Regular Session 2021-2022 House Bill 1370 P.N. 1964

PRINTER'S NO. 1964

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1370

Session of

2021

INTRODUCED BY N. NELSON, PISCIOTTANO, KENYATTA, RYAN, JAMES,

SANCHEZ AND LEE, JULY 30, 2021

REFERRED TO COMMITTEE ON COMMERCE, JULY 30, 2021

AN ACT

Allowing for a waiver for innovative financial products or

services; providing for duties of the Secretary of the

Department of Banking and Securities and the Secretary of the

Commonwealth; and establishing the Pennsylvania Economic

Growth and State Utility Account.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Short title.

This act shall be known and may be cited as the Pennsylvania

Economic Growth and State Utility Act.

Section 2. Findings.

The General Assembly finds and declares:

(1) It is declared to be the policy of the State to

promote a vigorous and growing economy, to prevent economic

stagnation, and to encourage the creation of new job

opportunities in order to ameliorate the hazards of

unemployment and underemployment, reduce the level of public

assistance, increase revenues to the State and its

municipalities and to achieve a stable diversified economy.

(2) The General Assembly understands that to compete in

the 21st century, the Commonwealth must offer one of the best

business environments in the United States for blockchain and

technology innovators and should offer a comprehensive

regulatory technology sandbox for these innovators to develop

the next generation of digital products and services in the

Commonwealth.

(3) Building a more robust public-private partnership

framework is mandatory for economic success.

(4) The Commonwealth understands that further developing

technology industries within a robust public-private

partnership brings better efficiency, trust and

accountability between the Commonwealth, businesses and

residents.

(5) The Commonwealth understands a public-private

partnership developing an immutable interagency-industry-

operability blockchain filing system is vital and

redevelopment investment in opportunity zones that shall

install, maintain and organize within the system of

blockchain records throughout the State is advantageous.

(6) Financial and health technology is undergoing a

transformational period in which new technologies are

providing greater automation, connectivity and transparency

for provenance of products and services. Additionally:

(i) Existing legal frameworks are restricting

technology innovation because these frameworks were

largely established at a time when technology was not a

fundamental component of products and services.

(ii) Technology innovators require a supervised,

flexible regulatory sandbox to test new products and

20210HB1370PN1964 - 2 -

services using waivers of specified statutes and rules

under defined conditions.

(iii) Jurisdictions which establish regulatory

sandboxes are more likely to provide a welcoming business

environment for technology innovators and may experience

significant business growth.

(iv) Other jurisdictions have enacted, or are

considering, regulatory sandboxes for financial

technology innovators in their jurisdictions.

(v) Other jurisdictions have enacted, or are

considering public-private partnerships for health

technology innovators in their jurisdictions.

(vi) Other jurisdictions have enacted or are

considering blockchain track and trace identifiers for

highly regulated products and industry such as hemp

while recognizing there are legitimate concerns on

implementing a widespread hemp industry in the State,

necessitating incremental rollout of newly licensed and

credentialed entities to best ensure public health and

safety.

(vii) The General Assembly seeks to establish a best

in the nation blockchain technology hub for 21st century

commerce that will increase economic opportunity,

including highly regulated industries that otherwise left

unchecked could cause continued harm to public health and

safety.

(7) The rapid innovation of blockchain technology,

including the growing use of virtual currency and other

digital assets has resulted in many blockchain innovators

being unable to access secure and reliable banking services

20210HB1370PN1964 - 3 -

thereby hampering development of blockchain services and

products in the marketplace.

(8) Federally insured financial institutions are not

generally permitted to manage accounts in virtual currency or

hold other digital assets.

(9) Blockchain innovators have greater compliance

challenges with Federal customer identification, anti-money

laundering and beneficial ownership requirements because of

the complex nature of these obligations and the unfamiliarity

of regulators with blockchain innovators' businesses.

(10) These intricate obligations have resulted in many

financial institutions in this Commonwealth and across the

United States refusing to provide banking services to

blockchain innovators and also refusing to accept deposits in

United States currency obtained from the sale of virtual

currency or other digital assets.

(11) Compliance with applicable Federal and State laws

is critical to ensuring the future growth and reputation of

the blockchain and technology industries as a whole.

(12) Most financial institutions today do not have the

requisite expertise or familiarity with the challenges facing

blockchain innovators which is required to provide secure and

reliable banking services to these innovators.

(13) A new type of financial payments and depository

institution that has expertise with customer identification,

anti-money laundering and beneficial ownership requirements

could seamlessly integrate these requirements into its

operating model in this Commonwealth.

(14) Authorizing special purpose depository institutions

to be chartered in this Commonwealth will provide a necessary

20210HB1370PN1964 - 4 -

and valuable service to blockchain innovators, emphasize the

Commonwealth's partnership with the technology and financial

industry and safely grow the State's developing financial

sector.

Section 3. Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Blockchain." A digital ledger or database which is

chronological, consensus-based, decentralized and mathematically

verified in nature.

"Consumer." A person in this Commonwealth that purchases or

enters into an agreement to receive an innovative financial

product or service made available through the financial

technology sandbox.

"Financial product or service." A product or service related

to finance, including banking, securities, consumer credit or

money transmission, which is subject to statutory requirements

and is under the jurisdiction of the secretary or the Secretary

of the Commonwealth.

"Financial technology sandbox." The program created by this

act which allows a person to make an innovative financial

product or service available to consumers during a sandbox

period through a waiver of statutory requirements.

"Innovative." The use or incorporation of a new idea, a new

or emerging technology or a new use of existing technology,

including blockchain technology, to address a problem, provide a

benefit or otherwise offer a product, service, business model or

delivery mechanism.

"PEGASUS Account." The Pennsylvania Economic Growth and

20210HB1370PN1964 - 5 -

State Utility Systems Account.

"Sandbox period." The period of time, initially not longer

than 24 months, in which the secretary or Secretary of the

Commonwealth has authorized an innovative financial product or

service to be made available to consumers, including an

extension granted under section 9.

"Secretary." The Secretary of Banking and Securities of the

Commonwealth.

"Statute." A statute or regulation of this Commonwealth.

Section 4. Financial technology sandbox waiver.

(a) Waiver.--Notwithstanding any other provision of law, a

person that makes an innovative financial product or service

available to consumers in the financial technology sandbox may

be granted a waiver of specified requirements imposed by statute

listed under this subsection, if the statute does not permit the

product or service to be made available to consumers. A waiver

under this subsection shall be no broader than necessary to

accomplish the purposes and standards set forth in this act. The

following may be waived under this subsection:

(1) A statute that regulates licensing of a product in

order for the product to be offered to a consumer.

(2) A statute that regulates disclosures, except if the

disclosure is required under Federal law.

(3) A statute that regulates interest rates.

(4) A statute that regulates the taking of a deposit.

(5) A statute that provides for anti-fraud regulations

that require issuers of securities to be registered and to

disclose details of the issuer's offerings.

(6) A statute that regulates cryptocurrency.

(b) Liability.--

20210HB1370PN1964 - 6 -

(1) Subject to paragraph (2), a person that makes an

innovative financial product or service available to a

consumer in the financial technology sandbox shall:

(i) not be immune from civil damages for acts and

omissions relating to this act; and

(ii) be subject to criminal and consumer protection

laws.

(2) A person that makes an innovative financial product

or service available to a consumer in the financial

technology sandbox shall not be subject to a higher level of

liability than the person would be subject to if the

innovative financial product or service was made available to

a consumer outside of the financial technology sandbox.

Commonwealth may refer suspected violations of law relating to

this act to appropriate Federal or State agencies for

investigation, prosecution, civil penalties and other

appropriate enforcement actions.

(d) Service of process.--If service of process on a person

making an innovative financial product or service available to

consumers in the financial technology sandbox is not feasible,

service on the Secretary of the Commonwealth shall be deemed

service on the person.

Section 5. Financial technology sandbox application and

approval.

(a) Application.--The following apply:

(1) A person shall apply to the secretary or the

Secretary of the Commonwealth to make an innovative financial

product or service available to consumers in the financial

technology sandbox, based on the agency that administers the

20210HB1370PN1964 - 7 -

statute for which a waiver is sought. If both the secretary

and the Secretary of the Commonwealth jointly administer a

statute, or if the appropriate office is not known, an

application may be filed with either the secretary or the

Secretary of the Commonwealth.

(2) If an application is filed with an office that does

not administer the statute for which a waiver is sought, the

receiving office shall forward the application to the correct

office. The person shall specify in an application the

statutory requirements for which a waiver is sought and the

reasons why the requirements prohibit the innovative

financial product or service from being made available to

consumers. The application shall contain the elements

required for authorization under subsection (f). The

secretary and the Secretary of the Commonwealth shall each,

by rule, prescribe a method of application.

(b) Business entities.--A business entity making an

application under this section must be a domestic corporation or

other organized domestic entity with a physical presence, other

than that of a registered office or agent located in this

Commonwealth.

of an institution, firm or other entity intending to make an

innovative financial product or service available through the

financial technology sandbox, the employee must obtain the

consent of the institution, firm or entity before filing an

application under this section.

(d) Background check.--

(1) The individual filing an application under this

section and the individuals who are substantially involved in

20210HB1370PN1964 - 8 -

the development, operation or management of the innovative

financial product or service must submit the following

information with an application filed under this section:

(i) Under 18 Pa.C.S. Ch. 91 (relating to criminal

history record information), a report of criminal history

record information from the Pennsylvania State Police or

a statement from the Pennsylvania State Police that the

Pennsylvania State Police central repository contains no

criminal history record information relating to that

individual. The criminal history record information shall

be limited to that which is disseminated under 18 Pa.C.S.

§ 9121(b)(2) (relating to general regulations).

(ii) A report of Federal criminal history record

information.

(2) An individual submitting information under paragraph

(1)(ii) must submit a full set of fingerprints to the

Pennsylvania State Police for the purpose of a record check

and the Pennsylvania State Police or its authorized agent

shall submit the fingerprints to the Federal Bureau of

Investigation for the purpose of verifying the identity of

the applicant and obtaining a current record of criminal

arrests and convictions.

(e) Fee.--An application made under this section must be

accompanied by a fee of $500. The fee shall be deposited into

the PEGASUS Account as provided in section 6.

(f) Approvals and denials.--The secretary or the Secretary

of the Commonwealth, as applicable, shall authorize or deny a

financial technology sandbox application in writing within 90

days of receiving the application. The secretary or the

Secretary of the Commonwealth and the person that made an

20210HB1370PN1964 - 9 -

application may jointly agree to extend the time beyond 90 days.

The secretary or the Secretary of the Commonwealth may impose

conditions on an authorization, consistent with this act. In

determining whether to authorize or deny an application under

this subsection, the secretary or the Secretary of the

Commonwealth shall consider each of the following:

(1) The nature of the innovative financial product or

service proposed to be made available to consumers in the

sandbox, including relevant technical details, which may

include if the product or service utilizes blockchain

technology.

(2) The potential risk to consumers and methods which

will be used to protect consumers and resolve complaints

during the sandbox period.

(3) A business plan proposed by the person applying,

including a statement of arranged capital.

(4) If the person has the necessary personnel, adequate

financial and technical expertise and a sufficient plan to

test, monitor and assess the innovative financial product or

service.

(5) If a person substantially involved in the

development, operation or management of the innovative

financial product or service has been convicted of, or is

currently under investigation for, fraud, Federal or State

securities violations or any property-based offense.

(6) A copy of the disclosures required under section

7(c) that will be provided to consumers.

(7) If a competitor to the applicant was recently

granted access to the financial technology sandbox within

three months of the date of the application, for the purpose

20210HB1370PN1964 - 10 -

of mitigating competitive risk.

(8) Any other factor that the secretary or the Secretary

of the Commonwealth determines to be relevant.

(g) Duties of secretary or Secretary of the Commonwealth.--

(1) The secretary or the Secretary of the Commonwealth

shall, within 60 days of the effective date of this section,

determine the factors that shall be considered as part of the

application process The factors shall be transmitted to the

Legislative Reference Bureau for publication in the

Pennsylvania Bulletin. Any change to the factors shall be

submitted to the Legislative Reference Bureau for publication

in the Pennsylvania Bulletin within 30 days of the change.

(2) If an application is authorized under subsection

(f), the secretary or the Secretary of the Commonwealth shall

specify the statutory requirements for which a waiver is

granted and the length of the initial sandbox period. The

secretary or the Secretary of the Commonwealth shall post

notice of the approval of a sandbox application under this

subsection, a summary of the innovative financial product or

service and the contact information of the person making the

product or service available through the sandbox on the

publicly accessible Internet website of the secretary or the

Secretary of the Commonwealth.

(3) If an application is denied under subsection (f),

the secretary or the Secretary of the Commonwealth shall

specify the reasons for denial.

(h) Consumer protection bond.--A person authorized under

subsection (f) to enter into the financial technology sandbox

shall post a consumer protection bond with the secretary or the

Secretary of the Commonwealth as security for potential losses

20210HB1370PN1964 - 11 -

suffered by consumers. The bond amount shall be determined by

the secretary or the Secretary of the Commonwealth in an amount

not less than $10,000 and shall be commensurate with the risk

profile of the innovative financial product or service. The

secretary or the Secretary of the Commonwealth may require that

a bond under this subsection be increased or decreased at any

time based on risk profile. Unless a bond is enforced under

section 10(b)(2), the secretary or the Secretary of the

Commonwealth shall cancel or allow the bond to expire two years

after the date of the conclusion of the sandbox period.

(i) State licensure.--A person authorized under subsection

(f) to enter into the financial technology sandbox shall be

deemed to possess an appropriate license for the purposes of

Federal law requiring State licensure or authorization.

(j) Property right not created.--Authorization under

subsection (f) shall not be construed to create a property

right.

Section 6. Pennsylvania Economic Growth and State Utility

Systems Account.

(a) Establishment.--The Pennsylvania Economic Growth and

State Utility Systems Account is established in the State

Treasury. Money within the PEGASUS Account shall only be

expended by legislative appropriation. Money within the PEGASUS

Account shall be invested by the State Treasurer and investment

earnings from the PEGASUS Account shall be credited to the

General Fund. The PEGASUS Account shall be divided into two

subaccounts controlled by the secretary and the Secretary of the

Commonwealth, respectively, for the purposes of administrative

management. For the purposes of accounting and investing only,

the subaccounts shall be treated as separate accounts.

20210HB1370PN1964 - 12 -

(b) Deposits.--Subject to legislative appropriation,

application fees remitted to the PEGASUS Account under section

5(e) shall be deposited into the subaccount controlled by the

secretary or the Secretary of the Commonwealth, as applicable,

based on the receiving official. The money, and any additional

money appropriated by the General Assembly, shall be used only

for the purposes of administering this act, including processing

of sandbox applications and monitoring, examination and

enforcement activities relating to this act. The General

Assembly may appropriate Federal money received by the

Commonwealth under the American Rescue Plan Act of 2021 (Public

Law 117-2, 135 Stat. 4) to the PEGASUS Account.

Section 7. Operation of financial technology sandbox.

(a) Authorization.--Except as otherwise provided under

section 9, a person authorized under section 5(f) to enter into

the financial technology sandbox may make an innovative

financial product or service available to consumers during the

sandbox period.

(b) Limitation.--The secretary or the Secretary of the

Commonwealth may, on a case by case basis, specify the maximum

number of consumers permitted to receive an innovative financial

product or service, after consultation with the person

authorized under section 5(f) to make the product or service

available in the financial technology sandbox.

enters into an agreement to receive an innovative financial

product or service through the financial technology sandbox, the

person making the product or service available shall provide to

the customer a written statement of the following:

(1) The name and contact information of the person

20210HB1370PN1964 - 13 -

making the product or service available to consumers.

(2) That the product or service has been authorized to

be made available to consumers for a temporary period by the

secretary or the Secretary of the Commonwealth, as

applicable.

(3) That the Commonwealth does not endorse the product

or service and is not subject to liability for losses or

damages caused by the product or service.

(4) That the product or service is undergoing testing,

may not function as intended and may entail financial risk.

(5) That the person making the product or service

available to consumers is not immune from civil liability for

any losses or damages caused by the product or service.

(6) The expected end date of the sandbox period.

(7) The name and contact information of the secretary or

the Secretary of the Commonwealth, as applicable, and

notification that suspected legal violations, complaints or

other comments related to the product or service may be

submitted to the secretary or the Secretary of the

Commonwealth.

(8) Any other statements or disclosures required by rule

of the secretary or the Secretary of the Commonwealth which

are necessary to further the purposes of this act.

(d) Recordkeeping.--A person authorized to make an

innovative financial product or service available to consumers

in the financial technology sandbox shall maintain comprehensive

records relating to the innovative financial product or service.

The person shall keep the records for not less than five years

after the conclusion of the sandbox period. The secretary and

the Secretary of the Commonwealth may specify further records

20210HB1370PN1964 - 14 -

requirements under this subsection by rule.

(e) Record examination.--The secretary or the Secretary of

the Commonwealth, as applicable, may examine the records

maintained under subsection (d) at any time, with or without

notice. Direct and indirect costs of an examination conducted

under this subsection shall be paid by the person making the

innovative financial product or service available in the

financial technology sandbox. Records made available to the

secretary or the Secretary of the Commonwealth under this

subsection shall be confidential and shall not be subject to

disclosure under the act of February 14, 2008 (P.L.6, No.3),

known as the Right-to-Know Law, but may be released to

appropriate Federal or State agencies for the purposes of

investigation.

(f) Written notice.--Unless granted an extension under

section 9, not less than 30 days before the conclusion of the

sandbox period, a person who makes an innovative financial

product or service available in the financial technology sandbox

shall provide written notification to consumers regarding the

conclusion of the sandbox period and may not make the product or

service available to a new consumer after the conclusion of the

sandbox period until legal authority outside of the sandbox

exists to make the product or service available to consumers.

The person shall wind down operations with existing consumers

within 60 days after the conclusion of the sandbox period,

except that, after the 60th day, the person may:

(1) Collect and receive money owed to the person and

service loans made by the person, based on agreements with

consumers made before the conclusion of the sandbox period.

(2) Take necessary legal action.

20210HB1370PN1964 - 15 -

(3) Take other actions authorized by the secretary or

the Secretary of the Commonwealth by rule which are not

inconsistent with this subsection.

(g) Multiple jurisdictions allowed.--The secretary and the

Secretary of the Commonwealth may, jointly or separately, enter

into agreements with Federal, State or foreign regulatory

agencies to allow persons that make an innovative financial

product or service available in this Commonwealth through the

financial technology sandbox to make the products or services

available in other jurisdictions and to allow a person operating

in similar financial technology sandboxes in other jurisdictions

to make innovative financial products and services available in

this Commonwealth.

(h) Disclosure.--

(1) If an application was granted under subsection (f),

each agency that administers the statute for which the waiver

was sought in the application shall disclose non-proprietary

information for each relevant innovative financial product or

service:

(i) on the agency's publicly accessible Internet

website; and

(ii) by sending the information to the Banking and

Insurance Committee of the Senate and the Commerce

Committee of the House of Representatives.

(2) The Banking and Insurance Committee of the Senate

and the Commerce Committee of the House of Representatives

shall schedule legislative hearings on the information

provided under paragraph (1)(ii) at least once each year.

Section 8. Revocation or suspension of financial technology

sandbox authorization.

20210HB1370PN1964 - 16 -

(a) Revocation or suspension.--The secretary or the

Secretary of the Commonwealth may, by order, revoke or suspend

authorization granted to a person under section 5(f) if:

(1) The person has violated or refused to comply with

this act or a regulation, rule, order or decision promulgated

or adopted by the secretary or the Secretary of the

Commonwealth.

(2) A fact or condition exists that, if it had existed

or become known at the time of the financial technology

sandbox application, would have warranted denial of the

application or the imposition of material conditions.

(3) A material error, false statement, misrepresentation

or material omission was made in the financial technology

sandbox application.

(4) After consultation with the person, continued

testing of the innovative financial product or service would:

(i) be likely to harm consumers; or

(ii) no longer serve the purposes of this act

because of the financial or operational failure of the

product or service.

(b) Service.--Written notification of a revocation or

suspension order made under subsection (a) shall be served using

any means authorized by law and if the notice relates to a

suspension, include any conditions or remedial action which

shall be completed before the suspension will be lifted by the

secretary or the Secretary of the Commonwealth.

Section 9. Extension of sandbox period.

A person granted authorization under section 5(f) may apply

for an extension of the initial sandbox period for not more than

12 additional months. An application for an extension shall be

20210HB1370PN1964 - 17 -

made not later than 60 days before the conclusion of the initial

sandbox period specified by the secretary or the Secretary of

the Commonwealth. The secretary or the Secretary of the

Commonwealth shall approve or deny the application for extension

in writing not later than 35 days before the conclusion of the

initial sandbox period. An application for extension by a person

shall cite one of the following reasons as the basis for the

application and provide relevant supporting information that:

(1) A statutory amendment is necessary to conduct

business in this Commonwealth on a permanent basis.

(2) An application for a license or other authorization

required to conduct business in this Commonwealth on a

permanent basis has been filed with the appropriate office

and approval is currently pending.

(3) The person needs more data to complete testing, if

the amount of data and the time frame for obtaining the data

are reasonable.

Section 10. Rules and orders, enforcement of bond and

restitution.

(a) Rules.--The secretary and the Secretary of the

Commonwealth shall each adopt rules to implement this act within

90 days following the effective date of this subsection. The

rules adopted by the secretary and the Secretary of the

Commonwealth under this subsection shall be as consistent as

reasonably possible, but shall account for differences in the

statutes and programs administered by the secretary and the

Secretary of the Commonwealth. Rules adopted under this

subsection shall not take effect until January 1, 2022.

(b) Orders.--The secretary or the Secretary of the

Commonwealth may issue:

20210HB1370PN1964 - 18 -

(1) Necessary orders to enforce this act, including

ordering the payment of restitution, and enforce the orders

in any court of competent jurisdiction.

(2) An order under paragraph (1) to enforce the bond

posted under section 5(h), or a portion of the bond, and use

proceeds from the bond to offset losses suffered by consumers

as a result of an innovative financial product or service.

Section 11. Access to and dissemination of criminal history

information.

Criminal history record information shall only be

disseminated by criminal justice agencies in this Commonwealth,

whether directly or through any intermediary, to the secretary

or the Secretary of the Commonwealth for purposes of obtaining

background information under section 5(d) as part of a financial

technology sandbox application.

Section 12. National or State criminal history record

information.

A person specified in section 5(d) as part of a financial

technology sandbox application shall submit to fingerprinting in

order to obtain national and State criminal history record

information required under this act.

Section 13. Electronic records and signatures.

This act shall modify, limit and supersede the Electronic

Signatures in Global and National Commerce Act (Public Law 106-

229, 15 U.S.C. § 7001 et seq.), but shall not modify, limit or

supersede section 101(c) of the Electronic Signatures in Global

and National Commerce Act (15 U.S.C. § 7001(c)) or authorize

electronic delivery of any of the notices described in section

103(b) of the Electronic Signatures in Global and National

Commerce Act (15 U.S.C. § 7003(b)). This act authorizes the

20210HB1370PN1964 - 19 -

filing of records and signatures, if specified by provisions of

this act or by a rule adopted or order issued under this act, in

a manner consistent with section 104(a) of the Electronic

Signatures in Global and National Commerce Act (15 U.S.C. §

7004(a)).

Section 14. Effective date.

This act shall take effect in 60 days.

20210HB1370PN1964 - 20 -