Bill S.690

SENATE DOCKET, NO. 1709 FILED ON: 1/19/2023

SENATE . . . . . . . . . . . . . . No. 690

By Ms. Moran, a petition (accompanied by bill, Senate, No. 690) of Susan L. Moran for legislation to protect consumers in cryptocurrency exchanges. Financial Services.

The Commonwealth of Massachusetts

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In the One Hundred and Ninety-Third General Court
(2023-2024)

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An Act protecting consumers in cryptocurrency exchanges.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. The General Laws are hereby amended by inserting, after chapter 167J, the following chapter:-

CHAPTER 167K. LICENSING OF VIRTUAL CURRENCY EXCHANGES

Section 1. Definitions

For the purposes of this chapter, the following words shall have the following meanings:

“Commissioner”, the commissioner of banks.

“Division”, the division of banks.

“Virtual Currency Platform”, a person or entity that operates a digital platform that offers any of the following services to consumers:

(a) the conversion or exchange of government currency into virtual currency;

(b) the conversion or exchange of virtual currency into government currency; or

A virtual currency platform shall not be construed to mean any person or entity that accepts virtual currency as a form of payment for any type of goods not defined as virtual currency or government currency.

“Government currency”, government-issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law.

“Massachusetts customer”, a person who uses a virtual currency exchange service whose information on record with or available to said exchange service indicates a Massachusetts home address, a Massachusetts mailing address, or an internet protocol address connected with a Massachusetts location.

“Principal beneficiary”, any person entitled to ten per cent or more of the benefits of a trust.

“Principal officer”, an executive officer of an entity, including the chief executive, financial, operating, and compliance officers, president, managing partner, general partner, controlling partner and trustee, as applicable.

“Principal stockholder”, any person that directly or indirectly owns, controls or holds with power to vote ten per cent or more of any class of outstanding capital stock of a corporate entity or possesses the power to direct or cause the direction of the management or policies of the entity.

“Qualified trust company”, a bank, trust company, bank holding company, credit union, building or loan association, savings or loan association, savings bank or mutual bank organized under the laws of any state or the United States, provided such bank, trust company, bank holding company, credit union, building or loan association, savings or loan association, savings bank or mutual bank organized under the laws of any state or the United States does not issue or sell any payment instrument through an authorized delegate who is not a bank, trust company, bank holding company, credit union, building or loan association, savings or loan association, savings bank or mutual bank.

“Virtual currency,” any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology. Virtual currency shall be construed to include digital units of exchange that (a) have a centralized repository or administrator; (b) are decentralized and have no centralized repository or administrator; or (c) may be created or obtained by computing or manufacturing effort. Virtual currency shall not be construed to include digital units that are used (a) solely within online gaming platforms with no market or application outside such gaming platforms, or (b) exclusively as part of a consumer affinity or rewards program, and can be applied solely as payment for purchases with the issuer or other designated merchants, but cannot be converted into or redeemed for fiat currency.

“Virtual currency business activity”, any one of the following activities:

Storing, holding, or maintaining custody or control of virtual currency on behalf of others;

Buying or selling virtual currency as a customer business;

Performing exchange services as a customer business; and

Controlling or issuing virtual currency.

Section 2. Licensing Process and Requirements

A virtual currency platform engaging with Massachusetts customers shall register with the division of banks:

(a) Such registration shall be in writing, under oath, and completed in a form prescribed by the commissioner. The registration shall include the following:

(1) The name of the registrant, including any business name, the form of organization, and the jurisdiction where the registrant is organized or incorporated;

(2) A list of the registrant's affiliates and an organizational chart illustrating the relationship between and among the registrant and its affiliates;

(3) An organizational chart of the registrant and its management structure, including its principal officers or senior management, indicating lines of authority and the allocation of duties among its principal officers or senior management;

(4) A business plan, including a description of the proposed, current and historical business of the registrant, details on the products and services provided and to be provided, all associated Internet web site addresses, the jurisdictions in which the registrant is engaged in business, the principal place of business, the primary markets of operation, the projected customer base, any specific marketing targets and the physical address of any place of operation in the state; and

(5) A registration fee as described in section 3.

Section 3. Registration fee

A virtual currency platform engaging with Massachusetts customers shall pay annually an assessment equal to 5 per cent of such platform’s gross annual revenues derived from engaging in virtual currency business activity with Massachusetts customers.

All monies generated from the assessment described in this section shall be credited to the Virtual Currency Insurance Fund, as established by section 2RRRRR of chapter 29.

Section 4. Change of information

In the event of any material change in the registration information submitted in accordance with section 2 of this chapter, the registrant shall, within seven days of the change, supplement or amend such registration by completing and submitting a form as prescribed by the commissioner.

Section 5. Compliance policies

Each registrant shall maintain and enforce confidential, written compliance policies, including policies with respect to anti-fraud, anti-money laundering, cyber security, privacy and information security, that shall be reviewed and approved by the registrant's board of directors or an equivalent governing body.

Section 6. Advertising requirements

(a) No registrant shall advertise its products, services or activities in the state or to any person without including the legal name of the registrant and a legend stating that the registrant is registered to engage in virtual currency business activity in the commonwealth.

(b) Each registrant shall maintain, for examination by the commissioner, all advertising and marketing materials for a period of not less than seven years from the date of their creation, including, but not limited to, print media, Internet media, including Internet web sites, radio and television advertising, road show materials, presentations and brochures. Each registrant shall maintain a hard copy, Internet web site captures of material changes to Internet web site advertising and marketing and audio and video scripts of such advertising and marketing materials, as applicable.

Section 7. Compliance review

Each registrant shall permit the commissioner to examine the registrant whenever the commissioner determines such examination to be necessary or advisable, including, but not limited to, to determine compliance with the requirements set forth in sections 1 to 9, inclusive, of this act, and shall assist the commissioner in any such examination. The examination may include, but shall not be limited to, the premises, books, records and any other pertinent material of the registrant or its affiliates.

Section 8. Risk disclosure

(a) (1) Each registrant shall, prior to engaging in virtual currency business activity with any person, disclose in clear, conspicuous writing all material risks to the person associated with the particular virtual currency business activities in which it engages. Such risks may include, but shall not be limited to:

(A) Virtual currency is not legal tender, is not backed by the United States government and the virtual currency held by the registrant on behalf of the person is not subject to Federal Deposit Insurance Corporation protections;

(B) Transactions in the virtual currency held by the registrant on behalf of the person may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable;

(C) Laws determining the rights and obligations of virtual currency users are not fully developed, and a court of law may find that the elements of the transaction, including, but not limited to, the timing, amount, identity or location of the parties, may not be the same as if the transaction had occurred with government currency;

(D) The value of the virtual currency held by the registrant on behalf of the person may change more quickly and unexpectedly than that of government currency, and may in fact become zero; and

(E) Technological difficulties experienced by the registrant may prevent the person from accessing the virtual currency held by the registrant on behalf of the person.

(2) The commissioner shall post on the department's Internet web site information substantially similar to the information required to be disclosed pursuant to this subsection, including information about the material risks described in this subsection.

(b) Each registrant shall, prior to engaging in virtual currency business activity with any person, disclose in clear, conspicuous writing all relevant terms and conditions associated with the registrant's virtual currency business activity. Such disclosures may include, but need not be limited to:

(1) the person's liability for unauthorized transactions;

(2) the person's right to interrupt or prevent any transaction and the procedure to initiate an interruption or prevention;

(3) the circumstances under which the registrant will, absent a court or government order, disclose information concerning the person's account to third parties;

(4) the person's right to receive periodic account statements and valuations from the registrant;

(5) the person's right to receive a receipt, trade ticket or other evidence of a transaction; and

(6) the person's right to prior notice of a change in the registrant's rules or policies.

(c) Each registrant shall, prior to engaging in virtual currency business activity with any person, disclose in clear, conspicuous writing the terms and conditions of the transaction. The disclosures may include, but need not be limited to:

(1) The amount of the transaction;

(2) any fees, expenses and charges borne by the person, including applicable exchange rates;

(3) the type and nature of the transaction; and

(4) a warning that once executed the transaction may not be undone.

(d) Each registrant shall ensure that all disclosures required in this section are acknowledged in writing as received by persons.

(e) Each registrant shall, upon completion of any transaction, provide to any person initiating the transaction, a receipt containing the following information:

(1) The name and contact information of the registrant, including a telephone number established by the registrant to answer questions and register complaints;

(2) the type, value, date and precise time of the transaction;

(3) any fee charged; and

(4) any exchange rate applied.

Section 9. Customer complaint policies

(a) Each registrant shall establish and maintain written policies and procedures to fairly and timely resolve customer complaints.

(b) Each registrant shall provide, in a clear and conspicuous manner, on such registrant's Internet web site or web sites, and in all physical locations the following disclosures:

(1) The registrant's mailing address, electronic mail address and telephone number for the receipt of complaints;

(2) a statement that the complainant may also bring a complaint to the attention of the division; and

(3) the division's mailing address, Internet web site address and telephone number.

Section 10. Violation of this chapter

(a) If it appears to the commissioner that any person has committed or is about to commit a violation of any provision of this act or of any rule or order of the commissioner, the commissioner may apply to any superior court in the commonwealth for an order temporarily or permanently restraining and enjoining that person from violating or continuing to violate this act or any rule, regulation or order of the commissioner and for injunctive or other relief as the nature of the case may require.

(b) If, after notice and hearing, the commissioner finds that a person has violated any provision of this chapter or a rule adopted under this chapter, the commissioner may order the person to pay the commissioner a civil penalty in an amount specified by the commissioner not exceeding 5 thousand dollars for each violation. Each violation shall constitute a separate offense and the penalty under this subsection shall be in addition to a suspension or revocation of a registration. No proceeding shall be initiated and no penalty shall be assessed pursuant to this subsection until such person is notified in writing of the nature of the violation and is afforded a reasonable period of time, as set forth in the notice, to correct the violation and fails to do so.

(c) The commissioner may compromise, settle and collect civil penalties for violations of any provision of this chapter, or of any rule, regulation or order issued or promulgated pursuant to this chapter.

Section 11. Each registrant may accept credit cards and debit cards for the purchase of virtual currency.

SECTION 2. Chapter 29 of the General Laws is hereby amended by inserting, after section 2QQQQQ, the following section:-

Section 2RRRRR. Virtual Currency Insurance Fund

(a) There shall be a virtual currency insurance fund administered by the office of the treasurer. Notwithstanding any general or special law to the contrary, there shall be credited to the fund any revenue generated pursuant to section 3 of chapter 167K, or other money authorized by the general court and specifically designated to be credited to the fund, and any gifts, grants, private contributions, investment income earned by the fund's assets and any designated funds from other sources. No expenditures from the fund shall cause the fund to be in deficiency at the close of the fiscal year. Any money in the fund at the end of the fiscal year shall not revert to the General Fund.

(b) The fund shall be used, without further appropriation, for a grant program to be administered by the division of banks.

(c) Eligible grantees shall be Massachusetts customers that have deposited government currency for the purchase of virtual currency, or have exchanged government currency for virtual currency in a virtual currency exchange service that is unable to meet any monetary obligations to any of its customers at the time of submission of the grant application.

(d) Grant funding distributed pursuant to this section shall be distributed amongst all eligible grantees until the amount in the fund is exhausted. Grant funding shall not exceed 10 thousand dollars per grantee, per virtual currency exchange service.

(e) The division shall promulgate any regulations necessary for the distribution of funding pursuant to this section.

Name:	District/Address:
Susan L. Moran	Plymouth and Barnstable