86R5157 GRM-F
By: Paxton S.B. No. 860
A BILL TO BE ENTITLED
AN ACT
relating to the creation of a regulatory sandbox program
administered by the attorney general for certain financial products
and services; authorizing a fee.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Title 99, Business & Commerce Code, is amended by
adding Chapter 2005 to read as follows:
CHAPTER 2005. REGULATORY SANDBOX PROGRAM
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2005.001. DEFINITIONS. In this chapter:
(1) "Applicable agency" means the department of this
state established by law to regulate certain types of business
activity in this state and the people engaging in that business,
including the issuance of licenses and registrations, that the
attorney general determines would regulate a program participant if
the person were not operating under this chapter.
(2) "Consumer" means a person who enters into a
transaction or agreement to receive an innovative financial product
or service that is being offered under this chapter.
(3) "Financial product or service" means a financial
product or service that requires a license or registration, or a
financial product or service that includes a business model,
delivery mechanism, or element that would otherwise require a
license, registration, or other authorization to act as a financial
institution that is regulated under the Finance Code or The
Securities Act.
(4) "Innovative" means the use of new or emerging
technology or the reimagining of existing technology to address a
problem, provide a benefit, or otherwise offer a product, service,
business model, or delivery mechanism that is not known by the
attorney general to have comparable widespread offering.
(5) "Innovative financial product or service" means a
financial product or service that is considered innovative by the
attorney general.
(6) "Program" means the regulatory sandbox program
established under this chapter that allows a person, without being
licensed or registered under the laws of this state, to test
innovative financial products or services for a limited time and on
a limited basis.
(7) "Program participant" means a person whose
application to participate in the program is approved and in good
standing.
(8) "Test" means to provide a financial product or
service to the extent allowed under this chapter.
Sec. 2005.002. CONFLICT OF LAW. If there is a conflict
between this chapter and another law or regulation of this state,
this chapter controls.
Sec. 2005.003. FEDERAL LICENSURE REQUIREMENTS. A program
participant is considered to be licensed, registered, or otherwise
authorized to act in this state for purposes of any federal law that
requires a person to be licensed, registered, or otherwise
authorized to act.
Sec. 2005.004. CREATION OF PROGRAM. (a) The attorney
general, in consultation with applicable agencies in this state,
shall create a regulatory sandbox program that enables a person to
obtain limited access to the market in this state to test innovative
financial products or services without obtaining a license,
registration, or other regulatory authorization.
(b) The program shall be administered by the consumer
protection division of the office of the attorney general.
Sec. 2005.005. REPORT ON REGULATIONS. (a) Not later than
December 31 of each even-numbered year, the attorney general shall
deliver a report to each legislative committee with jurisdiction
over each applicable agency.
(b) The report shall give an overview of the program,
including detailed recommendations on regulations appropriate for
certain financial products and services tested in the program.
SUBCHAPTER B. APPLICATION FOR PROGRAM PARTICIPATION
Sec. 2005.051. APPLICATION REQUIRED. (a) A person must
obtain approval from the attorney general before testing an
innovative financial product or service as a program participant.
A separate application is required for each product or service to be
tested under the program.
(b) A person that is licensed, registered, or has otherwise
gained regulatory authorization to provide a financial product or
service in this state must submit an application to test a new
financial product or service under the program.
Sec. 2005.052. APPLICATION. (a) The attorney general
shall review each submitted application to test a product or
service under the program.
(b) The attorney general shall accept and review
applications on a rolling basis.
(c) The application must be on a form prescribed under
Section 2005.053 and demonstrate that the applicant:
(1) is subject to the attorney general's jurisdiction
through incorporation, residency, presents agreement, or some
other means;
(2) has an established location that the attorney
general can access, either physically or virtually, from which
testing will be developed and performed, and where all required
records, documents, and data will be maintained; and
(3) has an adequate understanding of the product or
service and a sufficient plan to:
(A) test, monitor, and assess the product or
service; and
(B) ensure that consumers are protected from the
test's failure.
Sec. 2005.053. CONTENTS OF APPLICATION. The attorney
general by rule shall prescribe the application form. The form must
require the applicant to:
(1) provide personal and contact information for the
applicant, including the applicant's full legal name, addresses,
phone numbers, e-mail addresses, Internet website addresses, and
other information the attorney general requires;
(2) disclose any criminal convictions of the applicant
or the officers and directors of the applicant; and
(3) provide a detailed description of the innovative
product or service the applicant desires to test in the program,
including:
(A) the regulation the product or service would
be subject to outside of this program;
(B) the benefit the product or service would
provide consumers;
(C) how the product or service is different from
products and services available to consumers in this state;
(D) any risks to consumers who use or purchase
the product or service;
(E) how participation in the program will allow
for a successful test of the product or service;
(F) the proposed testing plan, including the
estimated time period needed for market entry, market exit, and
pursuit of necessary licensure, registration, or other regulatory
authorization; and
(G) how the applicant will wind down the test and
protect consumers if the product or service fails.
Sec. 2005.054. APPLICATION FEE. (a) The attorney general
shall collect an application fee for each application submitted.
(b) The attorney general by rule shall set the application
fee amount.
(c) All application fees collected under this section shall
be remitted to the comptroller for deposit in the general revenue
fund. Money deposited under this subsection may be appropriated
only for programs of the consumer protection division of the office
of the attorney general.
Sec. 2005.055. CONSULTATION WITH APPLICABLE AGENCY. (a)
Before acting on an application under Section 2005.056, the
attorney general must consult with the applicable agency.
(b) In consulting with the applicable agency, the attorney
general may seek information regarding if:
(1) the applicant could obtain a license,
registration, or other authorization from the applicable agency;
and
(2) the applicable agency has:
(A) issued a license or registration to the
applicant; or
(B) investigated, sanctioned, or disciplined, or
pursued legal action against, the applicant.
Sec. 2005.056. APPROVAL OR DENIAL OF APPLICATION. (a) Not
later than the 90th day after the date the application is submitted,
the attorney general shall notify the applicant if the application
is approved for participation in the program.
(b) The attorney general and an applicant may mutually agree
to extend the time to review an application under Subsection (a).
(c) In reviewing an application, the attorney general may
request any additional information necessary for the attorney
general to make a determination.
(d) Not later than the 30th day after the date the applicant
receives notice of denial of an application by the attorney
general, the applicant may file with the attorney general an appeal
of the attorney general's determination requesting a time and place
for a hearing before a hearing officer designated by the attorney
general. The applicant is entitled to a hearing not later than the
60th day after the date of the request. A hearing under this
subsection is governed by Chapter 2001, Government Code. After the
hearing, based on the findings of fact, conclusions of law, and
recommendations of the hearing officer, the attorney general shall
enter a final order.
SUBCHAPTER C. PROGRAM ADMINISTRATION
Sec. 2005.101. APPROVAL OF PROGRAM PARTICIPATION. (a) On
approval of an application by the attorney general, the applicant
shall be issued a unique registration number.
(b) The program participant may test the product or service
under the program for not longer than 24 months after the date the
application is approved.
Sec. 2005.102. MAXIMUM NUMBER OF CONSUMERS. A product or
service tested under the program may not be offered for sale or use
to more than 10,000 consumers.
Sec. 2005.103. SCOPE OF PROGRAM. (a) Program participants
may only offer financial products or services to residents of this
state.
(b) The program is open only to the following financial
products and services:
(1) consumer loans subject to Chapter 342, Finance
Code, other than mortgage loans;
(2) money transmission as defined by Section 151.301,
Finance Code;
(3) retail installment transactions as defined by
Section 348.001, Finance Code; and
(4) acting as an investment adviser as defined by
Subsection N, Section 4, The Securities Act (Article 581-4,
Vernon's Texas Civil Statutes).
(c) Mortgage loans are not an eligible product to be tested
in the program.
Sec. 2005.104. PROVISIONS APPLICABLE GENERALLY. (a) The
attorney general may determine that certain laws or regulations
apply to a program participant.
(b) If the attorney general determines that a law or
regulation applies to a program participant, the attorney general
must notify in writing the participant of the specific law or
regulation.
Sec. 2005.105. PROVISIONS APPLICABLE TO CONSUMER LOANS.
(a) This section applies to consumer loans that would be subject to
Chapter 342, Finance Code, if not offered under the program.
(b) A lender may not lend to an individual borrower more
than:
(1) $15,000 for each loan; and
(2) $50,000 in aggregate for all loans.
(c) The sum of all fees, interest, and other amounts in
excess of principal due under a loan may not exceed 30 percent of
the principal of that consumer loan.
Sec. 2005.106. PROVISIONS APPLICABLE TO MONEY
TRANSMISSION. (a) This section applies to money transmission as
defined by Section 151.301, Finance Code.
(b) A money transmission business may not transmit for an
individual consumer more than:
(1) $2,500 for each transaction; and
(2) $25,000 in aggregate for all transactions.
Sec. 2005.107. PROVISIONS APPLICABLE TO MOTOR VEHICLE
RETAIL INSTALLMENT TRANSACTIONS. (a) This section applies to a
retail installment transaction as defined by Section 348.001,
Finance Code.
(b) Sections 342.002, 348.102, 348.107, 348.112, 348.123,
348.201, 348.204, 348.205, 348.208, 348.209, and 348.412, Finance
Code, apply to a retail installment transaction under the program.
(c) The sum of all fees, interest, and other amounts in
excess of principal due under a retail installment transaction may
not exceed 30 percent of the principal of that retail installment
transaction.
Sec. 2005.108. PROVISIONS APPLICABLE TO INVESTMENT
ADVISERS. (a) This section applies to a financial adviser as
defined by Subsection N, Section 4, The Securities Act (Article
581-4, Vernon's Texas Civil Statutes), offering investment
services.
(b) Each program participant offering investment services
must make, maintain, and preserve books and records in accordance
with the requirements imposed on federal covered advisers under 17
C.F.R. Section 275.204-2.
(c) The participant shall file with the attorney general and
the State Securities Board a copy of any notices or written
undertakings required to be filed by federal covered advisors with
the United States Securities and Exchange Commission under 17
C.F.R. Section 275.204-2.
(d) Subsection C, Section 29, The Securities Act (Article
581-29, Vernon's Texas Civil Statutes), applies to investment
services offered under this program.
(e) State Securities Board rules adopted under The
Securities Act (Article 581-1 et seq., Vernon's Texas Civil
Statutes) apply as they relate to:
(1) dishonest and unethical practices;
(2) information required to be furnished to clients;
(3) custody of client funds or securities; and
(4) disclosure of financial and disciplinary
information to clients.
Sec. 2005.109. REPORTING REQUIREMENTS. (a) The attorney
general may require program participants to periodically report
information requested by the attorney general.
(b) Program participants shall make records, documents, and
data available for inspection by the attorney general.
Sec. 2005.110. CONFIDENTIALITY OF RECORDS UNDER PROGRAM.
(a) Subject to Subsection (b), records provided to the attorney
general by a program participant are confidential and do not
constitute public information for purposes of Chapter 552,
Government Code.
(b) Records provided to the attorney general by a program
participant may be disclosed to:
(1) federal and state agencies;
(2) representatives of foreign governments who have
regulatory authority over a program participant;
(3) a state or federal grand jury in response to a
subpoena; and
(4) the state auditor for the purpose of conducting
audits authorized by law.
Sec. 2005.111. REMOVAL FROM PROGRAM. (a) If the attorney
general believes a program participant is violating an applicable
state or federal regulation, the attorney general may remove the
participant from the program immediately.
(b) The decision to remove a program participant may be
appealed using the process under Section 2005.056(d).
SUBCHAPTER D. CONSUMER PROTECTION
Sec. 2005.151. WRITTEN CONSUMER DISCLOSURE REQUIRED. (a)
Before providing an innovative financial product or service to a
consumer, a program participant must disclose to the consumer all
information required under this section.
(b) The program participant must disclose:
(1) the name and contact information of the
participant, including the registration number assigned by the
attorney general under Section 2005.101(a);
(2) that the financial product or service is
authorized under the program, and the participant does not have a
license, registration, or other regulatory authorization to
provide financial products or services under the laws of this state
that regulate financial products and services;
(3) that this state does not endorse or recommend the
financial product or service;
(4) that the financial product or service is a
temporary test under the program and may be discontinued at the end
of the testing period, and the expected end date of the test; and
(5) that consumers may contact the consumer protection
division of the office of the attorney general regarding the
financial product or service and provide the division's phone
number, e-mail address, and Internet website where complaints may
be filed.
(c) The disclosure required by Subsection (b) must be:
(1) clear and conspicuous;
(2) in both English and Spanish; and
(3) physically or digitally signed by the consumer.
Sec. 2005.152. FAILURE OF TEST. (a) If a financial product
or service fails, the program participant shall notify the attorney
general not later than the 30th day before the date the program
participant will cease operation.
(b) The program participant shall implement the wind down
plan as described in the application under Section 2005.053.
SUBCHAPTER E. TERMINATION OF PROGRAM
Sec. 2005.201. EXPIRATION. This chapter expires on
December 31, 2029.
Sec. 2005.202. PROGRAM WRAP UP. The attorney general shall
make all necessary preparations to ensure that all program
participants' tests of financial products or services are concluded
before the date under Section 2005.201.
SECTION 2. This Act takes effect September 1, 2019.