Legislature(2021 - 2022)BELTZ 105 (TSBldg)
04/20/2022 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s) | |
| SB238 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 238 | TELECONFERENCED | |
| + | SB 175 | TELECONFERENCED | |
| += | SB 197 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 20, 2022
1:32 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Peter Micciche
Senator Gary Stevens
Senator Elvi Gray-Jackson
MEMBERS ABSENT
Senator Joshua Revak, Vice Chair
COMMITTEE CALENDAR
CONFIRMATION HEARING(s)
Alaska Workers' Compensation Board
Mathew Barth - Anchorage
- CONFIRMATION ADVANCED on 5/2/2022
Board of Certified Direct-Entry Midwives
Hannah St. George
- ITEM REMOVED FROM AGENDA
SENATE BILL NO. 238
"An Act relating to the business of money transmission; relating
to money transmission licenses, licensure requirements, and
registration through the Nationwide Multistate Licensing System;
relating to the use of virtual currency for money transmission;
relating to authorized delegates of a licensee; relating to
acquisition of control of a license; relating to record
retention and reporting requirements; authorizing the Department
of Commerce, Community, and Economic Development to cooperate
with other states in the regulation of money transmission;
relating to permissible investments; relating to violations and
enforcement of money transmission laws; relating to money
transmission license exemptions; relating to payroll processing
services; repealing currency exchange licenses; and providing
for an effective date."
- MOVED SB 238 OUT OF COMMITTEE
SENATE BILL NO. 175
"An Act relating to telehealth; relating to the practice of
medicine; relating to medical assistance coverage for services
provided by telehealth; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
SENATE BILL NO. 197
"An Act relating to direct health care agreements; and relating
to unfair trade practices."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: SB 238
SHORT TITLE: MONEY TRANSMISSION; VIRTUAL CURRENCY
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/25/22 (S) READ THE FIRST TIME - REFERRALS
03/25/22 (S) L&C, FIN
04/20/22 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
MATTHEW BARTH, Appointee
Alaska Workers' Compensation Board
Department of Labor and Workforce Development (DOLWD)
Anchorage, Alaska
POSITION STATEMENT: Testified as an appointee to the Alaska
Workers' Compensation Board.
ROBERT SCHMIDT, Director
Division of Banking and Securities
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Delivered a PowerPoint to introduce SB 238.
TRACY RENO, Examinations Chief
Division of Banking and Securities
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and answered questions
during the hearing on SB 238.
THOR STACEY, Alaska State Director
National Federation of Independent Business (NFIB)
Juneau, Alaska
POSITION STATEMENT: Testified that NFIB did not have a vetted
position on SB 238.
ACTION NARRATIVE
1:32:52 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32 p.m. Present at the call to
order were Senators Gray-Jackson, Stevens, and Chair Costello.
Senator Micciche arrived immediately thereafter.
^Confirmation Hearing(s)
CONFIRMATION HEARING(S)
Alaska Workers' Compensation Board
1:33:34 PM
CHAIR COSTELLO announced the consideration of Governor
Appointees to Boards and Commissions. She asked Mathew Barth to
tell the committee about his interest in serving on the Alaska
Workers' Compensation Board.
1:34:05 PM
SENATOR MICCICHE joined the committee.
1:34:18 PM
MATTHEW BARTH, Appointee, Alaska Workers' Compensation Board,
Department of Commerce, Community and Economic Development
(DCCED), Anchorage, Alaska, stated that he was appointed to the
statewide labor seat. He relayed that he had been a police
officer in Anchorage for about 15 years and he looked forward to
applying his skills as a member of the Alaska Workers'
Compensation Board. He had attended meetings and enjoyed the
collaborative effort to fairly and equitably solve problems that
come before the board. He offered to answer questions.
CHAIR COSTELLO asked if he was appointed January 24, [2022].
MR. BARTH said that sounds about right.
CHAIR COSTELLO asked him to share what he would like to
accomplish and what he saw as major challenges facing the board.
MR. BARTH offered that his law enforcement experience allows him
to step back to focus on the evidence and what the law says in
order to work through matters with the other board members.
1:36:58 PM
CHAIR COSTELLO thanked him for being willing to serve.
1:37:38 PM
CHAIR COSTELLO opened public testimony on the appointment of
Mathew Barth to the Alaska Workers' Compensation Board; finding
none, she closed public testimony.
CHAIR COSTELLO advised that the names of all Governor appointees
referred to the Senate Labor and Commerce Standing Committee
would be forwarded at a later date. [This occurred on 5/2/2022.]
1:38:07 PM
At ease
1:38:42 PM
CHAIR COSTELLO reconvened the meeting.
SB 238-MONEY TRANSMISSION; VIRTUAL CURRENCY
1:38:55 PM
CHAIR COSTELLO announced the consideration of SENATE BILL NO.
238 "An Act relating to the business of money transmission;
relating to money transmission licenses, licensure requirements,
and registration through the Nationwide Multistate Licensing
System; relating to the use of virtual currency for money
transmission; relating to authorized delegates of a licensee;
relating to acquisition of control of a license; relating to
record retention and reporting requirements; authorizing the
Department of Commerce, Community, and Economic Development to
cooperate with other states in the regulation of money
transmission; relating to permissible investments; relating to
violations and enforcement of money transmission laws; relating
to money transmission license exemptions; relating to payroll
processing services; repealing currency exchange licenses; and
providing for an effective date."
1:39:24 PM
ROBERT SCHMIDT, Director, Division of Banking and Securities,
Department of Commerce, Community and Economic Development
(DCCED), Anchorage, Alaska, delivered a PowerPoint to introduce
SB 238. He displayed slide 2 and made the following points:
- The Division of Banking and Securities serves as the
primary regulator for the more than 150 money transmitters
in Alaska who are guided by the Alaska Uniform Money
Services Act (AS 06.55). The legislature passed this law in
2007 and it was implemented in 2008.
- SB 238 amends and modernizes the Uniform Money Transmission
Modernization Act. It provides the legal framework for
Alaska's money transmission functions to include currency
exchange, transfer or wiring money, and loading and
reloading payment instruments, including stored value
cards.
- The law that passed in 2007 did not contemplate
cryptocurrency, Bitcoin, Ethereum, DogeCoin, or the rate of
money service business expansion and innovations. Alaska is
not currently among the 28 states that regulate virtual
currency, which is a top tool of rogue actors to evade
sanctions.
- SB 238 updates the licensing, recordkeeping, and
enforcement provisions to support these new business
activities, while protecting Alaska consumers. The bill
adopts relevant sections of the Uniform Money Transmission
Modernization Act. This is the model law that was developed
by state regulators and the Conference of State Bank
Supervisors (CSBS), with input from industry stakeholders.
CHAIR COSTELLO asked for an explanation of cryptocurrency.
1:42:42 PM
MR. SCHMIDT began with an explanation of the origin of money
transmission, which came about when people entrusted a third
party to transmit their money to someone in an entirely
different location. For example, in the 1880s someone in Boston
might give the Western Union office $20 to transmit to their
cousin in San Francisco. It quickly became clear that regulation
was necessary because people were giving what could be a lot of
money to a third party to transmit and trusting that it would
get to the right recipient.
MR. SCHMIDT warned that his explanation of cryptocurrency might
seem unbelievable. He directed attention to slide 4 that shows
both a chart and a colored bar graph to highlight the growth in
the number of money transmitter/currency exchange licenses the
State of Alaska has issued from calendar year 2017 (CY2017)
through CY2021. In CY2017, the state issued 91 money
transmission licenses and by CY2021 the number of those licenses
had grown to 153.
MR. SCHMIDT explained that there are three kinds of money
transmitters. One only transmits government-issued/fiat
currency; the second handles only cryptocurrency; and the third
handles both real and virtual currency. He highlighted that
transmitters that only handle virtual currency are not licensed
or regulated by the Division of Banking and Securities, so there
is no reporting. Businesses that do fiat money transmissions
must have a money transmission license. Businesses that do both
receive a license to transmit money, but not to transmit virtual
currency; these businesses report to the division.
1:45:08 PM
MR. SCHMIDT directed attention to the colored bar graph on slide
5 that shows the volume of reported money transmission in Alaska
over a three-year period. In 2019 the reported volume of money
transmission in Alaska was $1.68 billion; in 2020 it increased
to $2.8 billion; and in 2021 the reported volume of money
transmission in Alaska exploded to $7.1 billion.
MR. SCHMIDT directed attention to the bar graph on slide 6. It
shows the monetary value of virtual currency transmission in
Alaska reported to the Division of Banking and Securities over
the same three-year timeframe. [These are the businesses that
deal with both fiat currency and virtual currency.] In Alaska in
2019, $33.6 million in virtual currency transmission was
reported to the division; in 2020 that grew to $91.7 million;
and in 2021 the volume of virtual currency transmitted in Alaska
and reported to the division exploded to $2.3 billion.
He said the real nub of slide 6 is that it does not include
transmissions from businesses that only handle virtual currency
because they do not report to the Division of Banking and
Securities. The division believes that the actual volume of
virtual transmissions in Alaska is significantly higher than
slide 6 indicates.
1:46:46 PM
MR. SCHMIDT turned to slide 11 and provided the following
definition"
Virtual currency is a money-like asset that is
managed, stored, or exchanged on a computer system and
is transmitted on the internet. Virtual currency is
issued and controlled by its developers and used and
accepted electronically among the members of a
specific virtual community that is accepted by natural
or legal persons as a means of payment and can be
stored, transferred, or traded electronically.
MR. SCHMIDT stated that a lot of what gives money value is the
fact that it is backed by a government. It has intrinsic value.
That isn't the case for other things that might be traded. He
cited the examples of 1) a kid on the playground who has pieces
of gum to trade, and 2) a work of art. These items have no
intrinsic value but they do have value in the eyes of the
beholder. The piece of art may be worth millions of dollars
simply because people say it has that value.
1:49:32 PM
MR. SCHMIDT explained that the first Bitcoin was created when a
computer was used to solve a problem. The problem became
exponentially more difficult to solve to create the next
Bitcoin. When people are mining Bitcoins, their computers are
performing extremely difficult computations that have no purpose
other than to generate Bitcoin. Bitcoin mining takes a lot of
electricity when people have multiple racks of servers
(computers spinning at billions or trillions of operations per
second) to perform the task whose only point is to generate
Bitcoin. When people question the reason for paying attention to
virtual currency, he points out that there was $2.3 billion of
reported Alaska virtual currency transmission in 2021 and it was
not regulated.
MR. SCHMIDT stated that the takeaway from the presentation and
the purpose of SB 238 is to keep Alaska from being a conduit for
virtual currency into countries like Russia, North Korea, Iran,
Somalia, and others.
1:50:01 PM
MR. SCHMIDT returned to slide 3 to review what was covered in
the 2008 Alaska Uniform Money Services Act. The slide read as
follows:
• Money transmitters (wiring of funds)
• Issuers of traveler's checks, money orders, or
stored valued cards
• Sellers or redeemers of traveler's checks, money
orders, or stored value cards
• Currency dealers or exchangers; to include virtual
currency and related products
MR. SCHMIDT stated that SB 238 updates the licensing,
recordkeeping, and enforcement provisions to support
cryptocurrency business activities while protecting Alaska
consumers. He highlighted that in the past the division has
found licensed transmitters of fiat currency that have poor
compliance with the Bank Secrecy Act and Office of Foreign
Assets Control that identifies suspicious activity and prohibits
doing business with individuals and companies that conduct money
laundering or have been sanctioned for affiliating with rogue
countries. He stressed the potential for Alaskans to be scammed
by companies that do not have a compliance management system in
place. He relayed that Alaska participates on a multistate money
transmitter examination team that uses a risk-based approach to
streamline state supervision to be more effective and efficient
in utilizing state resources. He explained that an examination
consists of a review of a company's compliance with state and
federal laws and regulations in areas likely to affect the
safety and soundness of the licensee. Utilizing network
supervision with other states, as allowed in SB 238, would allow
the division to reduce regulatory burdens by conducting less
frequent examinations.
1:52:08 PM
MR. SCHMIDT briefly reviewed slides 4-6 that he described
earlier. He highlighted that in CY2021 40 of the 153 money
transmitter licensees conducted virtual currency business that
is not currently regulated. Today, online transactions in
virtual currency are a common means of exchanging and or
transferring payment of value. He stressed that SB 238 is
necessary to appropriately regulate money transmitters and
protect Alaska consumers. He directed attention to slide 5 that
shows the 6,250 percent increase in reported money transmission
volume in Alaska in three years. He noted that the totals
include money transmission, payment instruments, stored value,
and virtual currency. This does not include business activities
from individuals and businesses that only deal in virtual
currency.
MR. SCHMIDT described slide 6 as the most important in the
presentation. It shows the 6,782 percent increase in the volume
of reported annual virtual currency transmission in Alaska from
2019 to 2021 by companies that are licensed to conduct money
transmissions in Alaska and also have virtual money
transmissions. He said it is important it note that the reported
virtual currency transmissions grew 2,420 percent in 2021 alone.
These transactions have fundamentally changed the financial
services world and are growing exponentially in Alaska. SB 238
will add virtual currency activities to the definition of money
transmission, which will allow the Division of Banking and
Securities to regulate this activity that accounted for almost
one-third of the total money transmission volume in Alaska in
2021. He said he drilled down on the data and found further
reason for concern that by virtue of the lack of regulation,
Alaska is already targeted as a wild place to go for virtual
currency transmission and a haven to avoid sanction.
1:55:31 PM
CHAIR COSTELLO asked, if SB 238 were to pass, what would the
division be able to do that it can't now; how would the division
reach out to the relevant entities; and would they have to stop
current activities awaiting licensing.
MR. SCHMIDT answered that there would be transition provisions
so business would not be interrupted. Virtual currency
transmissions would be treated much the same way as real money
transmissions. The individual or business would have to submit
an application and demonstrate financial liquidity. The division
performs background checks on the principals and thereafter
examines the books and records of a money transmitter on a set
schedule. The examinations may be performed by a team of states,
each looking at different aspects of the examination. The
division would conduct examinations of the books, records and
internal controls for local Mom and Pop shops. He noted that in
recent years the division identified a small business money
transmitter that did little to comply with Banking Secrecy Act
provisions and specialized in sending money to customers in a
rogue nation.
1:57:47 PM
SENATOR STEVENS asked what the penalties are for not reporting.
MR. SCHMIDT deferred the question to Tracy Reno.
1:58:31 PM
TRACY RENO, Chief of Examinations, Division of Banking and
Securities, Department of Commerce, Community and Economic
Development (DCCED), Anchorage, Alaska, stated that there are
civil penalties for an applicant who conducts business prior to
licensure. The monetary value of the penalty depends on the
number of unlicensed transactions conducted and whether the
individual cooperated or withheld information during the
investigation.
CHAIR COSTELLO passed the gavel to Senator Micciche.
SENATOR STEVENS asked how the division learns about unlicensed
activities.
MS. RENO answered that the division uses the nationwide
multistate licensing system (NMLS), it investigates complaints
that are filed, and investigators also search the internet for
this activity.
SENATOR STEVENS asked how many individuals in the division do
examinations.
MS. RENO answered that one fulltime and one parttime examiner
conduct examinations of money transmissions, and two
investigators work in enforcement.
2:00:49 PM
ACTING CHAIR MICCICHE asked how the division regulates something
whose only value is based on supply and demand.
MR. SCHMIDT answered that the bill will ensure that the people
who are sending and receiving the virtual currency are following
the rules and checking lists from the Office of Foreign Asset
Control to ensure that inappropriate people are neither sending
nor receiving and are not using Alaska as a conduit for such
transmissions.
ACTING CHAIR MICCICHE noted the fluctuation of a single Bitcoin
from a few hundred dollars to $68,000 to about $41,000. He asked
if the division was seeking to ensure that the transactions are
legal and not attributed to laundering or business with rogue
nations, but without delving into how the value of a Bitcoin is
derived.
CHAIR COSTELLO resumed the gavel.
MR. SCHMIDT replied the division wants to regulate
cryptocurrency transmissions because it is being used like
money. The intention is to ensure that it is not used for money
laundering or to funnel money inappropriately to rogue nations.
2:03:41 PM
MS. RENO added the division wants to know how the transactions
are conducted, where the currency comes from, who the currency
is sent to, whether the recipients are on a sanctions list,
whether the parties are tracking and maintaining the records,
and if suspicious activity reported. Records are kept when money
transactions take place, whether it's virtual or fiat currency,
and the division is making sure that policies and procedures are
followed and that they can track and trace the transactions
appropriately.
SENATOR MICCICHE noted the huge rise in valuation over a
relatively short time and asked if there was a chance that a
large portion of the value of cryptocurrency was associated with
international money laundering.
2:05:25 PM
MR. SCHMIDT opined that the perception of anonymity associated
with virtual currency was a significant part of its value.
SENATOR STEVENS questioned whether the art market was really a
good comparison since the provenance of paintings are known and
they have a history of being traded.
MR. SCHMIDT countered that there was an equivalent provenance in
cryptocurrency because there are registries that track the
virtual currency through all its different owners. For example,
a Bitcoin or fraction thereof can be traced back to the time it
was mined.
CHAIR COSTELLO asked him to talk about the national database
that the division uses to check licensing.
MR. SCHMIDT explained that the Nationwide Multistate Licensing
System was developed as a result of the housing crisis in the
late 2000s. Originally it was called Nationwide Mortgage
Licensing and now NMLS is a nationwide platform that is business
friendly because it is uniform and thus compatible throughout
all states that use the system. He deferred further explanation
to Tracy Reno.
2:09:11 PM
MS. RENO added that the division uses NMLS for the licensing
application process and fee payments. Should SB 238 pass, the
division would also have the ability to do background checks
through the FBI, which would be a great timesaver. It would
automate background checks so the division could see who is
running the companies, who owns the companies, the entire
company record, along with any enforcement actions. Consumers
would be able to search that database to see which licensees
have enforcement issues in other states. Going forward, the
division would also like to add the other industries it touches
to streamline processes and ensure everyone is treated the same,
which would reduce regulatory burdens for companies.
2:10:25 PM
CHAIR COSTELLO asking whether the department could use NMLS to
do background checks for military spouses who want to transfer
their professional licenses to Alaska.
MR. SCHMIDT said he didn't know that there was interoperability
outside the financial industry.
2:11:13 PM
MR. SCHMIDT returned to the presentation, speaking to slide 7,
Fiscal Impact and Request for Additional Staff:
The Division of Banking and Securities (DBS) Receipts
vs. Budget
• Receipts in FY2012 were $12.8 million. The FY2012
budget was $3.5 million.
• Receipts in FY2021 were $19.6 million. The FY2021
budget was $4 million. [Receipts in CY 2021 were
$21.5 million.]
• Over the last 9 years, DBS receipts have grown
53% while the budget has only grown 14%.
DBS is requesting five full-time positions with the
passage of this bill: Three in FY2023, one in FY2024,
and one in FY2025. The total operating expenditures
for DBS including the added personnel are estimated to
be $401.5 in FY2023 increasing to $617.1 in FY2025.
New program receipt revenue is estimated
conservatively at $110,000 for 35 new license
applications. DBS anticipates revenue from assessments
set in regulation will cover all costs of supervision
of the industry and additional staffing. [Program
receipts are estimated to range from $750,000 to $1.2
million.]
MR. SCHMIDT paraphrased slide 8, Why Change the Act? It read as
follows:
• The current law has not kept up with the industry's
explosive growth and innovation.
• Consumer protection is insufficient; cryptocurrency
is one of the top risks for consumer fraud.
• Virtual currency is not included in the definition
of money transmission.
2:13:41 PM
MR. SCHMIDT made the following points, based on slide 9, What
Does HB 408/SB 238 do?
- Reduces regulatory burden by streamlining initial
licensing and license renewal by using NMLS for
submitting license applications, filing documents, and
fee payments.
- Removes the currency exchange license type and adds
"currency exchange" to the definition of money
transmission, so only one license is needed.
- Protects Alaska consumers by conducting criminal
background checks through the Nationwide Multistate
Licensing System (NMLS) on individuals who control the
money transmission business. The division currently does
background checks using third-party software, which
takes about 140 staff hours per year.
- Ensures regulatory costs of supervision keep pace with
growth by allowing a volume-based assessment to be
implemented. Licensees will be required to report the
volume of money transmissions, which will ensure that
licensees are treated equitably based on their volume of
business in the state.
- Broadens the definition of money transmission to include
virtual currency transactions and other means of
transferring monetary value to better protect Alaskans.
MR. SCHMIDT highlighted that the bill was drafted with input
from the money transmission industry.
2:15:50 PM
MR. SCHMIDT paraphrased slide 10, HB 408/SB 238 Protects
Consumers. It read as follows:
• Require licensees to comply with federal laws,
including suspicious activity reporting.
• Increase the record retention schedule to five
years for greater transparency.
• Allow criminal background checks to be run on
licensees.
• Update enforcement provisions by allowing a
broader spectrum of orders to be issued.
• Ensure DBS can coordinate with other states in
all areas of regulation, licensing, and
supervision to reduce regulatory burden on the
industry and more effectively utilize regulator
resources.
• Define crypto/virtual currency money transmission
activities and allow regulation of those
activities (aka "virtual currency," Bitcoin,
Ethereum, DogeCoin).
2:16:46 PM
MR. SCHMIDT concluded the presentation with the definition of
virtual currency on slide 11. It read:
Definition of virtual currency: Cryptocurrency or
virtual currency means a digital representation of
value that is used as a medium of exchange, unit of
account, or store of value; and is not money, whether
or not denominated in money. AS 06.55.290(5)
MR. SCHMIDT highlighted that there are recent efforts to tie
virtual currencies to real currencies to make them more stable,
but the fact remains that its value is much like the Mona Lisa
it's because people say it has value.
SENATOR STEVENS asked how important it is to pass the bill this
year.
MR. SCHMIDT answered that his staff has been crystal clear that
this bill and modernizing money transmission is the division's
number one priority. The incomplete 2021 data on the volume and
dollar amounts of virtual currency transmissions far exceeded
any expectations. He expressed concern that by not regulating
virtual currency, Alaska may well attract a problem. The
preference is to work through the well thought-out framework of
this legislation, but if it doesn't pass the division will be
looking at regulating virtual currency through agency
rulemaking. It is that critically important.
SENATOR STEVENS said he understands the urgency and he hopes the
bill passes.
CHAIR COSTELLO asked if there was a House companion to SB 238.
MR. SCHMIDT answered yes; HB 408 is currently in the House Labor
and Commerce Committee.
CHAIR COSTELLO asked if he was aware of any opposition.
2:20:47 PM
MR. SCHMIDT said he was surprised to learn that a nationwide
payroll processor filed a letter of opposition. He noted that
the industry generally was subject to the current law because,
depending on the business model, they are handling consumers'
funds. At the same time, money transmitters nationwide support
this legislation.
2:22:24 PM
SENATOR STEVENS asked if other states have passed similar
legislation.
MR. SCHMIDT answered that West Virginia passed the model
legislation, which was approved by the Conference of State Bank
Supervisors last fall, and legislation is pending in a number of
other states across the political spectrum.
CHAIR COSTELLO thanked him for his attention to the issue and
expressed appreciation that he visited her office to discuss the
bill.
MR. SCHMIDT advised that he was in Juneau through this week and
would be happy to speak to the members individually.
CHAIR COSTELLO asked Ms. Reno to give a brief review of the
sectional analysis, highlighting the sections that are
critically important.
2:23:52 PM
TRACY RENO, Chief of Examinations for the Division of Banking
and Securities paraphrased the sectional analysis for SB 238
that read as follows:
Section 1 adds a section of uncodified law expressing
the purpose of the bill.
Section 2 amends AS 06.55.101(a) which contains the
requirement that a person may not engage in the
business of money transmission without a license. It
is amended to insert a citation to the exemption
statute, AS 06.55.802, and to clarify that an
authorized delegate may not engage in the business of
money transmission if the actions taken would be
outside the scope of authority conferred by the
written contract required by AS 06.55.301, as repealed
and reenacted pursuant to Section 8.
Section 3 repeals and reenacts AS 06.55.102 to conform
with the Conference of State Bank Supervisors (CSBS)
Uniform Money Transmission Modernization Act ("the
model law"). This section provides the application
requirements for a money transmission license and
allows the Department of Commerce, Community, and
Economic Development ("the department") to change or
update the form to maintain consistency with
Nationwide Multistate Licensing System & Registry
("NMLS" or "registry") licensing standards and
practices.
Section 4 repeals and reenacts AS 06.55.105 to conform
with the model law. This section contains the
department's license issuance procedures, timelines,
license terms, and due process procedures. It provides
that if the applicant is subject to a multistate
licensing process, the department may accept the
investigation results of a lead investigation state.
Section 5 repeals and reenacts AS 06.55.106 to conform
with the model law. It contains license renewal and
renewal reporting requirements. As repealed and
reenacted, AS 06.55.106 presents a change to license
renewals, renewal reporting, and renewal terminology.
In conjunction with proposed changes to AS 06.55.850,
conforming to the model law also presents a change to
fees collected by the department. These changes align
with the model law's goal of uniform application of
money transmission laws for licensees that operate in
more than one state.
2:25:39 PM
Section 6 amends AS 06.55 to add new sections AS
06.55.108, AS 06.55.109, and AS 06.55.110 to Article 1
to conform with the model law.
AS 06.55.108 concerns maintenance of money
transmission licenses. It provides that licensees
must continue to meet the qualifications that
apply to new applicants, and that the department
may suspend or revoke a license if a licensee
fails to do so.
AS 06.55.109 concerns information requirements
for certain individuals. This section contains
information submission requirements for
individuals in control of applicants or
licensees, and "key individuals" as defined by
the bill. It also contains background report
requirements applicable to individuals who have
resided outside of the United States in the last
ten years.
2:26:08 PM
AS 06.55.110 concerns consistent state licensing.
It grants the department discretion to (1)
implement licensing provisions and protocols in a
manner that is consistent with other states that
have adopted a multistate licensing process, (2)
establish relationships or contracts that enables
the department to collect and maintain records,
coordinate licensing, process fees, and
communicate with licensees, and (3) utilize NMLS
for all aspects of licensing.
Section 7 amends AS 06.55 to add new sections to
Article 2 concerning virtual currency.
AS 06.55.205 concerns the scope of AS 06.55.205 -
AS 06.55.290 and contains a list of exempted
activities. Notably, paragraph (b)(5) contains an
exemption applicable to persons whose virtual-
currency business activities on an annual basis
are expected to be measured at $5,000 or less,
measured by the dollar equivalent of virtual
currency. Subsection (c) grants the department
discretionary authority to create additional
exemptions for specific persons or classes of
persons.
AS 06.55.206 concerns conditions precedent to
engaging in virtual-currency business activity.
This section provides that virtual-currency
business activity is money transmission, and
therefore, unless the virtual currency business
activity is exempt under AS 06.55.802, it
requires a money transmission license.
AS 06.55.207 concerns required disclosures. These
disclosures are in addition to the notice and
receipt requirements for money transmission
licensees found at AS 06.55.810 and AS 06.55.830.
Subsection (a) grants the department discretion
to require additional disclosures and to regulate
the time and form required for disclosure.
Subsection (a) also allows a licensee to propose
alternative disclosures that are more appropriate
to its business operations.
2:27:50 PM
MS. RENO highlighted AS 06.55.208 in Section 7 as
particularly important.
AS 06.55.208 concerns property interests and
entitlements to virtual currency. AS 06.55.208(a)
requires the virtual-currency business with
"control" over virtual currency to maintain an
amount of each type of virtual currency
sufficient to satisfy the aggregate entitlements
of the persons to each type of virtual currency.
This section places the interests of customers of
a licensee over the interests of creditors of a
licensee.
AS 06.55.208 is modeled off of Section 502 of the
Uniform Regulation of Virtual Currency Businesses
Act ("URVCBA"). 1 Official comment to Uniform Law
Commission's ("ULC") URVCBA provides that Section
502 (proposed AS 06.55.208) is based on Uniform
Commercial Code ("UCC") Sections 8-503 and 8-5042
and that it is intended to protect the owner of
virtual currency that is entrusted to a licensee.
Unlike the URVCBA, the abridged version in the
model law does not create a private right of
action, and instead all enforcement of virtual
currency violations is by the department.
Official commentary further describes that this
section "takes the virtual currency under the
control of a licensee off the balance sheet of
the virtual currency business and beyond the
business' right to deal with it as their own
property. This formulation reduces the need for
greater net worth ? without sacrificing user
protection."
AS 06.55.209 concerns additional requirements and
clarifications for virtual currency business
activities. Subsection (b) allows a licensee
engaged in virtual-currency business activity to
include virtual currency in its tangible net
worth calculation, measured by the average value
of the dollar equivalent of the virtual currency
for the preceding six months. Subsections (c) and
(d) contain record keeping requirements specific
to virtual-currency businesses and resemble the
record keeping requirements of AS 06.55.405.
AS 06.55.210 contains definitions applicable to
the virtual currency sections. It is helpful to
note that when hyphenated, "virtual-currency" is
an adjective or modifier, as distinct from
"virtual currency" as defined in proposed AS
06.55.290(5) to signify a digital representation
of value that is not money.
Section 8 repeals and reenacts AS 06.55.301 concerning
the relationship between a licensee and an authorized
delegate to conform with the model law. It creates a
requirement that prior to use of an authorized
delegate, a licensee must adopt policies and
procedures consistent with applicable state and
federal law and must enter into a written contract
with the authorized delegate that contains the
provisions required by (c) of this section. It also
contains provisions linking the authorized delegate's
activities with those of the licensee in the event the
licensee's license is suspended and for operation of
the chapter's statutory trust provisions.
2:29:10 PM
Section 9 amends AS 06.55.302 concerning unauthorized
activities to add a joint and several liability
provision applicable to persons who engage in money
transmission on behalf of an unlicensed person.
Section 10 repeals and reenacts AS 06.55.401
concerning supervision. This section contains the
department's powers with respect to examination and
investigation of a licensee or authorized delegate. It
allows the department to accept examination reports of
other states, the federal government, or an
independent accounting firm. It requires licensees to
pay all costs associated with examinations and
references the confidentiality requirements of AS
06.55.407. It eliminates the existing requirement of
AS 06.55.401(a) that a notice be sent to a licensee 45
days prior to the annual examination.
2:30:05 PM
[MS. RENO skipped to Sections 17-18.]
Sections 11 - 14 repeal and reenact or amend
subsections of AS 06.55.403 for consistency with the
model law. As reenacted, AS 06.55.403 requires
quarterly reports of condition to be submitted by a
licensee for its own activities (subsection (a)) and
the activities of its authorized delegates (subsection
(b)). It maintains existing requirements for rapid
reporting to the department upon knowledge of the
filing of a bankruptcy petition, proceeding to revoke
or suspend a license in another state or country, bond
cancellation, and criminal charges brought against a
licensee, authorized delegate, or "key individual" or
other person in control of the licensee. It also adds
a subsection allowing the department to utilize NMLS
for reports required by AS 06.55.403.
"Key individual" is a term introduced by the
model law in Section 62 of the bill, proposed AS
06.55.990(34) and means "any individual
ultimately responsible for establishing or
directing policies and procedures of the
licensee, including an executive officer,
manager, director, or trustee." This terminology
replaces the repealed term "executive officer."
Section 15 repeals and reenacts AS 06.55.404
concerning acquisition of control of a money
transmission licensee. This is a lengthy section
containing procedural and reporting requirements for
acquisition or transfer of control of licensees. It
contains exceptions for acquisition of control that
are not subject to the section, for example
transitions that occur in the ordinary course of
business, and the list found at subsection (j). It
contains discretionary provisions for the department
for ease and flexibility of administration, as well as
utilization of NMLS. Subsections (n) and (o) create a
streamlined acquisition of control process.
AS 06.55.404 adds a new subsection (p) regarding
aggregation of interest of ownership for family
members for consistency with the Model Law.
2:30:06 PM
Sections 16 - 17 amend subsections (a) and (d) of AS
06.55.405 for consistency with the model law. AS
06.55.405 concerns record keeping obligations of
licensees. Subsection (a) is amended to increase the
recordkeeping time period from 3 years to 5 years and
to make conforming language changes. Subsection (d) is
amended to make conforming language changes.
2:30:26 PM
Section 18 amends AS 06.55.406(a). AS 06.55.406
concerns "money laundering reports" - this heading
would be retitled "Bank Secrecy Act reports" for
consistency with the model law. The primary change
made by this amendment is to remove the requirement
that certain money laundering, record keeping, and
suspicious transaction reporting requirements be filed
with the Attorney General. This amendment is
consistent with the model law and may reflect that
compliance with federal reporting obligations is
sufficient.
[MS. RENO skipped Sections 19-22.]
Sections 19 - 22 amend subsections of AS 06.55.407 for
consistency with the model law.
Section 23 adds a new subsection to AS 06.55.407
concerning when department records may be made public.
AS 06.55.407 concerns confidentiality, and the edits
clarify what information is confidential, what
information may be made public. The amendments also
remove "money services" and add "transmission" to
conform with the license type changes contemplated by
the bill.
2:30:58 PM
Section 24 amends AS 06.55 to add new sections to
Article 4. Each of these sections are components of
the model law.
AS 06.55.408 concerns audited financials. This
section requires licensees to submit an annual
audited financial statement to the department and
the requirements applicable to audited financial
statements.
AS 06.55.409 concerns implementation of the
chapter. Subsection (a) grants the department
discretion to enter into agreements with other
state and federal agencies to improve
efficiencies and reduce regulatory burden; to
contract, hire, or purchase software to
facilitate investigations; to accept licensing,
examination, or investigation reports made by
federal or state agencies; and to accept audit
reports of independent CPAs or qualified third-
party auditors. Subsection (b) grants the
department broad discretion to administer,
interpret, and enforce the chapter, to adopt
rules and regulations, and to recover its costs
through imposition and collection of fees.
AS 06.55.410 concerns networked supervision. This
section expands the department's ability to
participate in multistate supervisory processes,
including joint investigation.
AS 06.55.411 concerns relationship to federal
law. It provides that in the event of an
inconsistency between state and federal law, the
federal law governs to the extent of the
inconsistency. It also allows the department to
issue clarifying guidance regarding
inconsistencies to assist licensees in compliance
with both the federal law and applicable state
law.
AS 06.55.412 concerns notice and information
requirements for a change in control of a key
individual. This section is a regulatory tool
similar to the requirements of AS 06.55.403 that
contains the requirements and procedures
applicable when licensees add or replace "key
individuals." The department may disapprove a
change of key individual if the department finds
that the individual's experience, character, or
integrity would not be in the best interest of
the public or the licensee's customers.
2:31:21 PM
CHAIR COSTELLO asked Ms. Reno to return to Section 18 and
explain the reason for removing the requirement to file a report
with the Alaska attorney general and instead rely on federal
reporting.
MS. RENO explained that federal requirements under the Bank
Secrecy Act are already in place to report suspicious activity
to the US Department of Treasury and state law enforcement has
access to that database. She opined that it's duplicative and
burdensome to also require a report to be filed with the Office
of the Attorney General.
2:33:14 PM
MS. RENO continued the sectional analysis for SB 238:
Sections 25 - 30 make revisions to Article 5 of AS
06.55 to rename and broaden its scope from
"Permissible Investments" to "Prudential Standards."
In accordance with this change, two existing sections
(AS 06.55.104 and AS 06.55.107) are repealed and
reenacted, as revised, to fit within this new Article.
Section 25 amends AS 06.55.501, concerning
maintenance of permissible investments, for
consistency with the model law. It amends AS
06.55.501(b) to allow the department to limit
specific investments held by licensees due to
risk concerns, with the exception of those
permissible investments listed in AS 06.55.102.
It amends AS 06.55.501(c) to add additional
language to protect the beneficiaries of
statutory trusts from actions by creditors of
licensees.
Section 26 amends AS 06.55.501 to add a new
subsection (d) concerning establishment and
termination of statutory trusts and related
department obligations. It also adds a new
subsection (e) that allows the department to
allow additional permissible investments and to
participate with other state regulators to
identify permissible investments.
Sections 27 - 28 amend subsections (a) and (b) of
AS 06.55.502, concerning permissible investments,
for consistency with the model law. Subsection
(a) creates a list of permissible investments
that may be amended or modified by the
department. Subsection (b) is repealed and
reenacted to contain a list of investments that
are permissible to the extent specified within
allowable aggregate values for each investment
category as a component of a licensee's total
investment portfolio.
The revisions to AS 06.55.502(a)(1)
incorporate cash equivalents including
Automated Clearing House (ACH) items in
transit to licensees and payees, cash in
transit via armored car, cash in smart
safes, cash in licensee-owned locations, and
debit card or credit card funded
transmission receivables owed by any bank.
The inclusion of these specific cash
equivalent types is intended by CSBS to
resolve disagreement between industry and
states regarding derecognition of cash
transactions in transit for accounting
purposes. Because ACH funds are in the
banking system, the model law defines cash
in transit via ACH as a permissible
investment, thereby ensuring that licensees
are not obligated to raise additional funds
to cover funds that are in the banking
system.
AS 06.55.502(a) would also be amended to add
paragraph (4) to include letters of credit
as a permissible investment type. In
conjunction with Section 29, which lists the
requirements for letters of credit allowed
by AS 06.55.502(a)(4), the addition of
letters of credit is intended by CSBS to
create a mechanism that allows states to
make consumers whole without seizing assets
through bankruptcy. In consideration that a
licensee may operate in multiple states, the
letter of credit is intended as single
vehicle to allow recovery, as needed, for
customers in various states.
Finally, AS 06.55.502(a) is amended to allow
excess bonding as a permissible investment
type.
Section 29 amends AS 06.55.502 to add a new subsection
(d) containing the requirements for permissible
letters of credit.
2:34:39 PM
Section 30 amends AS 06.55 to add new sections to
Article 5. As described above, existing versions of
these statutes can be found in Article 1.
AS 06.55.505 concerns applicable forms of
security (AS 06.55.104). As proposed, this
section is a hybrid of the model and existing
law. It adopts the model law's approach that
requires licensees to hold a security bond, or
with the department's approval, a deposit, in an
amount equal to the licensee's average daily
money transmission liability in the state. To
avoid calculation of average daily money
transmission liability, licensees may hold a bond
in the maximum amount of $1,000,000. The bill
varies from the model law in the following ways:
(1) the model law would set the maximum bond
amount at $500,000; (2) it requires that the
surety bond be obtained from a surety company
authorized to do business in Alaska; and (3) it
requires that surety bond to be maintained for as
long as the department specifies, but no less
than 5 years.
AS 06.55.506 concerns net worth (AS 06.55.107).
It is a significant expansion of net worth
requirements from existing law, which only
requires applicants to maintain a net worth of
$25,000 in accordance with generally accepted
accounting principles. This section would require
licensees to maintain tangible net worth based
upon tiered levels of total assets held. It
requires applicants to demonstrate net worth at
application and allows the department to exempt
applicants or licensees from net worth
requirements.
2:35:40 PM
[MS. RENO skipped Sections 31-34.]
Section 31 amends AS 06.55.601 for consistency with
the model law. These changes are limited to deletion
of unnecessary language and insertion of new terms,
such as "key individual" and replacement of
"transmission" for "services."
Section 32 amends AS 06.55.601 by adding a new
subsection allowing a licensee to apply for relief
from suspension or revocation of a license.
Section 33 amends AS 06.55.602 concerning suspension
and revocation of authorized delegates for consistency
with the model law. These edits are limited to
replacing "money services" with "money transmission."
Section 34 amends AS 06.55.602 by adding a new
subsection allowing an authorized delegate to apply
for relief from a suspension or revocation of
designation as an authorized delegate.
2:35:45 PM
Sections 35 - 37 amend subsections of AS 06.55.603 for
consistency with the model law. These edits are
limited to conforming language changes such as
deletion of "money services" and insertion of
"transmission."
Section 38 amends AS 06.55.605 concerning civil
penalties to allow the department to assess its costs
and expenses for investigation and prosecution,
including attorney's fees, as part of the civil
penalty assessment allowed under this section.
Section 39 amends AS 06.55.606 concerning criminal
penalties for consistency with the model law. These
amendments are limited to insertion of the word "such"
and deletion of unnecessary language.
2:36:40 PM
MS. RENO described Sections 40-41 as particularly important to
streamline licensing for both staff and industry.
Sections 40 - 41 amend subsections of AS 06.55.607 to
remove citations to AS 06.55.201, which is repealed
pursuant to Section 64. Existing AS 06.55.201 contains
the currency exchange license requirement. This
license type has been eliminated in the bill in favor
of one license type, for which currency exchange is a
permissible activity.
Section 42 amends AS 06.55.702(a) concerning hearings
for consistency with the model law. These amendments
are limited to deletion of "money services" and a
citation to AS 06.55.702(b), which is repealed by
Section 64 of the bill.
2:37:30 PM
Section 43 amends AS 06.55.802 for consistency with
the model law. This section extensively revises
existing AS 06.55.802 concerning licensing
"exclusions." In addition to renaming the section to
"Exemptions," proposed Section 43 would add six new
exemption types and would allow the department to add
additional exemptions if "in the public interest" and
if regulation is unnecessary for the purposes of the
chapter. Some of the exemptions are added to allow
businesses that provide money transmission as an
ancillary service are not required to hold licenses
(e.g. insurance companies, title companies, and
attorneys). Others identify employees, third-party
services providers, agents of payees, and
intermediaries as exempt in certain circumstances.
Though the list of exemption is lengthy, CSBS
recommends consistent adoption of exemptions so that
compliance regimes are consistent from state-to-state.
[MS. RENO skipped Sections 44-46.]
Section 44 amends AS 06.55 by adding a new section AS
06.55.803 allowing the department to require a person
who claims an exemption to provide information and
documentation in support thereof.
Section 45 amends AS 06.55.810 concerning required
notices. The amendments require licensees and
authorized delegates to provide customers with notices
of how to file a complaint and allows the department
to establish the format and content requirements for
notices.
Section 46 amends AS 06.55.810 by adding a new
subsection that requires licensees and authorized
delegates include on a receipt or through disclosure
on the licensee's website or mobile application, the
name and phone number of the department and a
statement that customers may contact the department
with questions or complaints about the licensee or
authorized delegate's services.
2:38:26 PM
Section 47 repeals and reenacts AS 06.55.830,
concerning receipts, for consistency with the model
law. Subsections (a) - (c) contain content and format
requirements for transaction receipts and define
"receipt" for purposes of the section. Receipts are
required to be in English and any other language
principally used by the licensee or authorized
delegate to negotiate the transaction conducted.
Subsection (d) contains exceptions to the receipt
requirement.
Section 48 amends AS 06.55 to add a new section, AS
06.55.835, concerning timely transmission. This
section is new to the model law and requires licensees
to forward money received for transmission in
accordance with the agreement between the licensee and
sender unless the licensee has a reasonable basis to
believe the sender may be a victim of fraud or other
crime. The licensee is also required to respond to
inquiries from the sender with the reason for the
failure to forward money unless doing so would violate
a state or federal law.
Section 49 repeals and reenacts AS 06.55.840
concerning refunds to contain the language of the
model law.
2:39:27 PM
Section 50 amends AS 06.55 to add a new section AS
06.55.845 concerning required disclosures for payroll
processing services. Subsection (a) contains
disclosure requirements and subsection (b) provides
that the disclosure requirements do not apply in
certain circumstances.
Sections 53 - 60 amend definitions found in AS
06.55.990 for consistency with the model law. These
changes include incorporation of the words "in this
state" to ensure AS 06.55 protects Alaskan consumers.
Revisions are made to align the language of AS 06.55
with the model law, including an exception for loyalty
reward cards, amends the definition of control to at
least 10% of ownership, and the amended definition of
"stored value."
2:40:32 PM
Section 61 amends AS 06.55.990 to add definitions for
terms introduced by the model law. These terms include
"acting in concert," "average daily money transmission
liability," "Bank Secrecy Act," "closed loop stored
value," "control," "eligible rating," "eligible rating
service," "in this state," "key individual," "passive
investor," "payroll processing services," and
"tangible net worth."
Section 62 amends AS 06.55.995 to refer to the model
law as the Alaska Uniform Money Transmission
Modernization Act instead of the Alaska Uniform Money
Services Act.
Section 63 repeals a number of sections of AS 06.55.
As described above, AS 06.55.104 and AS 06.55.107 are
repealed and reenacted in Article 5 concerning
prudential standards. All of the statutes in existing
Article 2 concerning currency exchange licenses are
repealed, and currency exchange was added to the
definition of "money transmission." Section 64 also
repeals AS 06.55.890, which contains definitions
applicable to AS 06.55.820 - 06.55.840; these
definitions are no longer necessary following
amendment to these sections. Section 64 repeals
definitions for "currency exchange" and "currency
exchange licensee" as no longer necessary. It also
repeals the definitions for "executive officer,"
"mobile location," "money services," "money services
license," "money services licensee," and
"outstanding."
2:41:15 PM
Sections 64 - 68 are transitional provisions amending
uncodified law to avoid interference with existing
contracts, to allow a transition period for holders of
current money services licenses, to add a transition
period for payroll processors, to allow adoption of
transitional regulations by the department, and to
instruct the revisor of statutes to amend certain
headings.
Section 69 provides for an immediate effective date
for Section 67, which would allow the department to
begin the regulation promulgation process.
2:41:52 PM
Section 70 provides for an effective date of January
1, 2023.
2:42:27 PM
CHAIR COSTELLO opened public testimony on SB 238; finding none,
she closed public testimony.
2:42:42 PM
At ease
2:43:20 PM
CHAIR COSTELLO reconvened the meeting.
2:43:33 PM
THOR STACEY, Alaska State Director, National Federation of
Independent Business (NFIB), Juneau, Alaska, stated that NFIB
does not have a vetted position on SB 238. He highlighted that
his counterparts at NFIB indicated that the efforts to regulate
cryptocurrency were gaining traction across the country for many
of the reasons raised today. He stated that the biggest problem
is understanding where cryptocurrency is going or the potential
to use it counter to national interests. He highlighted that the
secondary problem is related to consumer protection. For
instance, if a money transmitter loses a person's
cryptocurrency, the person would have no recourse. He noted that
NFIB considers matters from a small business perspective. He
indicated that some small businesses are money transmitters or
consumers, so they can be defrauded by lost cryptocurrency by a
money transmitter service. Thus, NFIB believes the bill was
requested by large money-transmitting interests, so it raises a
cautionary flag. Thus far, he was unaware that anyone from the
small business community had come forward to NFIB or any
regulatory agency asking for cryptocurrency regulation.
2:45:35 PM
MR. STACEY reported that the state figures show a rapidly
expanding sector from 2019 to 2021 going from $31 million to
$2.3 billion of declared cryptocurrency transactions. He
recalled testimony from the state regulator identified it as a
caution, but it is a growing sector of the economy that brings
potential opportunities. NFIB does not want small businesses to
be left out.
2:46:25 PM
MR. STACEY expressed concern that the bill has other reforms for
all currencies, including fiat currency, so it was not limited
to cryptocurrency.
MR. STACY referred to the proposed changes to AS 06.55.205 in
Section 7 that provides an exemption for a $5,000 threshold. He
asked for the rationale for the $5,000 threshold. He wondered
what would happen to a smaller business if that threshold was
exceeded. He stated that AS 06.55.208 would require virtual
currency businesses with control over virtual currency to
maintain an amount of each type of virtual currency sufficient
to satisfy aggregate entitlements. He offered his view that this
means that if a business was transmitting one bitcoin, it must
have one bitcoin in reserve. He wondered if there might be some
rolling average or another approach to take, especially because
many types of cryptocurrency exist so it might be an onerous
barrier for a smaller business.
2:48:16 PM
MR. STACEY noted that NFIB had concerns about other sections,
but Section 30 captured some of NFIB's concerns about regulatory
barriers. He highlighted concern about increasing the $25,000
net worth to a tiered structure based on transactions because it
could be hard on small businesses. He noted that some family-run
businesses, especially immigrant families or cruise ship
crewmembers, send money to their families in other countries. He
commented that those communities were typically served by a
small-money transmitter business they trust. He wondered if
consumer protection and transparency were the goals, why would
the net worth be raised if a lower net-worth segment in the
money transmitter industry was not identified as problematic.
Some provisions appear to raise barriers and potentially cut
smaller businesses out of the rapidly-growing sector.
MR. STACEY indicated that NFIB does not oppose licensure but
does not want fiat or cryptocurrency money transmitters
supporting interests counter to national security interests. He
commented that the bill was lengthy and that bill does more than
add cryptocurrency to the money transmitter license.
2:50:41 PM
CHAIR COSTELLO offered her view that Section 30 would allow the
department to exempt applicants from those requirements.
MR. STACEY responded that the testimony the department provided
gave specific instances for the exemption, including title
agencies and certain kinds of professional services that may
hold funds in escrow for a short time. He offered his view that
the exemptions in Section 30 relate to small businesses as
money-transfer transmitters but would apply to professional
service providers that hold money in escrow.
2:51:35 PM
SENATOR MICCICHE asked for the basis for his concern because the
Division of Banking and Securities brought the bill forward.
MR. STACEY said his conversations with the state led him to
understand that a national trade association, the Money
Transmitter Regulators Association (MTRA), approached various
states to introduce regulatory bills such as SB 238. Still, the
key proponents behind this effort were the larger money
transmitter companies, including Pay Pal, Zelle, and Venmo.
2:53:00 PM
CHAIR COSTELLO asked Mr. Schmidt to respond to the question
regarding the exemptions in Section 30.
2:53:27 PM
MR. SCHMIDT responded that nothing that Mr. Stacey mentioned
raised a red flag, and the division certainly wants to assist
small businesses. He acknowledged that he might view the
increased transmission of cryptocurrency as alarming, but he
could see businesses viewing that growth as an opportunity. He
said he was open to a conversation about the appropriate
threshold in Alaska. The Conference of State Bank Supervisors
(CSBS) promulgated the model bill, while working with money
transmitters. He acknowledged that it was accurate to say it was
the larger money transmitters who were at the table or part of
the discussion between the CSBS and the industry. He also agreed
with Mr. Stacey's comment that the smaller money transmitters
were specializing in specific communities within Alaska where
English was not their first language.
2:55:14 PM
CHAIR COSTELLO asked whether the department could exempt certain
applicants from the net worth requirements.
MR. SCHMIDT deferred to Ms. Reno.
2:55:33 PM
MS. RENO referred to page 36, lines 7-8, to Sec. 06.55.506 (c),
"The department may exempt any applicant or licensee, in part or
in whole, from the requirements of this section."
CHAIR COSTELLO noted that Mr. Schmidt gave specific examples of
who might be exempted, and Mr. Stacey mentioned that small
businesses might not meet the threshold. She asked whether the
bill was drafted to allow the division to exempt certain small
businesses.
MR. SCHMIDT answered yes.
MS. RENO agreed.
2:56:26 PM
At ease
2:56:43 PM
CHAIR COSTELLO reconvened the meeting.
2:56:48 PM
SENATOR MICCICHE moved to report SB 238, work order 32-GS2312\A,
from committee with individual recommendations and attached
fiscal note(s).
CHAIR COSTELLO found no objection, and SB 238 was reported from
the Senate Labor and Commerce Standing Committee.
SENATOR MICCICHE noted that the committee had reviewed what
would typically be under the purview of the finance committee,
so he was comfortable to have it further reviewed by the next
committee of referral, the Senate Finance Committee.
SENATOR STEVENS agreed with Senator Micciche that most of the
issues that needed to be addressed were ones the Senate Finance
Committee was better equipped to handle.
2:58:45 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 2:58 p.m.