Bill Text: TX SB860 | 2019-2020 | 86th Legislature | Introduced
Bill Title: Relating to the creation of a regulatory sandbox program administered by the attorney general for certain financial products and services; authorizing a fee.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2019-03-01 - Referred to Business & Commerce [SB860 Detail]
Download: Texas-2019-SB860-Introduced.html
86R5157 GRM-F | ||
By: Paxton | S.B. No. 860 |
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relating to the creation of a regulatory sandbox program | ||
administered by the attorney general for certain financial products | ||
and services; authorizing a fee. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Title 99, Business & Commerce Code, is amended by | ||
adding Chapter 2005 to read as follows: | ||
CHAPTER 2005. REGULATORY SANDBOX PROGRAM | ||
SUBCHAPTER A. GENERAL PROVISIONS | ||
Sec. 2005.001. DEFINITIONS. In this chapter: | ||
(1) "Applicable agency" means the department of this | ||
state established by law to regulate certain types of business | ||
activity in this state and the people engaging in that business, | ||
including the issuance of licenses and registrations, that the | ||
attorney general determines would regulate a program participant if | ||
the person were not operating under this chapter. | ||
(2) "Consumer" means a person who enters into a | ||
transaction or agreement to receive an innovative financial product | ||
or service that is being offered under this chapter. | ||
(3) "Financial product or service" means a financial | ||
product or service that requires a license or registration, or a | ||
financial product or service that includes a business model, | ||
delivery mechanism, or element that would otherwise require a | ||
license, registration, or other authorization to act as a financial | ||
institution that is regulated under the Finance Code or The | ||
Securities Act. | ||
(4) "Innovative" means the use of new or emerging | ||
technology or the reimagining of 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 | ||
attorney general to have comparable widespread offering. | ||
(5) "Innovative financial product or service" means a | ||
financial product or service that is considered innovative by the | ||
attorney general. | ||
(6) "Program" means the regulatory sandbox program | ||
established under this chapter that allows a person, without being | ||
licensed or registered under the laws of this state, to test | ||
innovative financial products or services for a limited time and on | ||
a limited basis. | ||
(7) "Program participant" means a person whose | ||
application to participate in the program is approved and in good | ||
standing. | ||
(8) "Test" means to provide a financial product or | ||
service to the extent allowed under this chapter. | ||
Sec. 2005.002. CONFLICT OF LAW. If there is a conflict | ||
between this chapter and another law or regulation of this state, | ||
this chapter controls. | ||
Sec. 2005.003. FEDERAL LICENSURE REQUIREMENTS. A program | ||
participant is considered to be licensed, registered, or otherwise | ||
authorized to act in this state for purposes of any federal law that | ||
requires a person to be licensed, registered, or otherwise | ||
authorized to act. | ||
Sec. 2005.004. CREATION OF PROGRAM. (a) The attorney | ||
general, in consultation with applicable agencies in this state, | ||
shall create a regulatory sandbox program that enables a person to | ||
obtain limited access to the market in this state to test innovative | ||
financial products or services without obtaining a license, | ||
registration, or other regulatory authorization. | ||
(b) The program shall be administered by the consumer | ||
protection division of the office of the attorney general. | ||
Sec. 2005.005. REPORT ON REGULATIONS. (a) Not later than | ||
December 31 of each even-numbered year, the attorney general shall | ||
deliver a report to each legislative committee with jurisdiction | ||
over each applicable agency. | ||
(b) The report shall give an overview of the program, | ||
including detailed recommendations on regulations appropriate for | ||
certain financial products and services tested in the program. | ||
SUBCHAPTER B. APPLICATION FOR PROGRAM PARTICIPATION | ||
Sec. 2005.051. APPLICATION REQUIRED. (a) A person must | ||
obtain approval from the attorney general before testing an | ||
innovative financial product or service as a program participant. | ||
A separate application is required for each product or service to be | ||
tested under the program. | ||
(b) A person that is licensed, registered, or has otherwise | ||
gained regulatory authorization to provide a financial product or | ||
service in this state must submit an application to test a new | ||
financial product or service under the program. | ||
Sec. 2005.052. APPLICATION. (a) The attorney general | ||
shall review each submitted application to test a product or | ||
service under the program. | ||
(b) The attorney general shall accept and review | ||
applications on a rolling basis. | ||
(c) The application must be on a form prescribed under | ||
Section 2005.053 and demonstrate that the applicant: | ||
(1) is subject to the attorney general's jurisdiction | ||
through incorporation, residency, presents agreement, or some | ||
other means; | ||
(2) has an established location that the attorney | ||
general can access, either physically or virtually, from which | ||
testing will be developed and performed, and where all required | ||
records, documents, and data will be maintained; and | ||
(3) has an adequate understanding of the product or | ||
service and a sufficient plan to: | ||
(A) test, monitor, and assess the product or | ||
service; and | ||
(B) ensure that consumers are protected from the | ||
test's failure. | ||
Sec. 2005.053. CONTENTS OF APPLICATION. The attorney | ||
general by rule shall prescribe the application form. The form must | ||
require the applicant to: | ||
(1) provide personal and contact information for the | ||
applicant, including the applicant's full legal name, addresses, | ||
phone numbers, e-mail addresses, Internet website addresses, and | ||
other information the attorney general requires; | ||
(2) disclose any criminal convictions of the applicant | ||
or the officers and directors of the applicant; and | ||
(3) provide a detailed description of the innovative | ||
product or service the applicant desires to test in the program, | ||
including: | ||
(A) the regulation the product or service would | ||
be subject to outside of this program; | ||
(B) the benefit the product or service would | ||
provide consumers; | ||
(C) how the product or service is different from | ||
products and services available to consumers in this state; | ||
(D) any risks to consumers who use or purchase | ||
the product or service; | ||
(E) how participation in the program will allow | ||
for a successful test of the product or service; | ||
(F) the proposed testing plan, including the | ||
estimated time period needed for market entry, market exit, and | ||
pursuit of necessary licensure, registration, or other regulatory | ||
authorization; and | ||
(G) how the applicant will wind down the test and | ||
protect consumers if the product or service fails. | ||
Sec. 2005.054. APPLICATION FEE. (a) The attorney general | ||
shall collect an application fee for each application submitted. | ||
(b) The attorney general by rule shall set the application | ||
fee amount. | ||
(c) All application fees collected under this section shall | ||
be remitted to the comptroller for deposit in the general revenue | ||
fund. Money deposited under this subsection may be appropriated | ||
only for programs of the consumer protection division of the office | ||
of the attorney general. | ||
Sec. 2005.055. CONSULTATION WITH APPLICABLE AGENCY. (a) | ||
Before acting on an application under Section 2005.056, the | ||
attorney general must consult with the applicable agency. | ||
(b) In consulting with the applicable agency, the attorney | ||
general may seek information regarding if: | ||
(1) the applicant could obtain a license, | ||
registration, or other authorization from the applicable agency; | ||
and | ||
(2) the applicable agency has: | ||
(A) issued a license or registration to the | ||
applicant; or | ||
(B) investigated, sanctioned, or disciplined, or | ||
pursued legal action against, the applicant. | ||
Sec. 2005.056. APPROVAL OR DENIAL OF APPLICATION. (a) Not | ||
later than the 90th day after the date the application is submitted, | ||
the attorney general shall notify the applicant if the application | ||
is approved for participation in the program. | ||
(b) The attorney general and an applicant may mutually agree | ||
to extend the time to review an application under Subsection (a). | ||
(c) In reviewing an application, the attorney general may | ||
request any additional information necessary for the attorney | ||
general to make a determination. | ||
(d) Not later than the 30th day after the date the applicant | ||
receives notice of denial of an application by the attorney | ||
general, the applicant may file with the attorney general an appeal | ||
of the attorney general's determination requesting a time and place | ||
for a hearing before a hearing officer designated by the attorney | ||
general. The applicant is entitled to a hearing not later than the | ||
60th day after the date of the request. A hearing under this | ||
subsection is governed by Chapter 2001, Government Code. After the | ||
hearing, based on the findings of fact, conclusions of law, and | ||
recommendations of the hearing officer, the attorney general shall | ||
enter a final order. | ||
SUBCHAPTER C. PROGRAM ADMINISTRATION | ||
Sec. 2005.101. APPROVAL OF PROGRAM PARTICIPATION. (a) On | ||
approval of an application by the attorney general, the applicant | ||
shall be issued a unique registration number. | ||
(b) The program participant may test the product or service | ||
under the program for not longer than 24 months after the date the | ||
application is approved. | ||
Sec. 2005.102. MAXIMUM NUMBER OF CONSUMERS. A product or | ||
service tested under the program may not be offered for sale or use | ||
to more than 10,000 consumers. | ||
Sec. 2005.103. SCOPE OF PROGRAM. (a) Program participants | ||
may only offer financial products or services to residents of this | ||
state. | ||
(b) The program is open only to the following financial | ||
products and services: | ||
(1) consumer loans subject to Chapter 342, Finance | ||
Code, other than mortgage loans; | ||
(2) money transmission as defined by Section 151.301, | ||
Finance Code; | ||
(3) retail installment transactions as defined by | ||
Section 348.001, Finance Code; and | ||
(4) acting as an investment adviser as defined by | ||
Subsection N, Section 4, The Securities Act (Article 581-4, | ||
Vernon's Texas Civil Statutes). | ||
(c) Mortgage loans are not an eligible product to be tested | ||
in the program. | ||
Sec. 2005.104. PROVISIONS APPLICABLE GENERALLY. (a) The | ||
attorney general may determine that certain laws or regulations | ||
apply to a program participant. | ||
(b) If the attorney general determines that a law or | ||
regulation applies to a program participant, the attorney general | ||
must notify in writing the participant of the specific law or | ||
regulation. | ||
Sec. 2005.105. PROVISIONS APPLICABLE TO CONSUMER LOANS. | ||
(a) This section applies to consumer loans that would be subject to | ||
Chapter 342, Finance Code, if not offered under the program. | ||
(b) A lender may not lend to an individual borrower more | ||
than: | ||
(1) $15,000 for each loan; and | ||
(2) $50,000 in aggregate for all loans. | ||
(c) The sum of all fees, interest, and other amounts in | ||
excess of principal due under a loan may not exceed 30 percent of | ||
the principal of that consumer loan. | ||
Sec. 2005.106. PROVISIONS APPLICABLE TO MONEY | ||
TRANSMISSION. (a) This section applies to money transmission as | ||
defined by Section 151.301, Finance Code. | ||
(b) A money transmission business may not transmit for an | ||
individual consumer more than: | ||
(1) $2,500 for each transaction; and | ||
(2) $25,000 in aggregate for all transactions. | ||
Sec. 2005.107. PROVISIONS APPLICABLE TO MOTOR VEHICLE | ||
RETAIL INSTALLMENT TRANSACTIONS. (a) This section applies to a | ||
retail installment transaction as defined by Section 348.001, | ||
Finance Code. | ||
(b) Sections 342.002, 348.102, 348.107, 348.112, 348.123, | ||
348.201, 348.204, 348.205, 348.208, 348.209, and 348.412, Finance | ||
Code, apply to a retail installment transaction under the program. | ||
(c) The sum of all fees, interest, and other amounts in | ||
excess of principal due under a retail installment transaction may | ||
not exceed 30 percent of the principal of that retail installment | ||
transaction. | ||
Sec. 2005.108. PROVISIONS APPLICABLE TO INVESTMENT | ||
ADVISERS. (a) This section applies to a financial adviser as | ||
defined by Subsection N, Section 4, The Securities Act (Article | ||
581-4, Vernon's Texas Civil Statutes), offering investment | ||
services. | ||
(b) Each program participant offering investment services | ||
must make, maintain, and preserve books and records in accordance | ||
with the requirements imposed on federal covered advisers under 17 | ||
C.F.R. Section 275.204-2. | ||
(c) The participant shall file with the attorney general and | ||
the State Securities Board a copy of any notices or written | ||
undertakings required to be filed by federal covered advisors with | ||
the United States Securities and Exchange Commission under 17 | ||
C.F.R. Section 275.204-2. | ||
(d) Subsection C, Section 29, The Securities Act (Article | ||
581-29, Vernon's Texas Civil Statutes), applies to investment | ||
services offered under this program. | ||
(e) State Securities Board rules adopted under The | ||
Securities Act (Article 581-1 et seq., Vernon's Texas Civil | ||
Statutes) apply as they relate to: | ||
(1) dishonest and unethical practices; | ||
(2) information required to be furnished to clients; | ||
(3) custody of client funds or securities; and | ||
(4) disclosure of financial and disciplinary | ||
information to clients. | ||
Sec. 2005.109. REPORTING REQUIREMENTS. (a) The attorney | ||
general may require program participants to periodically report | ||
information requested by the attorney general. | ||
(b) Program participants shall make records, documents, and | ||
data available for inspection by the attorney general. | ||
Sec. 2005.110. CONFIDENTIALITY OF RECORDS UNDER PROGRAM. | ||
(a) Subject to Subsection (b), records provided to the attorney | ||
general by a program participant are confidential and do not | ||
constitute public information for purposes of Chapter 552, | ||
Government Code. | ||
(b) Records provided to the attorney general by a program | ||
participant may be disclosed to: | ||
(1) federal and state agencies; | ||
(2) representatives of foreign governments who have | ||
regulatory authority over a program participant; | ||
(3) a state or federal grand jury in response to a | ||
subpoena; and | ||
(4) the state auditor for the purpose of conducting | ||
audits authorized by law. | ||
Sec. 2005.111. REMOVAL FROM PROGRAM. (a) If the attorney | ||
general believes a program participant is violating an applicable | ||
state or federal regulation, the attorney general may remove the | ||
participant from the program immediately. | ||
(b) The decision to remove a program participant may be | ||
appealed using the process under Section 2005.056(d). | ||
SUBCHAPTER D. CONSUMER PROTECTION | ||
Sec. 2005.151. WRITTEN CONSUMER DISCLOSURE REQUIRED. (a) | ||
Before providing an innovative financial product or service to a | ||
consumer, a program participant must disclose to the consumer all | ||
information required under this section. | ||
(b) The program participant must disclose: | ||
(1) the name and contact information of the | ||
participant, including the registration number assigned by the | ||
attorney general under Section 2005.101(a); | ||
(2) that the financial product or service is | ||
authorized under the program, and the participant does not have a | ||
license, registration, or other regulatory authorization to | ||
provide financial products or services under the laws of this state | ||
that regulate financial products and services; | ||
(3) that this state does not endorse or recommend the | ||
financial product or service; | ||
(4) that the financial product or service is a | ||
temporary test under the program and may be discontinued at the end | ||
of the testing period, and the expected end date of the test; and | ||
(5) that consumers may contact the consumer protection | ||
division of the office of the attorney general regarding the | ||
financial product or service and provide the division's phone | ||
number, e-mail address, and Internet website where complaints may | ||
be filed. | ||
(c) The disclosure required by Subsection (b) must be: | ||
(1) clear and conspicuous; | ||
(2) in both English and Spanish; and | ||
(3) physically or digitally signed by the consumer. | ||
Sec. 2005.152. FAILURE OF TEST. (a) If a financial product | ||
or service fails, the program participant shall notify the attorney | ||
general not later than the 30th day before the date the program | ||
participant will cease operation. | ||
(b) The program participant shall implement the wind down | ||
plan as described in the application under Section 2005.053. | ||
SUBCHAPTER E. TERMINATION OF PROGRAM | ||
Sec. 2005.201. EXPIRATION. This chapter expires on | ||
December 31, 2029. | ||
Sec. 2005.202. PROGRAM WRAP UP. The attorney general shall | ||
make all necessary preparations to ensure that all program | ||
participants' tests of financial products or services are concluded | ||
before the date under Section 2005.201. | ||
SECTION 2. This Act takes effect September 1, 2019. |