Legislature(2023 - 2024)BELTZ 105 (TSBldg)
03/27/2023 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB74 | |
| SB75 | |
| SB84 | |
| SB45 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 74 | TELECONFERENCED | |
| += | SB 75 | TELECONFERENCED | |
| += | SB 84 | TELECONFERENCED | |
| + | SB 45 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 84-MONEY TRANSMISSION; VIRTUAL CURRENCY
1:46:36 PM
CHAIR BJORKMAN reconvened the meeting and announced the
consideration of SENATE BILL NO. 84 "An Act relating to the
business of money transmission; relating to money transmission
licenses, licensure requirements, and registration through the
Nationwide Multistate Licensing System and Registry; 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."
He noted that this is the second hearing of this bill in the
Senate Labor and Commerce Committee.
1:47:30 PM
ROBERT SCHMIDT, Director, Division of Banking and Securities,
Department of Commerce, Community and Economic Development,
Anchorage, Alaska, offered a recap of SB 84. He reported that
money transmission is a $5.8 billion industry to, from, and
within Alaska. About two-thirds of that industry is end-to-end
payments owned by mobile payment applications such as PayPal,
Cash App, Apple Pay, and Google Pay.
MR. SCHMIDT explained that the legislature wrote the current
money transmission law in the mid-2000s, passed it in 2007 and
it took effect in 2008. At the time it was written, mobile
payments, iPhones, and cryptocurrency did not exist. Dean Fleer,
the division's most senior money transmission examiner joined
the division in 2011; at that time, there were about 30 licensed
money-transmitters, now there are 168, but division staffing for
this industry remains the same. SB 84 resulted from a joint
industry regulator approach. He encouraged members of the
committee to hear from industry professionals who are
knowledgeable about the topic.
There is no state advocating for federal preemption. No industry
trade group or major market participant is advocating for
federal takeover of this space. Alaska would be a minority of
one if it were to ask for federal takeover of money
transmission. While some aspects are overseen by the federal
government, no federal regulator performs overall safety and
soundness examinations of the money transmission industry.
States perform that function. The division responds to nearly
1,000 inquiries from constituents regarding financial concerns.
Alaska is in a better position to maintain control of money
transmissions and protect Alaskans. Yielding this authority to
the federal government would diminish Alaska's sovereignty.
1:50:49 PM
TRACY RENO, Chief of Examinations, Division of Banking and
Securities, Department of Commerce, Community and Economic
Development, Anchorage, Alaska, offered the following recap of
SB 84:
SB 84 amends Title 6, Chapter 55 of The Alaska Money
Services Uniform Act. The purpose of this bill is to
replace existing money state transmission laws to
modernize licensure requirements; add model language
for virtual currency industries; allow the Department
of Commerce Community and Economic Development to
coordinate with other states in the regulation,
licensing, and supervision to standardize the types of
activities that are subject to licensing; and
modernize safety and soundness requirements for money
transmission. There will be a lot of repeal and
reenacts because this bill is adopting a model law.
This bill conforms with the model law by providing
application requirements for a money transmitter
license, and allows the department to change or update
reforms to be consistent with licensing requirements
in the Nationwide Multistate Licensing System (NMLS).
This is important because companies that transmit
money don't want 50 different sets of laws to follow.
Money transmitters spent two years drafting the model
law with state regulators. This bill reduces
regulatory burden by streamlining initial application
and renewal processes so that they are the same every
year and in every state. Our licensers want Alaska's
statutes to be uniform with the rest of the country.
It's less paperwork for the companies requiring less
staff; it gets their license approved faster so that
they can get businesses up and running, and it says
Alaska is open for business.
1:52:35 PM
MS. RENO continued.
This bill conforms with the model law by changing
license renewal, renewal reporting, and renewal
terminology. Fees collected at the time of renewal
will change with this bill. Fees are currently set in
regulation, and Section 52 ensures that fees collected
are sufficient to cover the cost and to do the work.
The annual renewal fee will be based on the licensee's
total volume of money transmission to, from, and
within Alaska. A good example of this is currently a
licensee that transmits $100,000,000 each year pays
the exact same renewal fee as a licensee that
transmits $1 billion a year. There are currently 168
licensed Alaska transmitters that each pay $1,000
annually to renew their license; no matter their size,
their complexity, or their geographic location they
all pay the same flat $1000 annual renewal fee. We
will take special consideration for small mom and pop
businesses to ensure that the tier is not a barrier to
entry for these small businesses. Having the details
of renewal fees in regulation will allow us to update
the fees charged to cover the regulatory costs of
supervision and keep pace with growth and innovation
in the industry.
1:53:45 PM
MS. RENO continued.
The proposed amendments to AS 06.55.850 would create a
tiered assessment for renewal fees. The assessment
would have several tiers with a range of volume
transmitted annually, and would take a percentage to
calculate the renewal fee. The division has been
researching what some other state's assessments look
like, and the hourly cost of examinations would no
longer be billed for those examinations which are
1000s of dollars. They'll be covered as part of the
new tiered assessment renewal fee. Expenses for travel
would still be billed. This should reduce the
regulatory cost of small money transmitters, providing
businesses certainty when planning for their annual
budgets. This bill conforms with the model law and
will protect Alaska consumers by running criminal
background checks on people who control or run a money
transmitter company. These background checks will be
conducted automatically at application through the
NMLS, keeping bad actors from operating the companies
that we license and saving hundreds of hours of DBS
staff time.
1:54:41 PM
MS. RENO continued.
This bill conforms with the model law to add new
sections regarding virtual currency derived from the
Uniform Law Commission's language from the Uniform
Regulation of Virtual Currency Businesses Act. It uses
standard uniform language and it provides a foundation
to regulate virtual currency. This allows the division
to regulate virtual currency and adds virtual currency
to the definition of money transmission. Details of
what is and is not considered licensed activity are
provided in the bill. It details a list of exempted
activities for things like online gaming and provides
disclosure requirements, so that Alaskan consumers
know where to go when they have a complaint. This bill
updates enforcement provisions for consistency with
the model law regarding the suspension and revocation
of the license. It amends civil penalties allowing the
department to cover regulatory costs by assessing its
costs and expenses for investigations and allowing a
broader spectrum of orders to be issued. This
amendment will allow staff to use network supervision
working with other states, to jointly conduct
examinations, and to investigate and take multi-state
enforcement action on bad actors. These amendments
also ensure that in the case of bankruptcy, the funds
entrusted to a money transmitter to send are the
consumer's property, not the company's. The licensee
will be prohibited from using these funds as assets on
their financial statements.
1:55:59 PM
MS. RENO continued.
While this bill follows the model law, a few
modifications were made to make sure it was the right
fit for Alaska. As an example related to net worth
requirements, in the model law the net worth
requirement starts at $100,000. After listening to
small businesses and other stakeholders last session,
the division reduced the net worth requirement to
$35,000, as this is more appropriate for Alaska. This
bill also allows the department to exempt applicants
or licensees from the net worth requirements.
Why is this bill important?
Last year Alaskans sent or received 31 million money
transmission transactions worth $5.8 billion dollars.
This bill will protect Alaska consumers, it will
reduce regulatory burden, it adopts the model law that
industry drafted with state regulators, it will
protect Alaska's sovereignty by creating uniform
statutes across the country, and this bill will allow
the division to have the ability to update fees and
require license in regulation to keep up with
technology and the innovation in this ever-evolving
financial industry. Events of the last year have
demonstrated the need for modernization of Alaska's
money transmission laws.
1:57:27 PM
SENATOR GRAY-JACKSON thanked Mr. Schmidt, Tracy Reno, and the
Division of Banking and Securities staff for their help and
explanation of cryptocurrency.
1:58:19 PM
CHAIR BJORKMAN opened public testimony on SB 84.
1:58:49 PM
LAHKA PEACOCK, Co-Owner, QuyanaCARD, Nome, Alaska, testified in
support of SB 84. He stated that QuyanaCARD is a pre-paid card
business based in Nome that services 1500 cardholders in rural
villages that lack access to traditional banking services. He
shared that when an auditor performed their first bank
examination, his company had to cover the cost of the auditor's
transportation, lodging, car rental, and hourly rate. He learned
from the auditor that all of their paperwork and fees are the
same as Google Pay, a billion dollar business. His business
continued to operate through difficult times, always pushing to
change the regulations to reduce the annual renewal fees,
bonding fees, and exam fees that cost as much as Google Pay.
Exam fees are $20000 which is the same as PayPal. Full financial
audits cost $3500 annually. SB 84 would help his business deal
with these barriers to entry, allowing QuyanaCARD to stay in
business and pave the way for more similar businesses.
2:02:48 PM
MATTHEW LAMBERT, Deputy General Counsel for Policy, Conference
of State Bank Supervisors (CSBS), Washington, D.C., testified in
support of SB 84. He explained that CSBS is an association of
the banking departments from each state. He said SB 84 should be
"win win win," by reducing the regulatory burden for industry,
modernizing requirements for regulators including making it
easier for regulators to work together and more efficiently, and
allowing for the states to continue to serve as laboratories of
innovation. Because states have taken the lead, hundreds of new
companies are trying to enter the industry, creating a
competitive framework for innovation. The main challenge is
having the flexibility that allows for companies to operate on a
scale that can focus on niche situations, all the way up to
global superpowers.
2:04:59 PM
CHAIR BJORKMAN asked how this legislation would prevent a
recurrence of the fraud scandal like that of Sam Bankman-Fried,
founder and CEO of the cryptocurrency exchange company, FTX.
MR. LAMBERT said that FTX and Sam Bankman-Fried moved money
across global borders. He pointed out that the United States
cannot prevent fraudulent transactions across borders, but
legislators can ringfence US assets. He commented on the fallout
of FTX and explained how to protect customers from the scenario
he described.
2:07:29 PM
MR. SCHMIDT commented that a common feature of the noteworthy
crypto bankruptcies the Division of Banking and Securities
reviewed last year was that customer accounts had been pledged
as assets of the company to the company's creditors. He
explained that SB 84 contains a prohibition that a customer's
account cannot be pledged as collateral to the exchanger's
creditors. This issue has been rampant in crypto bankruptcies.
2:08:39 PM
ADAM ATLAS, Money Services Business Association (MSBA),
Montreal, Quebec, Canada, stated that the Money Transmission
Modernization Act will codify the model act that was referenced
earlier. He said MSBA is in favor of SB 84 and supports rolling
out the model law because it provides significant benefits to
customers, states and the industry alike. Customers will benefit
from dealing with money transmitters in Alaska that are
regulated in a way that is consistent with how those suppliers
are regulated in other states. The industry will benefit from
greater clarity in operations and supervision and reducing the
complexity of complying with state-specific laws and the need to
comply with duplicate oversight requirements. This new law will
encourage more services in Alaska and serve underbanked
consumers. He said MSBA supports the idea of the regulator
setting the fees so that smaller volume transmitters would pay
fewer fees than a large volume transmitter. Greater efficiency
would be achieved under the model act, empowering the state to
use technology, apply data analytics, and share resources under
a network system.
2:13:00 PM
CHAIR BJORKMAN closed public testimony on SB 84 and held SB 84
in committee. He stated that written testimony may be submitted
to slac@akleg.gov.