HB2384

SECTION 1. The legislature finds that digital currency is any money-like asset that is primarily managed, stored, or exchanged using internet technology. Digital currency refers to, among others, cryptocurrency, e-money, network money, and e‑cash. Digital currency may be recorded on a distributed ledger on the Internet, a centralized electronic database owned by a company, or a store-value card.

The legislature further finds that digital currency does not have a physical form like banknotes or minted coins, is not typically issued by a governmental body, and is not considered legal tender in most countries. However, ownership of digital currency is transferrable. Digital currencies may be used to purchase goods and services and can also be restricted to "gated communities" such as online games. Digital currency may be centralized, where there is a central point of control over the digital currency, or it may be decentralized, where the control of the supply is predetermined.

Digital currency is viewed and maintained in digital wallets, which are electronic applications that run on a smartphones or other electronic devices. The digital wallet stores payment information and allows users to easily store and receive digital currency. As such, a digital wallet has both software and information security risks. The two types of digital wallets are hot wallets and cold wallets and users can have both. Hot wallets are connected to the internet and used for transactions. Cold wallets are used for storing and holding digital currency and are not connected to the Internet. Digital wallets use keys to establish ownership of the address of the digital currency. Digital wallet users have a private key, known only to the user and the user's wallet, and a public key, which is available on the digital currency address.

The legislature additionally finds that digital currency has grown in popularity and acceptance nationwide. There is, however, little regulation of the industry. The department of commerce and consumer affairs' division of financial institutions and the Hawaii technology development corporation are currently conducting a two-year "sandbox" program to study digital currency transactions, known as the Digital Currency Innovation Lab (DCIL). 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 DCIL program found that digital currency transactions cannot be effectively regulated through existing money transmitter laws and concluded that a new regulatory framework is needed. Absent the legislative action proposed by this Act, however, transactions with customers in participating companies in the DCIL shall terminate on June 30, 2022, followed by a wind-down period through the end of 2022.

Accordingly, the purpose of this Act is to:

(1) Create a digital currency licensing program, which shall replace the DCIL program and be regulated by the department of commerce and consumer affairs' division of financial institutions; and

(2) Continue the study of use cases by the Hawaii technology development corporation.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

SPECIAL PURPOSE DIGITAL CURRENCY LICENSE

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 is the owner or user in a transaction that is primarily for that natural person's personal, family, or household purposes.

"Control of digital currency" means the power to execute unilaterally or prevent indefinitely a digital currency transaction, when used in reference to a transaction or relationship involving digital currency.

"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 currency and digital assets.

"Digital asset" means a representation of economic, proprietary, or access rights that is stored in a computer readable format and is either a digital consumer asset, digital security, or digital currency.

"Digital currency business activity" means:

(1) Exchanging, transferring, or storing digital currency or engaging in virtual-currency administration, whether directly or through an agreement with a digital currency control-services vendor;

(2) Holding electronic certificates representing interests in a thing of value on behalf of another person or issuing shares;

(3) Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for:

(A) Digital currency offered by or on behalf of the same publisher from which the original digital representation of value was received; or

(B) 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;

(4) Storing, holding, or maintaining custody or control of digital currency on behalf of others;

(5) Buying and selling digital currency as a business;

(6) Performing exchange services as a business; or

(7) Controlling, administering, or issuing a digital currency.

"Department" means the department of commerce and consumer affairs.

"Digital consumer asset" means a digital asset that is used or bought primarily for consumptive, personal, or household purposes, and includes:

(1) An open blockchain token constituting intangible personal property as otherwise provided by law; and

(2) Any other digital asset that does not fall within the definition of digital security.

"Digital currency" means:

(1) A digital representation of value that is used as a medium of exchange, unit of account, or store of value and is not recognized as legal tender by the United States government; but

(2) Does not include:

(A) A transaction in which a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for money, bank credit, or digital currency; or

(B) A digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.

"Digital currency administration" means issuing digital currency with the authority to redeem the currency for money, bank credit, or other 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.

"Digital security" means a digital asset that constitutes a security.

"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 to assume control of digital currency from or on behalf of a person, at least momentarily, to sell, trade, or convert:

(1) Digital currency for money, bank credit, or one or more forms of digital currency; or

(2) Money or bank credit for one or more forms 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, which is a licensing system developed and maintained by the Conference of State Bank Supervisors for the state licensing and registration of state-licensed financial services providers, or any system provided by the Consumer Financial Protection Bureau.

"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, which 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 or company that engages in digital currency business activity.

"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.

"U.S. 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 the exchange, transfer, or storage of digital currency, or to digital currency administration, to the extent of the Electronic Fund Transfer Act of 1978, title 15 United States Code sections 1693 through 1693r, as amended or recodified from time to time, the Securities Exchange Act of 1934, title 15 United States Code sections 78a through 78oo, as amended or recodified from time to time, the Commodities Exchange Act of 1936, title 7 United States Code sections 1 through 27f, as amended or recodified from time to time.

(b) This chapter shall not apply to activity by:

(1) A person that contributes only connectivity software or computing power to a decentralized digital currency, or to a protocol governing transfer of the digital representation of value;

(2) A person that 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;

(3) A person that 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;

(4) 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;

(5) 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 U.S. Dollar equivalent of digital currency;

(6) An attorney to the extent of providing escrow services to a person;

(7) A securities intermediary, as defined by Uniform Commercial Code section 8-102, or a commodity intermediary, as defined by Uniform Commercial Code section 9-102;

(8) A digital currency control services vendor;

(9) A person that does not receive compensation from a person for:

(A) Providing virtual-currency products or services; or

(B) Conducting virtual-currency business activity; or

(10) A person that is engaged in testing products or services with the person's own funds or digital currency.

(c) The commissioner may determine that a person or class of persons, given facts particular to the person or class, should be exempt from this chapter, whether the person or class is covered by requirements imposed under federal law on a money-service business.

§ -3 Digital currency business activity; license required. No person shall 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 the State pursuant to this chapter and rules adopted by the commissioner; or

(2) Excluded from licensing under section -2.

§ -4 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 deems reasonably necessary for the protection of those persons. The commissioner shall determine the time and form required for disclosure. A disclosure required by this section must be made separately from any other information provided by the licensee and in a clear and conspicuous manner in a record that the person may keep. A licensee may propose for the commissioner's approval alternate disclosures as more appropriate for its digital currency business activity with or on behalf of persons.

(b) Before establishing a relationship with a person under the purview of this chapter and to the extent applicable to the digital currency business activity the licensee will undertake with the person, a licensee shall disclose the following:

(1) A schedule of fees and charges the licensee may assess, the manner by which 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:

(A) Covered by insurance of any form;

(B) Covered by private insurance against theft or loss, including cyber theft or theft by other means;

(C) Otherwise guaranteed against loss by any governmental entity, including the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation; and

(D) Insured or backed by the full U.S. Dollar equivalent of digital currency purchased from the licensee or for control of digital currency by the licensee;

(3) The irrevocability of a transfer or exchange;

(4) A description of the general error-resolution rights applicable to the transfer or exchange;

(5) The method for the person to update the person's contact information with the licensee;

(6) That the date or time when the transfer or exchange is made, and 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;

(7) Whether the person has a right to stop a pre-authorized payment or revoke authorization for a transfer and the procedure to initiate a stop-payment order or revoke authorization for a subsequent transfer;

(8) The person's right to receive a receipt or other evidence of the transfer or exchange;

(9) 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

(10) That digital currency is not legal tender.

(c) Except as otherwise provided in subsection (d), at the conclusion 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 needed 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.

(d) If a licensee discloses that it will provide a daily confirmation in the initial disclosure under subsection (c), the licensee may elect to provide a single, daily confirmation for all transactions with or on behalf of a person on that day instead of a per-transaction confirmation.

§ -5 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 are 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.

(1) Be held for the persons entitled to the digital currency;

(2) Not property of the licensee;

(3) Not subject to the claims of creditors of the licensee; and

(4) Be deemed a permissible investment under this chapter.

§ -6 Records; net worth requirement. (a) A licensee engaged in digital currency business activities must comply with all provisions of this chapter to the extent applicable to the licensee's activities.

(b) A licensee engaged in digital currency business activities may include in its calculation of tangible net worth digital currency, measured by the average value of the digital currency in U.S. Dollar equivalent over the prior six months, excluding control of digital currency for a person entitled to the protections pursuant to section -5.

(c) A licensee shall maintain, for all virtual-currency business activity with or on behalf of a person and for seven 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 the State, including the:

(A) Identity of the person;

(B) Form of the transaction;

(D) Account number, name, and U.S. Postal Service address of the resident, 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 the State, expressed in U.S. 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, 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) A report of any dispute with the person; and

(8) A report of any digital currency business activity transaction with or on behalf of a person that 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 pertinent court order, and any other applicable law.

PART II. SPECIAL PURPOSE DIGITAL CURRENCY COMPANIES

§ -7 License required. (a) No person, unless exempted under this chapter, shall act as a special purpose digital currency company in the State unless licensed to do so by the commissioner.

(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.

§ -8 Exemptions. This chapter shall not apply to a financial institution chartered or licensed by chapter 412.

§ -9 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;

(3) The complete address of any other branch offices at which the applicant currently proposes to engage in digital currency business activity; 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 and 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 shall be granted.

§ -10 Issuance of license; grounds for denial. (a) The commissioner shall conduct an investigation of 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 an special purpose digital currency company 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 under chapter 853 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;

(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 has been granted a deferred acceptance of a guilty plea under federal law or chapter 853 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 -11.

(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 commitment to provide additional fingerprints, if necessary, to law enforcement or regulatory bodies in other states.

(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 Hawaii consumers or made internet loans 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.

§ -11 Fees; bond. (a) A special purpose digital currency company shall pay the following fees to the division to obtain and maintain a valid license under this chapter:

(1) Initial application fee of $9,000;

(2) Processing fee of $35 for each control person;

(3) Annual license renewal fee of $7,000;

(4) 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

(5) 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) Each branch office of a special purpose digital currency company shall pay the following fees to the division to obtain and maintain a valid license under this chapter:

(1) Nonrefundable initial application fee of $600; and

(2) Annual license renewal fee of $450.

(c) 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 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 U.S. Dollar equivalent of digital currency as reported in the annual renewal report.

(d) The bond required by subsection (c) 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.

(e) Each special purpose digital currency company shall pay a nonrefundable fee of $100 to the division for each branch office that is relocated.

§ -12 Renewal of license; annual report. (a) On or before December 31 of each year, each licensee shall pay a renewal fee pursuant to section -11.

(b) The annual renewal fee shall be accompanied by a report, in a form prescribed by the commissioner, that shall include:

(1) A copy of the licensee's most recent audited annual financial statement, including 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;

(2) 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;

(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 reasonably require related to performance metrics and the efficacy of the special purpose digital currency license program;

(3) 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;

(4) A list of the principal place of business and branch locations, if any, within the State where business regulated by this chapter is being conducted by the licensee;

(5) Disclosure of any pending or final suspension, revocation, or other enforcement action by any state or governmental authority; and

(6) Any other information the commissioner may require.

(c) A license may be renewed by continuing to meet the licensing requirements of sections -9, -10, and -11, filing a completed renewal statement on a form prescribed by NMLS or as required by the commissioner, paying a renewal fee, and meeting the requirements of this section.

(d) A licensee that has not filed an annual report that has been deemed complete by the commissioner or paid its annual renewal fee by the renewal filing deadline, 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 an annual report and pay the annual renewal fee, plus a late filing fee of $250 for each day after suspension that the commissioner does not receive the annual report and the annual renewal fee. The commissioner, for good cause, may grant an extension of the renewal date or reduce or suspend the $250 per day late filing fee.

PART III. ENFORCEMENT

§ -13 Enforcement authorities; violations; penalties. (a) To ensure the effective supervision and enforcement of this chapter, the commissioner, pursuant to chapter 91, 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 made pursuant to this chapter;

(2) The applicant has failed to disclose facts or conditions exist 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, each and every 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 required by 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 subsequent to an investigation or examination pursuant to section -19.

(b) After a finding of one or more of the conditions under subsection (a), the commissioner may take any or all of the following actions:

(1) Deny an application for licensure, including an application for a branch office license;

(2) Revoke the license;

(3) Suspend the license for a period of time;

(4) Issue an order to the licensee to cease and desist from engaging in any act specified under subsection (a);

(5) Order the licensee to make refunds to consumers of excess charges under this chapter;

(6) Impose penalties of up to $10,000 for each violation; and

(7) Prohibit a person from applying for or holding a license for a period of five years following revocation of the person's license.

(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, 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 from 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.

§ -14 Voluntary surrender of license. (a) A licensee may voluntarily cease business and surrender its license by giving written notice 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 or entity.

(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 Hawaii 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 Hawaii authorized branch offices, if any, as of the date of surrender;

(6) Confirmation that the licensee has notified each of its Hawaii authorized branch offices, 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 -14 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.

§ -15 Special purpose digital currency company; sale or transfer of license; change of control. (a) A special purpose digital currency company license shall not 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 adversely affected by the change of control.

(e) The following persons shall be exempt from the requirements of subsection (b), but the licensee, regardless, 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.

§ -16 Special purpose digital currency company; authorized places of business; principal office; branch offices; relocation; closure. (a) Every special purpose digital currency company licensed under this chapter shall have and maintain a principal place of business in the State, regardless of whether the special purpose digital currency company maintains its principal office outside of the State.

(b) If a special purpose digital currency company has more than one place of business, each additional place of business in the State shall be licensed as a branch office with the commissioner. No business shall be conducted at a branch office until the branch office has been licensed by the commissioner.

(c) No special purpose digital currency company shall maintain any branch offices in the State in addition to its principal place of business without the prior written approval of the commissioner. An application to establish a branch office shall be submitted through NMLS with a nonrefundable application fee as required by section -11.

(d) No special purpose digital currency company shall relocate any office in the State without the prior written approval of the commissioner. An application to relocate an office shall be submitted to the commissioner at least thirty days before relocating and shall set forth the reasons for the relocation, the street address of the proposed relocated office, and other information that may be required by the commissioner. An application to relocate an office pursuant to this subsection shall be submitted with a nonrefundable fee as required by section -11.

(e) A special purpose digital currency company shall give the commissioner notice of its intent to close a branch office at least thirty days before the closing. The notice shall:

(1) State the intended date of closing; and

(2) Specify the reasons for the closing.

(f) The principal place of business and each branch office of the special purpose digital currency company shall be identified in NMLS to consumers as a location at which the licensee holds itself out as a special purpose digital currency company.

(g) A license issued under this chapter shall be prominently displayed in the principal place of business and each branch office.

§ -17 Payment of fees. All fees collected pursuant to section -11, administrative fines, and other charges collected pursuant to this chapter shall be deposited into the compliance resolution fund established pursuant to section 26-9(o) and shall be payable through NMLS, to the extent allowed by NMLS. Fees not eligible for payment through NMLS shall be deposited into a separate account within the compliance resolution fund for use by the division.

§ -18 Advertising and marketing. (a) No licensee engaged in digital currency business activity shall advertise its products, services, or activities in Hawaii or to Hawaii consumers 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 superintendent, 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 (including 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.

§ -19 Powers of commissioner. (a) The commissioner may adopt rules pursuant to chapter 91 as the commissioner deems necessary for the administration of this chapter.

(b) In addition to any other powers provided by law, the commissioner shall have the authority to:

(1) Issue declaratory rulings or informal nonbinding interpretations;

(2) Investigate and conduct hearings regarding any violation of this chapter or any rule or order of, or agreement with, the commissioner;

(3) Create fact-finding committees that may make recommendations to the commissioner for the commissioner's deliberations;

(4) 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 in accordance with chapter 846;

(5) 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;

(6) Process and investigate complaints, subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including telephonic communications, and do any and all things necessary or incidental to the exercise of the commissioner's power and duties, including the authority to conduct contested case proceedings under chapter 91;

(7) 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, in the alternative, any policy position of the Conference of State Bank Supervisors;

(8) Enter into agreements or relationships with other government officials or regulatory associations in order 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;

(9) 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;

(10) Accept and rely on investigation or examination reports made by other government officials, within or without the State;

(11) Accept audit reports made by an independent certified public accountant for the licensee or person subject to this chapter in the course of 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

(12) Require that all fees, fines, and charges collected by the commissioner under this chapter, be deposited into the compliance resolution fund established pursuant to section 26-9(o); provided however, that after paying operating costs of implementing the chapter, up to $125,000 of the fees collected may be allocated to the Hawaii technology development corporation to implement -23.

§ -20 Investigation and examination authority. (a) In addition to the authority granted under section -19(b), the commissioner shall have the authority to conduct investigations and examinations in accordance with this section. The commissioner may access, receive, and use any books, accounts, records, files, documents, information, or any other material or information 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 loans 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 loan transactions in a format prescribed by the commissioner; and

(3) Any 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 the 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 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 any 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 any other law governing the disclosure to the public of information held by an officer or an agency of the state; 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, in whole or in part, in the discretion of the person, that privilege.

(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.

§ -22 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 consumer's account number to prepare, issue, or create a digital currency transaction on behalf of the consumer;

(3) Charge, collect, or receive, directly or indirectly, charges 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, any lender, 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 for 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 and wilfully 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 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."

SECTION 3. The Hawaii technology development corporation shall coordinate with the division to develop and create programs relevant to meet the changing digital currency business activity use cases and to develop and produce education sessions for applicants, consumers, and licensees.

SECTION 4. The Digital Currency Innovation Lab participants shall be allowed to continue operations until their application, for a license under the licensing regime created under section 2 of this Act, is approved or denied by the department of commerce and consumer affairs' division of financial institutions; provided that the participating company applies, by March 1, 2023, for a license under the licensing regime created under section 2 of this Act.

SECTION 5. There is appropriated out of the compliance resolution fund the sum of $500,000 or so much thereof as may be necessary for fiscal year 2022-2023 for the following purposes:

(1) To establish and hire three full-time equivalent (3.0 FTE) permanent examiners, without regard to chapter 76, Hawaii Revised Statutes, to carry out the purposes of the digital currency licensing program established by section 2 of this Act and to be placed within the department of commerce and consumer affairs' division of financial institutions; and

(2) For resources necessary to implement section 2 of this this Act, including the procurement of an electronic system to assist in the regulation of the digital currency licensing program.

The sum appropriated shall be expended by the department of commerce and consumer affairs' division of financial institutions for the purposes of this Act.

SECTION 6. This Act shall take effect on July 1, 2022; provided that the digital currency licensing requirements established by section 2 of this Act shall take effect on January 1, 2023.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2384
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII