S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  9899--A
 
                           I N  A S S E M B L Y
 
                             February 21, 2018
                                ___________
 
 Introduced  by  M.  of  A.  KIM,  VANEL, QUART, SEPULVEDA, D'URSO, RA --
   Multi-Sponsored by -- M. of A. LUPARDO -- read once  and  referred  to
   the  Committee on Banks -- committee discharged, bill amended, ordered
   reprinted as amended and recommitted to said committee
 
 AN ACT to amend the financial services law, in relation  to  creating  a
   regulatory  sandbox  program; to amend the banking law, in relation to
   safeguarding financial technology products and services and  prohibit-
   ing  licensing  fees for such products and services; and providing for
   the repeal of such provisions upon expiration thereof
 
   THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. The financial services law is amended by adding a new arti-
 cle 7 to read as follows:
                                 ARTICLE 7
                        REGULATORY SANDBOX PROGRAM
 SECTION 701. DEFINITIONS.
         702. REPORTS; STUDIES.
         703. PROGRAM PURPOSE.
         704. APPLICATION PROCESS AND REQUIREMENTS.
         705. CONSULTATION WITH APPLICABLE AGENCIES; ADMISSION AUTHORITY;
                SCOPE; INSURANCE PRODUCTS; INVESTMENT MANAGEMENT.
         706. CONSUMER PROTECTION.
         707. EXIT REQUIREMENTS.
         708. EXTENSIONS.
         709. AUDITING BY THIRD PARTY DEPOSITORY OR CUSTODIAN SERVICES.
         710. RECORDKEEPING AND REPORTING REQUIREMENTS.
         711. RECORDS; DISCLOSURE; EVIDENTIARY EFFECT.
         712. REPORTING  REQUIREMENTS;  MONITORING;  ENFORCEMENT;  AGREE-
                MENTS.
   § 701. DEFINITIONS. FOR PURPOSES OF THIS ARTICLE, THE FOLLOWING  TERMS
 SHALL HAVE THE FOLLOWING MEANINGS:
   (A)  "SECURITIES  INVESTOR  PROTECTION  CORPORATION" MEANS A FEDERALLY
 MANDATED, NON-PROFIT, MEMBER-FUNDED, UNITED STATES  CORPORATION  CREATED
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD14772-03-8

 A. 9899--A                          2
 
 UNDER  THE  SECURITIES  INVESTOR  PROTECTION  ACT  OF  1970 AND MANDATES
 MEMBERSHIP OF MOST UNITED STATES REGISTERED BROKER-DEALERS.
   (B)  "APPLICABLE  AGENCY"  MEANS  A DEPARTMENT OR AGENCY OF THIS STATE
 ESTABLISHED BY LAW TO REGULATE CERTAIN TYPES  OF  BUSINESS  ACTIVITY  IN
 THIS  STATE AND PERSONS ENGAGED IN SUCH BUSINESS, INCLUDING THE ISSUANCE
 OF LICENSES OR OTHER TYPES OF AUTHORIZATION, THAT THE  ATTORNEY  GENERAL
 AND  STATE  COMPTROLLER  DETERMINES  WOULD  OTHERWISE REGULATE A SANDBOX
 PARTICIPANT IF THE PERSON WERE NOT A REGULATORY SANDBOX PARTICIPANT.
   (C) "CONSUMER" MEANS A PERSON THAT PURCHASES OR OTHERWISE ENTERS  INTO
 A  TRANSACTION OR AGREEMENT TO RECEIVE A FINANCIAL TECHNOLOGY PRODUCT OR
 SERVICE THAT IS BEING TESTED BY A SANDBOX PARTICIPANT.
   (D) "FINANCIAL PRODUCTS OR SERVICES" MEANS A PRODUCT OR  SERVICE  THAT
 REQUIRES LICENSURE BY THE APPLICABLE AGENCY OR A PRODUCT OR SERVICE THAT
 INCLUDES A BUSINESS MODEL, DELIVERY MECHANISM OR ELEMENT THAT MAY OTHER-
 WISE  REQUIRE  A  LICENSE  OR  OTHER AUTHORIZATION TO ACT AS A FINANCIAL
 INSTITUTION OR ENTERPRISE OR OTHER  ENTITY  THAT  IS  REGULATED  BY  THE
 APPLICABLE AGENCY.
   (E)  "FINANCIAL  TECHNOLOGY  PRODUCTS  OR  SERVICES" MEANS A FINANCIAL
 PRODUCT OR SERVICE WITH THE USE OR  INCORPORATION  OF  NEW  OR  EMERGING
 TECHNOLOGY  OR  THE  REIMAGINATION  OF  USES  FOR EXISTING TECHNOLOGY TO
 ADDRESS A PROBLEM, PROVIDE A  BENEFIT  OR  OTHERWISE  OFFER  A  PRODUCT,
 SERVICE,  BUSINESS  MODEL OR DELIVERY MECHANISM THAT IS NOT KNOWN BY THE
 ATTORNEY GENERAL TO HAVE A COMPARABLE WIDESPREAD OFFERING IN THIS STATE.
 SUCH TERM SHALL INCLUDE, BUT SHALL NOT  BE  LIMITED  TO,  CRYPTOCURRENCY
 BUSINESS ACTIVITY.
   (F)  "CRYPTOCURRENCY"  MEANS  A DIGITAL CURRENCY WHICH USES ENCRYPTION
 TECHNIQUES TO REGULATE THE GENERATION OF CURRENCY UNITS AND  VERIFY  THE
 TRANSFER OF FUNDS, OPERATING INDEPENDENTLY FROM A CENTRAL BANK.
   (G) "CRYPTOCURRENCY BUSINESS ACTIVITY" MEANS THE CONDUCT OF ANY OF THE
 FOLLOWING TYPES OF ACTIVITIES INVOLVING NEW YORK OR A NEW YORK RESIDENT:
   (1)  RECEIVING CRYPTOCURRENCY FOR TRANSMISSION OR TRANSMITTING CRYPTO-
 CURRENCY, EXCEPT WHERE THE TRANSACTION IS UNDERTAKEN  FOR  NON-FINANCIAL
 PURPOSES AND DOES NOT INVOLVE THE TRANSFER OF MORE THAN A NOMINAL AMOUNT
 OF CRYPTOCURRENCY;
   (2)  STORING, HOLDING, OR MAINTAINING CUSTODY OR CONTROL OF CRYPTOCUR-
 RENCY ON BEHALF OF OTHERS;
   (3) BUYING AND SELLING CRYPTOCURRENCY AS A CUSTOMER BUSINESS;
   (4) PERFORMING EXCHANGE SERVICES OF CRYPTOCURRENCY AS A CUSTOMER BUSI-
 NESS; OR
   (5) CONTROLLING, ADMINISTERING, OR ISSUING A CRYPTOCURRENCY.
   (H) "REGULATORY SANDBOX" MEANS THE PROGRAM ESTABLISHED BY THIS ARTICLE
 THAT ALLOWS A PERSON TO TEMPORARILY TEST FINANCIAL  TECHNOLOGY  PRODUCTS
 OR  SERVICES  ON  A  LIMITED  BASIS  WITHOUT OTHERWISE BEING LICENSED OR
 AUTHORIZED TO ACT UNDER THE LAWS OF THIS STATE.
   (I) "SANDBOX PARTICIPANT" MEANS A PERSON WHOSE APPLICATION TO  PARTIC-
 IPATE IN THE REGULATORY SANDBOX IS APPROVED PURSUANT TO THIS ARTICLE.
   (J)  "TEST"  MEANS TO PROVIDE ACTIVITY AND SERVICES AS ALLOWED BY THIS
 ARTICLE.
   § 702. REPORTS; STUDIES. (A) THE  ATTORNEY  GENERAL  AND  STATE  COMP-
 TROLLER  SHALL  PUBLISH ANNUALLY A WRITTEN REPORT DESCRIBING THE RESULTS
 OF THE REGULATORY SANDBOX ESTABLISHED PURSUANT TO THIS ARTICLE  AND  THE
 RESULTS  OF  THEIR STUDIES CONDUCTED PURSUANT TO SUBDIVISION (B) OF THIS
 SECTION.
   (B) THE ATTORNEY GENERAL AND STATE COMPTROLLER SHALL STUDY  LONG  TERM
 SOLUTIONS  TO  ISSUES  THAT  ARISE FROM FINANCIAL TECHNOLOGY PRODUCTS OR
 SERVICES, INCLUDING, BUT NOT LIMITED TO:

 A. 9899--A                          3
 
   (1) THE USE OF THIRD PARTY DEPOSITORY AND CUSTODIAN SERVICES AS  AUDI-
 TORS OF FINANCIAL TECHNOLOGY PRODUCTS AND SERVICES; AND
   (2)  THE  USE  OF  THE  SECURITIES  INVESTOR PROTECTION CORPORATION TO
 INSURE ALL FINANCIAL TECHNOLOGY PRODUCTS AND SERVICES  ACCOUNT  HOLDER'S
 ASSETS.
   §  703.  PROGRAM  PURPOSE.  THE ATTORNEY GENERAL AND STATE COMPTROLLER
 SHALL ESTABLISH A REGULATORY SANDBOX  IN  CONSULTATION  WITH  APPLICABLE
 AGENCIES  OF  THIS  STATE TO ENABLE A PERSON TO OBTAIN LIMITED ACCESS TO
 THE MARKET IN THIS STATE  TO  TEST  FINANCIAL  TECHNOLOGY  PRODUCTS  AND
 SERVICES  WITHOUT OBTAINING A LICENSE OR OTHER AUTHORIZATION THAT OTHER-
 WISE MAY BE REQUIRED BY LAW AND WITHOUT HAVING TO PAY ANY  FEES  ASSOCI-
 ATED WITH SUCH LICENSE OR AUTHORIZATION.
   §  704. APPLICATION PROCESS AND REQUIREMENTS. (A) ANY PERSON MAY APPLY
 TO ENTER THE REGULATORY SANDBOX TO TEST FINANCIAL TECHNOLOGY PRODUCTS OR
 SERVICES.
   (B) THE ATTORNEY GENERAL AND STATE COMPTROLLER SHALL  CREATE  A  JOINT
 OFFICE  OR COORDINATED PROCESS AND SHALL ACCEPT AND REVIEW EACH APPLICA-
 TION FOR ENTRY INTO THE REGULATORY SANDBOX ON A ROLLING BASIS.
   (C) AN APPLICATION SHALL DEMONSTRATE THAT THE APPLICANT BOTH:
   (1) IS AN ENTITY OR INDIVIDUAL THAT IS SUBJECT TO THE JURISDICTION  OF
 THE  ATTORNEY GENERAL AND STATE COMPTROLLER THROUGH INCORPORATION, RESI-
 DENCY, PRESENCE, AGREEMENT, OR OTHERWISE; AND
   (2) HAS ESTABLISHED A LOCATION, WHETHER PHYSICAL OR VIRTUAL,  THAT  IS
 ADEQUATELY ACCESSIBLE TO THE ATTORNEY GENERAL AND STATE COMPTROLLER FROM
 WHICH  TESTING  WILL  BE  DEVELOPED AND PERFORMED AND WHERE ALL REQUIRED
 RECORDS, DOCUMENTS AND DATA WILL BE MAINTAINED.
   (D) ANY PERSON, CORPORATION, PARTNERSHIP OR OTHER ENTITY THAT  ALREADY
 POSSESSES  A  LICENSE OR OTHER AUTHORIZATION UNDER STATE LAWS THAT REGU-
 LATE FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES SHALL FILE AN APPLICATION
 WITH THE ATTORNEY GENERAL AND STATE COMPTROLLER TO TEST FINANCIAL  TECH-
 NOLOGY PRODUCTS OR SERVICES WITHIN THE REGULATORY SANDBOX.
   (E)  APPLICATIONS  SHALL CONTAIN SUFFICIENT INFORMATION TO DEMONSTRATE
 THAT AN APPLICANT HAS AN ADEQUATE UNDERSTANDING OF THE  FINANCIAL  TECH-
 NOLOGY  PRODUCT  OR  SERVICE  AND A SUFFICIENT PLAN TO TEST, MONITOR AND
 ASSESS THE  FINANCIAL  TECHNOLOGY  PRODUCT  OR  SERVICE  WHILE  ENSURING
 CONSUMERS ARE PROTECTED FROM A TEST'S FAILURE.
   (F) APPLICANTS SHALL CONTAIN THE INFORMATION REQUIRED BY A FORM DEVEL-
 OPED AND MADE PUBLICLY AVAILABLE BY THE ATTORNEY GENERAL AND STATE COMP-
 TROLLER.  THE  INFORMATION REQUIRED BY THE FORM SHALL INCLUDE, BUT SHALL
 NOT BE LIMITED TO:
   (1) RELEVANT PERSONAL  AND  CONTACT  INFORMATION  FOR  THE  APPLICANT,
 INCLUDING   FULL  LEGAL  NAMES,  ADDRESSES,  TELEPHONE  NUMBERS,  E-MAIL
 ADDRESSES, WEBSITE ADDRESSES AND ANY OTHER INFORMATION THAT THE ATTORNEY
 GENERAL AND STATE COMPTROLLER DEEMS NECESSARY;
   (2) DISCLOSURE OF ANY CRIMINAL CONVICTIONS OF  THE  APPLICANT  OR  KEY
 PERSONNEL, IF ANY;
   (3)  A  DESCRIPTION  OF  THE FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES
 DESIRED TO BE TESTED, INCLUDING STATEMENTS REGARDING ALL OF THE  FOLLOW-
 ING:
   (A)  HOW A FINANCIAL TECHNOLOGY PRODUCT OR SERVICE IS SUBJECT TO REGU-
 LATION OUTSIDE OF THE REGULATORY SANDBOX;
   (B) HOW THE FINANCIAL TECHNOLOGY  PRODUCT  OR  SERVICE  WOULD  BENEFIT
 CONSUMERS;
   (C)  HOW THE FINANCIAL TECHNOLOGY PRODUCT OR SERVICE IS DIFFERENT FROM
 OTHER PRODUCTS OR SERVICES AVAILABLE IN THIS STATE;

 A. 9899--A                          4
 
   (D) WHAT RISKS WILL CONFRONT CONSUMERS THAT USE OR PURCHASE THE FINAN-
 CIAL TECHNOLOGY PRODUCT OR SERVICE;
   (E) HOW ENTERING THE REGULATORY SANDBOX WOULD ENABLE A SUCCESSFUL TEST
 OF THE FINANCIAL TECHNOLOGY PRODUCT OR SERVICE;
   (F)  A  DESCRIPTION  OF THE PROPOSED TESTING PLAN, INCLUDING ESTIMATED
 TIME PERIODS FOR MARKET ENTRY, MARKET EXIT AND THE PURSUIT OF  NECESSARY
 LICENSURE OR AUTHORIZATION; AND
   (G) HOW THE APPLICANT WILL WIND DOWN THE TEST AND PROTECT CONSUMERS IF
 THE TEST FAILS.
   (G)  A  PERSON  SHALL  FILE  A SEPARATE APPLICATION FOR EACH FINANCIAL
 TECHNOLOGY PRODUCT OR SERVICE SOUGHT TO BE TESTED.
   (H) AFTER THE INFORMATION REQUIRED BY SUBDIVISION (F) OF THIS  SECTION
 IS  SUBMITTED, THE ATTORNEY GENERAL AND STATE COMPTROLLER MAY SEEK ADDI-
 TIONAL INFORMATION THAT IS DEEMED NECESSARY. NOT LATER THAN NINETY  DAYS
 AFTER  AN  APPLICATION  IS INITIALLY SUBMITTED, THE ATTORNEY GENERAL AND
 STATE COMPTROLLER SHALL NOTIFY THE APPLICANT AS TO WHETHER THE APPLICANT
 IS APPROVED FOR ENTRY INTO THE REGULATORY SANDBOX. THE ATTORNEY  GENERAL
 AND  STATE COMPTROLLER AND AN APPLICANT MAY MUTUALLY AGREE TO EXTEND THE
 TIME PERIOD FOR THE ATTORNEY GENERAL AND STATE COMPTROLLER TO  DETERMINE
 WHETHER  AN  APPLICATION IS APPROVED FOR ENTRY INTO THE REGULATORY SAND-
 BOX.
   (I) THE ATTORNEY GENERAL AND STATE COMPTROLLER MAY DENY APPLICANTS  AT
 THEIR  DISCRETION  AND  SUCH  A DENIAL SHALL NOT BE AN APPEALABLE AGENCY
 ACTION.
   § 705. CONSULTATION WITH  APPLICABLE  AGENCIES;  ADMISSION  AUTHORITY;
 SCOPE;  INSURANCE  PRODUCTS; INVESTMENT MANAGEMENT. (A) (1) THE ATTORNEY
 GENERAL AND STATE COMPTROLLER SHALL CONSULT  WITH  AN  APPLICABLE  STATE
 AGENCY  BEFORE  ADMITTING  A  PERSON  INTO  THE REGULATORY SANDBOX. THIS
 CONSULTATION MAY INCLUDE SEEKING INFORMATION ABOUT:
   (A) WHETHER THE APPLICABLE AGENCY PREVIOUSLY HAS EITHER (I)  ISSUED  A
 LICENSE  OR  OTHER AUTHORIZATION TO THE APPLICANT, OR (II) INVESTIGATED,
 SANCTIONED OR PURSUED LEGAL ACTION AGAINST THE APPLICANT; AND
   (B) WHETHER THE APPLICANT COULD OBTAIN A  LICENSE  OR  OTHER  AUTHORI-
 ZATION FROM AN APPLICABLE AGENCY AFTER EXITING THE REGULATORY SANDBOX.
   (2)  NOTWITHSTANDING  PARAGRAPH  ONE OF THIS SUBDIVISION, THE ATTORNEY
 GENERAL AND STATE COMPTROLLER HAVE THE SOLE AUTHORITY TO MAKE THE  FINAL
 DECISION OF WHETHER TO ADMIT A PERSON INTO THE REGULATORY SANDBOX.
   (B) IF THE ATTORNEY GENERAL AND STATE COMPTROLLER APPROVES AN APPLICA-
 TION  FOR  ENTRY  INTO THE REGULATORY SANDBOX, THE APPLICANT IS DEEMED A
 SANDBOX PARTICIPANT AND BOTH OF THE FOLLOWING SHALL APPLY:
   (1) THE SANDBOX PARTICIPANT HAS TWENTY-FOUR MONTHS AFTER THE  DATE  OF
 APPROVAL  TO  TEST THE CRYPTOCURRENCY BUSINESS ACTIVITY DESCRIBED IN THE
 SANDBOX PARTICIPANT'S APPLICATION; AND
   (2) THE ATTORNEY GENERAL AND STATE COMPTROLLER SHALL ISSUE THE SANDBOX
 PARTICIPANT A REGISTRATION NUMBER.
   (C) FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES THAT ARE PROVIDED WITHIN
 THE REGULATORY SANDBOX ARE SUBJECT TO THE FOLLOWING RESTRICTIONS:
   (1) EXCEPT AS PROVIDED IN SUBDIVISION (D) OF THIS  SECTION,  NOT  MORE
 THAN TEN THOUSAND CONSUMERS MAY TRANSACT THROUGH OR ENTER INTO AN AGREE-
 MENT TO USE THE FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES;
   (2) EXCEPT AS PROVIDED IN SUBDIVISION (D) OF THIS SECTION, FOR A SAND-
 BOX  PARTICIPANT  TESTING  PRODUCTS  OR SERVICES AS A MONEY TRANSMITTER,
 INDIVIDUAL TRANSACTIONS PER CONSUMER MAY NOT EXCEED TEN THOUSAND DOLLARS
 AND AGGREGATE TRANSACTIONS PER  CONSUMER  MAY  NOT  EXCEED  TWO  MILLION
 DOLLARS  OVER  THE  COURSE  OF  THE TWENTY-FOUR MONTHS OF THE REGULATORY
 SANDBOX PERIOD;

 A. 9899--A                          5
 
   (3) FOR SANDBOX PARTICIPANTS TESTING PRODUCTS OR SERVICES AS A FINANC-
 ING AGENCY AS DEFINED IN SUBDIVISION NINE OF SECTION THREE  HUNDRED  ONE
 OF THE PERSONAL PROPERTY LAW, ALL OF THE FOLLOWING APPLY:
   (A) SECTION THREE HUNDRED TWO OF THE PERSONAL PROPERTY LAW;
   (B) SECTION THREE HUNDRED THREE OF THE PERSONAL PROPERTY LAW;
   (C) SECTION THREE HUNDRED SIX OF THE PERSONAL PROPERTY LAW;
   (D) SECTION THREE HUNDRED EIGHT OF THE PERSONAL PROPERTY LAW; AND
   (E) SECTION 9-601 OF THE UNIFORM COMMERCIAL CODE; AND
   (4) FOR SANDBOX PARTICIPANTS TESTING PRODUCTS OR SERVICES THAT PROVIDE
 INVESTMENT MANAGEMENT THAT IS REGULATED EACH SANDBOX PARTICIPANT SHALL:
   (A)  MAKE,  MAINTAIN AND PRESERVE BOOKS AND RECORDS IN ACCORDANCE WITH
 THE REQUIREMENTS IMPOSED  ON  FEDERAL  COVERED  ADVISERS  UNDER  17  CFR
 275.204-2. THE SANDBOX PARTICIPANT SHALL FILE WITH THE STATE COMPTROLLER
 AND  THE  ATTORNEY  GENERAL'S  OFFICE  A  COPY OF ANY NOTICES OR WRITTEN
 UNDERTAKINGS REQUIRED TO BE FILED BY FEDERAL COVERED ADVISERS  WITH  THE
 SECURITIES AND EXCHANGE COMMISSION UNDER 17 CFR 275.204-2; AND
   (B)  COMPLY  WITH ALL REQUIREMENTS IMPOSED ON FEDERAL COVERED ADVISERS
 UNDER 17 CFR PART 275 WITH RESPECT TO:
   (I) DISHONEST AND UNETHICAL PRACTICES;
   (II) INFORMATION REQUIRED TO BE FURNISHED TO CLIENTS;
   (III) CUSTODY OF CLIENT FUNDS OR SECURITIES; AND
   (IV) DISCLOSURE OF FINANCIAL AND DISCIPLINARY INFORMATION TO CLIENTS.
   (D) IF A SANDBOX PARTICIPANT DEMONSTRATES ADEQUATE FINANCIAL  CAPITAL-
 IZATION,  RISK  MANAGEMENT  PROCESS  AND  MANAGEMENT  OVERSIGHT THEY MAY
 REQUEST THE ATTORNEY GENERAL AND STATE COMPTROLLER TO  ALLOW  EITHER  OR
 BOTH OF THE FOLLOWING:
   (1)  ALLOW  MORE  THAN  TEN  THOUSAND CONSUMERS TO TRANSACT THROUGH OR
 ENTER INTO AN AGREEMENT TO  USE  THE  FINANCIAL  TECHNOLOGY  PRODUCT  OR
 SERVICE;
   (2)  FOR A SANDBOX PARTICIPANT TESTING PRODUCTS OR SERVICES AS A MONEY
 TRANSMITTER, ALLOW INDIVIDUAL TRANSACTIONS PER CONSUMER  TO  EXCEED  TEN
 THOUSAND  DOLLARS  AND AGGREGATE TRANSACTIONS PER CONSUMER TO EXCEED TWO
 MILLION DOLLARS DURING THE TWENTY-FOUR MONTH REGULATORY SANDBOX PERIOD.
   (E) THIS SECTION SHALL NOT RESTRICT A SANDBOX PARTICIPANT WHO HOLDS  A
 LICENSE  OR  OTHER  AUTHORIZATION  IN  ANOTHER  JURISDICTION FROM ACTING
 PURSUANT TO AND IN ACCORDANCE WITH SUCH LICENSE OR OTHER AUTHORIZATION.
   (F) A SANDBOX PARTICIPANT IS DEEMED TO POSSESS AN APPROPRIATE  LICENSE
 UNDER  THE LAWS OF THIS STATE FOR ANY PROVISION OF FEDERAL LAW REQUIRING
 STATE LICENSURE OR AUTHORIZATION.
   (G) EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE,  A  SANDBOX  PARTIC-
 IPANT SHALL NOT BE SUBJECT TO STATE LAWS THAT REGULATE A FINANCIAL PROD-
 UCT OR SERVICE.
   (H)  THE  ATTORNEY  GENERAL  AND  STATE COMPTROLLER MAY DETERMINE THAT
 CERTAIN STATE LAWS THAT REGULATE FINANCIAL PRODUCTS OR SERVICES APPLY TO
 A SANDBOX PARTICIPANT. IF THE ATTORNEY  GENERAL  AND  STATE  COMPTROLLER
 MAKE  SUCH  DETERMINATION  AND APPROVE AN APPLICATION FOR ENTRY INTO THE
 REGULATORY SANDBOX, THE ATTORNEY GENERAL  AND  STATE  COMPTROLLER  SHALL
 NOTIFY  THE  SANDBOX  PARTICIPANT  OF THE SPECIFIC STATE REGULATORY LAWS
 THAT WILL APPLY TO THE SANDBOX PARTICIPANT.
   (I) A SANDBOX PARTICIPANT MAY OBTAIN, RECORD, PROVIDE OR  MAINTAIN  IN
 ELECTRONIC  FORM  ANY INFORMATION, WRITING, SIGNATURE, RECORD OR DISCLO-
 SURE THAT IS REQUIRED BY THIS ARTICLE OR MAY SUBSTITUTE ANY SUBSTANTIAL-
 LY SIMILAR EQUIVALENT INFORMATION, WRITING, SIGNATURE, RECORD OR DISCLO-
 SURE THAT IS APPROVED BY THE ATTORNEY GENERAL AND STATE COMPTROLLER.

 A. 9899--A                          6
 
   § 706. CONSUMER PROTECTION. (A) BEFORE PROVIDING A FINANCIAL TECHNOLO-
 GY PRODUCT OR SERVICE TO CONSUMERS, A SANDBOX PARTICIPANT SHALL DISCLOSE
 TO CONSUMERS ALL OF THE FOLLOWING:
   (1)  THE  NAME  AND  CONTACT  INFORMATION  OF  THE SANDBOX PARTICIPANT
 INCLUDING THE REGISTRATION NUMBER PROVIDED BY THE ATTORNEY  GENERAL  AND
 STATE COMPTROLLER;
   (2)  THAT  THE  FINANCIAL  TECHNOLOGY PRODUCT OR SERVICE IS AUTHORIZED
 PURSUANT TO THE REGULATORY SANDBOX AND, IF APPLICABLE, THAT THE  SANDBOX
 PARTICIPANT  DOES NOT HAVE A LICENSE OR OTHER AUTHORIZATION TO GENERALLY
 PROVIDE PRODUCTS OR SERVICES UNDER STATE LAWS THAT REGULATE A  FINANCIAL
 PRODUCT OR SERVICE THAT IS OUTSIDE THE REGULATORY SANDBOX;
   (3)  THAT  THE STATE DOES NOT ENDORSE OR RECOMMEND THE FINANCIAL TECH-
 NOLOGY PRODUCT OR SERVICE;
   (4) THAT THE FINANCIAL TECHNOLOGY PRODUCT OR SERVICE  IS  A  TEMPORARY
 TEST  THAT MAY BE DISCONTINUED AT THE END OF THE TESTING PERIOD, INCLUD-
 ING THE EXPECTED END DATE OF THE TESTING PERIOD; AND
   (5) THAT CONSUMERS MAY CONTACT THE ATTORNEY GENERAL  AND  STATE  COMP-
 TROLLER TO FILE COMPLAINTS REGARDING THE FINANCIAL TECHNOLOGY PRODUCT OR
 SERVICE  BEING  TESTED  AND PROVIDE THE ATTORNEY GENERAL AND STATE COMP-
 TROLLER'S TELEPHONE NUMBER AND WEBSITE ADDRESS WHERE COMPLAINTS  MAY  BE
 FILED.
   (B)  THE  NOTIFICATIONS  PRESCRIBED IN SUBDIVISION (A) OF THIS SECTION
 SHALL BE PROVIDED TO CONSUMERS  IN  A  CLEAR  AND  CONSPICUOUS  FORM  IN
 ACCORDANCE  WITH NEW YORK STATE LANGUAGE ACCESS REQUIREMENTS. FOR INTER-
 NET OR APPLICATION-BASED  FINANCIAL  TECHNOLOGY  PRODUCTS  OR  SERVICES,
 CONSUMERS   SHALL  ACKNOWLEDGE  RECEIPT  OF  SUCH  NOTIFICATIONS  BEFORE
 COMPLETION OF A TRANSACTION.
   (C) THE ATTORNEY GENERAL AND STATE  COMPTROLLER  MAY  REQUIRE  THAT  A
 SANDBOX  PARTICIPANT  MAKE ADDITIONAL DISCLOSURES TO CONSUMERS. WHEN THE
 ATTORNEY GENERAL AND STATE COMPTROLLER APPROVE AN APPLICATION FOR  ENTRY
 INTO  THE REGULATORY SANDBOX, THE ATTORNEY GENERAL AND STATE COMPTROLLER
 SHALL NOTIFY THE SANDBOX PARTICIPANT OF THE ADDITIONAL DISCLOSURES.
   § 707. EXIT REQUIREMENTS. (A) AT LEAST THIRTY DAYS BEFORE THE  END  OF
 THE  TWENTY-FOUR  MONTH  REGULATORY  SANDBOX  TESTING  PERIOD  A SANDBOX
 PARTICIPANT MUST EITHER:
   (1) NOTIFY THE ATTORNEY GENERAL AND STATE COMPTROLLER THAT THE SANDBOX
 PARTICIPANT WILL EXIT THE REGULATORY SANDBOX, WIND  DOWN  ITS  TEST  AND
 CEASE  OFFERING  ANY  FINANCIAL  TECHNOLOGY  PRODUCTS OR SERVICES IN THE
 REGULATORY SANDBOX WITHIN SIXTY DAYS AFTER THE TWENTY-FOUR MONTH TESTING
 PERIOD ENDS; OR
   (2) SEEK AN EXTENSION TO  PURSUE  A  LICENSE  OR  OTHER  AUTHORIZATION
 REQUIRED BY LAW.
   (B)  IF  THE  ATTORNEY  GENERAL AND STATE COMPTROLLER DOES NOT RECEIVE
 NOTIFICATION PURSUANT TO SUBDIVISION (A) OF THIS SECTION, THE REGULATORY
 SANDBOX TESTING PERIOD ENDS AT THE END OF THE TWENTY-FOUR MONTH  TESTING
 PERIOD  AND  THE  SANDBOX  PARTICIPANT  MUST  IMMEDIATELY CEASE OFFERING
 FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES.
   (C) IF A TEST  INCLUDES  OFFERING  FINANCIAL  TECHNOLOGY  PRODUCTS  OR
 SERVICES  THAT  REQUIRE  ONGOING  DUTIES,  THE SANDBOX PARTICIPANT SHALL
 CONTINUE TO FULFILL THOSE  DUTIES  OR  ARRANGE  FOR  ANOTHER  PERSON  TO
 FULFILL  THOSE  DUTIES  AFTER THE DATE THE SANDBOX PARTICIPANT EXITS THE
 REGULATORY SANDBOX.
   § 708. EXTENSIONS. (A) A SANDBOX PARTICIPANT MAY REQUEST AN  EXTENSION
 OF  THE  REGULATORY SANDBOX TESTING PERIOD FOR THE PURPOSE OF PURSUING A
 LICENSE OR OTHER AUTHORIZATION REQUIRED BY LAW.

 A. 9899--A                          7
 
   (B) THE ATTORNEY GENERAL AND STATE COMPTROLLER MAY  GRANT  OR  DENY  A
 REQUEST  FOR AN EXTENSION PURSUANT TO SUBDIVISION (A) OF THIS SECTION BY
 THE END OF THE TWENTY-FOUR MONTH REGULATORY SANDBOX TESTING  PERIOD.  AN
 EXTENSION  PURSUANT  TO  THIS SUBDIVISION IS NOT EFFECTIVE FOR MORE THAN
 ONE YEAR AFTER THE END OF THE REGULATORY SANDBOX TESTING PERIOD.
   (C) A SANDBOX PARTICIPANT THAT OBTAINS AN EXTENSION PURSUANT TO SUBDI-
 VISION  (B)  OF THIS SECTION MUST PROVIDE THE ATTORNEY GENERAL AND STATE
 COMPTROLLER WITH A WRITTEN REPORT EVERY THREE MONTHS  THAT  PROVIDES  AN
 UPDATE  ON EFFORTS TO OBTAIN A LICENSE OR OTHER AUTHORIZATION, INCLUDING
 ANY  SUBMITTED  APPLICATIONS  FOR  LICENSURE  OR  OTHER   AUTHORIZATION,
 REJECTED APPLICATIONS OR ISSUED LICENSES OR OTHER AUTHORIZATION.
   §  709. AUDITING BY THIRD PARTY DEPOSITORY OR CUSTODIAN SERVICES.  ALL
 SANDBOX PARTICIPANTS SHALL BE AUDITED BY A  THIRD  PARTY  DEPOSITORY  OR
 CUSTODIAN  SERVICE.  SUCH  THIRD  PARTY  DEPOSITORY OR CUSTODIAN SERVICE
 SHALL ENSURE THAT SANDBOX PARTICIPANTS:
   (A) HAVE ESTABLISHED AND MAINTAINED A FUND INSURING A PORTION OF THEIR
 ACCOUNT HOLDER'S ASSETS BY THE  SECURITIES  INVESTOR  PROTECTION  CORPO-
 RATION WHICH SHALL REPLACE THE BOND SYSTEM; AND
   (B)  PROVIDE FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES IN FULL COMPLI-
 ANCE WITH THIS ARTICLE.
   § 710. RECORDKEEPING AND REPORTING REQUIREMENTS. (A) A SANDBOX PARTIC-
 IPANT MUST RETAIN RECORDS, DOCUMENTS AND DATA PRODUCED IN  THE  ORDINARY
 COURSE  OF  BUSINESS REGARDING A FINANCIAL TECHNOLOGY PRODUCT OR SERVICE
 TESTED IN THE REGULATORY SANDBOX.
   (B) IF A FINANCIAL TECHNOLOGY PRODUCT OR SERVICE FAILS BEFORE THE  END
 OF  THE TESTING PERIOD, THE SANDBOX PARTICIPANT MUST NOTIFY THE ATTORNEY
 GENERAL AND STATE COMPTROLLER AND REPORT  ON  ACTIONS  TAKEN  TO  ENSURE
 CONSUMERS  HAVE  NOT BEEN HARMED AS A RESULT OF THE FINANCIAL TECHNOLOGY
 PRODUCTS OR SERVICES FAILURE.
   (C) A SANDBOX PARTICIPANT IS SUBJECT TO THE  REQUIREMENTS  OF  SECTION
 TWO  HUNDRED  EIGHT  OF  THE  STATE  TECHNOLOGY LAW AND SHALL NOTIFY THE
 ATTORNEY GENERAL AND STATE COMPTROLLER OF ANY "BREACH OF THE SECURITY OF
 THE SYSTEM" AS DEFINED IN PARAGRAPH (B) OF SUBDIVISION  ONE  OF  SECTION
 TWO HUNDRED EIGHT OF THE STATE TECHNOLOGY LAW.
   §  711.  RECORDS; DISCLOSURE; EVIDENTIARY EFFECT. (A) RECORDS THAT ARE
 SUBMITTED TO OR OBTAINED BY THE ATTORNEY GENERAL AND  STATE  COMPTROLLER
 IN  ADMINISTERING  THIS  ARTICLE  ARE  NOT  PUBLIC  RECORDS  OR OPEN FOR
 INSPECTION BY THE PUBLIC.
   (B) RECORDS AND INFORMATION THAT ARE SUBMITTED OR OBTAINED PURSUANT TO
 THIS ARTICLE MAY BE DISCLOSED TO ANY OF THE FOLLOWING:
   (1) STATE AND FEDERAL AGENCIES;
   (2) REPRESENTATIVES OF  FOREIGN  COUNTRIES  THAT  HAVE  REGULATORY  OR
 SUPERVISORY AUTHORITY OVER THE ACTIVITIES OF THE SANDBOX PARTICIPANT;
   (3)  A  FEDERAL,  STATE  OR  COUNTY GRAND JURY IN RESPONSE TO A LAWFUL
 SUBPOENA; AND
   (4) THE STATE AUDITOR GENERAL FOR THE  PURPOSE  OF  CONDUCTING  AUDITS
 AUTHORIZED BY LAW.
   (C)  THE  ATTORNEY  GENERAL  AND  STATE COMPTROLLER AND ANY APPLICABLE
 AGENCY CONSULTED BY THE ATTORNEY GENERAL AND STATE COMPTROLLER  ARE  NOT
 LIABLE  FOR  THE  DISCLOSURE OF RECORDS, INFORMATION OR DATA RECEIVED OR
 OBTAINED PURSUANT TO THIS ARTICLE.
   (D) THE DISCLOSURE PURSUANT TO SUBDIVISION (B) OF THIS  SECTION  OF  A
 COMPLAINT  OR THE RESULTS OF AN EXAMINATION, INQUIRY OR INVESTIGATION OF
 A SANDBOX PARTICIPANT DOES NOT MAKE THAT INFORMATION A PUBLIC RECORD AND
 THE SANDBOX PARTICIPANT OR THE SANDBOX PARTICIPANT'S HOLDING COMPANY MAY
 NOT DISCLOSE THAT INFORMATION TO THE GENERAL PUBLIC UNLESS  THE  DISCLO-

 A. 9899--A                          8
 
 SURE  IS  REQUIRED  BY LAW. A SANDBOX PARTICIPANT OR THE SANDBOX PARTIC-
 IPANT'S HOLDING COMPANY MAY NOT DISCLOSE, USE OR REFERENCE IN  ANY  FORM
 COMMENTS,  CONCLUSIONS OR RESULTS OF AN EXAMINATION, INQUIRY OR INVESTI-
 GATION IN ANY TYPE OF COMMUNICATION TO A CUSTOMER OR POTENTIAL CUSTOMER.
   (E)  THIS SECTION SHALL NOT PREVENT THE DISCLOSURE OF INFORMATION THAT
 IS ADMISSIBLE AS EVIDENCE IN A CIVIL OR CRIMINAL PROCEEDING BROUGHT BY A
 STATE OR FEDERAL LAW ENFORCEMENT AGENCY TO ENFORCE OR PROSECUTE CIVIL OR
 CRIMINAL VIOLATIONS OF THE LAW.
   § 712. REPORTING REQUIREMENTS;  MONITORING;  ENFORCEMENT;  AGREEMENTS.
 (A)  THE  ATTORNEY  GENERAL AND STATE COMPTROLLER MAY ESTABLISH PERIODIC
 REPORTING REQUIREMENTS ON SANDBOX PARTICIPANTS.
   (B) THE ATTORNEY GENERAL AND STATE COMPTROLLER MAY SEEK RECORDS, DOCU-
 MENTS AND DATA FROM SANDBOX PARTICIPANTS. ON THE  ATTORNEY  GENERAL  AND
 STATE  COMPTROLLER'S  REQUEST,  SANDBOX  PARTICIPANTS  SHALL  MAKE  SUCH
 RECORDS, DOCUMENTS AND DATA AVAILABLE FOR  INSPECTION  BY  THE  ATTORNEY
 GENERAL AND STATE COMPTROLLER.
   (C)  IF  THE  ATTORNEY  GENERAL  AND STATE COMPTROLLER HAVE REASONABLE
 CAUSE TO BELIEVE THAT A SANDBOX PARTICIPANT HAS ENGAGED IN, IS  ENGAGING
 IN  OR  IS  ABOUT  TO  ENGAGE  IN ANY PRACTICE OR TRANSACTION THAT IS IN
 VIOLATION OF THIS ARTICLE OR SECTION  THREE  HUNDRED  FIFTY-TWO  OF  THE
 GENERAL  BUSINESS  LAW,  OR  THAT  CONSTITUTES A VIOLATION OF A STATE OR
 FEDERAL CRIMINAL LAW, THE ATTORNEY GENERAL  AND  STATE  COMPTROLLER  MAY
 REMOVE  A  SANDBOX  PARTICIPANT  FROM  THE REGULATORY SANDBOX OR ORDER A
 SANDBOX PARTICIPANT TO EXIT THE REGULATORY SANDBOX PROGRAM.
   (D) REMOVAL FROM THE REGULATORY SANDBOX SHALL  NOT  BE  AN  APPEALABLE
 AGENCY ACTION.
   (E)  SANDBOX PARTICIPANTS ARE SUBJECT TO THE CONSUMER FRAUD PROVISIONS
 UNDER ARTICLE TWENTY-THREE-A OF THE GENERAL BUSINESS LAW.
   (F) THE ATTORNEY GENERAL AND STATE COMPTROLLER MAY ENTER  INTO  AGREE-
 MENTS  WITH  STATE,  FEDERAL  OR  FOREIGN  REGULATORS THAT ALLOW SANDBOX
 PARTICIPANTS TO  OPERATE  IN  OTHER  JURISDICTIONS  AND  ALLOW  ENTITIES
 AUTHORIZED TO OPERATE IN OTHER JURISDICTIONS TO BE RECOGNIZED AS SANDBOX
 PARTICIPANTS IN THIS STATE.
   § 2. The banking law is amended by adding a new section 9-x to read as
 follows:
   § 9-X. AUDIT OF FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES; PROHIBITING
 LICENSING FEES. 1. THE FOLLOWING TERMS, WHEN USED IN THIS SECTION, SHALL
 HAVE THE FOLLOWING MEANINGS:
   (A)  "FINANCIAL  TECHNOLOGY  PRODUCTS  OR  SERVICES" MEANS A FINANCIAL
 PRODUCT OR SERVICE WITH THE USE OR  INCORPORATION  OF  NEW  OR  EMERGING
 TECHNOLOGY  OR  THE  REIMAGINATION  OF  USES  FOR EXISTING TECHNOLOGY TO
 ADDRESS A PROBLEM, PROVIDE A  BENEFIT  OR  OTHERWISE  OFFER  A  PRODUCT,
 SERVICE,  BUSINESS  MODEL OR DELIVERY MECHANISM THAT IS NOT KNOWN BY THE
 ATTORNEY GENERAL TO HAVE A COMPARABLE WIDESPREAD OFFERING IN THIS STATE.
 SUCH TERM SHALL INCLUDE, BUT SHALL NOT  BE  LIMITED  TO,  CRYPTOCURRENCY
 BUSINESS ACTIVITY.
   (B) "CRYPTOCURRENCY BUSINESS ACTIVITY" MEANS THE CONDUCT OF ANY OF THE
 FOLLOWING TYPES OF ACTIVITIES INVOLVING NEW YORK OR A NEW YORK RESIDENT:
   (I)  RECEIVING CRYPTOCURRENCY FOR TRANSMISSION OR TRANSMITTING CRYPTO-
 CURRENCY, EXCEPT WHERE THE TRANSACTION IS UNDERTAKEN  FOR  NON-FINANCIAL
 PURPOSES AND DOES NOT INVOLVE THE TRANSFER OF MORE THAN A NOMINAL AMOUNT
 OF CRYPTOCURRENCY;
   (II) STORING, HOLDING, OR MAINTAINING CUSTODY OR CONTROL OF CRYPTOCUR-
 RENCY ON BEHALF OF OTHERS;
   (III) BUYING AND SELLING CRYPTOCURRENCY AS A CUSTOMER BUSINESS;

 A. 9899--A                          9
 
   (IV)  PERFORMING  EXCHANGE  SERVICES  OF  CRYPTOCURRENCY AS A CUSTOMER
 BUSINESS; OR
   (V) CONTROLLING, ADMINISTERING, OR ISSUING A CRYPTOCURRENCY.
   (C)  "CRYPTOCURRENCY"  MEANS  A DIGITAL CURRENCY WHICH USES ENCRYPTION
 TECHNIQUES TO REGULATE THE GENERATION OF CURRENCY UNITS AND  VERIFY  THE
 TRANSFER OF FUNDS, OPERATING INDEPENDENTLY FROM A CENTRAL BANK.
   2.  ANY PERSON, CORPORATION, PARTNERSHIP OR OTHER ENTITY THAT PROVIDES
 FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES SHALL BE AUDITED BY  A  PUBLIC
 OR PRIVATE THIRD PARTY DEPOSITORY OR CUSTODIAN SERVICE. SUCH THIRD PARTY
 DEPOSITORY OR CUSTODIAN SERVICE SHALL:
   (A)  ENSURE THAT SUCH PERSON, CORPORATION, PARTNERSHIP OR OTHER ENTITY
 THAT PROVIDES FINANCIAL TECHNOLOGY PRODUCTS OF SERVICES HAS  ESTABLISHED
 SECURITY PROTOCOLS TO SAFEGUARD THEM FROM THEFT;
   (B)  ENSURE THAT SUCH PERSON, CORPORATION, PARTNERSHIP OR OTHER ENTITY
 THAT PROVIDES FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES HAS  ESTABLISHED
 AND  MAINTAINED  A  FUND  INSURING  A  PORTION OF THEIR ACCOUNT HOLDER'S
 ASSETS BY THE SECURITIES INVESTOR  PROTECTION  CORPORATION  WHICH  SHALL
 REPLACE THE BOND SYSTEM; AND
   (C)  REGULARLY  EXAMINE HOLDINGS OF SUCH PERSON, CORPORATION, PARTNER-
 SHIP OR OTHER ENTITY THAT  PROVIDES  FINANCIAL  TECHNOLOGY  PRODUCTS  OR
 SERVICES TO ENSURE PROPER OWNERSHIP OF ASSETS.
   3.  NOTWITHSTANDING  ANY  OTHER  LAW,  RULE  OR REGULATION, NO PERSON,
 CORPORATION, PARTNERSHIP OR OTHER ENTITY THAT PROVIDES  FINANCIAL  TECH-
 NOLOGY  PRODUCTS OR SERVICES SHALL BE REQUIRED TO PAY A LICENSING FEE IN
 ORDER TO PROVIDE SUCH FINANCIAL TECHNOLOGY PRODUCTS OR SERVICES.
   § 3. This act shall take effect on the one hundred eightieth day after
 it shall have become a law and shall expire and be deemed repealed  July
 1,  2028;  provided,  however, that effective immediately, the addition,
 amendment and/or repeal of any rule  or  regulation  necessary  for  the
 implementation  of  this  act on its effective date are authorized to be
 made and completed on or before such effective date.