Connecticut Seal

General Assembly

 

Raised Bill No. 6802

January Session, 2015

 

LCO No. 3843

 

*03843_______BA_*

Referred to Committee on BANKING

 

Introduced by:

 

(BA)

 

AN ACT CONCERNING VIRTUAL CURRENCIES.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 36a-596 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2015):

As used in sections 36a-595 to 36a-612, inclusive:

(1) "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.

(2) "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.

(3) "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.

(4) "Licensee" means any person licensed or required to be licensed pursuant to sections 36a-595 to 36a-612, inclusive.

(5) "Monetary value" means a medium of exchange, whether or not redeemable in money.

(6) "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.

(7) "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.

(8) "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.

(9) "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.

(10) "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".

(11) "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.

(12) "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.

(13) "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.

(14) "Virtual currency" means any type of digital unit that is used as a medium of exchange or a form of digitally stored value 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. 2. Subsection (a) of section 36a-598 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2015):

(a) Each application for an initial or renewal license required under sections 36a-595 to 36a-612, inclusive, shall be made in writing and under oath to the commissioner in such form as the commissioner may prescribe. The application shall include:

(1) The exact name of the applicant and, if incorporated, the date of incorporation and the state where incorporated;

(2) The complete address of the principal office from which the business is to be conducted and of the office where the books and records of the applicant are to be maintained;

(3) The complete name and address of each of the applicant's locations and authorized delegates, if any, through which the applicant intends to engage in the business of money transmission in this state;

(4) The name, title, address and telephone number of the person to whom notice of the commissioner's approval or disapproval of the application shall be sent and to whom any inquiries by the commissioner concerning the application shall be directed;

(5) The name and residence address of the individual, if the applicant is an individual; the partners, if the applicant is a partnership; the directors, trustees, principal officers, and any shareholder owning ten per cent or more of each class of its securities, if the applicant is a corporation or association; or the members, if the applicant is a limited liability company;

(6) (A) A copy of the applicant's audited financial statements for the most recent fiscal year, (B) if the applicant is a wholly-owned subsidiary of another corporation, (i) the most recent audited consolidated annual financial statements of the parent corporation or the applicant's most recent audited consolidated annual financial statement, and (ii) the most recent audited unconsolidated financial statement of the applicant, including its balance sheet and receipts and disbursements for the preceding year, (C) if the applicant is publicly traded, a copy of the most recent 10-K report that such applicant filed with the Securities Exchange Commission or, if the applicant is a wholly-owned subsidiary of a publicly traded company, a copy of the parent company's most recent 10-K report that was filed with the Securities and Exchange Commission, and (D) if the applicant or parent company of a wholly-owned subsidiary applicant is publicly traded on a foreign exchange, a copy of documentation similar to the report filed pursuant to subparagraph (C) of this subdivision that was filed with the applicable securities regulator;

(7) A list of the applicant's permissible investments, the book and market values of such investments, and the dollar amount of the applicant's aggregate outstanding money transmissions (A) as of the date of the financial statement filed in accordance with subdivision (6) of this subsection; and (B) as of a date no earlier than thirty business days prior to the filing of the application;

(8) The history of material litigation for the five-year period prior to the date of the application of the individual, if the applicant is an individual; the partners, if the applicant is a partnership; the directors, trustees, principal officers and any shareholder owning ten per cent or more of each class of its securities, if the applicant is a corporation or association; or the members, if the applicant is a limited liability company, and sufficient information pertaining to the history of material litigation, in a form acceptable to the commissioner, on such individual or the partners, directors, trustees, principal officers, members and any shareholder owning ten per cent or more of each class of the applicant's securities. For purposes of this section, "material litigation" means any litigation that, according to generally accepted accounting principles, is deemed significant to a person's financial health and that such person is required to reference in an annual audited financial statement, a report to shareholders or a similar document;

(9) (A) The history of criminal convictions of the individual, if the applicant is an individual; the partners, if the applicant is a partnership; the directors, trustees, principal officers and any shareholder owning ten per cent or more of each class of its securities if the applicant is a corporation or association; or the members, if the applicant is a limited liability company, and (B) sufficient information pertaining to the history of criminal convictions, in a form acceptable to the commissioner, on such individual or the partners, directors, trustees, principal officers, members and any shareholder owning ten per cent or more of each class of the applicant's securities;

(10) (A) The surety bond required by subsection (a) of section 36a-602, as amended by this act, if applicable;

(B) A list of the investments maintained in accordance with subsection (d) of section 36a-602, if applicable, and the book and market values of any such investments (i) as of the date of the financial statement filed in accordance with subdivision (6) of this subsection; and (ii) as of a date no earlier than thirty business days prior to the filing of the application;

(11) A statement describing the type of money transmission business that will be conducted by the applicant in this state and whether such money transmission will include the transmission of monetary value in the form of virtual currency;

(12) The name and address of any financial institution used by the applicant for its money transmission business in this state;

(13) For each authorized delegate, a sample of the contract evidencing the proposed arrangement between the applicant and the authorized delegate; and

(14) Any other information the commissioner may require.

Sec. 3. Section 36a-600 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2015):

(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, as amended by this act.

Sec. 4. Subsection (a) of section 36a-602 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2015):

(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. [and] 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 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.

This act shall take effect as follows and shall amend the following sections:

Section 1

October 1, 2015

36a-596

Sec. 2

October 1, 2015

36a-598(a)

Sec. 3

October 1, 2015

36a-600

Sec. 4

October 1, 2015

36a-602(a)

Statement of Purpose:

To expand the Money Transmission Act to include virtual currencies.

[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.]