Senate Bill 5447

Source

Section 1

The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

  1. "Applicable agency" means a department or agency of this state established by law to regulate certain types of business activity in this state and persons engaged in such business, including the issuance of licenses or other types of authorization, that the department determines would regulate a sandbox participant if the person was not a regulatory sandbox participant.

  2. "Consumer" means a person that purchases or otherwise enters into a transaction or agreement to receive an innovative financial product or service that is being tested by a sandbox participant.

  3. "Department" means the department of financial institutions.

  4. "Financial product or service" means a product or service that requires licensure by the department or a product or service that includes a business model, delivery mechanism, or element that may otherwise require a license or other authorization to act as a financial institution or enterprise or other entity that is regulated under chapter 43.320 RCW.

  5. "Innovation" means the use or incorporation of new or emerging technology or the reimagination of uses for existing technology to address a problem, provide a benefit, or otherwise offer a product, service, business model, or delivery mechanism that is not known by the department to have a comparable widespread offering in this state.

  6. "Innovative financial product or service" means a financial product or service that includes an innovation.

  7. "Regulatory sandbox" means the program established by this chapter that allows a person to temporarily test innovative financial products or services on a limited basis without otherwise being licensed or authorized to act under the laws of this state.

  8. "Sandbox participant" means a person whose application to participate in the regulatory sandbox is approved pursuant to this chapter.

  9. "Test" means to provide products and services as allowed by this chapter.

Section 2

The department shall establish a regulatory sandbox program in consultation with applicable agencies of this state to enable a person to obtain limited access to the market in this state to test innovative financial products or services without obtaining a license or other authorization that otherwise might be required.

Section 3

  1. Any person may apply to enter the regulatory sandbox to test an innovation.

  2. The department must accept and review each application for entry into the regulatory sandbox on a rolling basis.

  3. An application must demonstrate that an applicant both:

    1. Is an entity or individual that is subject to the jurisdiction of the department through incorporation, residency, presence agreement, or otherwise; and

    2. Has established a location, whether physical or virtual, that is adequately accessible to the department, from which testing will be developed and performed and where all required records, documents, and data will be maintained.

  4. Persons that already possess a license or other authorization under state laws that regulate a financial product or service must file an application with the department to test innovative financial products or services within the regulatory sandbox.

  5. Applications must contain sufficient information to demonstrate that an applicant has an adequate understanding of the innovation and a sufficient plan to test, monitor, and assess the innovation while ensuring consumers are protected from a test's failure.

  6. Applications must contain the information required by a form that is developed and made publicly available by the department. The information required by the form may include:

    1. Relevant personal and contact information for the applicant, including full legal names, addresses, telephone numbers, email addresses, website addresses, and other information that the department deems necessary;

    2. Disclosure of any criminal convictions of the applicant or key personnel, if any;

    3. A description of the innovation desired to be tested, including statements regarding all of the following:

      1. How an innovation is subject to regulation outside of the regulatory sandbox;

      2. How the innovation would benefit consumers;

      3. How the innovation is different from other products or services available in this state;

      4. What risks will confront consumers that use or purchase the innovative financial product or service;

    4. How entering the regulatory sandbox would enable a successful test of the innovation;

    1. A description of the proposed testing plan, including estimated time periods for market entry, market exit, and the pursuit of necessary licensure or authorization; and

    2. How the applicant will wind down the test and protect consumers if the test fails.

  7. The department shall collect an application fee in an amount to be determined by the department. The department shall deposit, pursuant to RCW 43.320.110, all fees collected pursuant to this subsection in the financial services regulation fund.

  8. A person must file a separate application for each innovation sought to be tested.

  9. After the information required by subsection (6) of this section is submitted, the department may seek additional information that it deems necessary. Not later than 90 days after an application is initially submitted, the department shall notify the applicant as to whether the application is approved for entry into the regulatory sandbox. The department and an applicant may mutually agree to extend the time period for the department to determine whether an application is approved for entry into the regulatory sandbox.

  10. The department may deny applications in its discretion and a denial is not an appealable agency action for the purposes of chapter 34.05 RCW.

Section 4

  1. The department must consult with an applicable agency before admitting a person into the regulatory sandbox. This consultation may include seeking information about:

    1. Whether the applicable agency previously has either:

      1. Issued a license or other authorization to the applicant; or

      2. Investigated, sanctioned, or pursued legal action against the applicant; and

    2. Whether the applicant could obtain a license or other authorization from an applicable agency after exiting the regulatory sandbox.

  2. Notwithstanding subsection (1) of this section, the department has sole authority to make the final decision whether to admit a person into the regulatory sandbox.

Section 5

  1. If the department approves an application for entry into the regulatory sandbox, the applicant is deemed a sandbox participant and both of the following apply:

    1. The sandbox participant has 24 months after the date of approval to test the innovative financial product or service described in the sandbox participant's application; and

    2. The department must issue the sandbox participant a registration number.

  2. Innovative financial products or services that are provided within the regulatory sandbox are subject to the following restrictions:

    1. Consumers must be residents of this state;

    2. Except as provided in subsection (3) of this section, not more than 10,000 consumers may transact through or enter into an agreement to use the innovation;

    3. For a sandbox participant testing loans, an individual consumer lender loan may be issued for up to $15,000, except that aggregate loans per consumer may not exceed $50,000. All consumer lender loans issued in the regulatory sandbox, including loans in excess of $10,000, are subject to chapter 31.04 RCW;

    4. Except as provided in subsection (3) of this section, for a sandbox participant testing products or services as a money transmitter as defined in RCW 19.230.010, individual transactions per consumer may not exceed $2,500 and aggregate transactions per consumer may not exceed $25,000;

    5. For sandbox participants testing products or services as a person as defined in RCW 63.14.010, all of the following apply:

      1. RCW 63.14.040;

      2. RCW 63.14.043;

      3. RCW 63.14.090;

      4. RCW 63.14.130;

    6. RCW 63.14.140;

    1. RCW 63.14.160; and

    2. RCW 62A.9A-601; and

    1. For sandbox participants testing products or services that provide investment management that is regulated pursuant to Title 21 RCW: Each sandbox participant must make, maintain, and preserve books and records in accordance with the requirements imposed on federal covered advisers under 17 C.F.R. Sec. 275.204‑2. The sandbox participant shall file with the secretary of state a copy of any notices or written undertakings required to be filed by federal covered advisers with the securities and exchange commission under 17 C.F.R. Sec. 275.204‑2.
  3. If a sandbox participant demonstrates adequate financial capitalization, risk management process, and management oversight, the department may allow either or both of the following:

    1. Not more than 17,500 consumers to transact through or enter into an agreement to use the innovation; and

    2. For a sandbox participant testing products or services as a money transmitter as defined in RCW 19.230.010, individual transactions per consumer that do not exceed $15,000 and aggregate transactions per consumer that do not exceed $50,000.

  4. This section does not restrict a sandbox participant who holds a license or other authorization in another jurisdiction from acting pursuant to and in accordance with that license or other authorization.

  5. A sandbox participant is deemed to possess an appropriate license under the laws of this state for purposes of any provision of federal law requiring state licensure or authorization.

  6. Except as otherwise provided in this chapter, a sandbox participant is not subject to state laws that regulate a financial product or service.

  7. The department may determine that certain state laws that regulate a financial product or service apply to a sandbox participant. If the department makes this determination and approves an application for entry into the regulatory sandbox, the department must notify the sandbox participant of the specific state regulatory laws that will apply to the sandbox participant.

  8. A sandbox participant may obtain, record, provide, or maintain in electronic form any information, writing, signature, record, or disclosure that is required by this chapter or may substitute any substantially similar equivalent information, writing, signature, record, or disclosure that is approved by the department.

Section 6

  1. Before providing an innovative financial product or service to consumers, a sandbox participant must disclose to consumers all of the following:

    1. The name and contact information of the sandbox participant, including the registration number provided by the department pursuant to section 5 of this act;

    2. That the innovative financial product or service is authorized pursuant to the regulatory sandbox and, if applicable, that the sandbox participant does not have a license or other authorization to generally provide products or services under state laws that regulate a financial product or service that is outside the regulatory sandbox;

    3. That this state does not endorse or recommend the innovation;

    4. That the innovative financial product or service is a temporary test that may be discontinued at the end of the testing period, including the expected end date of the testing period; and

    5. That consumers may contact the department to file complaints regarding the innovative financial product or service being tested and provide the department's telephone number and website address where complaints may be filed.

  2. The notifications prescribed by subsection (1) of this section must be provided to consumers in a clear and conspicuous form in both English and Spanish. For internet or application-based innovative financial products or services, consumers must acknowledge receipt of these notifications before completion of a transaction.

  3. The department may require that a sandbox participant make additional disclosures to consumers. When the department approves an application for entry into the regulatory sandbox, the department shall notify the sandbox participant of the additional disclosures.

Section 7

  1. At least 30 days before the end of the 24-month regulatory sandbox testing period, a sandbox participant must either:

    1. Notify the department that the sandbox participant will exit the regulatory sandbox, wind down its test, and cease offering any innovative products or services in the regulatory sandbox within 60 days after the 24-month testing period ends; or

    2. Seek an extension pursuant to section 8 of this act to pursue a license or other authorization required by law.

  2. If the department does not receive notification pursuant to subsection (1) of this section, the regulatory sandbox testing period ends at the end of the 24-month testing period and the sandbox participant must immediately cease offering innovative products or services.

  3. If a test includes offering products or services that require ongoing duties, such as servicing a loan, the sandbox participant must continue to fulfill those duties or arrange for another person to fulfill those duties after the date the sandbox participant exits the regulatory sandbox.

Section 8

  1. A sandbox participant may request an extension of the regulatory sandbox testing period for the purpose of pursuing a license or other authorization required by law.

  2. The department may grant or deny a request for an extension pursuant to subsection (1) of this section by the end of the 24-month regulatory sandbox testing period. An extension pursuant to this subsection is not effective for more than one year after the end of the regulatory sandbox testing period.

  3. A sandbox participant that obtains an extension pursuant to subsection (2) of this section must provide the department with a written report every three months that provides an update on efforts to obtain a license or other authorization, including any submitted applications for licensure or other authorization, rejected applications, or issued licenses or other authorization.

Section 9

  1. A sandbox participant must retain records, documents, and data produced in the ordinary course of business regarding an innovative financial product or service tested in the regulatory sandbox.

  2. If an innovation fails before the end of the testing period, the sandbox participant must notify the department and report on actions taken to ensure consumers have not been harmed as a result of the innovation's failure.

  3. A sandbox participant is subject to the requirements of chapter 19.255 RCW and must notify the department of any breach of the security of the system as defined in RCW 19.255.005.

Section 10

  1. Records that are submitted to or obtained by the department in administering this chapter are not public records or open for inspection by the public.

  2. Records and information that are submitted or obtained pursuant to this chapter may be disclosed to any of the following:

    1. State and federal agencies;

    2. Representatives of foreign countries that have regulatory or supervisory authority over the activities of the sandbox participant;

    3. A federal, state, or county grand jury in response to a lawful subpoena; and

    4. The state auditor for the purpose of conducting audits authorized by law.

  3. The department and any applicable agency consulted by the department pursuant to section 4 of this act are not liable for the disclosure of records, information, or data received or obtained pursuant to this chapter.

  4. The disclosure pursuant to subsection (2) of this section of a complaint or the results of an examination, inquiry, or investigation of a sandbox participant does not make that information a public record and the sandbox participant or the sandbox participant's holding company may not disclose that information to the general public unless the disclosure is required by law. A sandbox participant or the sandbox participant's holding company may not disclose, use, or reference in any form comments, conclusions, or results of an examination, inquiry, or investigation in any type of communication to a customer or potential customer.

  5. This section does not prevent the disclosure of information that is admissible in evidence in a civil or criminal proceeding brought by a state or federal law enforcement agency to enforce or prosecute civil or criminal violations of the law.

Section 11

  1. The department may establish periodic reporting requirements on sandbox participants.

  2. The department may seek records, documents, and data from sandbox participants. On the department's request, sandbox participants must make such records, documents, and data available for inspection by the department.

  3. If the department has reasonable cause to believe that a sandbox participant has engaged in, is engaging in, or is about to engage in any practice or transaction that is in violation of this chapter, that constitutes an unlawful practice under chapter 19.86 RCW, or that constitutes a violation of a state or federal criminal law, the department may remove a sandbox participant from the regulatory sandbox or order a sandbox participant to exit the regulatory sandbox pursuant to section 7 of this act.

  4. Removal from the regulatory sandbox is not an appealable agency action for the purposes of chapter 34.05 RCW.

  5. Sandbox participants are subject to the consumer fraud provisions under chapter 19.86 RCW.

  6. The department may enter into agreements with state, federal, or foreign regulators that allow sandbox participants to operate in other jurisdictions and allow entities authorized to operate in other jurisdictions to be recognized as sandbox participants in this state.

Section 12

The program established by this chapter ends July 1, 2031.

Section 13

The department shall publish annually a written report recommending legislative or other action to carry out the purposes of this chapter. This report shall contain, for the preceding fiscal year, a description of the results of the regulatory sandbox program established pursuant to this chapter.


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