STAND. COM. REP. NO. 1421-22

Honolulu, Hawaii

, 2022

RE: S.B. No. 3025

S.D. 2

H.D. 1

Honorable Scott K. Saiki

Speaker, House of Representatives

Thirty-First State Legislature

Regular Session of 2022

State of Hawaii

Sir:

Your Committee on Consumer Protection & Commerce, to which was referred S.B. No. 3025, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO DIGITAL CURRENCY LICENSING PROGRAM,"

begs leave to report as follows:

The purpose of this measure is to establish a program for the licensure, regulation, and oversight of digital currency companies in the State.

Your Committee received testimony in support of this measure from the Hawai‘i Technology Development Corporation; POW! WOW! Hawaii; FOMO MOFO; Purple Mai‘a Foundation; Central Pacific Bank; Blockchain Solutions Hawai‘i; Cloud Nalu, LLC; Hawaii Theatre Center; and five individuals. Your Committee received testimony in opposition to this measure from one individual. Your Committee received comments on this measure from the Department of Commerce and Consumer Affairs and Grassroot Institute of Hawaii.

Your Committee finds that the Division of Financial Institutions of the Department of Commerce and Consumer Affairs and the Hawaii Technology Development Corporation (HTDC) are conducting a two-year pilot program, the Digital Currency Innovation Lab (Innovation Lab), to study digital currency transactions. According to testimony received by HTDC, the Innovation Lab consists of fifteen digital currency companies that totaled over 61,000 Hawaii resident participants who have collectively transacted hundreds of millions of dollars each calendar quarter during the pilot program. The Innovation Lab has only received ten complaints from participants thus far and is scheduled to expire on June 30, 2022.

Through research conducted through the Innovation Lab, the Division of Financial Institutions learned that the existing regulatory scheme of the money transmitter laws do not comport with the activities conducted by digital currency companies. This measure applies information gained from the Innovation Lab to establish a new licensing framework for the digital currency companies in the State and would allow any company participating in the Innovation Lab on June 30, 2022, to continue operations if a complete licensure application is submitted to the Division of Financial Institutions by March 1, 2023.

Your Committee has amended this measure by:

(1) Inserting a definition for "control person";

(2) Substantially clarifying the requirements and parameters of the anti-money laundering program so that the anti-money laundering program is in compliance with the federal Anti-Money Laundering Act of 2020 and any future regulations that may be promulgated by the United States Department of the Treasury's Financial Crimes Enforcement Network;

(3) Substantially clarifying the requirements of the mandatory cybersecurity program to incorporate cybersecurity related principles from the Federal Financial Institutions Examination Council, and National Institute of Standards and Technology Cybersecurity Framework, among others; and

(4) Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

As affirmed by the record of votes of the members of your Committee on Consumer Protection & Commerce that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3025, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3025, S.D. 2, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Consumer Protection & Commerce,

____________________________

AARON LING JOHANSON, Chair