HB2906 - 571R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Heading change

The chapter heading in title 41, chapter 55, Arizona Revised Statutes, is changed from "REGULATORY SANDBOX PROGRAM" to "financial technology, digital assets and blockchain sandbox program".

Sec. 2. Section 41-1491.10, Arizona Revised Statutes, is amended to read:

START_STATUTE41-1491.10. Reports; studies

A. The attorney general shall publish annually a written report recommending legislative or other action to carry out the purposes of this article. This report shall contain, for the preceding fiscal year, the following information:

1. The number of complaints initiated by the attorney general.

2. The number of complaints filed with the attorney general by aggrieved persons.

3. The number of complaints dismissed by the attorney general.

4. The number of complaints that resulted in conciliation agreements.

5. The number of complaints for which the attorney general found reasonable cause that a discriminatory housing practice occurred or was about to occur.

6. The number of civil actions filed by the attorney general pursuant to section 41-1491.34.

7. A description of the results of the regulatory financial technology, digital assets and blockchain sandbox program established pursuant to chapter 55 of this title.

B. The report shall include a description of the relief awarded in civil actions and, without attribution, benefits to complainants agreed to in conciliation agreements. The report shall also include the number of instances in the preceding fiscal year, and the reasons therefor, but without attribution to parties, the number of investigations that were not completed within the time periods provided by section 41-1491.24, subsection B or a determination made pursuant to section 41-1491.29, subsection B.

C. The attorney general may make studies relating to the nature and extent of discriminatory housing practices in this state. END_STATUTE

Sec. 3. Section 41-5601, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5601. Definitions

In this chapter, unless the context otherwise requires:

1. "Applicable agency" means a department or agency of this state established by law to regulate certain types of business activity in this state and persons engaged in such business, including the issuance of licenses or other types of authorization, that the attorney general determines would or may regulate a sandbox participant if the person was not a regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox participant.

2. "Consumer":

(a) Means a person that purchases or enters into a transaction for an innovation that is being tested by a sandbox participant.

(b) Does not include an agent or business partner of or an investor in a sandbox participant.

3. "Digital asset":

(a) means a digital representation of value, rights or ownership that is recorded and transferred electronically using blockchain technology or other distributed ledger systems.

(b) Includes cryptocurrencies, nonfungible TOKENS, tokenized real-world assets, airdrops, forked tokens, DECENTRALIZED finance rewards or tokens or other digital representations or attributes that may hold economic, utility or ownership value.

3. 4. "Financial product or service" means a product or service that requires licensure under title 6 or title 44, chapter 2.1 or 13 or a product or service that includes a business model, delivery mechanism or element that may otherwise be regulated under title 6 or title 44, chapter 2.1 or 13.

5. "financial technology, digital assets and blockchain sandbox" means the program established by this chapter that allows a person to temporarily test an innovation on a limited basis without otherwise being licensed or authorized to act under the laws of this state.

4. 6. "Innovation" means the use or incorporation of new or emerging technology or the reimagination of uses for 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 a comparable widespread offering in this state.

5. 7. "Innovative financial product or service" means a financial product or service that includes an innovation.

6. "Regulatory sandbox" means the program established by this chapter that allows a person to temporarily test an innovation on a limited basis without otherwise being licensed or authorized to act under the laws of this state.

7. 8. "Sandbox participant" means any person whose application to participate in the regulatory financial technology, digital assets and blockchain sandbox is approved pursuant to this chapter.

8. 9. "Test" means to provide products and services as allowed by this chapter. END_STATUTE

Sec. 4. Section 41-5602, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5602. Program purpose

The attorney general shall establish a regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox program in consultation with applicable agencies of this state to enable a person to obtain limited access to the market in this state to test innovative financial products or services or other innovations without obtaining a license or other authorization that otherwise might be required. END_STATUTE

Sec. 5. Section 41-5603, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5603. Application process and requirements; fee

A. Any person may apply to enter the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox to test an innovation.

B. The attorney general must accept and review each application for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox on a rolling basis.

C. An application must demonstrate that an applicant both:

1. Is an entity or individual that is subject to the jurisdiction of the attorney general through incorporation, residency, presence agreement or otherwise.

2. Has established a location, whether physical or virtual, that is adequately accessible to the attorney general, from which testing will be developed and performed and where all required records, documents and data will be maintained.

D. Persons that already possess a license or other authorization under state laws that regulate a financial product or service or other innovation must file an application with the attorney general to test an innovation within the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox for a product or service or other innovation outside the scope of the license or authorization.

E. Applications must contain sufficient information to demonstrate that an applicant has an adequate understanding of the innovation and a sufficient plan to test, monitor and assess the innovation while ensuring consumers are protected from a test's failure.

F. Applications must contain the information required by a form that is developed and made publicly available by the attorney general. The information required by the form may include:

1. Relevant personal and contact information for the applicant, including full legal names, addresses, telephone numbers, email addresses, website addresses and other information that the attorney general deems necessary.

2. Disclosure of any criminal convictions of the applicant or key personnel, if any.

3. A description of the innovation desired to be tested, including statements regarding all of the following:

(a) How an innovation is subject to regulation outside of the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox.

(b) How the innovation would benefit consumers.

(c) How the innovation is different from other financial products or services or other innovations available in this state.

(d) What risks will confront consumers.

(e) How entering the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox would enable a successful test of the innovation.

(f) A description of the proposed testing plan, including estimated time periods for market entry, market exit and the pursuit of necessary licensure or authorization.

(g) How the applicant will wind down the test and protect consumers if the test fails.

(h) How the applicant will employ cybersecurity measures to avoid breaches and protect consumer and transaction data.

G. The attorney general shall collect an application fee in an amount to be determined by the attorney general. The attorney general shall deposit, pursuant to sections 35-146 and 35-147, all fees collected pursuant to this subsection in the consumer protection-consumer fraud revolving fund established by section 44-1531.01.

H. A person shall file a separate application for each innovation sought to be tested.

I. After the information required by subsection F of this section is submitted, the attorney general may seek additional information that it deems necessary. Not later than ninety days after an application is initially submitted, the attorney general shall notify the applicant as to whether the application is approved for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox. The attorney general and an applicant may mutually agree to extend the time period for the attorney general to determine whether an application is approved for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox.

J. The attorney general may deny applications in its discretion and a denial is not an appealable agency action for the purposes of chapter 6, article 10 of this title. END_STATUTE

Sec. 6. Section 41-5604, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5604. Consultation with applicable agencies; admission authority

A. The attorney general must consult with an applicable agency before admitting a person into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox. This consultation may include seeking information about:

1. Whether the applicable agency previously has either:

(a) Issued a license or other authorization to the applicant.

(b) Investigated, sanctioned or pursued legal action against the applicant.

2. Whether the applicant could obtain a license or other authorization from an applicable agency after exiting the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox.

B. Notwithstanding subsection A of this section, the attorney general has sole authority to make the final decision whether to admit a person into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox. END_STATUTE

Sec. 7. Section 41-5605, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5605. Scope

A. If the attorney general approves an application for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, the applicant is deemed a sandbox participant and both of the following apply:

1. The sandbox participant has twenty-four months after the date of approval to test the innovation described in the sandbox participant's application.

2. The attorney general must issue the sandbox participant a registration number.

B. Innovations tested within the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox are subject to the following restrictions:

1. Consumers must be residents of this state, except for transactions that involve an innovation provided by a sandbox participant testing financial products or services as a money transmitter as defined in section 6-1241 or a related innovation, in which case only physical presence of the consumer in this state at the time of the transaction may be required.

2. Except as provided in subsection C of this section or section 41-5608, an innovation may not be tested with more than ten thousand consumers.

3. For a sandbox participant testing consumer lender loans as defined in section 6-601, an individual consumer lender loan may be issued for up to $15,000, except that aggregate loans per consumer may not exceed $50,000. All consumer lender loans issued in the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, including loans in excess of $10,000, are subject to all of the following:

(a) Section 6-114.

(b) Section 6-632.

(d) Section 6-637.

4. Except as provided in subsection C of this section, for a sandbox participant testing financial products or services as a money transmitter as defined in section 6-1241, individual transactions per consumer may not exceed $2,500 and aggregate transactions per consumer may not exceed $25,000.

5. For sandbox participants testing financial products or services as a sales finance company as defined in section 44-281, all of the following apply:

(a) Section 44-286.

(b) Section 44-287, except subsection B, paragraph 8.

(d) Section 44-289.

(e) Section 44-290.

(f) Section 44-291.

(g) Section 44-293.

(h) Section 47-9601.

6. For sandbox participants testing financial products or services that provide investment management that is regulated pursuant to title 44, chapter 13:

(a) Section 44-3241 applies.

(b) The corporation commission rules adopted pursuant to title 44, chapter 13 apply as they relate to dishonest and unethical practices.

C. If a sandbox participant demonstrates adequate financial capitalization, risk management process and management oversight, the attorney general may allow either or both of the following:

1. Except as provided in section 41-5608, an innovation to not be tested with more than seventeen thousand five hundred consumers.

2. For a sandbox participant testing products or services as a money transmitter as defined in section 6-1241, individual transactions per consumer that do not exceed $15,000 and aggregate transactions per consumer that do not exceed $50,000.

D. This section does not restrict a sandbox participant who holds a license or other authorization in another jurisdiction from acting pursuant to and in accordance with that license or other authorization.

E. A sandbox participant is deemed to possess an appropriate license under the laws of this state for purposes of any provision of federal law requiring state licensure or authorization.

F. Except as otherwise provided in this chapter, a sandbox participant is not subject to state laws that establish requirements pursuant to a license or authorization issued by an applicable agency that otherwise would or may regulate an innovative financial product or service.

G. The attorney general may determine that certain state laws that regulate a financial product or service or innovation apply to a sandbox participant. If the attorney general makes this determination and approves an application for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, the attorney general must notify the sandbox participant of the specific state regulatory laws that will apply to the sandbox participant. Pursuant to section 41-5611, the attorney general alone shall enforce the state regulatory laws applicable to sandbox participants, including the restrictions established by this section.

H. To the extent that a sandbox participant is required by this chapter to obtain, record, provide or maintain any information, writing, signature, record or disclosure, the sandbox participant may do so in electronic form, including as provided in section 44-7601, or may substitute any substantially similar equivalent information, writing, signature, record or disclosure that is approved by the attorney general. END_STATUTE

Sec. 8. Section 41-5606, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5606. Consumer protection

A. Before providing an innovation to consumers, a sandbox participant must disclose to consumers all of the following:

1. The name and contact information of the sandbox participant, including the registration number provided by the attorney general pursuant to section 41-5605.

2. That the innovation is authorized pursuant to the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox and, if applicable, that the sandbox participant does not have a license or other authorization to generally provide financial products or services or innovations under state laws that regulate a financial product or service or innovation that is outside the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox.

3. That this state does not endorse or recommend the innovation.

4. That the innovation is a temporary test that may be discontinued at the end of the testing period, including the expected end date of the testing period.

5. That consumers may contact the attorney general to file complaints regarding the innovation being tested and provide the attorney general's telephone number and website address where complaints may be filed.

B. The notifications prescribed by subsection A of this section must be provided to consumers in a clear and conspicuous form in both English and Spanish. For an internet or application-based innovation, consumers must acknowledge receipt of these notifications before completion of a transaction.

C. The attorney general may require that a sandbox participant make additional disclosures to consumers. When the attorney general approves an application for entry into the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, the attorney general shall notify the sandbox participant of the additional disclosures. END_STATUTE

Sec. 9. Section 41-5607, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5607. Exit requirements

A. At least thirty days before the end of the twenty-four-month regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox testing period, a sandbox participant must either:

1. Notify the attorney general that the sandbox participant will exit the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, wind down its test and cease offering any innovative financial products or services in the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox within sixty days after the twenty-four-month testing period ends.

2. Seek an extension pursuant to section 41-5608 to pursue a license or other authorization required by law.

B. If the attorney general does not receive notification pursuant to subsection A of this section, the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox testing period ends at the end of the twenty-four-month testing period and the sandbox participant must immediately cease offering innovative financial products or services.

C. If a test includes offering financial products or services that require ongoing duties, such as servicing a loan, the sandbox participant must continue to fulfill those duties or arrange for another person to fulfill those duties after the date the sandbox participant exits the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox. END_STATUTE

Sec. 10. Section 41-5608, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5608. Discretionary allowances

A. A sandbox participant may request an extension of the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox testing period or an increase in the consumer cap established by section 41-5605 for the purpose of pursuing a license or other authorization required by law.

B. The attorney general may grant or deny a request pursuant to subsection A of this section within thirty days after the request. A request granted pursuant to this subsection may not be effective for more than one year after the approval date.

C. A sandbox participant that obtains an extension or increase pursuant to subsection B of this section must provide the attorney general with a written report every three months that provides an update on efforts to obtain a license or other authorization, including any submitted applications for licensure or other authorization, rejected applications or issued licenses or other authorization.

D. The attorney general may deny requests made under subsection A of this section, and a denial is not an appealable agency action for the purposes of chapter 6, article 10 of this title. END_STATUTE

Sec. 11. Section 41-5609, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5609. Recordkeeping and reporting requirements

A. A sandbox participant must retain records, documents and data produced in the ordinary course of business regarding an innovation tested in the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox.

B. If an innovation fails before the end of the testing period, the sandbox participant must notify the attorney general and report on actions taken to ensure consumers have not been harmed as a result of the innovation's failure.

C. A sandbox participant is subject to the requirements of section 18-552 and must notify the attorney general of any breach as defined in section 18-551. END_STATUTE

Sec. 12. Section 41-5611, Arizona Revised Statutes, is amended to read:

START_STATUTE41-5611. Reporting requirements; monitoring; enforcement; agreements

A. The attorney general may establish periodic reporting requirements for sandbox participants.

B. The attorney general may seek records, documents and data from sandbox participants. On the attorney general's request, sandbox participants must make such records, documents and data available for inspection by the attorney general.

C. If the attorney general has reasonable cause to believe that a sandbox participant has engaged in, is engaging in or is about to engage in any practice or transaction that is in violation of this chapter, that constitutes an unlawful practice under section 44-1522 or that constitutes a violation of a state or federal criminal law, the attorney general may remove a sandbox participant from the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox or order a sandbox participant to exit the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox pursuant to section 41-5607.

D. Removal from the regulatory FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox is not an appealable agency action for the purposes of chapter 6, article 10 of this title.

E. Sandbox participants are subject to the consumer fraud provisions under title 44, chapter 10, article 7.

F. The attorney general may enter into agreements with state, federal or foreign regulators in advancing the purpose of regulatory the FINANCIAL TECHNOLOGY, DIGITAL ASSETS AND BLOCKCHAIN sandbox, which may include allowing sandbox participants to operate in other jurisdictions and allowing entities authorized to operate in other jurisdictions to be recognized as sandbox participants in this state. END_STATUTE