Connecticut 2022 2022 Regular Session

Connecticut Senate Bill SB00482 Comm Sub / Analysis

Filed 04/25/2022

                     
Researcher: HP 	Page 1 	4/25/22 
 
 
 
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 
 
Researcher: HP 	Page 2 	4/25/22 
 
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 
 
Researcher: HP 	Page 3 	4/25/22 
 
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 
 
Researcher: HP 	Page 4 	4/25/22 
 
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 
 
Researcher: HP 	Page 5 	4/25/22 
 
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 
 
Researcher: HP 	Page 6 	4/25/22 
 
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 
 
Researcher: HP 	Page 7 	4/25/22 
 
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 
 
Researcher: HP 	Page 8 	4/25/22 
 
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 
 
Researcher: HP 	Page 9 	4/25/22 
 
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 
 
Researcher: HP 	Page 10 	4/25/22 
 
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 
 
Researcher: HP 	Page 11 	4/25/22 
 
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 
 
Researcher: HP 	Page 12 	4/25/22 
 
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 
 
Researcher: HP 	Page 13 	4/25/22 
 
Yea 29 Nay 21 (04/05/2022)