Pub. 9 2019 Issue 3

16 www.azbankers.org Arizona sandboxes need legal guidance to navigate the application process and carefully craft legally complete applications that meet the programs’ requirements and goals. Legal guidance is paramount throughout the sandbox testing process to address any modifications to the innovation, monitor changes in applicable federal regulations, ensure proper disclosures to participating consumers, and respond to inquiries from sandbox regulators who cannot provide legal advice to applicants or participants. 31 In addition to specific advice on the sandbox program requirements, these companies typically require the same types of advice that all companies need, including advice on corporate, tax, employment, intellectual property, technology licensing, a wide variety of busi- ness contracts, and of course, when necessary, advice on dispute resolution and litigation. The Arizona sandboxes afford a limited safe harbor to test a new product and get it to market, under a regulator’s scrutiny, with the goal that the product will be proven economically viable when the company transitions to more expensive compliance and licensing. Arizona is spearheading these sandboxes in key areas to attract high - er wage technology jobs, capital investment, and to create clusters of technology companies in leading-edge developing industries. “Arizona’s top-notch regulatory and business environment has positioned the state as a leader in innovation,” said John Ragan, chief operating officer of the Arizona Chamber of Commerce and Industry and invisionAZ CEO. “The creation last year of Arizona’s fintech sandbox served as a catalyst for tech growth in Arizona. That, com - bined with this legislative session’s passage of the proptech sandbox, further signals that Arizona is the place for innovative companies to develop cutting edge technology.” “The passage of the recent proptech legislation further legitimizes our market’s reputation as America’s tech proving grounds,” added Chris Camacho, president and CEO of the Greater Phoenix Economic Council. “With policy achievements in autonomous vehicles, block - chain, fintech and now proptech, we are building a global identity centered on testing, validating, and scaling disruptive technologies.” w 1 A.R.S. §§ 41-5601 to 41-5612. 2 https://www.azag.gov/press-release/arizona-be- comes-first-state-us-offer-fintech-regulatory-sandbox. 3 Property technology or “proptech” encompasses a wide variety of innovative technologies that will change the way we rent, sell, buy, develop, finance and manage residential and commercial real property. See Office of the Governor Press Release, March 20, 2019:https:// azgovernor.gov/governor/news/2019/03/governor-ducey-at- tends-az-tech-innovation-summit-signs-bill-creating-proptech. 4 Evan Daniels, Fintech Sandbox Counsel, Arizona Attorney Gener- al’s Office, “Innovative Regulation for Innovative Business”, Novem - ber 14, 2018, State Bar of Arizona, p.3. 5 Arizona Attorney General Mark Brnovich, Chamber Business News, August 6, 2016. 6 See https://azag.gov/fintech/faq. 7 A Financial System That Creates Economic Opportunities: Non- bank Financials, Fintech, and Innovation, U.S. DEPT. OF TREA- SURY, at 10, July 2018, available at https://home.treasury.gov/news/ press-releases/sm447. 8 Id. at 168. 9 Financial Regulation: Complex and Fragmented Structure Could Be Streamlined to Improve Effectiveness, GOV’T ACCOUNTABILI - TY OFFICE, Feb. 2016, available at https://www.gao.gov/products/ GAO-16-175. 10 Id. 11 Some have proposed awaiting a federal solution, but there is con- flict between federal and state authorities on jurisdictional issues. In December 2016, the Office of the Comptroller of the Currency (OCC) proposed a special purpose national bank charter for fin - tech companies, but the Conference of State Banking Supervisors (CSBS) and the New York State Department of Financial Services (NYSDFS) sued the OCC, arguing the charter exceeds the agency’s authority and unlawfully preempts state law. Both lawsuits were dismissed on standing and ripeness grounds given that the OCC was not yet accepting charter applications. In July 2018, the OCC issued an update to the proposed charter and announced that it would begin accepting applications. The CSBS and NYSDFS filed new complaints in Fall 2018 challenging the OCC’s legal authority. On May 2, 2019, the U.S. Court for the Southern District of New York denied the OCC’s motion to dismiss the NYSDFS complaint. 12 Arizona Attorney General Mark Brnovich, American Banker, September 5, 2017, p. 1. 13 See supra note 7 at 65. 14 https://www.cnbc.com/2019/01/29/fintech-companies-raised-a-re - cord-39point6-billion-in-2018.html 1 5 https://www.gfsc.gg/commission/innovations/innovation-soundbox/ gfin. 16 Legislation was proposed in 2019 in Illinois (HB 2825), Kentucky (HB 386, relating to insurance products), Nebraska (LR 94), New York (A 2213), North Carolina (H 1013), South Carolina (SB 738), Texas (SB 860), Utah (HB 378), Vermont (amendment to S 131, re - lating to insurance products), West Virginia (SB 583), and Wyoming (HB 57). 1 7 https://www.consumerfinance.gov/policy-compliance/notice-op - portunities-comment/archive-closed/policy-no-action-letters-and- bcfp-product-sandbox/. 18 https://www.dcregs.dc.gov/Common/DCR/Issues/IssueCategoryL- ist.aspx?CategoryID=8&IssueID=748%20. 19 Id. 20 See supra note 7 at 168. 21 A.R.S. §§ 41-5601 to 41-5612. 22 Participants can request from the Attorney General an extension of up to one year for the purpose of pursuing a license or other authorization. A.R.S. § 41-5608. 23 Legislation adopted during the 2019 legislative session, HB 2177, making technical improvements to the fintech regulatory sandbox program, allows participants to seek from the Attorney General Continued from page 15