HB 86-MONEY TRANSMISSION; VIRTUAL CURRENCY  3:16:17 PM CHAIR SUMNER announced that the first order of business would be HOUSE BILL NO. 86, "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." 3:16:44 PM ROBERT SCHMIDT, Director, Division of Banking and Securities, Department of Commerce, Community, and Economic Development, on behalf of the sponsor, House Rules by request of the governor, co-presented the sectional analysis for HB 86 in a PowerPoint presentation [hard copy included in the committee packet]. 3:17:00 PM TRACY RENO, Examinations Chief, Division of Banking and Securities, Department of Commerce, Community, and Economic Development, co-presented the sectional analysis in a PowerPoint. On slide 2, she gave a brief overview of the goals of the proposed legislation, which included repealing and re- enacting language to adopt the [Money Transmission Modernization Act], which was written by money transmitters and state regulators over a two-year period. Other goals include coordination with other states in regulation, licensing, and supervision; reducing the regulatory burden on Alaska businesses; protecting Alaska consumers; ensuring money transmitters are well run and compliant; and acting at the state level to prevent preemption by the federal government. On slide 3, she stated that the bill is based on the Money Transmitter Model Law ("Model Law"), which is expected to be passed or introduced by 40 states by the end of 2024. MS. RENO continued to slide 4 and slide 5. She stated that Section 1 of the proposed legislation would modernize licensure requirements; add Model Law language for the burgeoning virtual currency industry; allow DCCED to coordinate with other states in regulation, licensing, and supervision; standardize the types of activities which are subject to licensing; and modernize safety and soundness requirements for money transmission. She stated that Section 2 through Section 4 would modify the requirements for licensure applications. She continued to slide 6 and stated that Section 5 of the proposed legislation would repeal and reenact AS 06.55.106, modifying language regarding license renewal. She explained that the cost of renewal would be based on the volume of money moved through a money transmitter. She stated that Section 6 would add new sections to AS 06.55 to provide for background checks for money transmitters, and Section 7 would add new provisions to AS 06.55 to account for business involving virtual currency. 3:23:20 PM MS. RENO continued to slide 9, stating that Section 8 and Section 9 would repeal and reenact AS 06.55.301 and amend AS 06.55.302 to conform to the Model Law. A licensee would be allowed to sign a written contract to have an individual act as a delegate on his/her behalf. She stated that Section 10 would repeal and reenact AS 06.55.401 to provide details on examinations and reduce the regulatory burden by accepting an examination performed by another state. Sections 11 through 15 would repeal and reenact AS 06.55.403 and AS 06.55.404 to require quarterly reports and access of such information by DCCED. She said that Section 16 and Section 17 would require records to be kept for five years, while Section 18 would require licensees to comply with federal law on matters of money laundering reports. She stated that Section 19 through Section 28 would repeal and reenact, or amend, AS 06.55.407-412, 501, and 502 to provide for greater consistency between state statute and the Model Law. 3:26:27 PM MS. RENO continued to slide 14 through slide 16 and stated that Section 29 would create credit, securities, and net worth requirements to AS 06.55, making licensees demonstrate net worth as part of their application. She said Section 30 through Section 37 would amend the penalties for regulatory violations relating to money services in AS 06.55. She stated that Section 38, Section 39, and Section 42 would amend the criminal penalties, and Section 40 and Section 41 would classify currency exchange as a form of money transmission, eliminating the need for a second license. 3:28:20 PM MS. RENO moved to slide 17 through slide 20 and stated that Section 43 would create certain exceptions, including payroll processing. Section 44 would allow the department to require documentation demonstrating the stated exception. She said that Section 45 and Section 46 would require licensees to provide customers with notices of how to file a complaint, should they have one. If done by telephone, she said, Section 47 would require the determination of the state of the transaction. She continued that Section 48 through Section 50 would require receipt availability, timely transmission of funds, and outline of refunds consistent with the Model Law. 3:30:39 PM MS. RENO moved to slide 21 through slide 24 and stated that Section 54 through Section 62 would modify definitions of the terms of control to be consistent with the Model Law. These terms include money transmission, payment instrument, person, state, and stored value. She stated that Section 63 would create a short title for the bill, Section 64 would require background checks for money transmitters and money transmission employment, and Section 65 would list repealed statutes rendered unnecessary by the legislation. She said that Section 66 through Section 70 would create effective dates and a period of transition for new regulations. 3:32:42 PM MR. SCHMIDT continued to slide 25 and slide 26 and gave a brief overview of the money transmission volume in Alaska. He reiterated that the proposed legislation is important because it would protect consumers, reduce regulatory burden, and place states on the same playing field without the need for federal intervention. 3:34:38 PM REPRESENTATIVE PRAX asked why this type of legislation should be handled at the state level rather than the federal level, and whether individual states could change certain aspects of the legislation. MR. SCHMIDT answered that states still could have their own statutes. He stated that both the industry and states have an interest in solving the issue without the intervention of the federal government because of their proximity to the consumer. 3:36:22 PM CHAIR SUMNER questioned how there would be an assurance that the funds are available if a transaction is across state lines. MR. SCHMIDT answered that money transmitters would have daily transmission liability, which would be reported to DCCED. MS. RENO added that the Division of Banking and Securities conducts multi-state examinations to ensure regulations are being followed. CHAIR SUMNER asked if money being held in other states could create jurisdictional issues. MR. SCHMIDT answered that bonding requirements and examinations are designed to prevent such occurrences. 3:39:16 PM REPRESENTATIVE RUFFRIDGE asked whether the proposed legislation would create new types of licenses. MR. SCHMIDT answered that it would not; however, some license types will be combined into a single license. In response to a follow-up question, he stated that the regulatory burden would be reduced by using the same regulations for money transmission from state to state. In response to a follow-up question, he stated that new regulations would be created. 3:41:22 PM REPRESENTATIVE CARRICK questioned the number of states which are using or plan to use the Model Law. He questioned whether there is a similarity in the wording to HB 86. MR. SCHMIDT answered that 40 states have passed or are planning to introduce similar legislation, with Arizona's legislation nearly identical to HB 86. In response to a follow-up question, he expressed the opinion that DCCED would be a better place to enact these regulations, rather than the federal government. 3:44:29 PM REPRESENTATIVE WRIGHT asked how a money transmission could be determined to be fraudulent. MS. RENO answered that money transmitters may receive information which indicates fraud, and it must act on such information if it is reasonably believed to be fraud. In response to a follow-up question, she said that everything in a fraud investigation is well documented. 3:47:05 PM CHAIR SUMNER announced HB 86 was held over.