HB 86-MONEY TRANSMISSION; VIRTUAL CURRENCY  3:16:45 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." 3:17:00 PM ROBERT SCHMIDT, Director, Division of Banking and Securities, Department of Commerce, Community, & Economic Development, gave a PowerPoint presentation to introduce HB 86 [hard copy included in committee packet]. On slide 2, he stated that HB 86 would modernize the Alaska Uniform Money Services Act(AS 06.55). He added a brief summary of the history of money transfers. MR. SCHMIDT continued to slides 3 and 4 and stated that the 2008 act included money transmitters, currency exchanges, stored value cards, traveler's checks, and money orders. He gave the definition of virtual currency, also known as cryptocurrency, and explained how it has changed the way money is transferred. 3:19:53 PM CHAIR SUMNER asked why cryptocurrency is not considered to be money, as it can be exchanged for goods and services. MR. SCHMIDT answered that cryptocurrency is not backed by any government; a trait that is commonly used to determined the definition of money. 3:21:17 PM MR. SCHMIDT continued with slides 4 through 6 and stated that cryptocurrencies were adopted in 2008 after the global financial crisis to have a medium of exchange outside of the global banking system and added that only a limited number of Bitcoins can ever be "mined." He stated that there has been a 51 percent increase in licensed money transmitters since 2008. He said that the number of money transmission transactions has increased from approximately 10.5 million in 2019 to 31 million in 2022. 3:24:04 PM REPRESENTATIVE SADDLER asked for a definition of money transmission transaction. MR. SCHMIDT answered that an example would be buying something from someone and using Venmo to pay them for it. In response to a follow-up question, he said that the same transaction using cash instead of Venmo would not be considered a money transmission transaction. 3:25:34 PM REPRESENTATIVE WRIGHT asked where the transaction would be tracked for if someone were to travel out of state and use Venmo. MR. SCHMIDT answered that it would be tracked by both states because the transaction involved people from both states. 3:26:25 PM REPRESENTATIVE CARRICK asked for a definition of money transmitter. MR. SCHMIDT answered that a money transmitter is an organization that sends money outside of the banking system. In response to a follow-up question, he stated that a service such as Zelle is not a money transmission service because it transfers directly from bank to bank. 3:29:13 PM MR. SCHMIDT continued to slide 7 and stated that the number of cryptocurrency transactions in Alaska increased from approximately 84,000 in 2019 to a peak of over 3.2 million in 2021. In 2022, that number was over 1.9 million. 3:29:53 PM REPRESENTATIVE SADDLER asked what a cryptocurrency transaction would look like. MR. SCHMIDT answered that if two people agreed to buy and sell something using Bitcoin instead of cash or a service such as Venmo, that would be a cryptocurrency transaction. He added that there are some countries with weaker currencies than the U.S., and that using cryptocurrencies may be a preferable way to send money for those people than the local currency. 3:31:18 PM MR. SCHMIDT continued slide 7 and stated that some people buy cryptocurrencies and treat it as a security that may see its value increase over time, rather than using it to buy goods or services. MR. SCHMIDT continued to slides 8 and 9 and gave an overview of money transmission volume, including cryptocurrency. He stated that in 2021, money transmission to, from, and within the State of Alaska reached a high of over 7.1 billion dollars. Just under 2 billion dollars of those transactions were made using cryptocurrency. He stated that the amount of money transferred using those services, not including the cryptocurrency transactions, is roughly equal to the amount of money being held in chartered banks within the state. 3:34:23 PM CHAIR SUMNER asked whether a breakdown of the specific cryptocurrencies used is available. MR. SCHMIDT answered no. 3:34:49 PM REPRESENTATIVE SADDLER asked for the definitions of certain transfer terms. MR. SCHMIDT answered that "peer to peer" would be buying something from a place such as Facebook marketplace; a "money transfer instrument" would be something such as a traveler's cheque; and a "stored value card" is another name for a gift card for a place such as a restaurant. 3:35:57 PM REPRESENTATIVE FIELDS asked who the biggest money transmitters are. MR. SCHMIDT answered that he has been asked not to name those providers. 3:37:09 PM MR. SCHMIDT continued to slide 10 and stated that there were three major cryptocurrency bankruptcies in 2022. Over 2,000 accounts owned by Alaskans, worth approximately $19 million, were affected by the Voyager and Celsius bankruptcies, although no complaints were received by the Division of Banking and Securities. 3:38:22 PM REPRESENTATIVE SADDLER asked if using cryptocurrencies as an investment is similar to other forms of currency speculation. MR. SCHMIDT answered that they work in much the same way, although the volatility of cryptocurrency is generally greater than normal currency. 3:39:53 PM MR.SCHMIDT continued to slides 11 through 13 and stated that there is not yet reliable data available on how the FTX bankruptcy affected Alaskans. The bill contains a fiscal note to add five additional staff members to keep pace with the increasing number of money transmission transactions. He stated that the revenue generated from the bill will likely cover the cost of the fiscal note. Services such as PayPal were very new and cryptocurrency did not exist at the time of the original bill's passing, highlighting the need to update certain aspects of the original bill. MR. SCHMIDT continued to slide 14 and stated that HB 86 would harmonize Alaska's laws with those of other states, allowing for better coordination with them on money transaction licensing, regulation, and supervision. He stated that there is a provision in the bill that says that the buyer of a cryptocurrency, and not a holding service, owns the cryptocurrency, in response to the recent cryptocurrency bankruptcies. 3:46:08 PM MR. SCHMIDT continued slide 14 and stated that the bill would bring regulations in line with the FBI's requirements to have automated background checks. The bill would strengthen the regulations regarding those delegated to do business on behalf of a money transmitting service. He said that the bill set guidelines for permissible investments for money transmitters, and would allow the Division of Banking and Securities to set fees by regulation, rather than statute. He called HB 86 a "model law" created with input from the industry and other states. 3:51:26 PM REPRESENTATIVE FIELDS asked if there were any differences between the proposed legislation and what has been passed in other states. MR. SCHMIDT answered there would be some natural differences due to variations in drafting standards between states. He added that he is unsure about any changes being made comprehensively, although for example some minor changes were made in the state of Arizona. 3:52:51 PM REPRESENTATIVE SADDLER asked for clarification on what transactions would be covered by the bill. MR. SCHMIDT answered that transactions within, to, and from Alaska would be covered. In response to a follow-up question, he stated that fees are collected from licenses from banks, payday lenders, mortgage brokers, money transmitters, among others. [HB 86 was held over.]