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ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
regulatory sandbox program; amendments
Purpose
Modifies the Regulatory Sandbox Program (RSP), the requirements of the Attorney General (AG) and the requirements of RSP participants.
Background
Laws 2018, Chapter 44 required the AG to establish an RSP to enable persons to obtain limited access to the Arizona market to test innovative financial products or services without obtaining a license (A.R.S. § 41-5602).
The AG oversees the RSP and accepts or denies applications from potential RSP participants. Applicants are required to demonstrate 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. Upon application approval an applicant is deemed an RSP participant and given 24 months to test the innovative financial products or services described in the application (A.R.S. § 41-5603).
An RSP participant must retain records, documents and data produced in the ordinary course of business regarding an innovative financial product or service tested in the RSP. If an innovation fails before the end of the testing period, the RSP participant must notify the AG and report on actions taken to ensure consumers have not been harmed as a result of the innovation's failure (A.R.S. § 41-5609). Before the 24-month testing period ends, an RSP participant must notify the AG that the RSP participant will exit the RSP and cease offering any innovative products or services within 60 days after the 24-month testing period ends or seek an extension in order to pursue a license or other authorization required by law (A.R.S. § 41-5607).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Regulatory Sandbox Program
1. Expands the definition of regulatory sandbox to allow an RSP participant to temporarily test an innovation, rather than innovative financial products or services.
2. Specifies that a person who possesses a license or other authorization in Arizona must file an application with the AG in order to test an innovation within the RSP for a product or service outside the scope of licensure or authorization.
AG Powers and Duties
3. Grants the AG sole authority to enforce the state regulatory laws applicable to RSP participants.
4. Specifies that agreements the AG enters into with state, federal or foreign regulators must advance the purpose of the RSP.
5. Allows the AG-developed application for entry into the RSP to include how the applicant will employ cybersecurity measures to avoid breaches and protect consumer and transaction data.
AG Discretionary Allowances
6. Allows RSP participants to request an increase in the consumer testing cap to pursue a license or other authorization.
7. Allows the AG to grant or deny a request for an increase in the consumer testing cap within 30 days after the request and limits the time period a granted request may be effective to one year after the approval date.
8. Requires RSP participants that obtain an increase in the consumer testing cap to provide the AG with a written report every three months that provides an update on efforts to obtain a license or other authorization.
9. Changes, to within 30 days of the request, the timeframe for the AG to grant or deny a request for an extension of the RSP testing period, rather than by the end of the 24-month RSP testing period.
10. Limits the time period a granted request for extension of the RSP testing period is effective to one year after the approval date, rather than after the end of the RSP testing period.
11. Specifies that a denial of extension or consumer testing cap increase is not an appealable agency action.
RSP Participants
12. Exempts an RSP participant from Arizona laws that establish agency requirements for a license or authorization that would or may regulate an innovative financial product or service.
13. Removes RSP participants testing financial products or services that provide investment management from being subject to Arizona Corporation Commission (ACC) rules relating to:
a) information required to be furnished to clients;
b) custody of client funds or securities; and
c) disclosure of financial and disciplinary information to clients.
14. Exempts, from the Arizona residency requirement, a consumer in a transaction involving an RSP money transmitter innovation, if the consumer is physically present in Arizona.
15. Allows RSP participants to obtain, record, provide or maintain any information, writing, signature, record or disclosure in electronic form.
16. Removes the requirement that RSP participants testing financial products or services that provide investment management to:
a) make, maintain and preserve books and records; and
b) file, with the ACC, a copy of any notices or written undertakings required by the Securities and Exchange Commission.
Miscellaneous
17. Specifies that the definition of innovation relates to providing a financial product or service or a substantial component of a financial product or service.
18. Redefines consumer to mean a person that purchases or enters into a transaction for an innovation, rather than an innovative financial product or service.
19. Excludes, from the definition of consumer, an agent or business partner of or an investor in an RSP participant.
20. Makes technical and conforming changes.
21. Becomes effective on the general effective date.
House Action
COM 2/05/19 DPA 5-4-0-0
3rd Read 2/25/19 27-33-0
Prepared by Senate Research
March 5, 2019
MG/gs