Senate Bill 5602 - Service Providers Working with State-Regulated Financial Institutions

Summary

Senate Bill 5602, State of Washington 67th Legislature, 2022 Regular Session, by Senators Mullet and Hasegawa, by request of Department of Financial Institutions, prefiled December 28, 2021 and referred to the Committee on Business, Financial Services & Trade. The act relates to service providers working with state-regulated financial institutions, amends RCW 31.12.565 and adds new sections to chapter 43.320 RCW. Section 1 defines terms including covered financial institution, covered service and service provider. Section 2 provides that a service provider that provides a covered service to a covered financial institution is subject to examination by the director, and sets findings the director must make before any state-only examination.

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     Z-0303.4

                               SENATE BILL 5602


     State of Washington       67th Legislature            2022 Regular Session

     By Senators Mullet and     Hasegawa;   by   request    of   Department   of
     Financial Institutions

     Prefiled 12/28/21. Read first time 01/10/22.     Referred to Committee
     on Business, Financial Services & Trade.




1        AN ACT Relating to service providers working with state-regulated
2    financial institutions; amending RCW 31.12.565; and adding new
3    sections to chapter 43.320 RCW.


4    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 5       NEW SECTION.    Sec. 1.    DEFINITIONS. The definitions in this
 6   section apply throughout this section and sections 2 through 7 of
 7   this act unless the context clearly requires otherwise.
 8       (1) "Covered financial institution" means a bank as defined in
 9   section 3 of the federal deposit insurance act, 12 U.S.C. Sec.
10   1813(a), and includes those financial institutions supervised and
11   regulated by the director under Titles 30A, 32, and 33 RCW, including
12   any subsidiary or affiliate of any applicable covered financial
13   institution under the bank service company act, 12 U.S.C. Sec.
14   1861(b)(2).
15       (2) "Covered service" means any service subject to examination
16   under the bank service company act, 12 U.S.C. Sec. 1867 (c) as of the
17   effective date of this section, or such subsequent date as may be
18   provided by the department by rule consistent with the purposes of
19   this act.
20       (3) "Department" means the state department of financial
21   institutions.
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 1       (4) "Director" means the director of financial institutions, or
 2   the director's duly authorized representative.
 3       (5) "Federal agency" includes the federal deposit insurance
 4   corporation, federal reserve, national credit union administration,
 5   consumer financial protection bureau, and office of the comptroller
 6   of the currency, or any successor federal agencies.
 7       (6) "Service provider" means any person, company, corporation, or
 8   other legal entity that provides a covered service to a covered
 9   financial institution; the term service provider also includes
10   "service companies" as defined under the bank service company act, 12
11   U.S.C. Sec. 1861(b)(2).

12       NEW SECTION.  Sec. 2.  EXAMINATION OF SERVICE PROVIDERS. (1) A
13   service provider that provides a covered service, by contract or
14   otherwise, to a covered financial institution, is subject to
15   examination by the director to the same extent as if the covered
16   service was performed by the covered financial institution itself.
17       (2) The director may, in the director's discretion, examine any
18   service provider under sections 1 through 7 of this act; provided
19   that prior to any state-only examination, the director must find
20   that:
21       (a) The information sought cannot be otherwise accessed or
22   verified by the records of the covered financial institution without
23   direct examination of the records of the service provider;
24       (b) The service provider manages an application, process, or
25   system for the benefit of the covered financial institution, the
26   integrity of which cannot be evaluated without direct examination; or
27       (c) An act or omission of the service provider sought to be
28   examined has resulted in a significant heightened risk, is committing
29   an unsafe and unsound practice, operating in an unsafe or unsound
30   manner, or is otherwise violating a provision of Title 30A, 32, or 33
31   RCW, or other applicable law.

32       NEW SECTION. Sec. 3. ACCEPTANCE OF REPORTS OF EXAMINATION FROM
33   OTHER REGULATORS. The director may, in the director's discretion,
34   accept service provider reports of examination, which are made by any
35   other state or federal agency, in lieu of any examination authorized
36   under the laws of this state.



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 1       NEW SECTION.     Sec. 4.    CONFIDENTIALITY OF SERVICE PROVIDER
 2   REPORTS OF EXAMINATION. A service provider report of examination
 3   written or obtained by the director is confidential and subject to
 4   the applicable state and federal bank confidentiality laws including,
 5   but not limited to, RCW 30A.04.075, 31.12.565, 32.04.220, and
 6   33.04.110, provided that:
 7       (1) For any joint service provider report of examination
 8   performed by the director with any other state or federal agency, a
 9   copy may be furnished to:
10       (a) The examined service provider or the covered financial
11   institutions serviced by the service provider in accordance with the
12   bank service company act, 12 U.S.C. chapter 18, and the attendant
13   rules, regulations, policies, and guidance applicable to service
14   provider examinations;
15       (b) Outside parties with written consent of all state and federal
16   agencies that participated in the examination; or
17       (c) Outside parties if compelled in response to a valid legal
18   process; however, the department must provide a written notice of
19   disclosure and reasonable opportunity to object to all state and
20   federal agencies that participated in the examination.
21       (2) For any state-only service provider report of examination
22   performed solely by the director, a copy may be furnished to:
23       (a) The examined service provider;
24       (b) Any Washington state-chartered or Washington state-licensed
25   financial institution serviced by the service provider; or
26       (c) Outside parties if compelled in response to a valid legal
27   process with reasonable opportunity for the department to object.

28       NEW SECTION.     Sec. 5.     AGREEMENTS WITH STATE AND FEDERAL
29   AGENCIES. The director may enter into examination and information
30   sharing agreements with any state or federal agency that has joint or
31   concurrent jurisdiction over a service provider.


32       NEW SECTION.   Sec. 6.    ENFORCEMENT. (1) The director may take
33   enforcement actions against a service provider for planning,
34   attempting, or currently violating any state or federal law, or
35   engaging in any unsafe or unsound practice, to the same extent, and
36   as if, the covered service was performed by the covered financial
37   institution itself, pursuant to Titles 30A, 32, and 33 RCW.


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 1       (2) The director may enter into joint examinations or joint
 2   enforcement actions with other state or federal agencies having joint
 3   or concurrent jurisdiction over a service provider.


4        NEW SECTION. Sec. 7. DIRECTOR—BROAD ADMINISTRATIVE DISCRETION—
5    RULE MAKING. The director has the power, and broad administrative
6    discretion, to administer and interpret sections 1 through 6 of this
7    act. The director may adopt all rules necessary to administer
8    sections 1 through 6 of this act.


 9       Sec. 8. RCW 31.12.565 and 2010 c 87 s 6 are each amended to read
10   as follows:
11       (1) The following are confidential and privileged and not subject
12   to public disclosure under chapter 42.56 RCW:
13       (a) Examination reports and information obtained by the director
14   in conducting examinations and investigations under this chapter and
15   chapter 31.13 RCW;
16       (b) Examination reports and related information from other
17   financial institution regulators obtained by the director;
18       (c) Reports or parts of reports accepted in lieu of an
19   examination under RCW 31.12.545; and
20       (d) Business plans and other proprietary information obtained by
21   the director in connection with a credit union's application or
22   notice to the director.
23       (2) Notwithstanding subsection (1) of this section, the director
24   may furnish examination reports(([,])) , work papers, final orders,
25   or other information obtained in the conduct of an examination or
26   investigation prepared by the director to:
27       (a) Federal agencies empowered to examine credit unions or other
28   financial institutions;
29       (b) Officials empowered to investigate criminal charges. The
30   director may furnish only that part of the report which is necessary
31   and pertinent to the investigation, and only after notifying the
32   affected credit union and members of the credit union who are named
33   in that part of the examination report, or other person examined,
34   that the report is being furnished to the officials, unless the
35   officials requesting the report obtain a waiver of the notice
36   requirement for good cause from a court of competent jurisdiction;
37       (c) The examined credit union or other person examined, solely
38   for its confidential use;
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 1       (d) A department licensee or regulated entity that uses a covered
 2   service as defined in section 1 of this act, by contract or
 3   otherwise, solely for its confidential use;
 4       (e) The attorney general in his or her role as legal advisor to
 5   the director;
 6       (((e)))   (f)   Prospective  merger   partners  or   conservators,
 7   receivers, or liquidating agents of a distressed credit union;
 8       (((f))) (g) Credit union regulators in other states or foreign
 9   jurisdictions regarding an out-of-state or foreign credit union
10   conducting business in this state under this chapter, or regarding a
11   credit union conducting business in the other state or jurisdiction;
12       (((g))) (h) A person officially connected with the credit union
13   or other person examined, as officer, director, supervisory committee
14   member,   attorney,    auditor,  accountant,   independent   attorney,
15   independent auditor, or independent accountant;
16       (((h))) (i) Organizations that have bonded the credit union to
17   the extent that information is relevant to the renewal of the bond
18   coverage or to a claim under the bond coverage;
19       (((i))) (j) Organizations insuring or guaranteeing the shares of,
20   or deposits in, the credit union; or
21       (((j))) (k) Other persons as the director may determine necessary
22   to protect the public interest and confidence.
23       (3) Examination reports, work papers, temporary and final orders,
24   consent orders, and other information obtained in the conduct of an
25   examination or investigation furnished under subsection (2) of this
26   section remain the property of the director and no person to whom
27   reports are furnished or any officer, director, or employee thereof
28   may disclose or make public the reports or information contained in
29   the reports except in published statistical information that does not
30   disclose the affairs of a person, except that nothing prevents the
31   use in a criminal prosecution of reports furnished under subsection
32   (2)(b) of this section.
33       (4) In a civil action in which the reports or information are
34   sought to be discovered or used as evidence, a party may, upon notice
35   to the director, petition the court for an in-camera review of the
36   reports or information. The court may permit discovery and
37   introduction of only those portions of the report or information
38   which are relevant and otherwise unobtainable by the requesting
39   party. This subsection does not apply to an action brought or
40   defended by the director.
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 1       (5) This section does not apply to investigation reports prepared
 2   by the director concerning an application for a new credit union or a
 3   notice of intent to establish a branch of a credit union, except that
 4   the director may adopt rules making portions of the reports
 5   confidential, if in the director's opinion the public disclosure of
 6   that portion of the report would impair the ability to obtain
 7   information the director considers necessary to fully evaluate the
 8   application.
 9       (6) Any person who knowingly violates a provision of this section
10   is guilty of a gross misdemeanor.


11       NEW SECTION. Sec. 9. Sections 1 through 7 of this act are each
12   added to chapter 43.320 RCW.

                                  --- END ---




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