| 18 | | - | Section 1. (Effective from passage) The Department of Economic and 1 |
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| 19 | | - | Community Development shall develop a plan to establish a regulatory 2 |
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| 20 | | - | sandbox program, which allows a person to temporarily test an 3 |
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| 21 | | - | innovative product or service on a limited basis without otherwise being 4 |
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| 22 | | - | licensed or authorized to act by the laws of the state. Not later than 5 |
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| 23 | | - | January 1, 2022, the Commissioner of Economic and Community 6 |
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| 24 | | - | Development shall submit recommendations for any requisite 7 |
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| 25 | | - | legislative proposals for the implementation of such plan to the joint 8 |
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| 26 | | - | standing committee of the General Assembly having cognizance of 9 |
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| 27 | | - | matters relating to commerce. 10 |
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| 24 | + | Section 1. (NEW) (Effective October 1, 2021) (a) For the purposes of this 1 |
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| 25 | + | section: 2 |
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| 26 | + | (1) "Applicable agency" means a department or agency of this state 3 |
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| 27 | + | that may regulate the type of financial product or service that comprises 4 |
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| 28 | + | an innovative product or service in the state and persons who provide 5 |
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| 29 | + | such product or service, including issuances of licenses or other types of 6 |
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| 30 | + | authorization, which the Department of Economic and Community 7 |
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| 31 | + | Development determines would otherwise regulate a sandbox 8 |
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| 32 | + | participant; 9 |
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| 33 | + | (2) "Applicant" means an individual or entity that is applying to 10 |
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| 34 | + | participate in the regulatory sandbox; 11 |
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| 35 | + | (3) "Blockchain technology" means the use of a digital database 12 |
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| 36 | + | containing records of financial transactions, which can be 13 |
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| 37 | + | simultaneously used and shared within a decentralized, publicly 14 |
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| 38 | + | accessible network and can record transactions between two parties in 15 |
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| 39 | + | Committee Bill No. 5761 |
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| 40 | + | |
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| 41 | + | |
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| 42 | + | LCO No. 3253 2 of 10 |
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| 43 | + | |
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| 44 | + | a verifiable and permanent way; 16 |
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| 45 | + | (4) "Commissioner" means the Commissioner of Economic and 17 |
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| 46 | + | Community Development; 18 |
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| 47 | + | (5) "Consumer" means a person that purchases or otherwise enters 19 |
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| 48 | + | into a transaction or agreement to receive an innovative product or 20 |
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| 49 | + | service that is being tested by a sandbox participant; 21 |
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| 50 | + | (6) "Department" means the Department of Economic and 22 |
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| 51 | + | Community Development; 23 |
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| 52 | + | (7) "Financial product or service" means (A) a financial product or 24 |
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| 53 | + | service that requires state licensure or registration, or (B) a financial 25 |
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| 54 | + | product or service that includes a business model, delivery mechanism 26 |
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| 55 | + | or element that may require a license or other authorization to act as a 27 |
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| 56 | + | financial institution, enterprise or other entity that is regulated by the 28 |
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| 57 | + | provisions of title 36a of the general statutes or other related provisions. 29 |
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| 58 | + | "Financial product or service" does not include a product or service that 30 |
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| 59 | + | is regulated by the provisions of title 38a or chapter 672a of the general 31 |
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| 60 | + | statutes; 32 |
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| 61 | + | (8) "Innovation" means the use or incorporation of a new or emerging 33 |
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| 62 | + | technology or a new use of existing technology, including, but not 34 |
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| 63 | + | limited to, blockchain technology, to address a problem, provide a 35 |
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| 64 | + | benefit or otherwise offer a product, service, business model or delivery 36 |
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| 65 | + | mechanism that is not known by the department to have a comparable 37 |
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| 66 | + | widespread offering in the state; 38 |
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| 67 | + | (9) "Innovative product or service" means a financial product or 39 |
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| 68 | + | service that includes an innovation; 40 |
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| 69 | + | (10) "Person" means any person, including individuals, firms, 41 |
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| 70 | + | partnerships, associations, cooperatives, limited liability companies or 42 |
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| 71 | + | corporations, public or private, for profit or nonprofit, organized or 43 |
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| 72 | + | existing under the laws of the state or any other state; 44 |
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| 73 | + | Committee Bill No. 5761 |
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| 74 | + | |
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| 75 | + | |
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| 76 | + | LCO No. 3253 3 of 10 |
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| 77 | + | |
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| 78 | + | (11) "Regulatory sandbox" means the program established in 45 |
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| 79 | + | subsection (b) of this section, which allows a person to temporarily test 46 |
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| 80 | + | an innovative product or service on a limited basis without otherwise 47 |
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| 81 | + | being licensed or authorized to act under any other provision of the 48 |
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| 82 | + | general statutes; 49 |
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| 83 | + | (12) "Sandbox participant" means a person whose application to 50 |
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| 84 | + | participate in the regulatory sandbox is approved in accordance with 51 |
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| 85 | + | the provisions of this section; and 52 |
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| 86 | + | (13) "Test" means to provide an innovative product or service in 53 |
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| 87 | + | accordance with the provisions of this section. 54 |
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| 88 | + | (b) There is established within the Department of Economic and 55 |
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| 89 | + | Community Development the regulatory sandbox program. Said 56 |
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| 90 | + | program shall enable a person to obtain limited access to the market in 57 |
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| 91 | + | this state to test innovative financial products or services without 58 |
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| 92 | + | obtaining a license or other authorization that otherwise might be 59 |
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| 93 | + | required. 60 |
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| 94 | + | (c) (1) Notwithstanding any provision of the general statutes, any 61 |
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| 95 | + | person may submit an application to the Commissioner of Economic 62 |
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| 96 | + | and Community Development to enter the regulatory sandbox to test 63 |
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| 97 | + | an innovation, provided such person is subject to the jurisdiction of the 64 |
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| 98 | + | state and has established a physical location in the state, from which 65 |
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| 99 | + | testing will be developed and performed and where all records, 66 |
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| 100 | + | documents and data relating to such innovation will be maintained. 67 |
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| 101 | + | Applications to enter the regulatory sandbox shall be submitted to the 68 |
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| 102 | + | commissioner at such times and on such forms as the commissioner may 69 |
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| 103 | + | prescribe. 70 |
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| 104 | + | (2) Each application shall include, but need not be limited to: (A) 71 |
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| 105 | + | Relevant personal and contact information for the applicant, including 72 |
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| 106 | + | legal name, address, telephone number, email address, Internet web site 73 |
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| 107 | + | address and any other information required by the commissioner; (B) 74 |
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| 108 | + | disclosure of any criminal convictions of the applicant and other 75 |
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| 109 | + | Committee Bill No. 5761 |
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| 110 | + | |
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| 111 | + | |
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| 112 | + | LCO No. 3253 4 of 10 |
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| 113 | + | |
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| 114 | + | personnel who will participate in the testing of the innovation; (C) 76 |
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| 115 | + | documentation that demonstrates to the commissioner's satisfaction 77 |
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| 116 | + | that the applicant has the necessary personnel, financial and technical 78 |
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| 117 | + | expertise, access to capital and a plan to test, monitor and assess the 79 |
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| 118 | + | innovative product or service; (D) a description of the innovative 80 |
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| 119 | + | product or service to be tested, including statements regarding the 81 |
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| 120 | + | following: (i) How the innovative product or service is subject to 82 |
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| 121 | + | licensing or other authorization requirements outside of the regulatory 83 |
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| 122 | + | sandbox; (ii) how the innovative product or service would benefit 84 |
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| 123 | + | consumers; (iii) how the innovative product or service is different from 85 |
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| 124 | + | other products or services available in this state; (iv) what risks may 86 |
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| 125 | + | confront consumers that use or purchase the innovative product or 87 |
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| 126 | + | service; (v) how participating in the regulatory sandbox would enable a 88 |
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| 127 | + | successful test of the innovative product or service; (vi) a description of 89 |
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| 128 | + | the proposed testing plan, including estimated time periods for 90 |
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| 129 | + | beginning the test, ending the test and obtaining licensure or 91 |
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| 130 | + | authorizations after the testing is complete; (vii) a description of how 92 |
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| 131 | + | the applicant will end the test and protect consumers if the test fails; and 93 |
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| 132 | + | (viii) how the applicant will employ cybersecurity measures to avoid 94 |
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| 133 | + | breaches and protect consumer and transaction data. After an 95 |
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| 134 | + | application is filed, the commissioner may request any additional 96 |
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| 135 | + | information from the applicant that the commissioner deems necessary 97 |
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| 136 | + | to assess such application. 98 |
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| 137 | + | (3) The Department of Economic and Community Development may 99 |
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| 138 | + | charge any applicant an application fee in an amount determined by the 100 |
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| 139 | + | commissioner. 101 |
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| 140 | + | (4) An applicant shall submit a separate application for each 102 |
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| 141 | + | innovative product or service that the applicant intends to test. 103 |
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| 142 | + | (5) In reviewing an application under this subsection, the 104 |
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| 143 | + | commissioner shall: (A) In consultation with each applicable agency, 105 |
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| 144 | + | determine (i) whether the applicable agency has previously issued a 106 |
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| 145 | + | license or other authorization to the applicant, (ii) whether the 107 |
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| 146 | + | Committee Bill No. 5761 |
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| 147 | + | |
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| 148 | + | |
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| 149 | + | LCO No. 3253 5 of 10 |
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| 150 | + | |
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| 151 | + | applicable agency has previously investigated, sanctioned or pursued 108 |
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| 152 | + | legal action against the applicant, (iii) whether the applicant could 109 |
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| 153 | + | obtain a license or other authorization from the applicable agency after 110 |
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| 154 | + | exiting the regulatory sandbox, and (iv) whether certain licensure or 111 |
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| 155 | + | other regulations should not be waived even if the applicant is accepted 112 |
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| 156 | + | into the regulatory sandbox; (B) obtain approval from each applicable 113 |
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| 157 | + | agency for the applicant to enter the regulatory sandbox; and (C) 114 |
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| 158 | + | consider whether a competitor to the applicant is or has been a sandbox 115 |
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| 159 | + | participant and, if so, favor allowing the applicant to become a sandbox 116 |
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| 160 | + | participant. 117 |
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| 161 | + | (6) If the commissioner and each applicable agency approve 118 |
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| 162 | + | admitting an applicant into the regulatory sandbox, such applicant may 119 |
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| 163 | + | become a sandbox participant. 120 |
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| 164 | + | (7) The commissioner may deny any application submitted under this 121 |
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| 165 | + | subsection for any reason, at the commissioner's discretion. 122 |
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| 166 | + | (8) Not later than ninety days after a complete application is received 123 |
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| 167 | + | by the commissioner, the commissioner shall inform the applicant as to 124 |
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| 168 | + | whether such application is approved, except that the commissioner and 125 |
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| 169 | + | the applicant may mutually agree to extend the time period for the 126 |
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| 170 | + | commissioner to determine whether an application is approved. If the 127 |
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| 171 | + | commissioner denies an application, the commissioner shall provide a 128 |
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| 172 | + | written description of the reasons for the denial to the applicant. 129 |
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| 173 | + | (d) (1) If the commissioner approves an application under subsection 130 |
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| 174 | + | (c) of this section, the sandbox participant may test the innovative 131 |
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| 175 | + | product or service described in such sandbox participant's application 132 |
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| 176 | + | for twenty-four-months after the date of such application's approval. 133 |
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| 177 | + | (2) An innovative product or service that is tested within the 134 |
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| 178 | + | regulatory sandbox is subject to the following limitations: (A) 135 |
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| 179 | + | Consumers of such innovative product or service shall be residents of 136 |
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| 180 | + | the state; (B) the department may, on a case-by-case basis, specify the 137 |
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| 181 | + | maximum number of consumers that may transact through or enter into 138 |
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| 182 | + | Committee Bill No. 5761 |
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| 183 | + | |
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| 184 | + | |
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| 185 | + | LCO No. 3253 6 of 10 |
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| 186 | + | |
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| 187 | + | an agreement to use the innovative product or service; (C) for a sandbox 139 |
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| 188 | + | participant testing a consumer loan, the department may, on a case-by-140 |
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| 189 | + | case basis, specify the maximum amount of an individual loan that may 141 |
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| 190 | + | be issued to an individual consumer or the maximum amount of 142 |
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| 191 | + | aggregate loans that may be issued to an individual consumer; and (D) 143 |
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| 192 | + | for a sandbox participant testing an innovative product or service that 144 |
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| 193 | + | would normally require a money transmission license under section 145 |
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| 194 | + | 36a-597 of the general statutes, the department may, on a case-by-case 146 |
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| 195 | + | basis, specify the maximum amount of a single transaction for an 147 |
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| 196 | + | individual consumer or the maximum aggregate amount of transactions 148 |
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| 197 | + | for an individual consumer. 149 |
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| 198 | + | (3) This subsection shall not be construed to restrict a sandbox 150 |
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| 199 | + | participant who holds a license or other authorization in another 151 |
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| 200 | + | jurisdiction from acting in accordance with such license or other 152 |
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| 201 | + | authorization. 153 |
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| 202 | + | (4) A sandbox participant shall be deemed to possess an appropriate 154 |
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| 203 | + | license under the laws of this state for the purposes of any provision of 155 |
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| 204 | + | federal law requiring state licensure or authorization. 156 |
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| 205 | + | (5) Except as otherwise provided in this section, a sandbox 157 |
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| 206 | + | participant that is testing an innovative product or service is not subject 158 |
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| 207 | + | to state laws that regulate financial products and services. 159 |
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| 208 | + | (6) (A) The commissioner may apply any provision of the general 160 |
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| 209 | + | statutes that regulates a financial product or service to a sandbox 161 |
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| 210 | + | participant if the commissioner determines that: (i) An applicant's plan 162 |
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| 211 | + | to protect consumers will not adequately protect consumers from the 163 |
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| 212 | + | harm that such provision addresses; and (ii) the benefits to consumers 164 |
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| 213 | + | of applying such provision outweigh the potential benefits to 165 |
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| 214 | + | consumers from increased competition, innovation and consumer 166 |
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| 215 | + | access that waiving such provision, in conjunction with the applicant's 167 |
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| 216 | + | ability to compensate consumers who may be harmed, would provide; 168 |
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| 217 | + | and (B) if the commissioner determines that certain provisions of the 169 |
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| 218 | + | general statutes that regulate a financial product or service apply to a 170 |
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| 219 | + | Committee Bill No. 5761 |
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| 220 | + | |
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| 221 | + | |
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| 222 | + | LCO No. 3253 7 of 10 |
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| 223 | + | |
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| 224 | + | sandbox participant, the commissioner shall notify the sandbox 171 |
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| 225 | + | participant of such applicable provisions. 172 |
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| 226 | + | (7) Notwithstanding any other provision of this section, a sandbox 173 |
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| 227 | + | participant shall not have immunity related to any criminal offense 174 |
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| 228 | + | committed during the sandbox participant's participation in the 175 |
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| 229 | + | regulatory sandbox. 176 |
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| 230 | + | (8) By written notice, the commissioner may end a sandbox 177 |
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| 231 | + | participant's participation in the regulatory sandbox at any time and for 178 |
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| 232 | + | any reason, including if the commissioner determines a sandbox 179 |
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| 233 | + | participant is not operating in good faith to bring an innovative product 180 |
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| 234 | + | or service to market. 181 |
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| 235 | + | (e) (1) Before providing an innovative product or service to a 182 |
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| 236 | + | consumer, a sandbox participant shall disclose the following to the 183 |
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| 237 | + | consumer: (A) The name and contact information of the sandbox 184 |
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| 238 | + | participant; (B) that the innovative product or service is authorized 185 |
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| 239 | + | pursuant to the provisions of this section and, if applicable, that the 186 |
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| 240 | + | sandbox participant does not have a license or other authorization to 187 |
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| 241 | + | provide such product or service under any other provision of the 188 |
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| 242 | + | general statutes; (C) that the innovative product or service is undergoing 189 |
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| 243 | + | testing and may not function as intended and may expose the customer 190 |
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| 244 | + | to financial risk; (D) that the provider of the innovative product or 191 |
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| 245 | + | service may be civilly liable for any losses or damages caused by the 192 |
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| 246 | + | innovative product or service; (E) that the state does not endorse or 193 |
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| 247 | + | recommend the innovative product or service; (F) that the innovative 194 |
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| 248 | + | product or service is a temporary test that may be discontinued at the 195 |
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| 249 | + | end of the testing period; (G) the expected end date of the testing period; 196 |
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| 250 | + | and (H) that a consumer may contact the Department of Economic and 197 |
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| 251 | + | Community Development to file a complaint regarding the innovative 198 |
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| 252 | + | product or service being tested and provide the department's telephone 199 |
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| 253 | + | number and Internet web site address where a complaint may be filed. 200 |
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| 254 | + | (2) The disclosures required pursuant to subdivision (1) of this 201 |
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| 255 | + | subsection shall be provided to a consumer in a clear and conspicuous 202 |
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| 256 | + | Committee Bill No. 5761 |
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| 257 | + | |
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| 258 | + | |
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| 259 | + | LCO No. 3253 8 of 10 |
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| 260 | + | |
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| 261 | + | form and, for an Internet or application-based innovative product or 203 |
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| 262 | + | service, a consumer shall acknowledge receipt of the disclosure before a 204 |
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| 263 | + | transaction may be completed. 205 |
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| 264 | + | (3) The department may require that a sandbox participant make 206 |
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| 265 | + | additional disclosures to a consumer. 207 |
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| 266 | + | (f) (1) At least thirty days before the end of the twenty-four-month 208 |
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| 267 | + | regulatory sandbox testing period, a sandbox participant shall: (A) 209 |
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| 268 | + | Notify the department that the sandbox participant will exit the 210 |
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| 269 | + | regulatory sandbox discontinue the test and will cease offering any 211 |
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| 270 | + | innovative product or service in the regulatory sandbox within sixty 212 |
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| 271 | + | days after the day on which the twenty-four-month testing period ends; 213 |
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| 272 | + | or (B) seek an extension in accordance with subsection (g) of this section. 214 |
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| 273 | + | (2) Subject to the provisions of subdivision (3) of this subsection, if 215 |
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| 274 | + | the department does not receive notification as required by subdivision 216 |
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| 275 | + | (1) of this subsection, the regulatory sandbox testing period shall end at 217 |
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| 276 | + | the end of the twenty-four-month testing period and the sandbox 218 |
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| 277 | + | participant shall immediately cease offering each innovative product or 219 |
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| 278 | + | service being tested. 220 |
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| 279 | + | (3) If a test includes offering an innovative product or service that 221 |
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| 280 | + | requires ongoing duties, such as servicing a loan, the sandbox 222 |
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| 281 | + | participant shall continue to fulfill those duties or arrange for another 223 |
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| 282 | + | person to fulfill those duties after the date on which the sandbox 224 |
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| 283 | + | participant exits the regulatory sandbox. 225 |
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| 284 | + | (g) (1) A sandbox participant shall retain records, documents and 226 |
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| 285 | + | data produced in the ordinary course of business regarding an 227 |
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| 286 | + | innovative product or service tested in the regulatory sandbox. 228 |
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| 287 | + | (2) If an innovative product or service fails before the end of a testing 229 |
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| 288 | + | period, the sandbox participant shall notify the Department of 230 |
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| 289 | + | Economic and Community Development and report on actions taken by 231 |
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| 290 | + | the sandbox participant to ensure consumers have not been harmed as 232 |
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| 291 | + | Committee Bill No. 5761 |
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| 292 | + | |
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| 293 | + | |
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| 294 | + | LCO No. 3253 9 of 10 |
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| 295 | + | |
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| 296 | + | a result of the failure. 233 |
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| 297 | + | (3) The commissioner may establish periodic reporting requirements 234 |
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| 298 | + | for a sandbox participant. 235 |
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| 299 | + | (4) The commissioner may request records, documents and data from 236 |
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| 300 | + | a sandbox participant and, upon the department's request, a sandbox 237 |
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| 301 | + | participant shall make such records, documents and data available for 238 |
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| 302 | + | inspection by the department. 239 |
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| 303 | + | (5) If the commissioner determines that a sandbox participant has 240 |
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| 304 | + | engaged in, is engaging in or is about to engage in any practice or 241 |
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| 305 | + | transaction that is in violation of this section or that constitutes a 242 |
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| 306 | + | violation of state or federal criminal law, the commissioner may remove 243 |
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| 307 | + | a sandbox participant from the regulatory sandbox. 244 |
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| 308 | + | (h) On or before January 1, 2022, and annually thereafter, the 245 |
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| 309 | + | Commissioner of Economic and Community Development shall submit 246 |
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| 310 | + | a report, in accordance with the provisions of section 11-4a of the general 247 |
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| 311 | + | statutes, concerning the regulatory sandbox program to the joint 248 |
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| 312 | + | standing committee of the General Assembly having cognizance of 249 |
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| 313 | + | matters relating to commerce. Such report shall include the number of 250 |
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| 314 | + | applicants to the regulatory sandbox program, the number of sandbox 251 |
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| 315 | + | participants, descriptions of each innovative product or service being 252 |
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| 316 | + | tested in the regulatory sandbox and any recommendations for further 253 |
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| 317 | + | legislative action. 254 |
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