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OLR Bill Analysis
sSB 482
AN ACT ESTABLISHING THE FINTECH REGULATORY SANDBOX
PROGRAM AND THE INSURTECH REGULATORY SANDBOX
INITIATIVE.
SUMMARY
This bill establishes a Fintech Regulatory Sandbox program to allow
eligible companies to make innovative products or services and
temporarily offer them to consumers without the companies having to
obtain any required licenses or other authorization to do so. It
establishes (1) an 11-member Innovation Council within the Department
of Banking to oversee the program and (2) the program’s criteria and
requirements. It also allows the council to partner with nonprofits to
help implement the program and help companies participating in the
program and requires certain agencies to adopt regulations to provide
for expedited licensure or authorization after a company finishes
participating in the program.
The bill also requires the insurance commissioner, in consultation
with CTNext’s board of directors, to establish an Insurtech Regulatory
Sandbox initiative to help develop new technologies and types of
insurance for start-up insurance companies that lack the capital and
labor resources to comply with the state’s insurance laws and
regulations. The bill outlines requirements and goals for the initiative,
including that the commissioner must waive licensing requirements for
participating companies and establish a light regulatory framework
consisting of only the requirements he deems crucial to protecting
consumers.
EFFECTIVE DATE: July 1, 2022
FINTECH REGULATORY SANDBOX
The bill establishes the Fintech Regulatory Sandbox program to allow 2022SB-00482-R000622-BA.DOCX
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companies to make financial products or services that include
innovations (i.e., an “innovative product or service”), including those
related to cryptocurrency (a digital currency that uses blockchain
technology to verify transactions and maintain records), available to
consumers temporarily without obtaining a license or other
authorization that would otherwise be required. The program is
overseen by the Innovation Council the bill creates (see below).
Under the bill, a “financial product or service” is one that (1) requires
licensure or registration under state statute or (2) includes a business
model, delivery mechanism, or an element that may require licensure or
registration to act as a financial institution, enterprise, or other entity
regulated under the state’s banking laws. It does not include products
regulated under the state’s insurance or securities laws.
“Innovation” means the use or incorporation of a new or emerging
technology or the use of existing technology to address a problem;
provide a benefit; or offer a product, service, business model, or delivery
mechanism that is not known by the “applicable agency” as widely
offered in the state. “Innovation” specifically includes blockchain
technology, which is an electronic method for storing data in a
decentralized system that (1) uses cryptography to secure the data, (2)
is consensus-based, (3) is mathematically verified, and (4) is distributed
across multiple locations. “Applicable agency” is a state department or
agency that may regulate an innovative product or service or the people
or companies that provide the product or service.
Under the bill, the council or applicable agencies may enter into
agreements with regulators in other jurisdictions to advance the
sandbox program’s purposes, and the agreements may include
permission for program participants to operate in other jurisdictions.
Waivers
The bill requires applicable agencies to grant waivers to Fintech
Sandbox participants of any license or other authorization required
under state statute or regulations, unless the applicable agency
determines that the waiver should not be granted and provides 2022SB-00482-R000622-BA.DOCX
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evidence supporting their determination to the Innovation Council. The
bill also allows applicable agencies to grant participants waivers of
specific statutory and regulatory requirements that do not currently
permit the innovative product or service to be offered to in-state
consumers.
The bill requires that waivers of specific statutory and regulatory
requirements be (1) no more extensive than the applicable agency
determines is necessary to accomplish the bill’s purposes and (2) valid
for a 36-month program period and any extension period (see below). It
also specifies that program participants are not immune from liability
for criminal offenses committed while participating in the program.
Applicable agencies must provide the Innovation Council with a list
of the waivers each agency granted to each participating company.
Under the bill, program participants are deemed to possess an
appropriate license or authorization under state law for the purposes of
any federal law requiring state licensure or authorization.
Innovation Council
The bill establishes an Innovation Council, within the banking
department for administrative purposes only, to support in-state
innovation, investment, and job creation by encouraging and promoting
Fintech Sandbox participation. The banking department must provide
administrative support to the council.
Membership and Meetings. Under the bill, the council consists of
(1) three ex-officio members—the banking commissioner, the economic
and community development commissioner, and the attorney general
(or their designees)—and (2) eight appointed members, one by each of
the legislative leaders and two by the governor. Most appointed
members must have expertise in entrepreneurship, financial products
or services, blockchain technology, or cryptocurrency, except that the
members appointed by the House and Senate majority leaders must be
academics. The bill requires the governor to appoint one of the ex-officio
members as the council’s chairperson, who must hold the council’s first 2022SB-00482-R000622-BA.DOCX
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meeting by October 1, 2022. At this meeting, the council’s members must
elect a vice chairperson from among the appointed members.
Under the bill, appointed members serve without pay, but must be
reimbursed for necessary expenses incurred when performing their
duties, within available funds.
Terms. Initial appointments must be made by September 1, 2022;
most members serve an initial term of four years, except that one
gubernatorial appointee and the House speaker’s and Senate president
pro tempore’s appointees serve an initial term of two years. Initial
appointments terminate on August 31, 2024 or 2026, as applicable,
regardless of when the initial appointment was made. After the initial
term, appointed members serve four-year terms and may be
reappointed, but only for two consecutive terms. Vacancies must be
filled by the appointing authority, and those occurring other than by
term expiration must be filled for the unexpired term balance.
Conflicts of Interest. The bill specifies that it is not a conflict of
interest for a trustee, director, partner, officer, stockholder, proprietor,
counsel or employee of any company, or any individual with a financial
interest in a company, to serve on the Innovation Council. But all council
members are deemed public officials and must follow the state code of
ethics, except that they do not have to file a statement of financial
interest.
Powers and Duties. The bill gives the council the following powers
and duties:
1. setting standards, principles, guidelines, and policy priorities for
the innovations the sandbox will support;
2. helping publicize and encourage sandbox participation;
3. obtaining from any executive department, board, commission, or
other state agency any assistance and data that is necessary and
available to carry out the bill’s purposes;
4. verifying applicant eligibility with applicable agencies, 2022SB-00482-R000622-BA.DOCX
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reviewing program applications, and working collaboratively
with applicable agencies to oversee the program and its
participants;
5. exploring, receiving input on, analyzing and making
recommendations on blockchain technology and cryptocurrency
initiatives and applications of blockchain technology that would
benefit the state and its consumers and industries;
6. limiting, to the extent practicable, the amount of risk exposure
from the products and services offered under the program and
establishing safeguards to protect consumers; and
7. performing other acts necessary and appropriate to carry out the
duties described in the bill.
Under the bill, a majority of council members constitutes a quorum
for conducting business. The council may make bylaws to govern its
procedures.
Application Process
Under the bill, any company may apply to the Innovation Council to
participate in the sandbox program for a 36-month period. Companies
licensed or authorized in another jurisdiction may apply, as long as the
company has a physical location in the state. The council must prescribe
the form and manner for applying and the applicable application fee.
Applicants must submit separate applications for each innovative
product or service. The bill requires the council to forward a copy of
each application to the applicable agency for the agency’s review and
recommendation.
Additionally, as a condition of participating in the program,
applicants must agree to submit any employee who is substantially
involved in the innovative product or service’s development, operation,
or management to a criminal history records check.
Application Contents. The bill requires each application to include
the following information: 2022SB-00482-R000622-BA.DOCX
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1. the applicant’s contact information, including legal name,
address, telephone number, e-mail address, and website;
2. disclosure of any criminal convictions of the applicant or any
employee substantially involved in the development, operation,
or management of the innovative product or service;
3. the information the Innovation Council must consider (see
Application Evaluation, below); and
4. any other information reasonably necessary for the council to
determine an applicant's eligibility.
Application Evaluation. The bill requires the Innovation Council to
consider the following when evaluating applications:
1. the nature of the proposed innovative product or service,
including any potential risks to consumers;
2. how the applicant will protect consumers and resolve complaints
during the program period;
3. the applicant’s business plan and availability of capital;
4. if the applicant's management has the necessary expertise to
conduct a pilot of the innovative product or service during the
program period;
5. whether any officer or director who is substantially involved in
an innovative product’s or service’s development, operation, or
management has been convicted of, or is currently under
investigation for, fraud or a violation of state or federal securities
law;
6. if the applicable agency has investigated, sanctioned, or pursued
legal action against the applicant; and
7. any other factor the council or applicable agency finds necessary
to determine whether the applicant or the innovative product or
service furthers program’s goals. 2022SB-00482-R000622-BA.DOCX
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The bill allows the council to deny an application for any reason, but
it must provide its specific reasons for doing so to the applicant. Any
applicant who is denied may reapply to the sandbox program, as long
as they have taken action to address the reasons.
Any application the council approves must not be against the public’s
interest and must not unreasonably increase consumers’ risk.
Application Approval and Conditions. Upon approval, a
participating company has a 36-month period to make the innovative
product or service available to consumers. The applicable agency may
(1) specify, on a case-by-case basis, the maximum number of consumers
permitted to receive the product or service, the maximum value for a
single transaction, or the maximum aggregate value or transactions and
(2) require the company to execute a surety bond or to deposit cash or
marketable securities with the agency, in an amount the agency
determines, as security for potential loss by consumers. The bond, cash,
or marketable securities must be cancelled or refunded when the
company’s waiver under the program expires or the agency determines
that any consumer claims have been satisfied, whichever is later.
Under the bill, the council must post on each applicable agency’s
website (presumably, by providing the information to each agency) a
list of approved participants, the innovated product or service offered,
and any waiver granted.
Nonprofit Partners
The bill allows the Innovation Council to designate nonprofit
organizations as partners to assist sandbox program applicants with the
application process and program participants with designing and
implementing innovative products or services during the program
period or any extension. The organizations may explore, receive input
on, analyze, and make recommendations to the council and program
applicants and participants on innovations and applications of
innovative technology that would provide benefits to the state, its
consumers, and its industries. Nonprofits may apply to the council, in a
form and manner the council prescribes, to serve as a partner. 2022SB-00482-R000622-BA.DOCX
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Conditions of Program Participation
Program Participation Fees. The bill allows the council to impose
(1) participation fees on each approved applicant and (2) additional fees
based on factors like the company’s size or number of consumers. Any
fees imposed must not be unreasonably high or discourage
participation. The council must post any fees it establishes on each
applicable agency’s website (presumably, by providing the information
to each agency). (The bill does not specify or direct how fees may be
used.)
Personal Information. The bill allows the Innovation Council and
applicable agencies to collect personal information relevant and
necessary to accomplish the bill’s purposes. However, this personal
information may not be further disclosed without the person’s written
consent. Any documents, materials, or other information the council or
applicable agency controls or possesses obtained by, created by, or
disclosed to the council, applicable agency, or another person in the
course of reviewing or approving an innovative product or service is (1)
confidential and privileged, (2) not subject to disclosure under the
Freedom of Information Act, and (3) not subject to subpoena or
discovery or admissible as evidence in a civil action in the state.
Required Consumer Disclosures . Under the bill, program
participants must disclose to a consumer the following information,
clearly and conspicuously in English and Spanish, before providing an
innovative product or service to the consumer:
1. the participant’s name and contact information;
2. that the innovative product or service is authorized under the bill
for a temporary period;
3. that neither the state nor the applicable agency (a) endorses or
recommends the innovative product or service or (b) is subject to
any liability for losses or damages caused by it;
4. that the consumer may contact the applicable agency to file a
complaint regarding the innovative product or service and the 2022SB-00482-R000622-BA.DOCX
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contact information for the applicable agency; and
5. any other statements or disclosures that the applicable agency
may require.
Termination. Under the bill, the council, in consultation with the
applicable agency, may terminate a company’s participation in the
program at any time and for any reason, as long as the council provides
the participant 10 days' notice. Participants are entitled to notice and
hearing under the Uniform Administrative Procedure Act, but the
council’s decision is not subject to appeal.
Program participants may submit a written request to the council and
applicable agency to exit the program at any time, as long as the
applicant has resolved any consumer complaints and notified the
applicable agency the consumers were not harmed by the innovative
product or service.
Reporting. At the end of the program and any extensions, each
program participant must submit a report to the Innovation Council and
the applicable agency in the form and manner the applicable agency
prescribes. The report must include a description of the innovative
product or service, the number of consumers to which it was provided,
and any other information the applicable agency requires.
Applicable agencies must establish reporting requirements for
program participants, including information about any consumer
complaints.
Extensions
The bill allows program participants to request to extend the program
period. But the Innovation Council and the appliable agency must first
agree that the extension furthers the bill’s purposes and there are no
unreasonable risks to consumers by extending the period.
Post-Program
Under the bill, if a program participant is unable to get a license or
other authorization for the innovative product or service from the 2022SB-00482-R000622-BA.DOCX
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applicable agency within 90 days after the program and any extension
expires, the participant must wind down its operations with its existing
consumers. However, the participant may, with respect to the product
or service (1) collect or receive money a consumer owes based on an
agreement made before the program expired, (2) take any necessary
legal action, and (3) take other action authorized by the applicable
agency. If the participant has ongoing duties after the 90-day period
expires, the participant must continue fulfilling only those duties or
arrange for another company to do so.
Expedited Licensure or Authorization. Under the bill, each
applicable agency must adopt regulations to establish an expedited
process for participants to receive a license or authorization after the
program and any extension is complete. Participants must have
resolved any consumer complaints and be in good standing with the
Innovation Council and applicable agency.
Contracts. Contracts between program participants and another
party, entered into during the program, must be governed by their
terms and do not expire or terminate just because the company’s
program participation does, unless such a provision was included in the
contract. Under the bill, self-executing contracts entered into and stored
through blockchain technology are valid and enforceable.
Record Retention. Participants must retain, for at least three years
after the program and any extension expires, all records, documents,
and data regarding the product and service that were produced during
the ordinary course of business. They must also make these records,
documents, and data available to the applicable agency upon written
request.
Program Annual Reports
The bill requires the Innovation Council to annually report on the
Fintech Regulatory Sandbox program to the governor and the Banking;
Commerce; and Finance, Revenue and Bonding committees, and the
first report is due January 1, 2024. The reports must include (1) the
number of program applicants and program participants from the 2022SB-00482-R000622-BA.DOCX
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previous calendar year, (2) a description of each innovative product or
service made available to consumers through the program, and (3)
policy or legislative recommendations for improving or expanding the
program or administering it more efficiently.
INSURTECH REGULATORY SANDBOX
The bill requires the insurance commissioner to establish and begin
implementing by January 1, 2023, an Insurtech Regulatory sandbox
initiative to facilitate the development of new technologies and types of
insurance for start-up insurance companies that do not have the capital
or labor resources to comply with the state’s insurance requirements.
The commissioner must establish the initiative in consultation with
CTNext’s board of directors.
Program Details
Under the bill, the initiative (presumably, through the insurance
commissioner) must set conditions for participating in it and provide an
application process for new companies. The commissioner must accept
all applicants that meet the conditions it sets, except that he may limit
the number of participants in the initiatives’ first two years. He may also
remove participating companies at any time if he determines there is
unreasonable risk to the company’s policy holders or customers.
The initiative must also:
1. provide that the commissioner must waive the requirement for
participating companies to get licensed in the state;
2. establish a light regulatory framework consisting of only the
requirements the commissioner deems crucial to protecting
consumers;
3. designate an employee or employees to exclusively oversee and
manage the initiative;
4. permit in-state consumers to purchase products offered by
participating companies while ensuring that the consumers are
aware that the products have less regulatory oversight; 2022SB-00482-R000622-BA.DOCX
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5. ensure the initiative is structured to match the pace of product
offerings and participating companies’ growth, including
allowing for more rapid product testing and product adjustments
on a weekly or more frequent basis;
6. allow participating companies to remain in the initiative for an
initial 36-month period (or a longer period under conditions set
by the commissioner);
7. establish clear steps that participating companies must meet to
demonstrate their products and services are viable and can be
made available to a wider market; and
8. make reporting requirements for participating companies.
The initiative must also establish the maximum number of policy
holders or named insured or customers and the maximum amount of
risk exposure each participating company may have, and the insurance
commissioner may specify the demographics that participating
companies may serve, in order to protect those least able to make
informed choices about insurance products and understand the relevant
risks of a product offered by a participating company.
Initiative Annual Reports
The bill requires the insurance commissioner to annually submit to
the Commerce; Finance, Revenue and Bonding; and Insurance
committees a report summarizing (1) the number of participating
companies, (2) any products or services they offer, (3) any products or
services deemed to be viable or offered to a wider market, (4) any
participating companies that have established themselves in the state
and become licensed insurance companies, and (5) any other
information the commissioner deems relevant. The first report is due by
January 1, 2024.
COMMITTEE ACTION
Finance, Revenue and Bonding Committee
Joint Favorable 2022SB-00482-R000622-BA.DOCX
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Yea 29 Nay 21 (04/05/2022)