Senate Commerce Committee Statement to Assembly, No. 2891 (1R) — State of New Jersey (May 13, 2021)

Summary

Statement of the Senate Commerce Committee, State of New Jersey, dated May 13, 2021, reporting favorably and with committee amendments Assembly Bill No. 2891 (1R), the "Digital Asset and Blockchain Technology Act," which regulates digital asset business activity. A person may not engage in digital asset business activity with or on behalf of a resident unless licensed by the Department of Banking and Insurance, with a pending license filing, or licensed in a state with a reciprocity agreement. A person who violates the licensure provisions is liable for a penalty of $500 per day. Applications go through the Nationwide Multistate Licensing System, and licensees must keep client transaction records for not less than six years. The statement says the bill is identical to Senate Bill No. 3132.

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SENATE COMMERCE COMMITTEE

STATEMENT TO

[First Reprint]

ASSEMBLY,
No. 2891

with
committee amendments

STATE
OF NEW JERSEY

DATED: MAY 13,
2021

The Senate Commerce Committee reports favorably and
with committee amendments Assembly Bill No. 2891 (1R).

As amended, this bill, the “Digital Asset and
Blockchain Technology Act,” regulates digital asset business activity. The bill
defines “digital asset” to mean a representation of economic, proprietary, or
access rights that is stored in a machine-readable format, has a transaction
history that is recorded in a distributed, digital ledger or digital data
structure in which consensus is achieved through a mathematically verifiable process.
Examples of digital assets include digital consumer assets, digital securities,
and virtual currency. “Digital asset” does not include securities, whether in
digital form or otherwise, regulated by the Bureau of Securities in the
Division of Consumer Affairs in the Department of Law and Public Safety.

The bill provides that a person may not engage in a
digital asset business activity, or hold itself out as being able to engage in
a digital asset business activity, with or on behalf of a resident unless the
person is licensed in this State by the Department of Banking and Insurance
(department), or has filed a pending license with the department, or licensed
in another state to conduct digital asset business activity by a state with
which this State has a reciprocity agreement.

The bill provides the department may license a person
to carry on one or more digital asset business activities described in the
bill.

The bill provides that a person who violates the
provisions requiring licensure is liable for a penalty of $500 per day, from
the first day the department issues a notice of failure to apply a license
until a license application is filed with the department.

The bill provides that an application for a license is
to be submitted through the Nationwide Multistate Licensing System, and made in
the form and medium to be prescribed by the department by regulation. Each
application is to be accompanied by a nonrefundable fee.

Applicants are to provide certain information relevant
to the applicant’s proposed digital asset business activity, submitting the
information through the Nationwide Multistate Licensing System. The bill
provides that no license may be issued by the department to an individual who
has, within the five years preceding the submission of an application for a
license, been convicted of embezzlement, forgery, fraud, or theft.

The bill provides that a person licensed by another
state to engage in digital asset business activity in that state may engage in
digital asset business activity with or on behalf of a resident of New Jersey
to the same extent as a licensee if certain criteria are met pursuant to the
bill. An application for such a person is to be submitted through the National
Multistate Licensing System.

The bill requires the department to grant or deny any
digital asset business license application or license reciprocity application
within 30 days of its receipt. The department may refuse an application for a
digital asset business license or license reciprocity application if a licensee
or applicant fails to meet certain standards specified in the bill.

Licensees are required to submit a renewal report,
through the Nationwide Multistate Licensing System, that contains an update of
all information required at initial licensing and a description of certain
information described in the bill.

The bill provides that the department may audit any
digital asset business licensee. The department may suspend or revoke a digital
asset business license upon certain findings that are provided in the bill.

Under the bill, any denial, suspension, or revocation
of a license, or warning notice issued by the department, is to prominently
indicate that a right of appeal is available. A licensee or prospective
licensee that is aggrieved by a decision of the department may appeal the
decision by filing a request for a hearing before the Office of Administrative
Law. The department may issue written requests for information to a licensee
regarding the operations of the licensee. A record on all client transactions
is to be maintained by the licensee for not less than six years.

The bill requires the terms and conditions of a
digital asset business involving a consumer’s account to be disclosed at the
time the consumer contracts for a digital asset business service. The
disclosure is to be full and complete, contain no material misrepresentations,
be in readily understandable language and may include, as appropriate and to
the extent applicable, certain information concerning fees and charges, risks
to the consumer, and any protections or securities that are in place.

The disclosures required by the bill are to be
displayed and individually agreed to by a consumer before any digital asset
transaction at an electronic kiosk. Any fee to be charged is required to be
displayed and individually agreed to by a consumer before any digital asset
transaction or digital asset balance inquiry at an electronic kiosk.

As amended and reported, this bill is identical to
Senate Bill No. 3132 as also amended and reported by the committee.

COMMITTEE AMENDMENTS

The committee amendments:

(1) remove the definition of and references to
“digital security” from the bill;

(2) add language to the definition of “digital asset”
to exempt securities, whether in digital form or otherwise, regulated by the
Bureau of Securities in the Division of Consumer Affairs in the Department of
Law and Public Safety;

(3) remove a provision allowing the Department of
Banking and Insurance to waive certain information requirements of applicants
for licenses under the bill;

(4) require that submission of an application for an
initial license, of a renewal report for licensure renewal, and of documents
for an out-of-State individual to be licensed in New Jersey is to be conducted
through the Nationwide Multistate Licensing System; and

(5) remove language to exclude certain income and
dividends from gross income for tax purposes.

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