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General Assembly Committee Bill No. 5761
January Session, 2021
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Referred to Committee on COMMERCE
Introduced by:
(CE)
AN ACT ESTABLISHING A REGULATORY SANDBOX PROGRAM.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:
Section 1. (NEW) (Effective October 1, 2021) (a) For the purposes of this 1
section: 2
(1) "Applicable agency" means a department or agency of this state 3
that may regulate the type of financial product or service that comprises 4
an innovative product or service in the state and persons who provide 5
such product or service, including issuances of licenses or other types of 6
authorization, which the Department of Economic and Community 7
Development determines would otherwise regulate a sandbox 8
participant; 9
(2) "Applicant" means an individual or entity that is applying to 10
participate in the regulatory sandbox; 11
(3) "Blockchain technology" means the use of a digital database 12
containing records of financial transactions, which can be 13
simultaneously used and shared within a decentralized, publicly 14
accessible network and can record transactions between two parties in 15
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a verifiable and permanent way; 16
(4) "Commissioner" means the Commissioner of Economic and 17
Community Development; 18
(5) "Consumer" means a person that purchases or otherwise enters 19
into a transaction or agreement to receive an innovative product or 20
service that is being tested by a sandbox participant; 21
(6) "Department" means the Department of Economic and 22
Community Development; 23
(7) "Financial product or service" means (A) a financial product or 24
service that requires state licensure or registration, or (B) a financial 25
product or service that includes a business model, delivery mechanism 26
or element that may require a license or other authorization to act as a 27
financial institution, enterprise or other entity that is regulated by the 28
provisions of title 36a of the general statutes or other related provisions. 29
"Financial product or service" does not include a product or service that 30
is regulated by the provisions of title 38a or chapter 672a of the general 31
statutes; 32
(8) "Innovation" means the use or incorporation of a new or emerging 33
technology or a new use of existing technology, including, but not 34
limited to, blockchain technology, to address a problem, provide a 35
benefit or otherwise offer a product, service, business model or delivery 36
mechanism that is not known by the department to have a comparable 37
widespread offering in the state; 38
(9) "Innovative product or service" means a financial product or 39
service that includes an innovation; 40
(10) "Person" means any person, including individuals, firms, 41
partnerships, associations, cooperatives, limited liability companies or 42
corporations, public or private, for profit or nonprofit, organized or 43
existing under the laws of the state or any other state; 44
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(11) "Regulatory sandbox" means the program established in 45
subsection (b) of this section, which allows a person to temporarily test 46
an innovative product or service on a limited basis without otherwise 47
being licensed or authorized to act under any other provision of the 48
general statutes; 49
(12) "Sandbox participant" means a person whose application to 50
participate in the regulatory sandbox is approved in accordance with 51
the provisions of this section; and 52
(13) "Test" means to provide an innovative product or service in 53
accordance with the provisions of this section. 54
(b) There is established within the Department of Economic and 55
Community Development the regulatory sandbox program. Said 56
program shall enable a person to obtain limited access to the market in 57
this state to test innovative financial products or services without 58
obtaining a license or other authorization that otherwise might be 59
required. 60
(c) (1) Notwithstanding any provision of the general statutes, any 61
person may submit an application to the Commissioner of Economic 62
and Community Development to enter the regulatory sandbox to test 63
an innovation, provided such person is subject to the jurisdiction of the 64
state and has established a physical location in the state, from which 65
testing will be developed and performed and where all records, 66
documents and data relating to such innovation will be maintained. 67
Applications to enter the regulatory sandbox shall be submitted to the 68
commissioner at such times and on such forms as the commissioner may 69
prescribe. 70
(2) Each application shall include, but need not be limited to: (A) 71
Relevant personal and contact information for the applicant, including 72
legal name, address, telephone number, email address, Internet web site 73
address and any other information required by the commissioner; (B) 74
disclosure of any criminal convictions of the applicant and other 75
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personnel who will participate in the testing of the innovation; (C) 76
documentation that demonstrates to the commissioner's satisfaction 77
that the applicant has the necessary personnel, financial and technical 78
expertise, access to capital and a plan to test, monitor and assess the 79
innovative product or service; (D) a description of the innovative 80
product or service to be tested, including statements regarding the 81
following: (i) How the innovative product or service is subject to 82
licensing or other authorization requirements outside of the regulatory 83
sandbox; (ii) how the innovative product or service would benefit 84
consumers; (iii) how the innovative product or service is different from 85
other products or services available in this state; (iv) what risks may 86
confront consumers that use or purchase the innovative product or 87
service; (v) how participating in the regulatory sandbox would enable a 88
successful test of the innovative product or service; (vi) a description of 89
the proposed testing plan, including estimated time periods for 90
beginning the test, ending the test and obtaining licensure or 91
authorizations after the testing is complete; (vii) a description of how 92
the applicant will end the test and protect consumers if the test fails; and 93
(viii) how the applicant will employ cybersecurity measures to avoid 94
breaches and protect consumer and transaction data. After an 95
application is filed, the commissioner may request any additional 96
information from the applicant that the commissioner deems necessary 97
to assess such application. 98
(3) The Department of Economic and Community Development may 99
charge any applicant an application fee in an amount determined by the 100
commissioner. 101
(4) An applicant shall submit a separate application for each 102
innovative product or service that the applicant intends to test. 103
(5) In reviewing an application under this subsection, the 104
commissioner shall: (A) In consultation with each applicable agency, 105
determine (i) whether the applicable agency has previously issued a 106
license or other authorization to the applicant, (ii) whether the 107
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applicable agency has previously investigated, sanctioned or pursued 108
legal action against the applicant, (iii) whether the applicant could 109
obtain a license or other authorization from the applicable agency after 110
exiting the regulatory sandbox, and (iv) whether certain licensure or 111
other regulations should not be waived even if the applicant is accepted 112
into the regulatory sandbox; (B) obtain approval from each applicable 113
agency for the applicant to enter the regulatory sandbox; and (C) 114
consider whether a competitor to the applicant is or has been a sandbox 115
participant and, if so, favor allowing the applicant to become a sandbox 116
participant. 117
(6) If the commissioner and each applicable agency approve 118
admitting an applicant into the regulatory sandbox, such applicant may 119
become a sandbox participant. 120
(7) The commissioner may deny any application submitted under this 121
subsection for any reason, at the commissioner's discretion. 122
(8) Not later than ninety days after a complete application is received 123
by the commissioner, the commissioner shall inform the applicant as to 124
whether such application is approved, except that the commissioner and 125
the applicant may mutually agree to extend the time period for the 126
commissioner to determine whether an application is approved. If the 127
commissioner denies an application, the commissioner shall provide a 128
written description of the reasons for the denial to the applicant. 129
(d) (1) If the commissioner approves an application under subsection 130
(c) of this section, the sandbox participant may test the innovative 131
product or service described in such sandbox participant's application 132
for twenty-four-months after the date of such application's approval. 133
(2) An innovative product or service that is tested within the 134
regulatory sandbox is subject to the following limitations: (A) 135
Consumers of such innovative product or service shall be residents of 136
the state; (B) the department may, on a case-by-case basis, specify the 137
maximum number of consumers that may transact through or enter into 138
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an agreement to use the innovative product or service; (C) for a sandbox 139
participant testing a consumer loan, the department may, on a case-by-140
case basis, specify the maximum amount of an individual loan that may 141
be issued to an individual consumer or the maximum amount of 142
aggregate loans that may be issued to an individual consumer; and (D) 143
for a sandbox participant testing an innovative product or service that 144
would normally require a money transmission license under section 145
36a-597 of the general statutes, the department may, on a case-by-case 146
basis, specify the maximum amount of a single transaction for an 147
individual consumer or the maximum aggregate amount of transactions 148
for an individual consumer. 149
(3) This subsection shall not be construed to restrict a sandbox 150
participant who holds a license or other authorization in another 151
jurisdiction from acting in accordance with such license or other 152
authorization. 153
(4) A sandbox participant shall be deemed to possess an appropriate 154
license under the laws of this state for the purposes of any provision of 155
federal law requiring state licensure or authorization. 156
(5) Except as otherwise provided in this section, a sandbox 157
participant that is testing an innovative product or service is not subject 158
to state laws that regulate financial products and services. 159
(6) (A) The commissioner may apply any provision of the general 160
statutes that regulates a financial product or service to a sandbox 161
participant if the commissioner determines that: (i) An applicant's plan 162
to protect consumers will not adequately protect consumers from the 163
harm that such provision addresses; and (ii) the benefits to consumers 164
of applying such provision outweigh the potential benefits to 165
consumers from increased competition, innovation and consumer 166
access that waiving such provision, in conjunction with the applicant's 167
ability to compensate consumers who may be harmed, would provide; 168
and (B) if the commissioner determines that certain provisions of the 169
general statutes that regulate a financial product or service apply to a 170
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sandbox participant, the commissioner shall notify the sandbox 171
participant of such applicable provisions. 172
(7) Notwithstanding any other provision of this section, a sandbox 173
participant shall not have immunity related to any criminal offense 174
committed during the sandbox participant's participation in the 175
regulatory sandbox. 176
(8) By written notice, the commissioner may end a sandbox 177
participant's participation in the regulatory sandbox at any time and for 178
any reason, including if the commissioner determines a sandbox 179
participant is not operating in good faith to bring an innovative product 180
or service to market. 181
(e) (1) Before providing an innovative product or service to a 182
consumer, a sandbox participant shall disclose the following to the 183
consumer: (A) The name and contact information of the sandbox 184
participant; (B) that the innovative product or service is authorized 185
pursuant to the provisions of this section and, if applicable, that the 186
sandbox participant does not have a license or other authorization to 187
provide such product or service under any other provision of the 188
general statutes; (C) that the innovative product or service is undergoing 189
testing and may not function as intended and may expose the customer 190
to financial risk; (D) that the provider of the innovative product or 191
service may be civilly liable for any losses or damages caused by the 192
innovative product or service; (E) that the state does not endorse or 193
recommend the innovative product or service; (F) that the innovative 194
product or service is a temporary test that may be discontinued at the 195
end of the testing period; (G) the expected end date of the testing period; 196
and (H) that a consumer may contact the Department of Economic and 197
Community Development to file a complaint regarding the innovative 198
product or service being tested and provide the department's telephone 199
number and Internet web site address where a complaint may be filed. 200
(2) The disclosures required pursuant to subdivision (1) of this 201
subsection shall be provided to a consumer in a clear and conspicuous 202
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form and, for an Internet or application-based innovative product or 203
service, a consumer shall acknowledge receipt of the disclosure before a 204
transaction may be completed. 205
(3) The department may require that a sandbox participant make 206
additional disclosures to a consumer. 207
(f) (1) At least thirty days before the end of the twenty-four-month 208
regulatory sandbox testing period, a sandbox participant shall: (A) 209
Notify the department that the sandbox participant will exit the 210
regulatory sandbox discontinue the test and will cease offering any 211
innovative product or service in the regulatory sandbox within sixty 212
days after the day on which the twenty-four-month testing period ends; 213
or (B) seek an extension in accordance with subsection (g) of this section. 214
(2) Subject to the provisions of subdivision (3) of this subsection, if 215
the department does not receive notification as required by subdivision 216
(1) of this subsection, the regulatory sandbox testing period shall end at 217
the end of the twenty-four-month testing period and the sandbox 218
participant shall immediately cease offering each innovative product or 219
service being tested. 220
(3) If a test includes offering an innovative product or service that 221
requires ongoing duties, such as servicing a loan, the sandbox 222
participant shall continue to fulfill those duties or arrange for another 223
person to fulfill those duties after the date on which the sandbox 224
participant exits the regulatory sandbox. 225
(g) (1) A sandbox participant shall retain records, documents and 226
data produced in the ordinary course of business regarding an 227
innovative product or service tested in the regulatory sandbox. 228
(2) If an innovative product or service fails before the end of a testing 229
period, the sandbox participant shall notify the Department of 230
Economic and Community Development and report on actions taken by 231
the sandbox participant to ensure consumers have not been harmed as 232
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a result of the failure. 233
(3) The commissioner may establish periodic reporting requirements 234
for a sandbox participant. 235
(4) The commissioner may request records, documents and data from 236
a sandbox participant and, upon the department's request, a sandbox 237
participant shall make such records, documents and data available for 238
inspection by the department. 239
(5) If the commissioner determines that a sandbox participant has 240
engaged in, is engaging in or is about to engage in any practice or 241
transaction that is in violation of this section or that constitutes a 242
violation of state or federal criminal law, the commissioner may remove 243
a sandbox participant from the regulatory sandbox. 244
(h) On or before January 1, 2022, and annually thereafter, the 245
Commissioner of Economic and Community Development shall submit 246
a report, in accordance with the provisions of section 11-4a of the general 247
statutes, concerning the regulatory sandbox program to the joint 248
standing committee of the General Assembly having cognizance of 249
matters relating to commerce. Such report shall include the number of 250
applicants to the regulatory sandbox program, the number of sandbox 251
participants, descriptions of each innovative product or service being 252
tested in the regulatory sandbox and any recommendations for further 253
legislative action. 254
This act shall take effect as follows and shall amend the following
sections:
Section 1 October 1, 2021 New section
Statement of Purpose:
To establish a regulatory sandbox program, which allows a person to
temporarily test an innovative product or service on a limited basis
without otherwise being licensed or authorized to act by the laws of this
state.
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[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.]
Co-Sponsors: REP. YACCARINO, 87th Dist.; REP. ZAWISTOWSKI, 61st Dist.
H.B. 5761