| 47 | | - | SECTION 1. The legislature finds that digital currency is an asset that is primarily managed or stored electronically. Digital currencies refer to digital currency, cryptocurrency, e‑money, network money, e-cash and others, as defined by various governmental jurisdictions. Digital currency may be recorded on a decentralized ledger on the Internet or a centralized database or ledger system owned by a company. Digital currencies do not have physical form like banknotes or minted coins. Digital currencies are also usually not issued by a governmental body and are generally not considered legal tender. Although digital currency has grown in popularity and acceptance worldwide, there is little regulation of the industry in the United States, with a few states treating digital currency activities as within the scope of money transmitter laws. The legislature further finds that the division of financial institutions of the department of commerce and consumer affairs and the Hawaii technology development corporation are currently conducting a two-year sandbox pilot program to study digital currency transactions, the digital currency innovation lab. The innovation lab allows companies to conduct digital currency transactions without obtaining a money transmitter license while the division of financial institutions evaluates the need for more permanent and comprehensive oversight. The data gathered through the digital currency innovation lab program confirmed that digital currency transactions are not best regulated through existing money transmitter laws and that a new regulatory framework is appropriate. The purpose of this Act is to: (1) Establish a licensing program for special purpose digital currency companies that will replace the digital currency innovation lab; and (2) Allow, for six months, any company participating in the digital currency innovation lab on June 30, 2022, to continue operations if a complete application for licensure is submitted to the division of financial institutions of the department of commerce and consumer affairs by March 1, 2023. SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to title 22, to be appropriately designated and to read as follows: "CHAPTER SPECIAL PURPOSE DIGITAL CURRENCY LICENSING ACT PART I. GENERAL PROVISIONS § -1 Definitions. As used in this chapter, unless the context otherwise requires: "Commissioner" means the commissioner of financial institutions. "Consumer" means a natural person who engages in a transaction that is primarily for that natural person's personal, family, or household purposes. "Control" means ownership of, or the power to vote, twenty-five per cent or more of the outstanding voting securities of a licensee or controlling person. For purposes of determining the percentage of a licensee controlled by any person, there shall be aggregated with the controlling person's interest the interest of any other person controlled by the person, or by any spouse, parent, or child of the person. "Control of digital currency" means the power to execute unilaterally or prevent indefinitely a digital currency transaction. "Control person" means an individual who directly or indirectly exercises control over a licensee or applicant. "Custodial services" means the safekeeping, servicing, and management of customer digital currency and digital assets. "Department" means the department of commerce and consumer affairs. "Digital currency" means any type of digital representation of value that is used as a medium of exchange or a form of digitally stored value. "Digital currency" includes digital representations of value that: (1) Have a centralized repository or administrator; (2) Are decentralized and have no centralized repository or administrator; or (3) May be created or obtained by computing or manufacturing effort. "Digital currency" does not include any of the following: (1) Digital representations of value that: (A) Are used solely within online gaming platforms; (B) Have no market or application outside of those gaming platforms; and (C) Cannot be converted into, or redeemed for, fiat currency or digital currency; (2) Digital representations of value that can be redeemed for goods, services, discounts, or purchases as part of a customer affinity or rewards program with the issuer or other designated merchants, or can be redeemed for digital representations of value in another customer affinity or rewards program, but cannot be converted into or redeemed for fiat currency or digital currency; or (3) Digital representations of value used as part of prepaid cards. "Digital currency administration" means issuing digital currency with the authority to redeem the currency for money, bank credit, or other digital currency. "Digital currency business activity" means: (1) Exchanging, transferring, or storing digital currency or engaging in digital currency administration, whether directly or through an agreement with a digital currency control-services vendor; (2) Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for money or bank credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received; (3) Storing, holding, or maintaining custody or control of digital currency on behalf of others; (4) Buying and selling digital currency as a business; (5) Performing exchange services as a business; or (6) Controlling, administering, or issuing a digital currency. "Digital currency control-services vendor" means a person that has control of digital currency solely under an agreement with a person that, on behalf of another person, assumes control of digital currency. "Division" means the division of financial institutions of the department. "Elder" means an individual who is sixty-two years of age or older. "Exchange" means: (1) The conversion or change of fiat currency or other value into digital currency; (2) The conversion or change of digital currency into fiat currency or other value; or (3) The conversion or change of one form of digital currency into another form of digital currency. "Licensee" means a person who is licensed or required to be licensed under this chapter. "NMLS" means the Nationwide Multistate Licensing System and Registry developed and maintained by the Conference of State Bank Supervisors for the state licensing and registration of state-licensed financial services providers. "Person" means an individual, sole proprietorship, partnership, corporation, limited liability company, limited liability partnership, or other association of individuals, however organized. "Private key" means a unique element of cryptographic data, or any substantially similar analogue, that is: (1) Held by a person; (2) Paired with a unique, publicly available element of cryptographic data; and (3) Associated with an algorithm that is necessary to carry out an encryption or decryption required to execute a transaction. "Special purpose digital currency company" means a person holding a special purpose digital currency license under this chapter. "Stored value" means monetary value that is evidenced by an electronic record. "Tangible net worth" means total assets excluding intangible assets, less total liabilities, in accordance with United States Generally Accepted Accounting Principles. "Transfer" means to assume control of digital currency from or on behalf of a person and to: (1) Credit the digital currency to the account of another person; (2) Move the digital currency from one account of a person to another account of the same person; or (3) Relinquish control of digital currency to another person. "United States dollar equivalent of digital currency" means the equivalent value of a particular digital currency in United States dollars shown on a digital currency exchange based in the United States for a particular date or specified period. § -2 Exclusions. (a) This chapter shall not apply to: (1) The exchange, transfer, or storage of digital currency or to digital currency administration to the extent regulated by the Securities Exchange Act of 1934 (15 U.S.C. chapter 2B) or Commodity Exchange Act (7 U.S.C. chapter 1); (2) Activity by a person that: (A) Contributes only connectivity software or computing power to a decentralized digital currency or to a protocol governing transfer of the digital representation of value; (B) Provides only data storage or security services for a business engaged in digital currency business activity and does not otherwise engage in digital currency business activity on behalf of another person; or (C) Provides only to a person, that is otherwise exempt from this chapter, digital currency as one or more enterprise solutions used solely among each other and has no agreement or relationship with a person that is an end-user of digital currency; (3) A person using digital currency, including creating, investing, buying or selling, or obtaining digital currency as payment for the purchase or sale of goods or services, solely for academic purposes; (4) A person whose digital currency business activity with or on behalf of persons is reasonably expected to be valued, in the aggregate, on an annual basis at $5,000 or less, measured by the United States dollar equivalent of digital currency; (5) An attorney to the extent of providing escrow services to a person; (6) A securities intermediary, as defined in section 490:8-102, or commodity intermediary, as defined in section 490:9-102; (7) A digital currency control-services vendor; (8) A person that: (A) Does not receive compensation from a person for: (i) Providing digital currency products or services; or (ii) Conducting digital currency business activity; or (B) Is engaged in testing products or services with the person's own funds or digital currency; (9) Non-custodial digital currency business activity by a person using a digital currency acknowledged as legal tender by the United States, or government recognized by the United States, or that has been determined not to be a security by a United States regulatory agency; or (10) Banks, bank holding companies, credit unions, savings banks, financial services loan companies, and mutual banks organized under the laws of the United States or any state. (b) The commissioner may determine whether a person or class of persons shall be exempt from this chapter. § -3 Powers of commissioner. In addition to any other powers provided by law, the commissioner may: (1) Adopt rules pursuant to chapter 91 as the commissioner deems necessary for the administration of this chapter; (2) Issue declaratory rulings or informal nonbinding interpretations; (3) Investigate and conduct hearings regarding any violation of this chapter or any rule or order of, or agreement with, the commissioner; (4) Create fact-finding committees that may make recommendations to the commissioner for the commissioner's deliberations; (5) Require an applicant or any of its control persons, executive officers, directors, general partners, and managing members to disclose their relevant criminal history and request a criminal history record check to be conducted by or through NMLS or pursuant to chapter 846. The information shall be accompanied by the appropriate payment of the applicable fee for each criminal history record check; (6) Contract with or employ qualified persons, including accountants, attorneys, investigators, examiners, auditors, or other professionals who may be exempt from chapter 76 and who shall assist the commissioner in exercising the commissioner's powers and duties; (7) Process and investigate complaints, subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including telephonic communications, and do anything necessary or incidental to the exercise of the commissioner's power and duties, including the authority to conduct contested case proceedings under chapter 91; (8) Require a licensee to comply with any rule, guidance, guideline, statement, supervisory policy, or any similar proclamation issued or adopted by the Federal Deposit Insurance Corporation to the same extent and in the same manner as a bank chartered by the State, or any policy position of the Conference of State Bank Supervisors; (9) Enter into agreements or relationships with other government officials or regulatory associations to improve efficiencies and reduce regulatory burden by sharing resources; standardized or uniform methods or procedures; and documents, records, information, or evidence obtained under this chapter; (10) Use, hire, contract, or employ publicly or privately available analytical systems, methods, or software to investigate or examine a licensee or person subject to this chapter; (11) Accept and rely on investigation or examination reports made by other government officials, within or outside the State; (12) Accept audit reports made by an independent certified public accountant for the licensee or person subject to this chapter during that part of the examination covering the same general subject matter as the audit and may incorporate the audit report in the report of the examination, report of investigation, or other writing of the commissioner; and (13) Enter into agreements with, hire, retain, or contract with private and governmental entities to develop and create educational programs relating to digital currency. PART II. LICENSING § -11 License required. (a) A person shall not engage in digital currency business activity, or hold itself out as being able to engage in digital currency business activity, with or on behalf of another person unless the person is: (1) Licensed in the State under this chapter; or (2) Excluded from licensing under section -2. (b) Any transaction made in violation of this section shall be void, and no person shall have the right to collect, receive, or retain any principal, interest, fees, or other charges in connection with the transaction. § -12 Payment of fees. All fees, fines, penalties, and other charges collected pursuant to this chapter or by rule shall be deposited with the director of commerce and consumer affairs to the credit of the compliance resolution fund established pursuant to section 26‑9(o). Payments shall be made through NMLS, to the extent allowed by NMLS. § -13 License; application; issuance. (a) The commissioner shall require all licensees to register with NMLS. (b) Applicants for a license shall apply in a form as prescribed by NMLS or by the commissioner. The application shall contain, at a minimum, the following information: (1) The legal name, trade names, and business address of: (A) The applicant; and (B) Every control person, executive officer, director, general partner, and managing member, if the applicant is a partnership, association, limited liability company, limited liability partnership, or corporation; (2) The applicant's principal place of business located in the United States; (3) The complete address of any other branch offices at which the applicant currently proposes to engage in digital currency business activity in the State; and (4) Other data, financial statements, and pertinent information as the commissioner may require with respect to the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members. (c) To fulfill the purposes of this chapter, the commissioner may enter into agreements or contracts with NMLS or other entities to use NMLS to collect and maintain records and process transaction fees or other fees related to licensees or other persons subject to this chapter. (d) For the purpose and to the extent necessary to participate in NMLS, the commissioner may waive or modify, in whole or in part, by rule or order, any or all of the requirements of this chapter and establish new requirements as reasonably necessary to participate in NMLS. (e) In connection with an application for a license under this chapter, the applicant, at a minimum, shall furnish to NMLS information or material concerning the applicant's identity, including: (1) Fingerprints of the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive the fingerprints for a state, national, and international criminal history background check, accompanied by the applicable fee charged by the entities conducting the criminal history background check; and (2) Personal history and experience of the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members in a form prescribed by NMLS, including the submission of authorization for NMLS and the commissioner to obtain: (A) An independent credit report obtained from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act, title 15 United States Code section 1681a(p); and (B) Information related to any administrative, civil, or criminal findings by any governmental jurisdiction; provided that the commissioner may use any information obtained pursuant to this subsection or through NMLS to determine an applicant's demonstrated financial responsibility, character, and general fitness for licensure. (f) The commissioner may use NMLS as an agent for requesting information from and distributing information to the United States Department of Justice or any governmental agency. (g) The commissioner may use NMLS as an agent for requesting and distributing information to and from any source directed by the commissioner. (h) An applicant for a license as a special purpose digital currency company shall be registered with the business registration division of the department to do business in the State before a license pursuant to this chapter is granted. § -14 Issuance of license; grounds for denial. (a) The commissioner shall investigate every applicant to determine the financial responsibility, character, and general fitness of the applicant. The commissioner shall issue the applicant a license to engage in the digital currency business activity if the commissioner determines that: (1) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has never had a special purpose digital currency license revoked in any jurisdiction; provided that a subsequent formal vacation of a revocation shall not be deemed a revocation for purposes of this section; (2) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has not been convicted of, pled guilty or nolo contendere to, or been granted a deferred acceptance of a guilty plea under federal law or the laws of any state to a felony in a domestic, foreign, or military court: (A) During the seven-year period preceding the date of the application for licensing; or (B) At any time preceding the date of application, if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering; provided that any pardon of a conviction shall not be deemed a conviction for the purposes of this section; (3) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has demonstrated financial responsibility, character, and general fitness to command the confidence of the community and to warrant a determination that the applicant shall operate honestly, fairly, and efficiently, pursuant to this chapter. For the purposes of this paragraph, a person is not financially responsible when the person has shown a disregard in the management of the person's financial condition. A determination that a person has shown a disregard in the management of the person's financial condition may be based upon: (A) Current outstanding judgments, except judgments solely as a result of medical expenses; (B) Current outstanding tax liens or other government liens and filings, subject to applicable disclosure laws and administrative rules; (C) Foreclosures within the preceding three years; and (D) A pattern of seriously delinquent accounts within the preceding three years; (4) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has not been convicted of, pled guilty or nolo contendere to, or been granted a deferred acceptance of a guilty plea under federal law or the laws of any state to any misdemeanor involving an act of fraud, dishonesty, breach of trust, or money laundering; (5) The applicant has satisfied the licensing requirements of this chapter; and (6) The applicant has provided the bond required by section -17. (b) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members shall submit authorization to the commissioner for the commissioner to conduct background checks to determine or verify the information in subsection (a) in each state in which the person has conducted digital currency business activity. Authorization pursuant to this subsection shall include consent to provide additional fingerprints, if necessary, to law enforcement or regulatory bodies in other states. (c) A license shall not be issued to an applicant: (1) Whose license to conduct business under this chapter, or any similar statute in any other jurisdiction, has been suspended or revoked within five years of the filing of the present application; (2) Whose license to conduct digital currency business activity has been revoked by an administrative order issued by the commissioner or the commissioner's designee, or the licensing authority of another state or jurisdiction, for the period specified in the administrative order; (3) Who has advertised directly and purposefully to consumers in the State or conducted transactions in violation of this chapter; or (4) Who has failed to complete an application for licensure. (d) A license issued in accordance with this chapter shall remain in force and effect until surrendered, suspended, or revoked, or until the license expires as a result of nonpayment of the annual license renewal fee as required by this chapter. § -15 Anti-money laundering program. (a) Each licensee shall conduct an initial risk assessment that shall consider legal, compliance, financial, and reputational risks associated with the licensee's activities, services, customers, counterparties, and geographic location and establish, maintain, and enforce an anti-money laundering program based on the risk assessment. The licensee shall conduct additional risk assessments on an annual basis, or more frequently as risks change, and modify its anti-money laundering program as appropriate. (b) Each licensee shall, at a minimum: (1) Establish an effective anti-money laundering compliance program in accordance with the federal Anti-Money Laundering Act of 2020; (2) Establish an effective customer due diligence system and monitoring program; (3) Screen against the Office of Foreign Assets Control and other government lists; (4) Maintain records of cash purchases or cash transactions and report to the appropriate federal regulatory agency as required by the federal Anti-Money Laundering Act of 2020; (5) Establish an effective suspicious activity monitoring and reporting process; and (6) Develop a risk-based anti-money laundering program. (c) Each licensee shall have in place appropriate policies and procedures to block or reject specific or impermissible transactions that violate federal or state laws, rules, or regulations. § -16 Cybersecurity program. (a) Each licensee shall establish and maintain an effective cybersecurity program to ensure the availability and functionality of the licensee's electronic systems and to protect those systems and any sensitive data stored on those systems from unauthorized access, use, or tampering. The cybersecurity program shall be designed to perform the following core cybersecurity functions: (1) Identify internal and external cybersecurity risks by, at a minimum, identifying the information stored on the licensee's systems, the sensitivity of the information, and how and by whom the information may be accessed; (2) Protect the licensee's electronic systems, and the information stored on those systems, from unauthorized access, use, or other malicious acts through the use of defensive infrastructure and the implementation of policies and procedures; (3) Detect systems intrusions, data breaches, unauthorized access to systems or information, malware, and other cybersecurity events; (4) Respond to detected cybersecurity events to mitigate any negative effects; and (5) Recover from cybersecurity events and restore normal operations and services. (b) Each licensee shall implement a written cybersecurity policy setting forth the licensee's policies and procedures for the protection of its electronic systems and customer and counterparty data stored on those systems, which shall be reviewed and approved by the licensee's board of directors or equivalent governing body at least annually. The cybersecurity policy shall: (1) Establish effective policies, procedures, and controls to effectuate subsection (a); (2) Designate a cybersecurity officer; (3) Develop and implement employee training in accordance with position responsibilities to keep abreast of the changing cybersecurity risk and threats; (4) Establish a method of independent testing; and (5) Maintain records. § -17 Fees; bond. (a) A special purpose digital currency company shall pay the following fees to the division through NMLS to obtain and maintain a valid license under this chapter: (1) Initial nonrefundable application fee of $9,000; (2) Nonrefundable renewal application fee of $1,000; and (3) Fees collected by NMLS for the processing of the application, including applicable fees charged by the entities conducting: (A) The criminal history background check of each of the applicant's control persons, executive officers, directors, general partners, and managing members for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive the fingerprints for a state, national, and international criminal history background check; and (B) An independent credit report obtained from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act, title 15 United States Code section 1681a(p). (b) Every licensee shall be assessed quarterly based on the total value of transactions in the State, in United States dollar equivalent of digital currency as reported in the quarterly reports. The quarterly assessments shall be assessed the quarter after the applicant is licensed in accordance with the following: (1) For licensees with total value of transactions in United States dollar equivalent of digital currency under $10,000, the quarterly assessment shall be $2,500; (2) For licensees with total value of transactions in United States dollar equivalent of digital currency between $10,000.01 and $15,000, the quarterly assessment shall be $3,750; (3) For licensees with total value of transactions in United States dollar equivalent of digital currency between $15,000.01 and $25,000, the quarterly assessment shall $6,250; (4) For licensees with total value of transactions in United States dollar equivalent of digital currency between $25,000.01 and $35,000, the quarterly assessment shall be $8,750; and (5) For licensees with total value of transactions in United States dollar equivalent of digital currency over $35,000.01, the quarterly assessment shall be $12,500. (c) The assessments shall be paid quarterly on February 15, May 15, August 15, and November 15 of each year based on the licensee's quarterly reports as of the previous December 31, March 31, June 30, and September 30, respectively. (d) The digital assets shall be based on the United States dollar equivalent of digital currency held on behalf of customers, calculated on United States dollars from the company's quarterly report based on the trading price of the asset on the licensee's platform as of 4:30 p.m. Hawaii Standard Time. (e) The applicant shall file and maintain a surety bond that is approved by the commissioner and executed by the applicant as obligor and by a surety company authorized to operate as a surety in the State, whose liability as a surety does not exceed, in the aggregate, the penal sum of the bond. The penal sum of the bond shall be a minimum of $500,000, based upon the annual United States dollar equivalent of digital currency as reported in the annual renewal report. (f) The bond required by subsection (e) shall run to the State of Hawaii as obligee for the use and benefit of the State and of any person or persons who may have a cause of action against the licensee as obligor under this chapter. The bond shall be conditioned upon the following: (1) The licensee as obligor shall faithfully conform to and abide by this chapter and all the rules adopted under this chapter; and (2) The bond shall pay to the State and any person or persons having a cause of action against the licensee as obligor all moneys that may become due and owing to the State and those persons under and by virtue of this chapter. § -18 Renewal of license; annual report; quarterly reports. (a) The annual audited financial statement report shall be filed in accordance with NMLS policy. The annual audited financial statement report shall include balance sheets, statement of income or loss, statement of changes in shareholders' equity, and statement of cash flows or, if a licensee is a wholly owned subsidiary of another corporation, the consolidated audited annual financial statement of the parent corporation in lieu of the licensee's audited annual financial statement. (b) The quarterly reports shall be filed in a form prescribed by the commissioner, which shall include: (1) A report detailing the special purpose digital currency company's activities in the State since the prior reporting period, including: (A) The number of stored value accounts opened; (B) The number of transactions processed; (C) The total value of transactions in United States dollar equivalent of digital currency; (D) The number of system outages; (E) A chart of accounts, including a description of each account; and (F) Any other information that the commissioner may require related to performance metrics and the efficacy of the special purpose digital currency license program; (2) Any material changes to any of the information submitted by the licensee on its original application that have not previously been reported to the commissioner on any other report required to be filed under this chapter; (3) Disclosure of any pending or final suspension, revocation, or other enforcement action by any state or governmental authority; and (4) Any other information the commissioner may require. (c) A license may be renewed by continuing to meet the licensing requirements of sections -13, -14, and -15, filing a completed renewal application on a form prescribed by NMLS or by the commissioner, paying a renewal fee, and meeting the requirements of this section. (d) At renewal, the license of a licensee that has not filed an application deemed complete by the commissioner, an annual audited financial statement report, or quarterly reports, or paid the quarterly assessments pursuant to -17, and has not been granted an extension of time by the commissioner, shall be suspended on the renewal date. The licensee shall have thirty days after its license is suspended to file the completed application, annual audited financial statement report, or quarterly reports, or pay the quarterly assessments pursuant to -17, plus a late filing fee of $250 for each day after suspension that the commissioner does not receive the completed application, annual audited financial statement report, quarterly reports, or the quarterly assessment. The commissioner, for good cause, may reduce or suspend the late filing fee. § -19 Principal place of business. (a) Each special purpose digital currency company shall have and maintain a principal place of business in the United States, regardless of whether the special purpose digital currency company maintains its principal office outside of the United States. (b) The principal place of business of the special purpose digital currency company shall be identified in NMLS. § -20 Sale or transfer of license; change of control. (a) No special purpose digital currency company license shall be transferred, except as provided in this section. (b) A person or group of persons requesting approval of a proposed change of control of a licensee shall submit to the commissioner an application requesting approval of a proposed change of control of the licensee, accompanied by a nonrefundable application fee of $10,000. (c) After review of an application requesting approval under subsection (b), the commissioner may require the licensee or person or group of persons requesting approval of a proposed change of control of the licensee, or both, to provide additional information concerning the persons who shall assume control of the licensee. The additional information shall be limited to similar information required of the licensee or persons in control of the licensee as part of its original license or renewal application. The information shall include, for the five-year period prior to the date of the application for change of control of the licensee, a history of material litigation and criminal convictions of each person who, upon approval of the application for change of control, will be a principal of the licensee. Authorization shall also be given to conduct criminal history record checks of those persons, accompanied by the appropriate payment of the applicable fee for each record check. (d) The commissioner shall approve an application requesting a change of control under subsection (b) if, after investigation, the commissioner determines that the person or group of persons requesting approval has the competence, experience, character, and general fitness to control the licensee or person in control of the licensee in a lawful and proper manner, and that the interests of the public will not be jeopardized by the change of control. (e) The following persons shall be exempt from the requirements of subsection (b); provided that the licensee shall notify the commissioner when a change of control results in the following: (1) A person who acts as a proxy for the sole purpose of voting at a designated meeting of the security holders or holders of voting interests of a licensee or person in control of a licensee; (2) A person who acquires control of a licensee by devise or descent; (3) A person who acquires control as a personal representative, custodian, guardian, conservator, trustee, or as an officer appointed by a court of competent jurisdiction or by operation of law; or (4) A person whom the commissioner, by rule or order, exempts in the public interest. (f) Before filing an application requesting approval for a change of control, a person may request, in writing, a determination from the commissioner as to whether the person would be considered a person in control of a licensee upon consummation of a proposed transaction. If the commissioner determines that the person would not be a person in control of a licensee, the commissioner shall enter an order to that effect and the proposed person and transaction shall not be subject to subsections (b) through (d). (g) Subsection (b) shall not apply to public offerings of securities. § -21 Ownership and control of digital currency. (a) A licensee that has control of digital currency for one or more persons shall maintain control of digital currency in each type of digital currency sufficient to satisfy the aggregate entitlements of the persons to the type of digital currency. (b) If a licensee violates subsection (a), the property interests of the persons in the digital currency shall be pro rata property interests in the type of digital currency to which the persons are entitled, without regard to the time the persons became entitled to the digital currency or the licensee obtained control of the digital currency. (c) The digital currency referred to in this section shall: (1) Be held for the persons entitled to the digital currency; (2) Not be considered property of the licensee; and (3) Not be subject to the claims of creditors of the licensee. (d) To the extent a licensee stores, holds, or maintains custody or control of digital currency on behalf of another person, the licensee shall hold digital currency of the same type and amount as that which is owed or obligated to that other person. (e) Each licensee shall be prohibited from selling, transferring, assigning, lending, hypothecating, pledging, or otherwise using or encumbering assets, including digital currency, stored, held, or maintained by, or under the custody or control of, the licensee on behalf of another person except for the sale, transfer, or assignment of the assets at the direction of that other person, unless clearly presented and stated to the client that doing so is the intent of the product. PART III. DISCLOSURES, ADVERTISING, AND RECORDKEEPING § -31 Required disclosures. (a) A licensee that engages in digital currency business activity shall provide to a person who uses the licensee's products or service the disclosures required by subsection (b) and any additional disclosure the commissioner determines reasonably necessary for the protection of persons. The commissioner shall determine the time and form required for disclosure. A disclosure required by this section shall be made separately from any other information provided by the licensee and kept by the person in a clear and conspicuous manner in a record. A licensee may propose for the commissioner's approval alternate disclosures as more appropriate for its digital currency business activity. (b) Before establishing a relationship with a person, a licensee shall disclose the following, to the extent applicable to the digital currency business activity the licensee will undertake with the person: (1) A schedule of fees and charges the licensee may assess, how fees and charges will be calculated if they are not set in advance and disclosed, and the timing of the fees and charges; (2) Whether the product or service provided by the licensee is covered by: (A) A form of insurance or is otherwise guaranteed against loss by an agency of the United States, including the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation, up to the full United States dollar equivalent of digital currency purchased from the licensee or for control of digital currency by the licensee; or (B) Private insurance against theft or loss, including cyber theft or theft by other means; (3) The irrevocability of a transfer or exchange; (4) The method by which the person can update the person's contact information with the licensee; (5) That the date or time when the transfer or exchange is made, and when the person's account is debited, may differ from the date or time when the person initiates the instruction to make the transfer or exchange; (6) The person's right to receive a receipt or other evidence of the transfer or exchange; (7) The person's right to at least thirty days notice of a change in the licensee's fee schedule, other terms and conditions of operating its digital currency business activity with the person and the policies applicable to the person's account; and (8) That digital currency is not money. (c) At the end of a transaction with or on behalf of a person, a licensee shall provide the person a confirmation in a record that contains: (1) The name and contact information of the licensee, including information the person may need to ask a question or file a complaint; (2) The type, value, date, precise time, and amount of the transaction; and (3) The fee charged for the transaction, including any charge for conversion of digital currency to money, bank credit, or other digital currency. § -32 Tangible net worth requirement; records. (a) A licensee engaged in digital currency business activity shall maintain at all times, a tangible net worth of no less than $500,000, or an amount determined by the commissioner necessary to ensure safe and sound operation. (b) Each licensee shall make, keep, preserve, and make available for inspection by the commissioner the books, accounts, and other records required in subsection (c). A licensee shall maintain records required by subsection (c) in a form that enables the commissioner to determine whether the licensee is in compliance with this chapter, any court order, and the laws of the State. (c) A licensee shall maintain, for all digital currency business activity with or on behalf of a person five years after the date of the activity, a record of: (1) Each transaction of the licensee with or on behalf of the person or for the licensee's account in the State, including: (A) The identity of the person; (B) The form of the transaction; (C) The amount, date, and payment instructions given by the person; and (D) The account number, name, and United States Postal Service address of the person, and, to the extent feasible, other parties to the transaction; (2) The aggregate number of transactions and aggregate value of transactions by the licensee with or on behalf of the person and for the licensee's account in this State, expressed in United States dollar equivalent of digital currency for the previous twelve calendar months; (3) Each transaction in which the licensee exchanges one form of digital currency for money or another form of digital currency with or on behalf of the person; (4) A general ledger posted at least monthly that lists all assets, liabilities, capital, income, ownership equity, and expenses of the licensee; (5) Each business-call report the licensee is required to create or provide to the division or NMLS; (6) Bank statements and bank reconciliation records for the licensee and the name, account number, and United States Postal Service address of each bank the licensee uses in the conduct of its digital currency business activity with or on behalf of the person; (7) Communications and documentation related to investigations of customer complaints; and (8) A report of any transaction with or on behalf of a person that the licensee was unable to complete. § -33 Advertising and marketing. (a) Each licensee engaged in digital currency business activity shall not advertise its products, services, or activities in the State or to consumers in the State without including the name of the licensee and the legend that such licensee is "Licensed to engage in Digital Currency Business Activity by the State of Hawaii, Department of Commerce and Consumer Affairs' Division of Financial Institutions". (b) Each licensee shall maintain, for examination by the commissioner, all advertising and marketing materials for a period of at least seven years from the date of their creation, including but not limited to print media, internet media, websites, radio and television advertising, road show materials, presentations, and brochures. Each licensee shall maintain hard copy, website captures of material changes to internet advertising and marketing, and audio and video scripts of its advertising and marketing materials, as applicable. (c) In all advertising and marketing materials, each licensee shall comply with all disclosure requirements under federal and state laws, rules, and regulations. (d) In all advertising and marketing materials, each licensee and any person or entity acting on its behalf, shall not, directly or by implication, make any false, misleading, or deceptive representations or omissions. § -34 Confidentiality. (a) Except as otherwise provided in title 12 United States Code section 5111, the requirements under any federal or state law regarding the privacy or confidentiality of any information or material provided to NMLS, and any privilege arising under federal or state law, including the rules of any federal or state court, with respect to the information or material, shall continue to apply to the information or material after the information or material has been disclosed to NMLS. The information and material may be shared with all federal and state regulatory officials with oversight authority over transactions subject to this chapter, without the loss of privilege or the loss of confidentiality protections provided by federal or state law. (b) For the purposes of this section, the commissioner may enter into agreements or sharing arrangements with other governmental agencies, the Conference of State Bank Supervisors, or other associations representing governmental agencies as established by rule or order of the commissioner. (c) Information or material that is subject to a privilege or confidentiality under subsection (a) shall not be subject to: (1) Disclosure under chapter 92F; or (2) Subpoena or discovery, or admission into evidence, in any private civil action or administrative process, unless any privilege is determined by NMLS to be applicable to the information or material; provided that the person to whom the information or material pertains waives that privilege, in whole or in part, in the discretion of the person. (d) Notwithstanding chapter 92F, the examination process and related information and documents, including the reports of examination, shall be confidential and shall not be subject to discovery or disclosure in civil or criminal lawsuits. (e) In the event of a conflict between this section and any other section of law relating to the disclosure of privileged or confidential information or material, this section shall control. (f) This section shall not apply to information or material relating to the employment history of, and publicly adjudicated disciplinary and enforcement actions against, any persons that are included in NMLS for access by the public. PART IV. ENFORCEMENT § -41 Enforcement authority; violations; penalties. (a) To ensure the effective supervision and enforcement of this chapter, the commissioner may take any disciplinary action specified in subsection (b) against an applicant or licensee if the commissioner finds that: (1) The applicant or licensee has violated this chapter, or any rule or order lawfully adopted pursuant to this chapter; (2) The applicant has failed to disclose facts or conditions that would have clearly justified the commissioner in denying an application for licensure, had these facts or conditions been known to exist at the time the application was made; (3) The applicant or licensee has failed to provide information required by the commissioner within a reasonable time, as specified by the commissioner; (4) The applicant or licensee has failed to provide or maintain proof of financial responsibility; (5) The applicant or licensee is insolvent; (6) The applicant or licensee has made, in any document or statement filed with the commissioner, a false representation of a material fact or has omitted to state a material fact; (7) The applicant, licensee, or, if an applicant or licensee is not an individual, any of the applicant's or licensee's control persons, executive officers, directors, general partners, or managing members have been convicted of or entered a plea of guilty or nolo contendere to a crime involving fraud or deceit, or to any similar crime under the jurisdiction of any federal court or court of another state; (8) The applicant or licensee has failed to make, maintain, or produce records that comply with section -42 or any rule adopted by the commissioner pursuant to chapter 91; (9) The applicant or licensee has been the subject of any disciplinary action by any state or federal agency that resulted in revocation of a license; (10) A final judgment has been entered against the applicant or licensee for violations of this chapter, any state or federal law concerning a special purpose digital currency license or money transmitter license, or any state or federal law prohibiting unfair or deceptive acts or practices; or (11) The applicant or licensee has failed, in a timely manner as specified by the commissioner, to take or provide proof of the corrective action required by the commissioner after an investigation or examination pursuant to section -42. (b) After a finding of one or more of the conditions under subsection (a), the commissioner may take any or all the following actions: (1) Deny an application for licensure, including an application for a branch office license; (2) Suspend or revoke the license in accordance with section -45; (3) Issue an order to the licensee to cease and desist in accordance with section -46 from engaging in any digital currency business activity; (4) Order the licensee to make refunds to consumers of excess charges under this chapter; or (5) Impose penalties of up to $10,000 for each violation in accordance with section -48. (c) The commissioner may issue a temporary cease and desist order if the commissioner makes a finding that the licensee, applicant, or person is engaging, has engaged, or is about to engage in an illegal, unauthorized, unsafe, or unsound practice in violation of this chapter. Whenever the commissioner denies a license application or takes disciplinary action pursuant to this subsection, the commissioner shall enter an order to that effect and notify the licensee, applicant, or person of the denial or disciplinary action. The notification required by this subsection shall be given by personal service or by certified mail to the last known address of the licensee or applicant as shown on the application or license, or as subsequently furnished in writing to the commissioner. (d) The revocation, suspension, expiration, or surrender of a license shall not affect the licensee's liability for acts previously committed or impair the commissioner's ability to issue a final agency order or take disciplinary action against the licensee. (e) No revocation, suspension, consent order, or surrender of a license shall impair or affect the obligation of any preexisting lawful contract between the licensee and any consumer. (f) The commissioner may reinstate a license, terminate a suspension, or grant a new license to a person whose license has been revoked or suspended if no fact or condition then exists that would clearly justify the commissioner in revoking, suspending, or refusing to grant a license. (g) The commissioner may impose an administrative fine on a licensee or person subject to this chapter if the commissioner finds on the record after notice and opportunity for hearing that the licensee or person subject to this chapter has violated or failed to comply with any requirement of this chapter or any rule adopted by the commissioner under this chapter or order issued under the authority of this chapter. (h) Each violation or failure to comply with any directive or order of the commissioner shall be a separate and distinct violation. § -42 Investigation and examination authority. (a) In addition to the authority granted under section -3, the commissioner may conduct investigations and examinations in accordance with this section. The commissioner may access, receive, and use any books, accounts, records, files, documents, information, or evidence that the commissioner deems relevant to the investigation or examination, regardless of the location, possession, control, or custody of the documents, information, or evidence. (b) For the purposes of investigating violations or complaints arising under this chapter, or for the purposes of examination, the commissioner may review, investigate, or examine any licensee or person subject to this chapter as often as necessary to carry out the purposes of this chapter. The commissioner may direct, subpoena, or order the attendance of, and examine under oath, all persons whose testimony may be required about transactions or the business or subject matter of any investigation or examination and may direct, subpoena, or order the person to produce books, accounts, records, files, and any other documents the commissioner deems relevant to the inquiry. (c) Each licensee or person subject to this chapter shall provide to the commissioner, upon request, the books and records relating to the operations of the licensee or person subject to this chapter. The commissioner shall have access to the books and records and shall be permitted to interview the control persons, executive officers, directors, general partners, managing members, principals, managers, employees, independent contractors, agents, and consumers of the licensee or person subject to this chapter concerning their business. (d) Each licensee or person subject to this chapter shall make or compile reports or prepare other information, as directed by the commissioner, to carry out the purposes of this section, including: (1) Accounting compilations; (2) Information lists and data concerning transactions in a format prescribed by the commissioner; or (3) Other information that the commissioner deems necessary. (e) In conducting any investigation or examination authorized by this chapter, the commissioner may control access to any documents and records of the licensee or person under investigation or examination. The commissioner may take possession of the documents and records or place a person in exclusive charge of the documents and records. During the period of control, no person shall remove or attempt to remove any of the documents and records except pursuant to a court order or with the consent of the commissioner. Unless the commissioner has reasonable grounds to believe the documents or records of the licensee or person under investigation or examination have been, or are at risk of being, altered or destroyed for the purposes of concealing a violation of this chapter, the licensee or owner of the documents and records shall have access to the documents or records as necessary to conduct its ordinary business affairs. (f) The authority of this section shall remain in effect, whether a licensee or person subject to this chapter acts or claims to act under any licensing or registration law of this State or claims to act without such authority. (g) No licensee or person subject to investigation or examination under this section may knowingly withhold, abstract, remove, mutilate, destroy, or conceal any books, records, computer records, or other information. (h) The commissioner may charge an investigation or examination fee, payable to the commissioner, based upon the cost per hour per examiner for all licensees and persons subject to this chapter investigated or examined by the commissioner or the commissioner's staff. The hourly fee shall be $60 or an amount as the commissioner shall establish by rule pursuant to chapter 91. In addition to the investigation or examination fee, the commissioner may charge any person who is investigated or examined by the commissioner or the commissioner's staff pursuant to this section additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the investigation or examination, payable to the commissioner. (i) Any person having reason to believe that this chapter or the rules adopted under this chapter have been violated, or that a license issued under this chapter should be suspended or revoked, may file a written complaint with the commissioner, setting forth the details of the alleged violation or grounds for suspension or revocation. § -43 Prohibited practices. (a) It shall be a violation of this chapter for a licensee, its control persons, executive officers, directors, general partners, managing members, employees, or independent contractors, or any other person subject to this chapter to: (1) Engage in any act that limits or restricts the application of this chapter; (2) Use a customer's digital currency account number to prepare, issue, or create a transaction on behalf of the consumer without the customer's authorization; (3) Charge, collect, or receive, directly or indirectly, fees for negotiating transactions except those explicitly authorized in this chapter; (4) Fail to make disclosures as required by this chapter and any other applicable federal or state law, including rules or regulations adopted pursuant to federal or state law; (5) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead any consumer or person; (6) Directly or indirectly engage in unfair or deceptive acts, practices, or advertising in connection with a digital currency business activity toward any person; (7) Directly or indirectly obtain digital currency by fraud or misrepresentation; (8) Conduct digital currency business activity with any person physically located in the State through the use of the Internet, facsimile, telephone, kiosk, or other means without first obtaining a license under this chapter; (9) Make, in any manner, any false or deceptive statement or representation, including with regard to the rates, fees, or other financing terms or conditions for digital currency business activity, or engage in bait and switch advertising; (10) Make any false statement or knowingly make any omission of material fact in connection with any reports filed with the division by a licensee or in connection with any investigation conducted by the division; (11) Conduct digital currency business activity from any unlicensed location; (12) Draft funds from any depository financial institution without written approval of the consumer; provided that nothing in this paragraph shall prohibit the conversion of a negotiable instrument into an electronic form for processing through the Automated Clearing House or similar system; (13) Fail to comply with all applicable federal and state laws relating to the activities governed by this chapter; or (14) Fail to pay any fee, assessment, or moneys due to the department. (b) In addition to any other penalties provided for under this chapter, any transaction in violation of subsection (a) shall be void and unenforceable. § -44 Voluntary surrender of license. (a) A licensee may voluntarily cease business and surrender its license by giving written notice through NMLS to the commissioner of the licensee's intent to surrender its license. Prior to the surrender date, the licensee shall have either completed all pending transactions or assigned each pending transaction to another licensee. (b) Notice to the commissioner shall be provided at least thirty days before the surrender of the license and shall include: (1) The date of surrender; (2) The name, address, telephone number, facsimile number, and electronic mail address of a contact individual with knowledge and authority sufficient to communicate with the commissioner regarding all matters relating to the licensee during the period that it was licensed pursuant to this chapter; (3) The reason or reasons for surrender; (4) The total dollar amount of the licensee's outstanding transactions in the State and the individual amounts of each outstanding transaction, and the name, address, and contact telephone number of the licensee to whom each outstanding transaction was assigned; (5) A list of the licensee's authorized branch offices in the State, if any, as of the date of surrender; (6) Confirmation that the licensee has notified each of its authorized branch offices in the State, if any, that the branch offices shall no longer conduct digital currency business activity on the licensee's behalf; and (7) Confirmation that the licensee has notified each of its digital currency accounts, if any, that the digital currency account is being transferred and the name, address, telephone number, and any other contact information of the licensee or entity described in section -20 to whom the digital currency was assigned. (c) Voluntary surrender of a license shall be effective upon the date of surrender specified on the written notice to the commissioner as required by this section; provided that the licensee has met all the requirements of voluntary surrender and has returned the original license issued. § -45 Suspension or revocation of licenses. The commissioner may suspend or revoke a license if the commissioner finds that: (1) Any fact or condition exists that, if it had existed at the time at which the licensee applied for its license, would have been grounds for denying the licensee's application; (2) The licensee's tangible net worth becomes inadequate and the licensee, after ten days' written notice from the commissioner, fails to take steps as the commissioner deems necessary to remedy a deficiency; (3) The licensee knowingly violates any material provision of this chapter or any rule adopted or order issued by the commissioner under authority of this chapter; (4) The licensee is conducting its business in an unsafe or unsound manner; (5) The licensee is insolvent; (6) The licensee has suspended payment of its obligations, has made an assignment for the benefit of its creditors, or has admitted in writing its inability to pay its debts as they become due; (7) The licensee has filed for bankruptcy, reorganization, arrangement, or other relief under any bankruptcy law; (8) The licensee refuses to permit the commissioner to make any investigation or examination authorized by this chapter; or (9) The competence, experience, character, or general fitness of the licensee indicates that it is not in the public interest to allow the licensee to have a license. § -46 Orders to cease and desist. (a) If the commissioner determines that a licensee's violation of this chapter or a rule adopted or an order issued under this chapter is: (1) Likely to cause immediate and irreparable harm to the licensee, the licensee's customers, or the public as a result of the violation; or (2) Cause insolvency or significant dissipation of assets of the licensee, the commissioner may issue an order requiring the licensee to cease and desist from the violation. The order shall become effective upon service of the order upon the licensee. (b) An order to cease and desist shall remain effective and enforceable pending the completion of an administrative proceeding pursuant to chapter 91. (c) A licensee that is served with an order to cease and desist may petition the circuit court for a judicial order setting aside, limiting, or suspending the enforcement, operation, or effectiveness of the order pending the completion of an administrative proceeding pursuant to sections -51 or -52. (d) The commissioner shall commence an administrative proceeding within twenty days after issuing an order to cease and desist. (e) The commissioner may apply to the circuit court for an appropriate order to protect the public interest. § -47 Consent orders. The commissioner may enter into a consent order at any time with a person to resolve a matter arising under this chapter. A consent order shall be signed by the person to whom the order is issued or by the person's authorized representative and shall indicate agreement with the terms contained in the order. A consent order may provide that it does not constitute an admission by a person that this chapter or a rule adopted or an order issued under this chapter has been violated. § -48 Civil penalties. (a) The commissioner may assess a fine against a person who violates this chapter or a rule adopted or an order issued under this chapter in an amount no more than $10,000 per violation, plus the State's costs and expenses for the investigation and prosecution of the matter, including reasonable attorneys' fees. (b) Any violation of this chapter that is directed toward, targets, or injures an elder may be subject to an additional civil penalty of no more than $10,000 for each violation in addition to any other fines or penalties assessed for the violation. § -49 Criminal penalties. (a) A person who intentionally makes a false statement, misrepresentation, or false certification in a record filed or required to be maintained under this chapter, who intentionally makes a false entry, or who omits a material entry in a record, shall be guilty of a class C felony and be subject to a fine of no more than $10,000. (b) An individual or person who knowingly engages in any activity for which a license is required under this chapter, without being licensed under this chapter, shall be guilty of a misdemeanor, and shall be subject to a fine of no more than $1,000, imprisonment of not more than one year, or both, and each day a violation exists shall be deemed a separate offense. § -50 Unlicensed persons. (a) If the commissioner has reason to believe that a person has violated or is violating section -11, the commissioner may issue an order to show cause why an order to cease and desist should not be issued requiring that the person cease and desist from the violation of section -11. (b) If the commissioner has reason to believe that a person has violated or is violating section -11, the commissioner may petition the circuit court for the issuance of a temporary restraining order if the public would be irreparably harmed. (c) An order to cease and desist shall become effective upon service of the order upon the person. (d) An order to cease and desist shall remain effective and enforceable pending the completion of an administrative proceeding pursuant to section -51. (e) A person who is served with an order to cease and desist for violating section -11 may petition the circuit court for a judicial order setting aside, limiting, or suspending the enforcement, operation, or effectiveness of the order to cease and desist pending the completion of an administrative proceeding pursuant to section -51. (f) The commissioner shall commence an administrative proceeding within twenty days after issuing an order to cease and desist. § -51 Administrative proceedings. All administrative proceedings under this chapter shall be conducted in accordance with chapter 91. § -52 Hearings. Except as otherwise provided in sections 18(g) and -45, the commissioner shall not suspend or revoke a license, issue an order to cease and desist, suspend or revoke the designation of a licensee, or assess a civil penalty without notice and an opportunity to be heard. § -53 Division functions. (a) The division shall exercise all administrative functions of the State in relation to the regulation, supervision, and licensing of special purpose digital currency companies. (b) The division shall interpret and carry out the provisions of this chapter." SECTION 3. Section 489D-4, Hawaii Revised Statutes, is amended by amending the definition of "monetary value" to read as follows: ""Monetary value" means a medium of exchange, whether or not redeemable in money[.], except as defined as digital currency under chapter ." SECTION 4. Section 846-2.7, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows: "(b) Criminal history record checks may be conducted by: (1) The department of health or its designee on operators of adult foster homes for individuals with developmental disabilities or developmental disabilities domiciliary homes and their employees, as provided by section 321-15.2; (2) The department of health or its designee on prospective employees, persons seeking to serve as providers, or subcontractors in positions that place them in direct contact with clients when providing non-witnessed direct mental health or health care services as provided by section 321-171.5; (3) The department of health or its designee on all applicants for licensure or certification for, operators for, prospective employees, adult volunteers, and all adults, except adults in care, at healthcare facilities as defined in section 321-15.2; (4) The department of education on employees, prospective employees, and teacher trainees in any public school in positions that necessitate close proximity to children as provided by section 302A-601.5; (5) The counties on employees and prospective employees who may be in positions that place them in close proximity to children in recreation or child care programs and services; (6) The county liquor commissions on applicants for liquor licenses as provided by section 281-53.5; (7) The county liquor commissions on employees and prospective employees involved in liquor administration, law enforcement, and liquor control investigations; (8) The department of human services on operators and employees of child caring institutions, child placing organizations, and foster boarding homes as provided by section 346-17; (9) The department of human services on prospective adoptive parents as established under section 346‑19.7; (10) The department of human services or its designee on applicants to operate child care facilities, household members of the applicant, prospective employees of the applicant, and new employees and household members of the provider after registration or licensure as provided by section 346-154, and persons subject to section 346-152.5; (11) The department of human services on persons exempt pursuant to section 346-152 to be eligible to provide child care and receive child care subsidies as provided by section 346-152.5; (12) The department of health on operators and employees of home and community-based case management agencies and operators and other adults, except for adults in care, residing in community care foster family homes as provided by section 321-15.2; (13) The department of human services on staff members of the Hawaii youth correctional facility as provided by section 352-5.5; (14) The department of human services on employees, prospective employees, and volunteers of contracted providers and subcontractors in positions that place them in close proximity to youth when providing services on behalf of the office or the Hawaii youth correctional facility as provided by section 352D-4.3; (15) The judiciary on employees and applicants at detention and shelter facilities as provided by section 571-34; (16) The department of public safety on employees and prospective employees who are directly involved with the treatment and care of persons committed to a correctional facility or who possess police powers including the power of arrest as provided by section 353C-5; (17) The board of private detectives and guards on applicants for private detective or private guard licensure as provided by section 463-9; (18) Private schools and designated organizations on employees and prospective employees who may be in positions that necessitate close proximity to children; provided that private schools and designated organizations receive only indications of the states from which the national criminal history record information was provided pursuant to section 302C-1; (19) The public library system on employees and prospective employees whose positions place them in close proximity to children as provided by section 302A‑601.5; (20) The State or any of its branches, political subdivisions, or agencies on applicants and employees holding a position that has the same type of contact with children, vulnerable adults, or persons committed to a correctional facility as other public employees who hold positions that are authorized by law to require criminal history record checks as a condition of employment as provided by section 78-2.7; (21) The department of health on licensed adult day care center operators, employees, new employees, subcontracted service providers and their employees, and adult volunteers as provided by section 321-15.2; (22) The department of human services on purchase of service contracted and subcontracted service providers and their employees serving clients of the adult protective and community services branch, as provided by section 346-97; (23) The department of human services on foster grandparent program, senior companion program, and respite companion program participants as provided by section 346-97; (24) The department of human services on contracted and subcontracted service providers and their current and prospective employees that provide home and community-based services under section 1915(c) of the Social Security Act, title 42 United States Code section 1396n(c), or under any other applicable section or sections of the Social Security Act for the purposes of providing home and community-based services, as provided by section 346-97; (25) The department of commerce and consumer affairs on proposed directors and executive officers of a bank, savings bank, savings and loan association, trust company, and depository financial services loan company as provided by section 412:3-201; (26) The department of commerce and consumer affairs on proposed directors and executive officers of a nondepository financial services loan company as provided by section 412:3-301; (27) The department of commerce and consumer affairs on the original chartering applicants and proposed executive officers of a credit union as provided by section 412:10-103; (28) The department of commerce and consumer affairs on: (A) Each principal of every non-corporate applicant for a money transmitter license; (B) Each person who upon approval of an application by a corporate applicant for a money transmitter license will be a principal of the licensee; and (C) Each person who upon approval of an application requesting approval of a proposed change in control of licensee will be a principal of the licensee, as provided by sections 489D-9 and 489D-15; (29) The department of commerce and consumer affairs on applicants for licensure and persons licensed under title 24; (30) The Hawaii health systems corporation on: (A) Employees; (B) Applicants seeking employment; (C) Current or prospective members of the corporation board or regional system board; or (D) Current or prospective volunteers, providers, or contractors, in any of the corporationꞌs health facilities as provided by section 323F-5.5; (31) The department of commerce and consumer affairs on: (A) An applicant for a mortgage loan originator license, or license renewal; and (B) Each control person, executive officer, director, general partner, and managing member of an applicant for a mortgage loan originator company license or license renewal, as provided by chapter 454F; (32) The state public charter school commission or public charter schools on employees, teacher trainees, prospective employees, and prospective teacher trainees in any public charter school for any position that places them in close proximity to children, as provided in section 302D-33; (33) The counties on prospective employees who work with children, vulnerable adults, or senior citizens in community-based programs; (34) The counties on prospective employees for fire department positions that involve contact with children or vulnerable adults; (35) The counties on prospective employees for emergency medical services positions that involve contact with children or vulnerable adults; (36) The counties on prospective employees for emergency management positions and community volunteers whose responsibilities involve planning and executing homeland security measures including viewing, handling, and engaging in law enforcement or classified meetings and assisting vulnerable citizens during emergencies or crises; (37) The State and counties on employees, prospective employees, volunteers, and contractors whose position responsibilities require unescorted access to secured areas and equipment related to a traffic management center; (38) The State and counties on employees and prospective employees whose positions involve the handling or use of firearms for other than law enforcement purposes; (39) The State and counties on current and prospective systems analysts and others involved in an agencyꞌs information technology operation whose position responsibilities provide them with access to proprietary, confidential, or sensitive information; (40) The department of commerce and consumer affairs on: (A) Applicants for real estate appraiser licensure or certification as provided by chapter 466K; (B) Each person who owns more than ten per cent of an appraisal management company who is applying for registration as an appraisal management company, as provided by section 466L-7; and (C) Each of the controlling persons of an applicant for registration as an appraisal management company, as provided by section 466L-7; (41) The department of health or its designee on all license applicants, licensees, employees, contractors, and prospective employees of medical cannabis dispensaries, and individuals permitted to enter and remain in medical cannabis dispensary facilities as provided under sections 329D-15(a)(4) and 329D‑16(a)(3); (42) The department of commerce and consumer affairs on applicants for nurse licensure or license renewal, reactivation, or restoration as provided by sections 457-7, 457-8, 457-8.5, and 457-9; (43) The county police departments on applicants for permits to acquire firearms pursuant to section 134-2 and on individuals registering their firearms pursuant to section 134-3; (44) The department of commerce and consumer affairs on: (A) Each of the controlling persons of the applicant for licensure as an escrow depository, and each of the officers, directors, and principals who will be in charge of the escrow depositoryꞌs activities upon licensure; and (B) Each of the controlling persons of an applicant for proposed change in control of an escrow depository licensee, and each of the officers, directors, and principals who will be in charge of the licenseeꞌs activities upon approval of the application, as provided by chapter 449; (45) The department of taxation on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 231-1.6; (46) The department of labor and industrial relations on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 383-110; (47) The department of human services on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 346-2.5; (48) The child support enforcement agency on current or prospective employees or contractors who have access to federal tax information in order to comply with federal law, regulation, or procedure, as provided by section 576D-11.5; (49) The department of the attorney general on current or prospective employees or employees or agents of contractors who have access to federal tax information to comply with requirements of federal law, regulation, or procedure, as provided by section 28‑17; [[](50)[]] The department of commerce and consumer affairs on each control person, executive officer, director, general partner, and managing member of an installment loan licensee, or an applicant for an installment loan license, as provided in chapter 480J; [[](51)[]] The University of Hawaii on current and prospective employees and contractors whose duties include ensuring the security of campus facilities and persons; [and] (52) The department of commerce and consumer affairs on each control person, executive officer, director, general partner, and managing member of a special purpose digital currency company licensee, or an applicant for a special purpose digital currency license, as provided in chapter ; and [[(52)]] (53) Any other organization, entity, or the State, its branches, political subdivisions, or agencies as may be authorized by state law." SECTION 5. (a) The companies participating in the digital currency innovation lab operated by the department of commerce and consumer affairs and Hawaii technology development corporation shall be allowed to continue operations until their applications are acted upon by the division of financial institutions of the department of commerce and consumer affairs so long as the participating companies submit a completed application to the division by March 1, 2023. (b) A company authorized to participate in the digital currency innovation lab as of June 30, 2022, and whose application for licensure under section 2 of this Act has been submitted to the division of financial institutions of the department of commerce and consumer affairs on or before March 1, 2023, shall be exempt from the requirements in section ‑11, Hawaii Revised Statutes, of section 2 of this Act for a period of six months from the date on which the application is deemed complete or until the commissioner of financial institutions approves or denies the application, whichever occurs first. The commissioner, for good cause, may reduce or extend the six-month period. Submission of an application for licensure shall be evidenced through NMLS to the commissioner. SECTION 6. The department of commerce and consumer affairs may employ necessary personnel without regard to chapter 76, Hawaii Revised Statutes, including three full-time equivalent (3.0 FTE) positions for examiners, to assist with the implementation and continuing function of this Act. SECTION 7. There is appropriated out of the compliance resolution fund established pursuant to section 26-9(o), Hawaii Revised Statutes, the sum of $500,000 or so much thereof as may be necessary for fiscal year 2022-2023 to implement the special purpose digital currency licensing program established by this Act. The sum appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act. SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 9. This Act shall take effect on July 31, 2050; provided that the special purpose digital currency licensing requirements established by section 2 of this Act shall take effect on January 1, 2023. |
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| 47 | + | SECTION 1. The legislature finds that digital currency is an asset that is primarily managed or stored electronically. Digital currencies refer to digital currency, cryptocurrency, e‑money, network money, e-cash and others, as defined by various governmental jurisdictions. Digital currency may be recorded on a decentralized ledger on the Internet or a centralized database or ledger system owned by a company. Digital currencies do not have physical form like banknotes or minted coins. Digital currencies are also usually not issued by a governmental body and are generally not considered legal tender. Although digital currency has grown in popularity and acceptance worldwide, there is little regulation of the industry in the United States, with a few states treating digital currency activities as within the scope of money transmitter laws. The division of financial institutions of the department of commerce and consumer affairs and the Hawaii technology development corporation are currently conducting a two-year "sandbox" program to study digital currency transactions (digital currency innovation lab). This study allows companies to conduct digital currency transactions without obtaining a money transmitter license while the division of financial institutions evaluates the need for more permanent and comprehensive oversight. The data gathered through the digital currency innovation lab program confirmed that digital currency transactions are not best regulated through existing money transmitter laws and that a new regulatory framework is appropriate. The purpose of this Act is to establish a licensing program that will replace the digital currency innovation lab. SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to title 22, to be appropriately designated and to read as follows: "CHAPTER SPECIAL PURPOSE DIGITAL CURRENCY LICENSING ACT PART I. GENERAL PROVISIONS § -1 Definitions. As used in this chapter, unless the context otherwise requires: "Commissioner" means the commissioner of financial institutions. "Consumer" means a natural person who engages in a transaction that is primarily for that natural person's personal, family, or household purposes. "Control of digital currency", when used in reference to a transaction or relationship involving digital currency, means the power to execute unilaterally or prevent indefinitely a digital currency transaction. "Custodial services" means the safekeeping, servicing, and management of customer digital currency and digital assets. "Department" means the department of commerce and consumer affairs. "Digital currency" means any type of digital unit that is used as a medium of exchange or a form of digitally stored value. Digital currency shall be broadly construed to include digital units of exchange that have a centralized repository or administrator; are decentralized and have no centralized repository or administrator; or may be created or obtained by computing or manufacturing effort. Digital currency shall not be construed to include any of the following: (1) Digital units that: (A) Are used solely within online gaming platforms; (B) Have no market or application outside of those gaming platforms; and (C) Cannot be converted into, or redeemed for, fiat currency or digital currency; (2) Digital units that can be redeemed for goods, services, discounts, or purchases as part of a customer affinity or rewards program with the issuer or other designated merchants, or can be redeemed for digital units in another customer affinity or rewards program, but cannot be converted into or redeemed for fiat currency or digital currency; (3) Digital units used as part of prepaid cards. "Digital currency administration" means issuing digital currency with the authority to redeem the currency for money, bank credit, or other digital currency. "Digital currency business activity" means: (1) Exchanging, transferring, or storing digital currency or engaging in digital currency administration, whether directly or through an agreement with a digital currency control-services vendor; (2) Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for money or bank credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received; (3) Storing, holding, or maintaining custody or control of digital currency on behalf of others; (4) Buying and selling digital currency as a business; (5) Performing exchange services as a business; or (6) Controlling, administering, or issuing a digital currency. "Digital currency control-services vendor" means a person who has control of digital currency solely under an agreement with a person who, on behalf of another person, assumes control of digital currency. "Division" means the division of financial institutions of the department of commerce and consumer affairs. "Elder" means a person who is sixty-two years of age or older. "Exchange" means the conversion or change of fiat currency or other value into digital currency, the conversion or change of digital currency into fiat currency or other value, or the conversion or change of one form of digital currency into another form of digital currency. "Licensee" means a person who is licensed or required to be licensed under this chapter. "NMLS" means a nationwide multi-state licensing and registry system developed and maintained by the Conference of State Bank Supervisors for the state licensing and registration of state-licensed financial services providers. "Person" means an individual, sole proprietorship, partnership, corporation, limited liability company, limited liability partnership, or other association of individuals, however organized. "Private key" means a unique element of cryptographic data, or any substantially similar analogue, that is: (1) Held by a person; (2) Paired with a unique, publicly available element of cryptographic data; and (3) Associated with an algorithm that is necessary to carry out an encryption or decryption required to execute a transaction. "Special purpose digital currency company" means a person who holds a special purpose digital currency license under this chapter. "Stored value" means monetary value that is evidenced by an electronic record. "Tangible net worth" means total assets excluding intangible assets, less total liabilities, in accordance with United States Generally Accepted Accounting Principles. "Transfer" means to assume control of digital currency from or on behalf of a person and to: (1) Credit the digital currency to the account of another person; (2) Move the digital currency from one account of a person to another account of the same person; or (3) Relinquish control of digital currency to another person. "United States dollar equivalent of digital currency" means the equivalent value of a particular digital currency in United States dollars shown on a digital currency exchange based in the United States for a particular date or specified period. § -2 Exclusions. This chapter shall not apply to: (1) The exchange, transfer, or storage of digital currency or to digital currency administration to the extent regulated by the Securities Exchange Act of 1934, title 15 United States Code sections 78a through 78oo, or the Commodity Exchange Act, title 7 United States Code sections 1 through 27f; (2) Activity by a person that: (A) Contributes only connectivity software or computing power to a decentralized digital currency, or to a protocol governing transfer of the digital representation of value; (B) Provides only data storage or security services for a business engaged in digital currency business activity and does not otherwise engage in digital currency business activity on behalf of another person; or (C) Provides only to a person otherwise exempt from this chapter digital currency as one or more enterprise solutions used solely among each other and has no agreement or relationship with a person that is an end-user of digital currency; (3) A person using digital currency, including creating, investing, buying or selling, or obtaining digital currency as payment for the purchase or sale of goods or services, solely for academic purposes; (4) A person whose digital currency business activity with or on behalf of persons is reasonably expected to be valued, in the aggregate, on an annual basis at $5,000 or less, measured by the United States dollar equivalent of digital currency; (5) An attorney to the extent of providing escrow services to a person; (6) A securities intermediary, as defined in section 490:8-102, or a commodity intermediary, as defined in section 490:9-102; (7) A digital currency control services vendor; (8) A person that: (A) Does not receive compensation from a person for: (i) Providing digital currency products or services; or (ii) Conducting digital currency business activity; or (B) Is engaged in testing products or services with the person's own funds or digital currency; (9) Non-custodial digital currency business activity by a person using a digital currency acknowledged as legal tender by the United States, or government recognized by the United States, or that has been determined to not be a security by a United States regulatory agency; or (10) Banks, bank holding companies, credit unions, savings banks, financial services loan companies, and mutual banks organized under the laws of the United States or any state shall be exempt from the licensing and examination provisions of this chapter. The commissioner may determine that a person or class of persons should be exempt from this chapter. § -3 Powers of commissioner. In addition to any other powers provided by law, the commissioner may: (1) Adopt rules pursuant to chapter 91 as the commissioner deems necessary for the administration of this chapter; (2) Issue declaratory rulings or informal nonbinding interpretations; (3) Investigate and conduct hearings regarding any violation of this chapter or any rule or order of, or agreement with, the commissioner; (4) Create fact-finding committees that may make recommendations to the commissioner for the commissioner's deliberations; (5) Require an applicant or any of its control persons, executive officers, directors, general partners, and managing members to disclose their relevant criminal history and request a criminal history record check to be conducted by or through NMLS or pursuant to chapter 846. The information shall be accompanied by the appropriate payment of the applicable fee for each criminal history record check; (6) Contract with or employ qualified persons, including accountants, attorneys, investigators, examiners, auditors, or other professionals who may be exempt from chapter 76 and who shall assist the commissioner in exercising the commissioner's powers and duties; (7) Process and investigate complaints, subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including telephonic communications, and do anything necessary or incidental to the exercise of the commissioner's power and duties, including the authority to conduct contested case proceedings under chapter 91; (8) Require a licensee to comply with any rule, guidance, guideline, statement, supervisory policy or any similar proclamation issued or adopted by the Federal Deposit Insurance Corporation to the same extent and in the same manner as a bank chartered by the State or, any policy position of the Conference of State Bank Supervisors; (9) Enter into agreements or relationships with other government officials or regulatory associations to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence obtained under this chapter; (10) Use, hire, contract, or employ public or privately available analytical systems, methods, or software to investigate or examine a licensee or person subject to this chapter; (11) Accept and rely on investigation or examination reports made by other government officials, within or outside of this State; (12) Accept audit reports made by an independent certified public accountant for the licensee or person subject to this chapter during that part of the examination covering the same general subject matter as the audit and may incorporate the audit report in the report of the examination, report of investigation, or other writing of the commissioner; and (13) Enter into agreements with, hire, retain, or contract with private and governmental entities to develop and create educational programs relating to special purpose digital currency. § -4 License required. (a) A person shall not engage in digital currency business activity, or hold itself out as being able to engage in digital currency business activity, with or on behalf of a person unless the person is: (1) Licensed in this State under this chapter; or (2) Excluded from licensing under section -2. (b) Any transaction made in violation of this section is void, and no person shall have the right to collect, receive, or retain any principal, interest, fees, or other charges in connection with the transaction. § -5 Payment of fees. All fees, fines, penalties, and other charges collected pursuant to this chapter or by rule shall be deposited with the director to the credit of the compliance resolution fund established pursuant to section 26‑9(o). Payments shall be made through NMLS, to the extent allowed by NMLS. PART II. LICENSING § -6 License; application; issuance. (a) The commissioner shall require all licensees to register with NMLS. (b) Applicants for a license shall apply in a form as prescribed by NMLS or by the commissioner. The application shall contain, at a minimum, the following information: (1) The legal name, trade names, and business address of the applicant and, if the applicant is a partnership, association, limited liability company, limited liability partnership, or corporation, of every member, officer, principal, or director thereof; (2) The principal place of business located in the United States; (3) The complete address of any other branch offices at which the applicant currently proposes to engage in digital currency business activity in the State; and (4) Other data, financial statements, and pertinent information as the commissioner may require with respect to the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members. (c) To fulfill the purposes of this chapter, the commissioner may enter into agreements or contracts with NMLS or other entities to use NMLS to collect and maintain records and process transaction fees or other fees related to licensees or other persons subject to this chapter. (d) For the purpose and to the extent necessary to participate in NMLS, the commissioner may waive or modify, in whole or in part, by rule or order, any or all of the requirements of this chapter and establish new requirements as reasonably necessary to participate in NMLS. (e) In connection with an application for a license under this chapter, the applicant, at a minimum, shall furnish to NMLS information or material concerning the applicant's identity, including: (1) Fingerprints of the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive the fingerprints for a state, national, and international criminal history background check, accompanied by the applicable fee charged by the entities conducting the criminal history background check; and (2) Personal history and experience of the applicant or, if an applicant is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members in a form prescribed by NMLS, including the submission of authorization for NMLS and the commissioner to obtain: (A) An independent credit report obtained from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act, title 15 United States Code section 1681a(p); and (B) Information related to any administrative, civil, or criminal findings by any governmental jurisdiction; provided that the commissioner may use any information obtained pursuant to this subsection or through NMLS to determine an applicant's demonstrated financial responsibility, character, and general fitness for licensure. (f) The commissioner may use NMLS as an agent for requesting information from and distributing information to the United States Department of Justice or any governmental agency. (g) The commissioner may use NMLS as an agent for requesting and distributing information to and from any source directed by the commissioner. (h) An applicant for a license as a special purpose digital currency company shall be registered with the business registration division of the department to do business in this State before a license pursuant to this chapter shall be issued. § -7 Issuance of license; grounds for denial. (a) The commissioner shall investigate every applicant to determine the financial responsibility, character, and general fitness of the applicant. The commissioner shall issue the applicant a license to engage in the digital currency business activity if the commissioner determines that: (1) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has never had a digital currency license revoked in any jurisdiction; provided that a subsequent formal vacation of a revocation shall not be deemed a revocation; (2) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has not been convicted of, pled guilty or nolo contendere to, or been granted a deferred acceptance of a guilty plea under federal law or the laws of any state to a felony in a domestic, foreign, or military court: (A) During the seven-year period preceding the date of the application for licensing; or (B) At any time preceding the date of application, if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering; provided that any pardon of a conviction shall not be deemed a conviction for the purposes of this section; (3) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has demonstrated financial responsibility, character, and general fitness to command the confidence of the community and to warrant a determination that the applicant shall operate honestly, fairly, and efficiently, pursuant to this chapter. For the purposes of this paragraph, a person is not financially responsible when the person has shown a disregard in the management of the person's financial condition. A determination that a person has shown a disregard in the management of the person's financial condition may be based upon: (A) Current outstanding judgments, except judgments solely because of medical expenses; (B) Current outstanding tax liens or other government liens and filings, subject to applicable disclosure laws and administrative rules; (C) Foreclosures within the past three years; and (D) A pattern of seriously delinquent accounts within the past three years; (4) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members, has not been convicted of, pled guilty or nolo contendere to, or been granted a deferred acceptance of a guilty plea under federal law or the laws of any state to any misdemeanor involving an act of fraud, dishonesty, breach of trust, or money laundering; (5) The applicant has satisfied the licensing requirements of this chapter; and (6) The applicant has the bond required by section -10. (b) The applicant or, in the case of an applicant that is not an individual, each of the applicant's control persons, executive officers, directors, general partners, and managing members shall submit authorization to the commissioner for the commissioner to conduct background checks to determine or verify the information in subsection (a) in each state where the person has conducted the digital currency business activity. Authorization pursuant to this subsection shall include consent to provide additional fingerprints, if necessary, to law enforcement or regulatory bodies in other states. (c) A license shall not be issued to an applicant: (1) Whose license to conduct business under this chapter, or any similar statute in any other jurisdiction, has been suspended or revoked within five years of the filing of the present application; (2) Whose license to conduct digital currency business activity has been revoked by an administrative order issued by the commissioner or the commissioner's designee, or the licensing authority of another state or jurisdiction, for the period specified in the administrative order; (3) Who has advertised directly and purposefully to consumers in the State or conducted transactions in violation of this chapter; or (4) Who has failed to complete an application for licensure. (d) A license issued in accordance with this chapter shall remain in force and effect until surrendered, suspended, or revoked, or until the license expires because of nonpayment of the annual license renewal fee as required by this chapter. § -8 Anti-money laundering program. (a) Each licensee shall conduct an initial risk assessment that shall consider legal, compliance, financial, and reputational risks associated with the licensee's activities, services, customers, counterparties, and geographic location and shall establish, maintain, and enforce an anti-money laundering program based thereon. The licensee shall conduct additional assessments on an annual basis, or more frequently as risks change, and shall modify its anti-money laundering program as appropriate to reflect the changes. (b) The anti-money laundering program shall, at a minimum: (1) Provide for a system of internal controls, policies, and procedures designed to ensure ongoing compliance with all applicable anti-money laundering laws, rules, and regulations; (2) Provide for independent testing for compliance with, and the effectiveness of, the anti-money laundering program to be conducted by qualified internal personnel of the licensee, who are not responsible for the design, installation, maintenance, or operation of the anti-money laundering program, or the policies and procedures that guide its operation, or a qualified external party, at least annually; (3) Designate a qualified individual or individuals responsible for coordinating and monitoring day-to-day compliance with the anti-money laundering program; and (4) Provide ongoing training for appropriate personnel to ensure they have an understanding of anti-money laundering requirements and to enable them to identify transactions required to be reported and maintain records required to be maintained. (c) The anti-money laundering program shall include a written anti-money laundering policy reviewed and approved by the licensee's board of directors or equivalent governing body. (d) Each licensee, as part of its anti-money laundering program, shall maintain records and make reports in the manner set forth below. (1) Records of digital currency transactions. Each licensee shall maintain the following information for all digital currency transactions involving the payment, receipt, exchange, conversion, purchase, sale, transfer, or transmission of digital currency: (A) The identity and physical addresses of the party or parties to the transaction that are customers or accountholders of the licensee and, to the extent practicable, any other parties to the transaction; (B) The amount or value of the transaction, including in what denomination purchased, sold, or transferred; (C) The method of payment; (D) The date or dates on which the transaction was initiated and completed; and (E) A description of the transaction. (2) Monitoring for suspicious activity. Each licensee shall monitor for transactions that may signify money laundering, tax evasion, or other illegal or criminal activity. (A) Each licensee shall file suspicious activity reports in accordance with applicable federal laws, rules, and regulations; and (B) Each licensee that is not subject to suspicious activity reporting requirements under federal law shall maintain a report of transactions that indicate a possible violation of law within thirty days from the detection. Continuing suspicious activity shall be reviewed on an ongoing basis and a suspicious activity report shall be filed within one hundred twenty days of the last filing describing continuing activity. (e) No licensee shall structure transactions, or assist in the structuring of transactions, to evade reporting requirements under this chapter. (f) No licensee shall engage in, facilitate, or knowingly allow the transfer or transmission of digital currency when the action will obfuscate or conceal the identity of an individual customer or counterparty. Nothing in this section, however, shall be construed to require a licensee to make available to the general public the fact or nature of the movement of digital currency by individual customers or counterparties. (g) Each licensee shall also maintain, as part of its anti-money laundering program, a customer identification program, which shall: (1) Identify and verify account holders. When opening an account for, or establishing a service relationship with, a customer, each licensee shall, at a minimum, verify the customer's identity, maintain records of the information used to verify the identity, including name, physical address, and other identifying information, and check customers against the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, a part of the Treasury Department of the United States. Enhanced due diligence may be required based on additional factors, such as for high risk customers, high-volume accounts, or accounts on which a suspicious activity report has been filed; (2) Enhance due diligence for accounts involving foreign entities. Licensees that maintain accounts for non-United States persons and non-United States licensees shall establish enhanced due diligence policies, procedures, and controls to detect money laundering, including assessing the risk presented by the accounts based on the nature of the foreign business, the type and purpose of the activity, and the anti-money laundering and supervisory regime of the foreign jurisdiction; (3) Prohibit accounts with foreign shell entities. Licensees shall be prohibited from maintaining relationships of any type in connection with their digital currency business activity with entities that do not have a physical presence in any country; and (4) Require identification for large transactions. Each licensee shall require verification of the identity of any accountholder initiating a transaction with a value greater than $3,000. (h) Each licensee shall demonstrate that it has risk-based policies, procedures, and practices. (i) Each licensee shall have in place appropriate policies and procedures to block or reject specific or impermissible transactions that violate federal or state laws, rules, or regulations. (j) The individual or individuals designated by the licensee, pursuant to subsection (b)(3), shall be responsible for day-to-day operations of the anti-money laundering program and shall, at a minimum: (1) Monitor changes in anti-money laundering laws, and update the program accordingly; (2) Maintain all records required to be maintained under this section; (3) Review all filings required under this section before submission; (4) Escalate matters to the board of directors, senior management, or appropriate governing body and seek outside counsel, as appropriate; (5) Provide periodic reporting, at least annually, to the board of directors, senior management, or appropriate governing body; and (6) Ensure compliance with relevant training requirements. § -9 Cyber security program. (a) Each licensee shall establish and maintain an effective cyber security program to ensure the availability and functionality of the licensee's electronic systems and to protect those systems and any sensitive data stored on those systems from unauthorized access, use, or tampering. The cyber security program shall be designed to perform the following five core cyber security functions: (1) Identify internal and external cyber risks by, at a minimum, identifying the information stored on the licensee's systems, the sensitivity of the information, and how and by whom the information may be accessed; (2) Protect the licensee's electronic systems, and the information stored on those systems, from unauthorized access, use, or other malicious acts through the use of defensive infrastructure and the implementation of policies and procedures; (3) Detect systems intrusions, data breaches, unauthorized access to systems or information, malware, and other cyber security events; (4) Respond to detected cyber security events to mitigate any negative effects; and (5) Recover from cyber security events and restore normal operations and services. (b) Each licensee shall implement a written cyber security policy setting forth the licensee's policies and procedures for the protection of its electronic systems and customer and counterparty data stored on those systems, which shall be reviewed and approved by the licensee's board of directors or equivalent governing body at least annually. The cyber security policy shall address the following areas: (1) Information security; (2) Data governance and classification; (3) Access controls; (4) Business continuity and disaster recovery planning and resources; (5) Capacity and performance planning; (6) Systems operations and availability concerns; (7) Systems and network security; (8) Systems and application development and quality assurance; (9) Physical security and environmental controls; (10) Customer data privacy; (11) Vendor and third-party service provider management; (12) Monitoring and implementing changes to core protocols not directly controlled by the licensee, as applicable; and (13) Incident response. (c) Each licensee shall designate a qualified employee to be responsible for overseeing and implementing the licensee's cyber security program and enforcing its cyber security policy. (d) Each licensee shall submit to the commissioner a report, presented to the licensee's board of directors or equivalent governing body, at least annually, assessing the availability, functionality, and integrity of the licensee's electronic systems, identifying relevant cyber risks to the licensee, assessing the licensee's cyber security program, and proposing steps for the redress of any inadequacies identified therein. (e) Each licensee's cyber security program shall, at a minimum, include the following audit functions: (1) Penetration testing. Each licensee shall conduct penetration testing of its electronic systems and vulnerability assessment of those systems based on the licensees risk assessment; (2) Audit trail. Each licensee shall maintain audit trail systems that: (A) Track and maintain data that allows for the complete and accurate reconstruction of all financial transactions and accounting; (B) Protect the integrity of data stored and maintained as part of the audit trail from alteration or tampering; (C) Protect the integrity of hardware from alteration or tampering, including by limiting electronic and physical access permissions to hardware and maintaining logs of physical access to hardware that allows for event reconstruction; (D) Log system events including, at minimum, access and alterations made to the audit trail systems by the systems or by an authorized user, and all system administrator functions performed on the systems; and (E) Maintain records produced as part of the audit trail in accordance with the recordkeeping requirements set forth in this chapter. (f) Each licensee's cyber security program shall, at minimum, include written procedures, guidelines, and standards reasonably designed to ensure the security of all applications utilized by the licensee. (g) Each licensee shall: (1) Employ cyber security personnel adequate to manage the licensee's cyber security risks and to perform the core cyber security functions specified in subsection (a); (2) Provide and require cyber security personnel to attend regular cyber security update and training sessions; and (3) Require key cyber security personnel to take steps to stay abreast of changing cyber security threats and countermeasures. § -10 Fees; bond. (a) A special purpose digital currency company shall pay the following fees to the division through NMLS to obtain and maintain a valid license under this chapter: (1) Initial nonrefundable application fee of $9,000; (2) Nonrefundable renewal application fee of $1,000; and (3) Fees collected by NMLS for the processing of the application: (A) Applicable fee charged by the entities conducting the criminal history background check of each of the applicant's control persons, executive officers, directors, general partners, and managing members for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive the fingerprints for a state, national, and international criminal history background check; and (B) Applicable fee charged by the entities conducting an independent credit report obtained from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act, title 15 United States Code section 1681a(p). (b) The applicant shall file and maintain a surety bond, approved by the commissioner, executed by the applicant as obligor and by a surety company authorized to operate as a surety in this State, whose liability as a surety does not exceed, in the aggregate, the penal sum of the bond. The penal sum of the bond shall be a minimum of $500,000, based upon the annual United States dollar equivalent of digital currency as reported in the annual renewal report. (c) The bond required by subsection (b) shall run to the State of Hawaii as obligee for the use and benefit of the State and of any person or persons who may have a cause of action against the licensee as obligor under this chapter. The bond shall be conditioned upon the following: (1) The licensee as obligor shall faithfully conform to and abide by this chapter and all the rules adopted under this chapter; and (2) The bond shall pay to the State and any person or persons having a cause of action against the licensee as obligor all moneys that may become due and owing to the State and those persons under and by virtue of this chapter. § -11 Renewal of license; annual report. (a) Every licensee shall be assessed an annual fee, paid quarterly based on the total value of transactions in the State, in United States dollar equivalent of digital currency activity as reported in the quarterly reports. The quarterly fees shall be assessed the quarter after the applicant is licensed in accordance with the following: (1) For licensees with total value of transactions in United States dollar equivalent of digital currency under $10,000.00, the quarterly assessment shall be $2,500; (2) For licensees with total value of transactions in United States dollar equivalent of digital currency between $10,000.01 and $15,000.00, the quarterly assessment shall be $3,750; (3) For licensees with total value of transactions in United States dollar equivalent of digital currency between $15,000.01 and $25,000.00, the quarterly assessment shall $6,250; (4) For licensees with total value of transactions in United States dollar equivalent of digital currency between $25,000.01 and $35,000.00, the quarterly assessment shall be $8,750; and (5) For licensees with total value of transactions in United States dollar equivalent of digital currency over $35,000.01, the quarterly assessment shall be $12,500. (b) The assessments shall be paid quarterly on February 15, May 15, August 15, and November 15 of each year based on the licensee's quarterly reports as of the previous December 31, March 31, June 30, and September 30, respectively. (c) The digital assets shall be based on the United States dollar value of cryptocurrency assets held on behalf of customers, calculated on United States dollars from the company's quarterly report based on the trading price of the asset on the licensee's platform as of 4:30 p.m. Hawaii standard time. (d) The annual audited financial statement report shall be filed in accordance with NMLS policy. The annual audited financial report shall include balance sheets, statement of income or loss, statement of changes in shareholders' equity, and statement of cash flows or, if a licensee is a wholly owned subsidiary of another corporation, the consolidated audited annual financial statement of the parent corporation in lieu of the licensee's audited annual financial statement. (e) The quarterly reports shall be filed in a form prescribed by the commissioner, that shall include: (1) A report detailing the special purpose digital currency company's activities in this State since the prior reporting period, including: (A) The number of stored value accounts opened; (B) The number of transactions processed; (C) The total value of transactions in United States dollar equivalent of digital currency; (D) The number of system outages; (E) A chart of accounts, including a description of each account; and (F) Any other information that the commissioner may require related to performance metrics and the efficacy of the special purpose digital currency license program; (2) Any material changes to any of the information submitted by the licensee on its original application that have not previously been reported to the commissioner on any other report required to be filed under this chapter; (3) Disclosure of any pending or final suspension, revocation, or other enforcement action by any state or governmental authority; and (4) Any other information the commissioner may require. (f) A license may be renewed by continuing to meet the licensing requirements of sections -6, -7, and -8, filing a completed renewal statement on a form prescribed by NMLS or by the commissioner, paying a renewal fee, and meeting the requirements of this section. (g) At renewal, a licensee that has not filed an application deemed complete by the commissioner, an annual financial statement, quarterly reports, or paid the quarterly assessments, and has not been granted an extension of time to do so by the commissioner, shall have its license suspended on the renewal date. The licensee shall have thirty days after its license is suspended to file the annual financial statement, quarterly reports, or pay the quarterly assessments, plus a late filing fee of $250 for each day after suspension that the commissioner does not receive the annual financial report, quarterly reports, and the quarterly fee. The commissioner, for good cause, may reduce or suspend the $250 per day late filing fee. § -12 Authorized places of business; principal office. (a) Every special purpose digital currency company licensed under this chapter shall have and maintain a principal place of business in the United States, regardless of whether the special purpose digital currency company maintains its principal office outside of the United States. (b) The principal place of business of the special purpose digital currency company shall be identified in NMLS. § -13 Sale or transfer of license; change of control. (a) No special purpose digital currency company license shall be transferred, except as provided in this section. (b) A person or group of persons requesting approval of a proposed change of control of a licensee shall submit to the commissioner an application requesting approval of a proposed change of control of the licensee, accompanied by a nonrefundable application fee of $10,000. (c) After review of a request for approval under subsection (b), the commissioner may require the licensee or person or group of persons requesting approval of a proposed change of control of the licensee, or both, to provide additional information concerning the persons who shall assume control of the licensee. The additional information shall be limited to similar information required of the licensee or persons in control of the licensee as part of its original license or renewal application. The information shall include, for the five-year period prior to the date of the application for change of control of the licensee, a history of material litigation and criminal convictions of each person who, upon approval of the application for change of control, will be a principal of the licensee. Authorization shall also be given to conduct criminal history record checks of those persons, accompanied by the appropriate payment of the applicable fee for each record check. (d) The commissioner shall approve a request for change of control under subsection (b) if, after investigation, the commissioner determines that the person or group of persons requesting approval has the competence, experience, character, and general fitness to control the licensee or person in control of the licensee in a lawful and proper manner, and that the interests of the public will not be jeopardized by the change of control. (e) The following persons shall be exempt from the requirements of subsection (b); provided that the licensee shall notify the commissioner when a change of control results in the following: (1) A person who acts as a proxy for the sole purpose of voting at a designated meeting of the security holders or holders of voting interests of a licensee or person in control of a licensee; (2) A person who acquires control of a licensee by devise or descent; (3) A person who acquires control as a personal representative, custodian, guardian, conservator, trustee, or as an officer appointed by a court of competent jurisdiction or by operation of law; or (4) A person whom the commissioner, by rule or order, exempts in the public interest. (f) Before filing a request for approval for a change of control, a person may request, in writing, a determination from the commissioner as to whether the person would be considered a person in control of a licensee upon consummation of a proposed transaction. If the commissioner determines that the person would not be a person in control of a licensee, the commissioner shall enter an order to that effect and the proposed person and transaction shall not be subject to subsections (b) through (d). (g) Subsection (b) shall not apply to public offerings of securities. § -14 Ownership and control of digital currency. (a) A licensee that has control of digital currency for one or more persons shall maintain control of digital currency in each type of digital currency sufficient to satisfy the aggregate entitlements of the persons to the type of digital currency. (b) If a licensee violates subsection (a), the property interests of the persons in the digital currency shall be pro rata property interests in the type of digital currency to which the persons are entitled, without regard to the time the persons became entitled to the digital currency or the licensee obtained control of the digital currency. (c) The digital currency referred to in this section shall: (1) Be held for the persons entitled to the digital currency; (2) Not be considered property of the licensee; and (3) Not be subject to the claims of creditors of the licensee. (d) To the extent a licensee stores, holds, or maintains custody or control of digital currency on behalf of another person, the licensee shall hold digital currency of the same type and amount as that which is owed or obligated to that other person. (e) Each licensee shall be prohibited from selling, transferring, assigning, lending, hypothecating, pledging, or otherwise using or encumbering assets, including digital currency, stored, held, or maintained by, or under the custody or control of, the licensee on behalf of another person except for the sale, transfer, or assignment of the assets at the direction of that other person, unless clearly presented and stated to the client that doing so is the intent of the product. PART III. DISCLOSURES, ADVERTISING, AND RECORDKEEPING § -15 Required disclosures. (a) A licensee that engages in digital currency business activity shall provide to a person who uses the licensee's products or service the disclosures required by subsection (b) and any additional disclosure the commissioner determines reasonably necessary for the protection of persons. The commissioner shall determine the time and form required for disclosure. A disclosure required by this section shall be made separately from any other information provided by the licensee and in a clear and conspicuous manner in a record the person may keep. A licensee may propose for the commissioner's approval alternate disclosures as more appropriate for its digital currency business activity. (b) Before establishing a relationship with a person, a licensee shall disclose, to the extent applicable to the digital currency business activity the licensee will undertake with the person: (1) A schedule of fees and charges the licensee may assess, how fees and charges will be calculated if they are not set in advance and disclosed, and the timing of the fees and charges; (2) That the product or service provided by the licensee is not covered by a form of insurance or is otherwise guaranteed against loss by an agency of the United States, including the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation; or the full United States dollar equivalent of digital currency purchased from the licensee or for control of digital currency by the licensee; or private insurance against theft or loss, including cyber theft or theft by other means; (3) The irrevocability of a transfer or exchange; (4) The method for the person to update the person's contact information with the licensee; (5) That the date or time when the transfer or exchange is made, and when the person's account is debited, may differ from the date or time when the person initiates the instruction to make the transfer or exchange; (6) The person's right to receive a receipt or other evidence of the transfer or exchange; (7) The person's right to at least thirty days' prior notice of a change in the licensee's fee schedule, other terms and conditions of operating its digital currency business activity with the person and the policies applicable to the person's account; and (8) That digital currency is not money. (c) Except as otherwise provided in subsection (d), at the end of a digital currency transaction with or on behalf of a person, a licensee shall provide the person a confirmation in a record that contains: (1) The name and contact information of the licensee, including information the person may need to ask a question or file a complaint; (2) The type, value, date, precise time, and amount of the transaction; and (3) The fee charged for the transaction, including any charge for conversion of digital currency to money, bank credit, or other digital currency. § -16 Records, net worth requirement. (a) A licensee engaged in digital currency business activities shall maintain at all times, a tangible net worth of not less than $500,000, or in an amount determined by the commissioner necessary to ensure safe and sound operation. (b) Each licensee shall make, keep, preserve, and make available for inspection by the commissioner the books, accounts, and other records required in subsection (c). (c) A licensee shall maintain, for all digital currency business activity with or on behalf of a person five years after the date of the activity, a record of: (1) Each transaction of the licensee with or on behalf of the person or for the licensee's or account in this State, including: (A) The identity of the person; (B) The form of the transaction; (C) The amount, date, and payment instructions given by the person; and (D) The account number, name, and United States Postal Service address of the person, and, to the extent feasible, other parties to the transaction; (2) The aggregate number of transactions and aggregate value of transactions by the licensee with or on behalf of the person and for the licensee's account in this State, expressed in United States dollar equivalent of digital currency for the previous twelve calendar months; (3) Each transaction in which the licensee exchanges one form of digital currency for money or another form of digital currency with or on behalf of the person; (4) A general ledger posted at least monthly that lists all assets, liabilities, capital, income, ownership equity, and expenses of the licensee; (5) Each business-call report the licensee is required to create or provide to the division of financial institutions or NMLS; (6) Bank statements and bank reconciliation records for the licensee and the name, account number, and United States Postal Service address of each bank the licensee uses in the conduct of its digital currency business activity with or on behalf of the person; (7) Communications and documentation related to investigations of customer complaints; and (8) A report of any digital currency business activity transaction with or on behalf of a person which the licensee was unable to complete. (d) A licensee shall maintain records required by subsection (c) in a form that enables the commissioner to determine whether the licensee is in compliance with this chapter, any court order, and law of this State. § -17 Advertising and marketing. (a) Each licensee engaged in digital currency business activity shall not advertise its products, services, or activities in the State or to consumers in the State without including the name of the licensee and the legend that such licensee is "Licensed to engage in Digital Currency Business Activity by the Hawaii Division of Financial Institutions." (b) Each licensee shall maintain, for examination by the commissioner, all advertising and marketing materials for a period of at least seven years from the date of their creation, including but not limited to print media, internet media, websites, radio and television advertising, road show materials, presentations, and brochures. Each licensee shall maintain hard copy, website captures of material changes to internet advertising and marketing, and audio and video scripts of its advertising and marketing materials, as applicable. (c) In all advertising and marketing materials, each licensee shall comply with all disclosure requirements under federal and state laws, rules, and regulations. (d) In all advertising and marketing materials, each licensee and any person or entity acting on its behalf, shall not, directly or by implication, make any false, misleading, or deceptive representations or omissions. § -18 Confidentiality. (a) Except as otherwise provided in title 12 United States Code section 5111, the requirements under any federal or state law regarding the privacy or confidentiality of any information or material provided to NMLS, and any privilege arising under federal or state law, including the rules of any federal or state court, with respect to the information or material, shall continue to apply to the information or material after the information or material has been disclosed to NMLS. The information and material may be shared with all state and federal regulatory officials with oversight authority over transactions subject to this chapter, without the loss of privilege or the loss of confidentiality protections provided by federal or state law. (b) For the purposes of this section, the commissioner shall be authorized to enter into agreements or sharing arrangements with other governmental agencies, the Conference of State Bank Supervisors, or other associations representing governmental agencies as established by rule or order of the commissioner. (c) Information or material that is subject to a privilege or confidentiality under subsection (a) shall not be subject to: (1) Disclosure under chapter 92F; or (2) Subpoena or discovery, or admission into evidence, in any private civil action or administrative process, unless any privilege is determined by NMLS to be applicable to the information or material; provided that the person to whom the information or material pertains waives that privilege, in whole or in part, in the discretion of the person. (d) Notwithstanding chapter 92F, the examination process and related information and documents, including the reports of examination, shall be confidential and shall not be subject to discovery or disclosure in civil or criminal lawsuits. (e) In the event of a conflict between this section and any other section of law relating to the disclosure of privileged or confidential information or material, this section shall control. (f) This section shall not apply to information or material relating to the employment history of, and publicly adjudicated disciplinary and enforcement actions against, any persons that are included in NMLS for access by the public. PART IV. ENFORCEMENT § -19 Enforcement authority; violations; penalties. (a) To ensure the effective supervision and enforcement of this chapter, the commissioner may take any disciplinary action as specified in subsection (b) against an applicant or licensee if the commissioner finds that: (1) The applicant or licensee has violated this chapter, or any rule or order lawfully adopted pursuant to this chapter; (2) The applicant has failed to disclose facts or conditions that would clearly have justified the commissioner in denying an application for licensure, had these facts or conditions been known to exist at the time the application was made; (3) The applicant or licensee has failed to provide information required by the commissioner within a reasonable time, as specified by the commissioner; (4) The applicant or licensee has failed to provide or maintain proof of financial responsibility; (5) The applicant or licensee is insolvent; (6) The applicant or licensee has made, in any document or statement filed with the commissioner, a false representation of a material fact or has omitted to state a material fact; (7) The applicant, licensee, or, if an applicant or licensee is not an individual, any of the applicant's or licensee's control persons, executive officers, directors, general partners, and managing members have been convicted of or entered a plea of guilty or nolo contendere to a crime involving fraud or deceit, or to any similar crime under the jurisdiction of any federal court or court of another state; (8) The applicant or licensee has failed to make, maintain, or produce records that comply with section -20 or any rule adopted by the commissioner pursuant to chapter 91; (9) The applicant or licensee has been the subject of any disciplinary action by any state or federal agency that resulted in revocation of a license; (10) A final judgment has been entered against the applicant or licensee for violations of this chapter, any state or federal law concerning a digital currency license or money transmitters, or any state or federal law prohibiting unfair or deceptive acts or practices; or (11) The applicant or licensee has failed, in a timely manner as specified by the commissioner, to take or provide proof of the corrective action required by the commissioner after an investigation or examination pursuant to section -3. (b) After a finding of one or more of the conditions under subsection (a), the commissioner may take any or all the following actions: (1) Deny an application for licensure, including an application for a branch office license; (2) Revoke the license; (3) Suspend or condition the license in accordance with section -23; (4) Issue an order to the licensee to cease and desist from engaging in any act specified under subsection (a) or in accordance with section -24; (5) Order the licensee to make refunds to consumers of excess charges under this chapter; or (6) Impose penalties of up to $10,000 for each violation in accordance with section -26. (c) The commissioner may issue a temporary cease and desist order if the commissioner makes a finding that the licensee, applicant, or person is engaging, has engaged, or is about to engage in an illegal, unauthorized, unsafe, or unsound practice in violation of this chapter. Whenever the commissioner denies a license application or takes disciplinary action pursuant to this subsection, the commissioner shall enter an order to that effect and notify the licensee, applicant, or person of the denial or disciplinary action. The notification required by this subsection shall be given by personal service or by certified mail to the last known address of the licensee or applicant as shown on the application, license, or as subsequently furnished in writing to the commissioner. (d) The revocation, suspension, expiration, or surrender of a license shall not affect the licensee's liability for acts previously committed or impair the commissioner's ability to issue a final agency order or take disciplinary action against the licensee. (e) No revocation, suspension, consent order, or surrender of a license shall impair or affect the obligation of any preexisting lawful contract between the licensee and any consumer. (f) The commissioner may reinstate a license, terminate a suspension, or grant a new license to a person whose license has been revoked or suspended if no fact or condition then exists that clearly would justify the commissioner in revoking, suspending, or refusing to grant a license. (g) The commissioner may impose an administrative fine on a licensee or person subject to this chapter if the commissioner finds on the record after notice and opportunity for hearing that the licensee or person subject to this chapter has violated or failed to comply with any requirement of this chapter or any rule prescribed by the commissioner under this chapter or order issued under the authority of this chapter. (h) Each violation or failure to comply with any directive or order of the commissioner shall be a separate and distinct violation. (i) Any violation of this chapter that is directed toward, targets, or injures an elder may be subject to an additional civil penalty not to exceed $10,000 for each violation in addition to any other fines or penalties assessed for the violation. § -20 Investigation and examination authority. (a) In addition to the authority granted under section -3, the commissioner may conduct investigations and examinations in accordance with this section. The commissioner may access, receive, and use any books, accounts, records, files, documents, information, or evidence that the commissioner deems relevant to the investigation or examination, regardless of the location, possession, control, or custody of the documents, information, or evidence. (b) For the purposes of investigating violations or complaints arising under this chapter, or for the purposes of examination, the commissioner may review, investigate, or examine any licensee or person subject to this chapter as often as necessary to carry out the purposes of this chapter. The commissioner may direct, subpoena, or order the attendance of, and examine under oath, all persons whose testimony may be required about digital currency transactions or the business or subject matter of any investigation or examination and may direct, subpoena, or order the person to produce books, accounts, records, files, and any other documents the commissioner deems relevant to the inquiry. (c) Each licensee or person subject to this chapter shall provide to the commissioner, upon request, the books and records relating to the operations of the licensee or person subject to this chapter. The commissioner shall have access to the books and records and shall be permitted to interview the control persons, executive officers, directors, general partners, managing members, principals, managers, employees, independent contractors, agents, and consumers of the licensee or person subject to this chapter concerning their business. (d) Each licensee or person subject to this chapter shall make or compile reports or prepare other information, as directed by the commissioner, to carry out the purposes of this section, including: (1) Accounting compilations; (2) Information lists and data concerning digital currency transactions in a format prescribed by the commissioner; or (3) Other information that the commissioner deems necessary. (e) In conducting any investigation or examination authorized by this chapter, the commissioner may control access to any documents and records of the licensee or person under investigation or examination. The commissioner may take possession of the documents and records or place a person in exclusive charge of the documents and records. During the period of control, no person shall remove or attempt to remove any of the documents and records except pursuant to a court order or with the consent of the commissioner. Unless the commissioner has reasonable grounds to believe the documents or records of the licensee or person under investigation or examination have been, or are at risk of being, altered or destroyed for the purposes of concealing a violation of this chapter, the licensee or owner of the documents and records shall have access to the documents or records as necessary to conduct its ordinary business affairs. (f) The authority of this section shall remain in effect, whether a licensee or person subject to this chapter acts or claims to act under any licensing or registration law of this State or claims to act without such authority. (g) No licensee or person subject to investigation or examination under this section may knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, computer records, or other information. (h) The commissioner may charge an investigation or examination fee, payable to the commissioner, based upon the cost per hour per examiner for all licensees and persons subject to this chapter investigated or examined by the commissioner or the commissioner's staff. The hourly fee shall be $60 or an amount as the commissioner shall establish by rule pursuant to chapter 91. In addition to the investigation or examination fee, the commissioner may charge any person who is investigated or examined by the commissioner or the commissioner's staff pursuant to this section additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the investigation or examination, payable to the commissioner. (i) Any person having reason to believe that this chapter or the rules adopted under this chapter have been violated, or that a license issued under this chapter should be suspended or revoked, may file a written complaint with the commissioner, setting forth the details of the alleged violation or grounds for suspension or revocation. § -21 Prohibited practices. (a) It shall be a violation of this chapter for a licensee, its control persons, executive officers, directors, general partners, managing members, employees, or independent contractors, or any other person subject to this chapter to: (1) Engage in any act that limits or restricts the application of this chapter; (2) Use a customer's digital currency account number to prepare, issue, or create a digital currency transaction on behalf of the consumer without the customer's authorization; (3) Charge, collect, or receive, directly or indirectly, fees for negotiating digital currency transactions except those explicitly authorized in this chapter; (4) Fail to make disclosures as required by this chapter and any other applicable state or federal law, including rules or regulations adopted pursuant to state or federal law; (5) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead any consumer, or any person; (6) Directly or indirectly engage in unfair or deceptive acts, practices, or advertising in connection with a digital currency business activity toward any person; (7) Directly or indirectly obtain digital assets by fraud or misrepresentation; (8) Conduct digital currency business activity to any person physically located in the State through the use of the Internet, facsimile, telephone, kiosk, or other means without first obtaining a license under this chapter; (9) Make, in any manner, any false or deceptive statement or representation, including with regard to the rates, fees, or other financing terms or conditions for digital currency activity, or engage in bait and switch advertising; (10) Make any false statement or knowingly make any omission of material fact in connection with any reports filed with the division by a licensee or in connection with any investigation conducted by the division; (11) Conduct digital currency business activity from any unlicensed location; (12) Draft funds from any depository financial institution without written approval of the consumer; provided that nothing in this paragraph shall prohibit the conversion of a negotiable instrument into an electronic form for processing through the Automated Clearing House or similar system; (13) Fail to comply with all applicable state and federal laws relating to the activities governed by this chapter; or (14) Fail to pay any fee, assessment, or moneys due to the department. (b) In addition to any other penalties provided for under this chapter, any digital currency transaction in violation of subsection (a) shall be void and unenforceable. § -22 Voluntary surrender of license. (a) A licensee may voluntarily cease business and surrender its license by giving written notice through NMLS to the commissioner of its intent to surrender its license. Prior to the surrender date of a license, the licensee shall have either completed all pending digital currency transactions or assigned each pending digital currency transaction to another licensee. (b) Notice pursuant to this section shall be provided at least thirty days before the surrender of the license and shall include: (1) The date of surrender; (2) The name, address, telephone number, facsimile number, and electronic mail address of a contact individual with knowledge and authority sufficient to communicate with the commissioner regarding all matters relating to the licensee during the period that it was licensed pursuant to this chapter; (3) The reason or reasons for surrender; (4) Total dollar amount of the licensee's outstanding digital currency transactions in the State and the individual amounts of each outstanding digital currency transactions, and the name, address, and contact telephone number of the licensee to whom each outstanding digital currency transaction was assigned; (5) A list of the licensee's authorized branch offices in the State, if any, as of the date of surrender; (6) Confirmation that the licensee has notified each of its authorized branch offices in the State, if any, that the branch offices may no longer conduct digital currency business activity on the licensee's behalf; and (7) Confirmation that the licensee has notified each of its digital currency accounts, if any, that the digital currency account is being transferred and the name, address, telephone number, and any other contact information of the licensee or entity described in section -13 to whom the digital currency was assigned. (c) Voluntary surrender of a license shall be effective upon the date of surrender specified on the written notice to the commissioner as required by this section; provided that the licensee has met all the requirements of voluntary surrender and has returned the original license issued. § -23 Suspension or revocation of licenses. The commissioner may suspend or revoke a license if the commissioner finds that: (1) Any fact or condition exists that, if it had existed at the time when the licensee applied for its license, would have been grounds for denying the licensee's application; (2) The licensee's tangible net worth becomes inadequate and the licensee, after ten days written notice from the commissioner, fails to take steps as the commissioner deems necessary to remedy a deficiency; (3) The licensee knowingly violates any material provision of this chapter or any rule or order duly adopted by the commissioner under authority of this chapter; (4) The licensee is conducting its business in an unsafe or unsound manner; (5) The licensee is insolvent; (6) The licensee has suspended payment of its obligations, has made an assignment for the benefit of its creditors, or has admitted, in writing, its inability to pay its debts as they become due; (7) The licensee has filed for bankruptcy, reorganization, arrangement, or other relief under any bankruptcy law; (8) The licensee refuses to permit the commissioner to make any examination authorized by this chapter; or (9) The competence, experience, character, or general fitness of the licensee indicates that it is not in the public interest to allow the licensee to have a license. § -24 Orders to cease and desist. (a) If the commissioner determines a violation of this chapter or a rule adopted or an order issued under this chapter by a licensee or authorized delegate is: (1) Likely to cause immediate and irreparable harm to the licensee, the licensee's customers, or the public as a result of the violation; or (2) Cause insolvency or significant dissipation of assets of the licensee, the commissioner may issue an order requiring the licensee to cease and desist from the violation. The order becomes effective upon service of the order upon the licensee. (b) An order to cease and desist remains effective and enforceable pending the completion of an administrative proceeding pursuant to chapter 91. (c) A licensee that is served with an order to cease and desist may petition the circuit court for a judicial order setting aside, limiting, or suspending the enforcement, operation, or effectiveness of the order pending the completion of an administrative proceeding pursuant to sections -29 or -30. (d) The commissioner shall commence an administrative proceeding pursuant to chapter 91 within twenty days after issuing an order to cease and desist. (e) The commissioner may apply to the circuit court for an appropriate order to protect the public interest. § -25 Consent orders. The commissioner may enter into a consent order at any time with a person to resolve a matter arising under this chapter. A consent order shall be signed by the person to whom the order is issued or by the person's authorized representative, and shall indicate agreement with the terms contained in the order. A consent order may provide that it does not constitute an admission by a person that this chapter or a rule adopted or an order issued under this chapter has been violated. § -26 Civil penalties. The commissioner may assess a fine against a person who violates this chapter or a rule adopted or an order issued under this chapter in an amount not to exceed $10,000 per violation, plus the State's costs and expenses for the investigation and prosecution of the matter, including reasonable attorneys' fees. § -27 Criminal penalties. (a) A person who intentionally makes a false statement, misrepresentation, or false certification in a record filed or required to be maintained under this chapter, who intentionally makes a false entry, or who omits a material entry in a record shall be guilty of a class C felony, and be subject to a fine in an amount up to $10,000. (b) An individual or person who knowingly engages in any activity for which a license is required under this chapter, without being licensed under this chapter, shall be guilty of a misdemeanor, and be subject to a fine in an amount not to exceed $1,000, imprisonment of not more than one year, or both, and each day a violation exists shall be deemed a separate offense. § -28 Unlicensed persons. (a) If the commissioner has reason to believe that a person has violated or is violating section -4, the commissioner may issue an order to show cause why an order to cease and desist should not issue requiring that the person cease and desist from the violation of section -4. (b) If the commissioner has reason to believe that a person has violated or is violating section -4, the commissioner may petition the circuit court for the issuance of a temporary restraining order if the public would be irreparably harmed. (c) An order to cease and desist becomes effective upon service of the order upon the person. (d) An order to cease and desist remains effective and enforceable pending the completion of an administrative proceeding pursuant to section -29. (e) A person who is served with an order to cease and desist for violating section -4 may petition the circuit court for a judicial order setting aside, limiting, or suspending the enforcement, operation, or effectiveness of the order to cease and desist pending the completion of an administrative proceeding pursuant to section -29. (f) The commissioner shall commence an administrative proceeding within twenty days after issuing an order to cease and desist. § -29 Administrative procedures. All administrative proceedings under this chapter shall be conducted in accordance with chapter 91. § -30 Hearings. Except as otherwise provided in sections 11(g) and -23, the commissioner may not suspend or revoke a license, issue an order to cease and desist, suspend or revoke the designation of a licensee, or assess a civil penalty without notice and an opportunity to be heard. § -31 Division functions. (a) The division shall exercise all administrative functions of the State in relation to the regulation, supervision, and licensing of money transmitters. (b) The division shall interpret and carry out the provisions of this chapter." SECTION 3. Section 489D-4, Hawaii Revised Statutes, is amended by amending the definition of "monetary value" to read as follows: ""Monetary value" means a medium of exchange, whether or not redeemable in money[.] except as defined as digital currency under chapter ." SECTION 4. Section 846-2.7, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows: "(b) Criminal history record checks may be conducted by: (1) The department of health or its designee on operators of adult foster homes for individuals with developmental disabilities or developmental disabilities domiciliary homes and their employees, as provided by section 321-15.2; (2) The department of health or its designee on prospective employees, persons seeking to serve as providers, or subcontractors in positions that place them in direct contact with clients when providing non-witnessed direct mental health or health care services as provided by section 321-171.5; (3) The department of health or its designee on all applicants for licensure or certification for, operators for, prospective employees, adult volunteers, and all adults, except adults in care, at healthcare facilities as defined in section 321-15.2; (4) The department of education on employees, prospective employees, and teacher trainees in any public school in positions that necessitate close proximity to children as provided by section 302A-601.5; (5) The counties on employees and prospective employees who may be in positions that place them in close proximity to children in recreation or child care programs and services; (6) The county liquor commissions on applicants for liquor licenses as provided by section 281-53.5; (7) The county liquor commissions on employees and prospective employees involved in liquor administration, law enforcement, and liquor control investigations; (8) The department of human services on operators and employees of child caring institutions, child placing organizations, and foster boarding homes as provided by section 346-17; (9) The department of human services on prospective adoptive parents as established under section 346‑19.7; (10) The department of human services or its designee on applicants to operate child care facilities, household members of the applicant, prospective employees of the applicant, and new employees and household members of the provider after registration or licensure as provided by section 346-154, and persons subject to section 346-152.5; (11) The department of human services on persons exempt pursuant to section 346-152 to be eligible to provide child care and receive child care subsidies as provided by section 346-152.5; (12) The department of health on operators and employees of home and community-based case management agencies and operators and other adults, except for adults in care, residing in community care foster family homes as provided by section 321-15.2; (13) The department of human services on staff members of the Hawaii youth correctional facility as provided by section 352-5.5; (14) The department of human services on employees, prospective employees, and volunteers of contracted providers and subcontractors in positions that place them in close proximity to youth when providing services on behalf of the office or the Hawaii youth correctional facility as provided by section 352D-4.3; (15) The judiciary on employees and applicants at detention and shelter facilities as provided by section 571-34; (16) The department of public safety on employees and prospective employees who are directly involved with the treatment and care of persons committed to a correctional facility or who possess police powers including the power of arrest as provided by section 353C-5; (17) The board of private detectives and guards on applicants for private detective or private guard licensure as provided by section 463-9; (18) Private schools and designated organizations on employees and prospective employees who may be in positions that necessitate close proximity to children; provided that private schools and designated organizations receive only indications of the states from which the national criminal history record information was provided pursuant to section 302C-1; (19) The public library system on employees and prospective employees whose positions place them in close proximity to children as provided by section 302A‑601.5; (20) The State or any of its branches, political subdivisions, or agencies on applicants and employees holding a position that has the same type of contact with children, vulnerable adults, or persons committed to a correctional facility as other public employees who hold positions that are authorized by law to require criminal history record checks as a condition of employment as provided by section 78-2.7; (21) The department of health on licensed adult day care center operators, employees, new employees, subcontracted service providers and their employees, and adult volunteers as provided by section 321-15.2; (22) The department of human services on purchase of service contracted and subcontracted service providers and their employees serving clients of the adult protective and community services branch, as provided by section 346-97; (23) The department of human services on foster grandparent program, senior companion program, and respite companion program participants as provided by section 346-97; (24) The department of human services on contracted and subcontracted service providers and their current and prospective employees that provide home and community-based services under section 1915(c) of the Social Security Act, title 42 United States Code section 1396n(c), or under any other applicable section or sections of the Social Security Act for the purposes of providing home and community-based services, as provided by section 346-97; (25) The department of commerce and consumer affairs on proposed directors and executive officers of a bank, savings bank, savings and loan association, trust company, and depository financial services loan company as provided by section 412:3-201; (26) The department of commerce and consumer affairs on proposed directors and executive officers of a nondepository financial services loan company as provided by section 412:3-301; (27) The department of commerce and consumer affairs on the original chartering applicants and proposed executive officers of a credit union as provided by section 412:10-103; (28) The department of commerce and consumer affairs on: (A) Each principal of every non-corporate applicant for a money transmitter license; (B) Each person who upon approval of an application by a corporate applicant for a money transmitter license will be a principal of the licensee; and (C) Each person who upon approval of an application requesting approval of a proposed change in control of licensee will be a principal of the licensee, as provided by sections 489D-9 and 489D-15; (29) The department of commerce and consumer affairs on applicants for licensure and persons licensed under title 24; (30) The Hawaii health systems corporation on: (A) Employees; (B) Applicants seeking employment; (C) Current or prospective members of the corporation board or regional system board; or (D) Current or prospective volunteers, providers, or contractors, in any of the corporationꞌs health facilities as provided by section 323F-5.5; (31) The department of commerce and consumer affairs on: (A) An applicant for a mortgage loan originator license, or license renewal; and (B) Each control person, executive officer, director, general partner, and managing member of an applicant for a mortgage loan originator company license or license renewal, as provided by chapter 454F; (32) The state public charter school commission or public charter schools on employees, teacher trainees, prospective employees, and prospective teacher trainees in any public charter school for any position that places them in close proximity to children, as provided in section 302D-33; (33) The counties on prospective employees who work with children, vulnerable adults, or senior citizens in community-based programs; (34) The counties on prospective employees for fire department positions that involve contact with children or vulnerable adults; (35) The counties on prospective employees for emergency medical services positions that involve contact with children or vulnerable adults; (36) The counties on prospective employees for emergency management positions and community volunteers whose responsibilities involve planning and executing homeland security measures including viewing, handling, and engaging in law enforcement or classified meetings and assisting vulnerable citizens during emergencies or crises; (37) The State and counties on employees, prospective employees, volunteers, and contractors whose position responsibilities require unescorted access to secured areas and equipment related to a traffic management center; (38) The State and counties on employees and prospective employees whose positions involve the handling or use of firearms for other than law enforcement purposes; (39) The State and counties on current and prospective systems analysts and others involved in an agencyꞌs information technology operation whose position responsibilities provide them with access to proprietary, confidential, or sensitive information; (40) The department of commerce and consumer affairs on: (A) Applicants for real estate appraiser licensure or certification as provided by chapter 466K; (B) Each person who owns more than ten per cent of an appraisal management company who is applying for registration as an appraisal management company, as provided by section 466L-7; and (C) Each of the controlling persons of an applicant for registration as an appraisal management company, as provided by section 466L-7; (41) The department of health or its designee on all license applicants, licensees, employees, contractors, and prospective employees of medical cannabis dispensaries, and individuals permitted to enter and remain in medical cannabis dispensary facilities as provided under sections 329D-15(a)(4) and 329D‑16(a)(3); (42) The department of commerce and consumer affairs on applicants for nurse licensure or license renewal, reactivation, or restoration as provided by sections 457-7, 457-8, 457-8.5, and 457-9; (43) The county police departments on applicants for permits to acquire firearms pursuant to section 134-2 and on individuals registering their firearms pursuant to section 134-3; (44) The department of commerce and consumer affairs on: (A) Each of the controlling persons of the applicant for licensure as an escrow depository, and each of the officers, directors, and principals who will be in charge of the escrow depositoryꞌs activities upon licensure; and (B) Each of the controlling persons of an applicant for proposed change in control of an escrow depository licensee, and each of the officers, directors, and principals who will be in charge of the licenseeꞌs activities upon approval of the application, as provided by chapter 449; (45) The department of taxation on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 231-1.6; (46) The department of labor and industrial relations on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 383-110; (47) The department of human services on current or prospective employees or contractors who have access to federal tax information in order to comply with requirements of federal law, regulation, or procedure, as provided by section 346-2.5; (48) The child support enforcement agency on current or prospective employees or contractors who have access to federal tax information in order to comply with federal law, regulation, or procedure, as provided by section 576D-11.5; (49) The department of the attorney general on current or prospective employees or employees or agents of contractors who have access to federal tax information to comply with requirements of federal law, regulation, or procedure, as provided by section 28‑17; [[](50)[]] The department of commerce and consumer affairs on each control person, executive officer, director, general partner, and managing member of an installment loan licensee, or an applicant for an installment loan license, as provided in chapter 480J; [[](51)[]] The University of Hawaii on current and prospective employees and contractors whose duties include ensuring the security of campus facilities and persons; [and] (52) The department of commerce and consumer affairs on each control person, executive officer, director, general partner, and managing member of a special purpose digital currency company licensee, or an applicant for a special purpose digital currency license, as provided in chapter ; and [[(52)]] (53) Any other organization, entity, or the State, its branches, political subdivisions, or agencies as may be authorized by state law." SECTION 5. The department of commerce and consumer affairs may employ necessary personnel without regard to chapter 76, Hawaii Revised Statutes, including three full-time equivalent (3.0 FTE) positions for examiners, to assist with the implementation and continuing function of this Act. SECTION 6. There is appropriated out of the compliance resolution fund established pursuant to section 26-9(o), Hawaii Revised Statutes, the sum of $500,000 or so much thereof as may be necessary for fiscal year 2022-2023 to implement the licensing program established by this Act. The sum appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act. SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 8. This Act shall take effect on July 31, 2050; provided that: (1) The special purpose digital currency licensing requirements established by section 2 of this Act shall take effect on January 1, 2023; (2) The participating companies in the digital currency innovation lab shall be allowed to continue operations until their applications are acted upon by the division of financial institutions if the complete application is submitted to the division of financial institutions by March 1, 2023; and (3) A company authorized to participate in the digital currency innovation lab as of June 30, 2022, and whose application for licensure under section 2 of this Act has been submitted to the division of financial institutions on or before March 1, 2023, is exempt from the requirements in section -4 of section 2 of this Act for a period of six months from the date the application is deemed complete or until the commissioner approves or denies the application, whichever occurs first. The commissioner of financial institutions, for good cause, may reduce or extend the six-month period. Submission of an application for licensure shall be evidenced through NMLS to the commissioner. |
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