Revised Fiscal Note — 1370 HB, Securities whistleblowers, Department of Financial Institutions (02/17/2023)

Summary

A revised Individual State Agency Fiscal Note from the Department of Financial Institutions on 1370 HB, titled Securities whistleblowers, with agency preparation dated 02/17/2023. Part I lists cash receipts and operating expenditures as non-zero but indeterminate. The narrative says the bill gives the department authority to make monetary awards to whistleblowers who report violations of state or federal securities laws, paid from the Securities Fraud Prosecution Account (Fund 06J). It cites data that the federal Securities and Exchange Commission whistleblower office received 327 complaints from Washingtonians in an eight year period.

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                            Individual State Agency Fiscal Note                                                                              Revised



Bill Number:      1370 HB                Title:     Securities whistleblowers                                 Agency: 102-Department of Financial
                                                                                                                      Institutions

Part I: Estimates
      No Fiscal Impact

Estimated Cash Receipts to:
                             Non-zero but indeterminate cost and/or savings. Please see discussion.


Estimated Operating Expenditures from:
                             Non-zero but indeterminate cost and/or savings. Please see discussion.



Estimated Capital Budget Impact:

    NONE




   The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
   and alternate ranges (if appropriate), are explained in Part II.

  Check applicable boxes and follow corresponding instructions:
      If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
  X
      form Parts I-V.
      If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).

      Capital budget impact, complete Part IV.

      Requires new rule making, complete Part V.


   Legislative Contact:     Megan Mulvihill                                                 Phone: 360-786-7304              Date: 01/24/2023
   Agency Preparation:      Levi Clemmens                                                   Phone: (360) 902-8818            Date: 02/17/2023
   Agency Approval:         Levi Clemmens                                                   Phone: (360) 902-8818            Date: 02/17/2023
  OFM Review:               Amy Hatfield                                                    Phone: (360) 280-7584            Date: 02/17/2023

Form FN (Rev 1/00) 183,499.00                                                                                                     Request # 23-007-2
FNS063 Individual State Agency Fiscal Note                             1                                                              Bill # 1370 HB
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Significant provisions of the bill and any related workload or policy assumptions that have revenue or expenditure impact on the responding agency by
section number.

 This bill provides the Department of Financial Institutions (DFI) with the authority to make monetary awards to
 whistleblowers who report violations of state or federal securities laws, and provides protections to whistleblowers and
 internal reporters. The monetary awards would only be given to a whistleblower if the case brought to the DFI came to
 conclusion and fines were charged and collected by the agency. Any monetary awards allowed under this bill would be paid
 from the Securities Fraud Prosecution Account (Fund 06J) which entirely funded by fines collected by DFI due to violations
 the Securities Act. Currently Fund 06J is used to fund local prosecutions of securities fraud. The bill would add the
 whistleblower program and the monetary awards to the potential uses of the fine monies in this account.

 The ebb and flow of cases and fines is difficult to determine in the future. The federal Securities and Exchange Commission
 has a similar whistleblower program and according to data published on the SEC website, its Whistleblower Office received
 327 complaints from Washingtonians in an eight year period, 2011 - 2018. While this data indicates that there are
 Washingtonians who are willing to report potential violations, it is not possible to know if those complaints would have been
 reported to DFI if a state whistleblower program was in place during that period, or how many of those complaints would
 have resulted in fines that would have been collected by DFI and eligible for distribution as awards. Therefore, the future
 amounts of fines that may be collected into Fund 06J and awards made as a result of this bill are indeterminate.

 Under RCW 43.320.115(4) once the balance of Fund 06J reaches a certain limit, fines collected under the Securities Act
 are to be distributed into the Financial Services Regulatory Account (Fund 300). This bill raises that level from $350,000 to
 $1,000,000. Raising the amount at which the distribution shifts from Fund 06J to Fund 300 will have a temporary impact of
 reducing the cash receipts of Fund 300 while the balance of Fund 06J builds to the new ceiling. The uncertain dollar
 amounts, timing, and volume of potential fines collected, cases, monetary awards, and fund balance levels cause the fiscal
 impact of this bill to be indeterminate.
II. B - Cash receipts Impact
Cash receipts impact of the legislation on the responding agency with the cash receipts provisions identified by section number and when appropriate, the
detail of the revenue sources. Description of the factual basis of the assumptions and the method by which the cash receipts impact is derived. Explanation
of how workload assumptions translate into estimates. Distinguished between one time and ongoing functions.

 The future amount of fines that may be collected into the Securities Fraud Prosecution Account (Fund 06J) is
 indeterminate. The timing and amount of future receipts in Fund 06J is unpredictable, so the impact to cash receipts in the
 Financial Services Regulation Account (Fund 300) is also indeterminate.
II. C - Expenditures
Agency expenditures necessary to implement this legislation (or savings resulting from this legislation), with the provisions of the legislation that result in
the expenditures (or savings) identified by section number. Description of the factual basis of the assumptions and the method by which the expenditure
impact is derived. Explanation of how workload assumptions translate into cost estimates. Distinguished between one time and ongoing functions.


 The monetary awards allowed under this bill would be paid from the Securities Fraud Prosecution Account (Fund 06J). The
 volume of whistleblower activity and the resulting monetary awards are unknown, thus the payment of these monetary
 awards would have an indeterminate impact on the expenditures in Fund 06J.

Part III: Expenditure Detail
III. A - Operating Budget Expenditures
                                  Non-zero but indeterminate cost and/or savings. Please see discussion.
III. B - Expenditures by Object Or Purpose
                            Non-zero but indeterminate cost and/or savings. Please see discussion.


Securities whistleblowers                                                                                      102-Department of Financial Institutions
Form FN (Rev 1/00) 183,499.00                                                                                                    Request # 23-007-2
FNS063 Individual State Agency Fiscal Note                                2                                                           Bill # 1370 HB
 III. C - Operating FTE Detail: FTEs listed by classification and corresponding annual compensation. Totals agree with total FTEs in Part I
and Part IIIA.
 NONE



III. D - Expenditures By Program (optional)
 NONE


 Part IV: Capital Budget Impact
 IV. A - Capital Budget Expenditures
      NONE

 IV. B - Expenditures by Object Or Purpose
        NONE

IV. C - Capital Budget Breakout
 Acquisition and construction costs not reflected elsewhere on the fiscal note and description of potential financing methods.
       NONE

 IV. D - Capital FTE Detail: FTEs listed by classification and corresponding annual compensation. Totals agree with total FTEs in Part IVB.


      NONE

Part V: New Rule Making Required
Provisions of the bill that require the agency to adopt new administrative rules or repeal/revise existing rules.




Securities whistleblowers                                                                                     102-Department of Financial Institutions
Form FN (Rev 1/00) 183,499.00                                                                                                   Request # 23-007-2
FNS063 Individual State Agency Fiscal Note                               3                                                           Bill # 1370 HB


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