized and have no centralized repository or administrator; or (C) may be created or obtained by computing or manufacturing effort. Virtual currency shall not be construed to include digital units that are used (i) solely within online gaming platforms with no market or application outside such gaming platforms, or (ii) exclusively as part of a consumer affinity or rewards program, and can be applied solely as payment for purchases with the issuer or other designated merchants, but cannot be converted into or redeemed for fiat currency.]
Sec. 37. Subdivision (11) of subsection (a) of section 36a-598 of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):
(11) The name and address of any financial institution used by the applicant for its money transmission business in this state; [and whether such money transmission will include the transmission of monetary value in the form of virtual currency;]
Sec. 38. Section 36a-600 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):
(a) Upon the filing of an application for an initial license, and the payment of the fees for investigation and license, the commissioner shall investigate the financial condition and responsibility, financial and business experience, character and general fitness of the applicant. The commissioner may issue a license if the commissioner finds that:
(1) The applicant's financial condition is sound;
(2) The applicant's business will be conducted honestly, fairly, equitably, carefully and efficiently within the purposes and intent of sections 36a-595 to 36a-612, inclusive, and in a manner commanding the confidence and trust of the community;
(3) (A) If the applicant is an individual, such individual is in all respects properly qualified and of good character, (B) if the applicant is a partnership, each partner is in all respects properly qualified and of good character, (C) if the applicant is a corporation or association, each president, chairperson of the executive committee, senior officer responsible for the corporation's business, chief financial officer or any other person who performs similar functions as determined by the commissioner, director, trustee and each shareholder owning ten per cent or more of each class of the securities of such corporation is in all respects properly qualified and of good character, or (D) if the applicant is a limited liability company, each member is in all respects properly qualified and of good character;
(4) The applicant is in compliance with the provisions of sections 36a-602 to 36a-604, inclusive, as amended by this act;
(5) No person on behalf of the applicant knowingly has made any incorrect statement of a material fact in the application, or in any report or statement made pursuant to sections 36a-595 to 36a-612, inclusive;
(6) No person on behalf of the applicant knowingly has omitted to state any material fact necessary to give the commissioner any information lawfully required by the commissioner; and
(7) The applicant has paid the investigation fee and license fee required under section 36a-599.
(b) The commissioner may deny an application if the commissioner finds that the applicant or any of its partners, directors, trustees, principal officers or shareholders owning ten per cent or more of the shares of the applicant or members (1) are listed on the specially designated nationals and blocked persons list prepared by the United States Department of the Treasury, or (2) have been convicted of any misdemeanor involving any aspect of the money transmission business or any felony. Any denial of an application by the commissioner shall, when applicable, be subject to the provisions of section 46a-80.
[(c) Notwithstanding the provisions of this section, the commissioner may deny any application of a person who will or may engage in the business of transmitting monetary value in the form of virtual currency if, in the commissioner's discretion, the issuance of such a license would represent undue risk of financial loss to consumers, considering the applicant's proposed business model.
(d) The commissioner may, in the commissioner's discretion, place additional requirements, restrictions or conditions upon the license of any applicant who will or may engage in the business of transmitting monetary value in the form of virtual currency, including the amount of surety bond required by section 36a-602.]
Sec. 39. Section 36a-602 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):
(a) As a condition for the issuance and retention of the license, applicants for a license and licensees shall file with the commissioner a surety bond, the form of which shall be approved by the Attorney General, issued by a bonding company or insurance company authorized to do business in this state. The bond shall be conditioned upon the licensee and the licensee's authorized delegates faithfully performing all obligations with respect to the licensee's money transmission business in this state and conducting such business in this state consistent with the provisions of sections 36a-595 to 36a-612, inclusive. The bond shall be in favor of the commissioner, [and] run concurrently with the period of the license [. For applicants and licensees who will not be engaged in the business of transmitting monetary value in the form of virtual currency, such bond shall] and be in the principal sum of not less than: (1) Three hundred thousand dollars for any applicant and any licensee with an average weekly amount of money transmissions in this state of less than three hundred thousand dollars for the most recent twelve-month period ending June thirtieth, (2) five hundred thousand dollars for any licensee with an average weekly amount of money transmissions in this state equal to or greater than three hundred thousand dollars but less than or equal to five hundred thousand dollars for the most recent twelve-month period ending June thirtieth, or (3) one million dollars for any licensee with an average weekly amount of money transmissions in this state exceeding five hundred thousand dollars for the most recent twelve-month period ending June thirtieth. For purposes of this section, "money transmissions" includes (A) money or monetary value received or transmitted in this state, and (B) stored value and payment instruments issued or sold in this state. [For applicants and licensees who will or may engage in the business of transmitting monetary value in the form of virtual currency, such bond shall be in a principal sum as determined by the commissioner and shall be calculated reasonably to address the current and prospective volatility of the market in such currency or currencies.]
(b) The proceeds of the bond, even if commingled with other assets of the licensee, shall be deemed by operation of law to be held in trust for the benefit of any claimants against the licensee to serve the faithful performance of the obligations of the licensee and the licensee's authorized delegates with respect to the licensee's money transmission business in this state in the event of the bankruptcy of the licensee, and shall be immune from attachment by creditors or judgment creditors. Any person who may be damaged as a result of the failure by the licensee or the licensee's authorized delegates to perform obligations with respect to the licensee's money transmission business in this state may proceed against the licensee's bond to recover damages. The commissioner may proceed on such bond against the principal or surety thereon, or both, to collect any civil penalty imposed upon the licensee pursuant to subsection (a) of section 36a-50, any restitution imposed pursuant to subsection (c) of section 36a-50, and any unpaid costs of examination of the licensee as determined pursuant to subdivision (6) of subsection (c) of section 36a-65. The bond shall cover claims for damages arising from the licensee's money transmission business in this state made not later than two years from the date of the act, error or omission that allegedly caused or resulted in such damages. When an action is commenced on a licensee's bond, the commissioner may require the filing of a new bond and, immediately upon recovery on any action on the bond, the licensee shall file a new bond. If the commissioner finds that the financial condition of a licensee so requires, as evidenced by the reduction of tangible net worth, financial losses or potential losses as a result of a violation of sections 36a-595 to 36a-612, inclusive, the commissioner may require one or more additional bonds meeting the standards set forth in this section. The licensee shall file any such additional bonds not later than ten days after receipt of the commissioner's written notice of such requirement.
(c) The surety company may cancel the bond at any time by a written notice to the licensee, stating the date cancellation shall take effect. Such notice shall be sent by certified mail to the licensee at least thirty days prior to the date of cancellation. A surety bond shall not be cancelled unless the surety company notifies the commissioner in writing not less than thirty days prior to the effective date of cancellation. After receipt of such notification from the surety company, the commissioner shall give written notice to the licensee of the date such bond cancellation shall take effect. The commissioner shall automatically suspend the license on such date, unless the licensee, prior to such date, submits (1) a letter of reinstatement of the bond from the surety company, (2) a new bond, (3) evidence that all of the principal sum of such surety bond has been invested as provided in subsection (d) of this section, (4) a new bond that replaces the surety bond in part and evidence that the remaining part of the principal sum of such surety bond has been invested as provided in subsection (d) of this section, or (5) evidence that the licensee has ceased business and has surrendered the license. After a license has been automatically suspended, the commissioner shall give the licensee notice of the automatic suspension pending proceedings for revocation or refusal to renew such license and an opportunity for a hearing on such actions in accordance with section 36a-51 and require the licensee to take or refrain from taking such action as in the opinion of the commissioner will effectuate the purposes of this section.
(d) In lieu of all or part of the principal sum of such surety bonds, applicants for a license and licensees may invest such sum as provided in this subsection. The book or market value, whichever is lower, of such investments shall be equal to the amount of the bond required by subsection (a) of this section less the amount of the bond filed with the commissioner by the applicant or licensee. Such applicants and licensees shall keep such investments with such banks, Connecticut credit unions or federal credit unions as such applicants or licensees may designate and the commissioner may approve, and subject to such conditions as the commissioner deems necessary for the protection of consumers and in the public interest. As used in this subsection, "investments" means: (1) Dollar deposits; and (2) interest-bearing bills, notes, bonds, debentures or other obligations issued or guaranteed by (A) the United States or any of its agencies or instrumentalities, or (B) any state, or any agency, instrumentality, political subdivision, school district or legally constituted authority of any state if such investment is of prime quality. The investments shall secure the same obligation as would a surety bond filed under this section. The investments shall be held at such banks or credit unions to cover claims during the period the license remains in full force and effect and the succeeding two years after such license has been surrendered, revoked or suspended or has expired in accordance with the provisions of sections 36a-595 to 36a-612, inclusive. The licensee shall be permitted to collect interest on such investments and at any time to exchange, examine and compare such investments. The investments made pursuant to this section, even if commingled with other assets of the licensee, shall be deemed by operation of law to be held in trust for the benefit of any claimants against the licensee to serve the faithful performance of the obligations of the licensee and the licensee's authorized delegates with respect to the licensee's money transmission business in this state in the event of the bankruptcy of the licensee, and shall be immune from attachment by creditors or judgment creditors.
Sec. 40. (Effective from passage) On or before January 1, 2019, the Banking Commissioner shall submit a report, in accordance with the provisions of section 11-4a of the general statutes, to the joint standing committee of the General Assembly having cognizance of matters relating to banking concerning the feasibility of imposing a fee on virtual-currency transactions in this state.
This act shall take effect as follows and shall amend the following sections: | ||
Section 1 |
October 1, 2018 |
New section |
Sec. 2 |
October 1, 2018 |
New section |
Sec. 3 |
October 1, 2018 |
New section |
Sec. 4 |
October 1, 2018 |
New section |
Sec. 5 |
October 1, 2018 |
New section |
Sec. 6 |
October 1, 2018 |
New section |
Sec. 7 |
October 1, 2018 |
New section |
Sec. 8 |
October 1, 2018 |
New section |
Sec. 9 |
October 1, 2018 |
New section |
Sec. 10 |
October 1, 2018 |
New section |
Sec. 11 |
October 1, 2018 |
New section |
Sec. 12 |
October 1, 2018 |
New section |
Sec. 13 |
October 1, 2018 |
New section |
Sec. 14 |
October 1, 2018 |
New section |
Sec. 15 |
October 1, 2018 |
New section |
Sec. 16 |
October 1, 2018 |
New section |
Sec. 17 |
October 1, 2018 |
New section |
Sec. 18 |
October 1, 2018 |
New section |
Sec. 19 |
October 1, 2018 |
New section |
Sec. 20 |
October 1, 2018 |
New section |
Sec. 21 |
October 1, 2018 |
New section |
Sec. 22 |
October 1, 2018 |
New section |
Sec. 23 |
October 1, 2018 |
New section |
Sec. 24 |
October 1, 2018 |
New section |
Sec. 25 |
October 1, 2018 |
New section |
Sec. 26 |
October 1, 2018 |
New section |
Sec. 27 |
October 1, 2018 |
New section |
Sec. 28 |
October 1, 2018 |
New section |
Sec. 29 |
October 1, 2018 |
New section |
Sec. 30 |
October 1, 2018 |
New section |
Sec. 31 |
October 1, 2018 |
New section |
Sec. 32 |
October 1, 2018 |
New section |
Sec. 33 |
October 1, 2018 |
New section |
Sec. 34 |
October 1, 2018 |
New section |
Sec. 35 |
October 1, 2018 |
New section |
Sec. 36 |
October 1, 2018 |
36a-596 |
Sec. 37 |
October 1, 2018 |
36a-598(a)(11) |
Sec. 38 |
October 1, 2018 |
36a-600 |
Sec. 39 |
October 1, 2018 |
36a-602 |
Sec. 40 |
from passage |
New section |
Statement of Purpose:
To regulate businesses that conduct virtual-currency business activity.
[Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.]