Written by Eamonn K. MoranAs we previously reported, Arizona began accepting applications in August for its regulatory sandbox that “enables a participant to obtain limited access to Arizona’s market to test innovative financial products or services without first obtaining full state licensure or other authorization that otherwise may be required.” On October 11, 2018, Arizona Attorney General Mark Brnovich announced that the first Arizona Fintech Sandbox participant is Omni Mobile Inc., a mobile payment platform “aiming to test cheaper and faster payment transfers through its centralized wallet infrastructure.” Omni Mobile Inc., will test its product by processing guest payments at Westward Look Wyndham Grand Resort and Spa in Tucson. All Arizona-resident guests will receive a disclosure agreement (regarding the company’s participation in the sandbox), an explanation of the test nature of the product, a Privacy Notice, and the ability to opt out of any information sharing with Wyndham. Omni Mobile Inc. will have two years from the date of its entrance into Arizona's Sandbox to test its product. Also in October, Attorney General Brnovich announced a new cooperation agreement with Taiwan’s financial regulator, the Financial Supervisory Commission (“FSC”), designed to increase the reach of Arizona’s FinTech Sandbox. In September, the Attorney General’s Office finalized a Memorandum of Understanding (MOU) with the FSC to establish a cooperation structure between Arizona’s program and the FSC’s program in Taiwan. According to the Attorney General’s Office, the goal is to “create an information-sharing arrangement between the regulators that may result in the opportunity for businesses to develop/test eligible FinTech (financial technology) products in both markets.” Earlier this month, Attorney General Brnovich announced the addition of Grain Technology, Inc. and Sweetbridge NFP, Ltd. to the Arizona FinTech Sandbox, bringing the total number of participants to three since the program was launched. Grain Technology, Inc., based in New York, will “test a savings and credit product in Arizona using proprietary technology to offer consumers customized savings plans and credit opportunities.” Arizona consumers participating in the program will obtain access to a small line of credit aimed primarily at providing overdraft protection for bank accounts. According to the press release, annual percentage rates (APR) for loans obtained through this line of credit may be as low as 12% for consumers who agree to follow a recommended repayment plan calculated using Grain’s technology (a standard APR of 15.99% will apply for those who adopt a different repayment plan). Grain intends for loans and payments occurring through this line of credit to be reported to major credit reporting agencies to enable consumers to build their credit profiles. Sweetbridge NFP, Ltd., a Scottsdale-based international nonprofit building blockchain protocols for supply chains and commerce, “will test a lending product using proprietary blockchain technology with an APR cap of 20%.” At these rates, Sweetbridge’s product will allow consumers to obtain credit at up to 1/10th the cost allowed under Arizona law. Once accepted into the program, the companies are required to notify consumers that they are part of Arizona’s FinTech Sandbox before testing their product/services. The Arizona Attorney General’s Office also states that it is currently reviewing “several additional applications from established businesses and startups that cover a diverse variety of money transmission and lending products.” We also note that the Consumer Financial Protection Bureau (CFPB or Bureau) issued a proposal in September 2018 to create a Disclosure Sandbox through its revised “Policy to Encourage Trial Disclosure Programs,” which sets forth the Bureau’s standards and procedures for exempting individual companies, on a case-by-case basis, from applicable federal disclosure requirements to allow those companies to test trial disclosures. The Bureau states that the proposed revisions have the following goals: (1) reducing the application burden and review time frame; (2) increasing guidance regarding the testing time frame; (3) specifying procedures for extensions of successful trial disclosure programs; and (4) providing for coordination with existing or future programs offered by other regulators designed to facilitate innovation. The Bureau has expressed interest in entering into agreements with State authorities designed to improve upon existing disclosure requirements by allowing covered persons to test disclosures within the state sandbox, but states that such agreements would need to include certain specified features.
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