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.