Rep. Norm Thurston — Voting Record

Bill

Number

S.B. 182 Second Substitute (2022GS)

Sponsor

Sen. Cullimore, K. A.

Final action

Governor Signed 3/24/2022

Outcome

Became law — signed by Gov. Spencer J. Cox

Summary

What it does

• This bill:
• defines terms;
• establishes a fee for the provision of custodial services of digital assets;
• establishes jurisdiction over banks providing custodial services of digital assets;
• classifies digital assets;
• describes the requirements for:
• perfection of digital assets; and
• financing statements for digital assets;
• authorizes banks to provide custodial services of digital assets;
• describes the conditions and terms under which a bank may provide custodial services for a digital asset;
• establishes the terms under which a person has rights in virtual currency; and
• describes the conditions required for a person to exercise control of virtual currency.

Every vote on this bill

Bill text

DIGITAL ASSET AMENDMENTS
GENERAL SESSION
STATE OF UTAH
Chief Sponsor: Kirk A. Cullimore
House Sponsor: 
____________
LONG TITLE
General Description:
This bill establishes a framework for the regulation of digital assets.
Highlighted Provisions:
This bill:
▸ defines terms;
▸ establishes a fee for the provision of custodial services of digital assets;
▸ establishes jurisdiction over banks providing custodial services of digital assets;
▸ classifies digital assets;
▸ describes the requirements for:
• perfection of digital assets; and
• financing statements for digital assets;
▸ authorizes banks to provide custodial services of digital assets;
▸ describes the conditions and terms under which a bank may provide custodial
services for a digital asset;
▸ establishes the terms under which a person has rights in virtual currency; and
▸ describes the conditions required for a person to exercise control of virtual currency.
Money Appropriated in this Bill:
None
Other Special Clauses:
None
Utah Code Sections Affected:
AMENDS:
7-1-401
, as last amended by Laws of Utah 2018, Third Special Session, Chapter 1
7-1-501
, as last amended by Laws of Utah 2016, Chapter 288
7-3-10
, as last amended by Laws of Utah 2018, Chapter 281
ENACTS:
7-27-101
, Utah Code Annotated 1953
7-27-102
, Utah Code Annotated 1953
7-27-103
, Utah Code Annotated 1953
7-27-104
, Utah Code Annotated 1953
7-27-201
, Utah Code Annotated 1953
7-27-202
, Utah Code Annotated 1953
7-27-203
, Utah Code Annotated 1953
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 
7-1-401
 is amended to read:
7-1-401.
Fees payable to commissioner.
(1) Except for an out-of-state depository institution with a branch in Utah, a depository
institution under the jurisdiction of the department shall pay an annual fee:
(a) computed by averaging the total assets of the depository institution shown on each
quarterly report of condition for the depository institution for the calendar year immediately
preceding the date on which the annual fee is due under Section 
7-1-402
; and
(b) at the following rates:
(i) on the first $5,000,000 of these assets, the greater of:
(A) 65 cents per $1,000; or
(B) $500;
(ii) on the next $10,000,000 of these assets, 35 cents per $1,000;
(iii) on the next $35,000,000 of these assets, 15 cents per $1,000;
(iv) on the next $50,000,000 of these assets, 12 cents per $1,000;
(v) on the next $200,000,000 of these assets, 10 cents per $1,000;
(vi) on the next $300,000,000 of these assets, 6 cents per $1,000; and
(vii) on all amounts over $600,000,000 of these assets, 2 cents per $1,000.
(2) A financial institution with a trust department shall pay a fee determined in
accordance with Subsection (7) for each examination of the trust department by a state
examiner.
(3) Notwithstanding Subsection (1), a credit union in [
its
] 
the credit union's
 first year of
operation shall pay a basic fee of $25 instead of the fee required under Subsection (1).
(4) A trust company that is not a depository institution or a subsidiary of a depository
institution holding company shall pay:
(a) an annual fee of $500; and
(b) an additional fee determined in accordance with Subsection (7) for each
examination by a state examiner.
(5) Any person or institution under the jurisdiction of the department that does not pay
a fee under Subsections (1) through (4) shall pay:
(a) an annual fee of $200; and
(b) an additional fee determined in accordance with Subsection (7) for each
examination by a state examiner.
(6) A person filing an application or request under Section 
7-1-503
, 
7-1-702
, 
7-1-703
,
7-1-704
, 
7-1-713
, 
7-5-3
, or 
7-18a-202
 shall pay:
(a) (i) a filing fee of $500 if on the day on which the application or request is filed the
person:
(A) is a person with authority to transact business as a depository institution, a trust
company, or any other person described in Section 
7-1-501
 as being subject to the jurisdiction
of the department; and
(B) has total assets in an amount less than $5,000,000; or
(ii) a filing fee of $2,500 for any person not described in Subsection (6)(a)(i); and
(b) all reasonable expenses incurred in processing the application.
(7) (a) Per diem assessments for an examination shall be calculated at the rate of $55
per hour:
(i) for each examiner; and
(ii) per hour worked.
(b) For an examination of a branch or office of a financial institution located outside of
this state, in addition to the per diem assessment under this Subsection (7), the institution shall
pay all reasonable travel, lodging, and other expenses incurred by each examiner while
conducting the examination.
(8) In addition to a fee under Subsection (5), a person registering under Section
7-23-201
 or 
7-24-201
 shall pay an original registration fee of $300.
(9) In addition to a fee under Subsection (5), a person applying for licensure under
Chapter 25, Money Transmitter Act, shall pay an original license fee of $300.
(10) A financial institution which provides custodial services under Chapter 27, Digital
Asset Management Act, shall pay:
(a) an annual fee of $200; and
(b) an additional fee of 2 cents per $1,000,000 of digital assets for which the financial
institution provides custodial services.
Section 2. Section 
7-1-501
 is amended to read:
7-1-501.
Institutions and persons subject to jurisdiction of department.
(1) As provided in this title and the rules of the department, the persons and institutions
described in Subsection (2) are subject to:
(a) the jurisdiction of the department; and
(b) supervision and examination by the department.
(2) Subsection (1) applies to:
(a) a depository institution chartered under the laws of this state, including any
out-of-state branch of the depository institution;
(b) a Utah depository institution chartered by the federal government, but only to the
extent the application of this title is authorized by:
(i) federal law; or
(ii) the appropriate federal regulatory agency;
(c) a Utah branch of an out-of-state depository institution chartered under the laws of
another state;
(d) a Utah branch of an out-of-state depository institution chartered by the federal
government, but only to the extent the application of this title is authorized by:
(i) federal law; or
(ii) the appropriate federal regulatory agency;
(e) a service corporation or service organization, including a credit union service
organization as defined in Section 
7-9-3
;
(f) a trust company;
(g) an escrow company;
(h) a person or institution engaged in this state in the business of:
(i) guaranteeing or insuring deposits, savings accounts, share accounts, or other
accounts in depository institutions;
(ii) operating a loan production office for:
(A) a Utah depository institution;
(B) an out-of-state depository institution; or
(C) a foreign depository institution;
(iii) a check casher or deferred deposit lender, as defined in Section 
7-23-102
;
(iv) a title lender, as defined in Section 
7-24-102
; or
(v) money transmission, as defined in Section 
7-25-102
;
(i) a corporation or other business entity owning or controlling an institution subject to
the jurisdiction of the department;
(j) subject to Subsection (3), a technology service provider that provides services to a
depository institution subject to the jurisdiction of the department;
(k) a subsidiary or affiliate of an institution subject to the jurisdiction of the
department; [
and
]
(l) any person or institution that, with or without authority to do so, transacts business
as, or holds itself out as being, a depository institution, trust company, or any other person or
institution described in this section as being subject to the jurisdiction of the department[
.
]
; and
(m) a financial institution providing custodial services, as defined in Section 
7-27-101
.
(3) A technology service provider is subject to regulation and examination by the
commissioner to the same extent as if the service or activity of the technology service provider
were being performed by the depository institution itself.
Section 3. Section 
7-3-10
 is amended to read:
7-3-10.
Organization -- Powers, rights, and privileges of banking corporation --
Other business activities.
(1) A bank chartered under this chapter shall be:
(a) a domestic corporation under Title 16, Chapter 10a, Utah Revised Business
Corporation Act; or
(b) subject to Section 
7-1-810
, including the requirement that the bank be an S
Corporation immediately before becoming a limited liability company, a limited liability
company created under Title 48, Chapter 3a, Utah Revised Uniform Limited Liability
Company Act.
(2) A bank has all the rights, privileges, and powers necessary or incidental to carrying
on the business of banking in addition to the powers granted:
(a) if the bank is a corporation, under Title 16, Chapter 10a, Utah Revised Business
Corporation Act; or
(b) subject to Section 
7-1-810
, if the bank is a limited liability company, under Title
48, Chapter 3a, Utah Revised Uniform Limited Liability Company Act.
(3) The commissioner may, by rule or order, determine that necessary or incidental
rights, privileges, and powers include:
(a) the rights, privileges, and powers held by national banks; or
(b) other business activities so long as the commissioner's determination is not
inconsistent with the rules, regulations, or other actions of the board of governors of the
Federal Reserve System under Section 4(c)(8) of the Bank Holding Company Act of 1956, 12
U.S.C. Sec. 1843(c)(8).
(4) The commissioner shall implement this section in a manner consistent with the
purposes set forth in Section 
7-1-102
.
(5) A bank may exercise the powers described in Chapter 27, Digital Asset
Management Act.
Section 4. Section 
7-27-101
 is enacted to read:
CHAPTER 27. DIGITAL ASSET MANAGEMENT ACT
Part 1. General Provisions
 7-27-101.
Definitions.
As used in this chapter:
(1) "Control," notwithstanding Section 
7-1-103
, and with respect to a digital consumer
asset or a digital security, means:
(a) a secured party, or an agent, custodian, fiduciary, or trustee of the secured party, has
the exclusive legal authority to conduct a transaction relating to the digital consumer asset or
the digital security, including by means of a private key or the use of a multi-signature
arrangement the secured party authorizes; or
(b) the secured party has created a smart contract which gives the secured party
exclusive legal authority to conduct a transaction relating to a digital consumer asset or the
digital security.
(2) (a) "Custodial services" means the safekeeping and management of customer digital
assets through the exercise of fiduciary and trust powers under this part.
(b) "Custodial services" includes fund administration and the execution of customer
instructions.
(3) "Debtor" means a person obligated on a digital asset.
(4) (a) "Digital asset" means a representation of economic, proprietary, or access rights
that is stored in a computer readable format.
(b) A "digital asset" is:
(i) a digital consumer asset;
(ii) a digital security; or
(iii) a virtual currency.
(5) (a) "Digital consumer asset" means a digital asset that is used or bought primarily
for consumptive, personal, or household purposes.
(b) "Digital consumer asset" includes an open blockchain token constituting intangible
personal property.
(c) "Digital consumer asset" does not include:
(i) a digital security; or
(ii) a virtual currency.
(6) (a) "Digital security" means a digital asset which constitutes a security, as that term
is defined in Section 
70A-8-101
.
(b) "Digital security" does not include:
(i) a digital consumer asset; or
(ii) a virtual currency.
(7) "Multi-signature arrangement" means a system of access control relating to a digital
asset for the purposes of preventing unauthorized transactions relating to the asset, in which
two or more private keys are required to conduct a transaction.
(8) (a) "Possession" means the ability to exclude others from the use of a digital asset.
(b) "Possession" includes:
(i) the use of:
(A) a private key;
(B) a multi-signature arrangement exclusive to the secured party; or
(C) a smart contract; and
(ii) delivery of certified digital securities.
(9) "Private key" means a unique element of cryptographic data, which is:
(a) held by a person;
(b) paired with a unique, publicly available element of cryptographic data; and
(c) associated with an algorithm that is necessary to carry out an encryption or
decryption required to execute a transaction.
(10) "Smart contract" means an automated transaction, as that term is defined in
Section 
46-4-102
, which is comprised of code, script, or programming language that executes
the terms of an agreement, and which may include taking custody of and transferring a digital
asset, or issuing executable instructions for these actions, based on the occurrence or
nonoccurrence of specified conditions.
(11) (a) "Virtual currency" means a digital asset that is:
(i) used as:
(A) a medium of exchange;
(B) a unit of account; or
(C) a store of value; and
(ii) not recognized as legal tender by the United States government.
(b) "Virtual currency" does not include:
(i) a transaction in which a merchant grants, as part of an affinity or rewards program,
value that cannot be taken from or exchanged with the merchant for legal tender or bank credit;
(ii) a digital representation of value that a publisher issues for use solely within an
online game, game platform, or family of games that the publisher sells or offers on the same
game platform;
(iii) a digital consumer asset; or
(iv) a digital security.
Section 5. Section 
7-27-102
 is enacted to read:
 7-27-102.
Classification of digital assets.
(1) Digital consumer assets are intangible personal property and shall be considered
general intangibles, as that term is defined in Section 
70A-9a-102
 for purposes of this chapter,
and Title 70A, Chapter 9a, Uniform Commercial Code - Secured Transactions.
(2) Digital securities are intangible personal property and shall be considered securities
and investment property for purposes of this chapter, Title 70A, Chapter 8, Uniform
Commercial Code - Investment Securities, and Title 70A, Chapter 9a, Uniform Commercial
Code - Secured Transactions.
(3) Virtual currency is intangible personal property and, notwithstanding Subsection
70A-1a-201
(2), shall be considered money for purposes of this chapter and Title 70A, Chapter
9a, Uniform Commercial Code - Secured Transactions.
(4) (a) A digital asset may be treated as a financial asset under Section 
70A-8-101
,
pursuant to a written agreement with the owner of the digital asset.
(b) If treated as a financial asset, a digital asset is intangible personal property.
(5) A bank providing custodial services under Section 
7-27-104
 shall be considered to
meet the requirements of a securities intermediary as that term is defined in Section 
70A-8-101
.
(6) Classification of digital assets under this section may not be construed to apply to
any other asset.
Section 6. Section 
7-27-103
 is enacted to read:
 7-27-103.
Perfection of security interests in digital assets -- Financing statements.
(1) (a) Notwithstanding Section 
70A-9a-310
, perfection of a security interest in a
digital asset may be achieved through control.
(b) A security interest held by a secured party that has control of the digital asset has
priority over a security interest held by a secured party that does not have control of the digital
asset.
(2) Before a secured party may take control of a digital asset, the secured party shall
enter into a control agreement with the debtor and all other necessary parties.
(3) A control agreement for a digital asset may:
(a) name the parties subject to the agreement;
(b) describe the digital asset subject to the agreement; and
(c) set the terms under which a secured party may pledge the secured party's security
interest in the digital asset as collateral for another transaction.
(4) If the debtor is located in Utah, the secured party may file a financing statement
with the Division of Corporations and Commercial Code, created in Section 
13-1a-1
, to perfect
the secured party's security interest in:
(a) the digital asset; or
(b) the proceeds from a digital asset if perfected in accordance with Section
70A-9a-315
.
(5) Notwithstanding any other provision of law, including Title 70A, Uniform
Commercial Code, a transferee takes a digital asset free of any security interest:
(a) if the transferee took the asset for value six or more months ago;
(b) the transferee never received notice of an adverse claim; and
(c) the transferee does not have actual notice of an adverse claim.
(6) Subsection (5) only applies to a security interest in a digital asset perfected by a
method other than control.
(7) Perfection by control creates a possessory security interest and does not require
physical possession.
(8) For purposes of Title 70A, Uniform Commercial Code, and this part, a digital asset
is located in the state if:
(a) a Utah custodian possesses or controls the digital asset;
(b) the debtor or secured party is physically located in the state; or
(c) the debtor or secured party is incorporated or organized in the state.
(9) Evidence of location in the state for purposes of Subsection (8) can be found in:
(a) a security agreement accompanying a possessory security interest or other secured
transaction that describes the possessory nature of the private key of a digital asset; and
(b) the choice of law in a security agreement.
Section 7. Section 
7-27-104
 is enacted to read:
 7-27-104.
Custodial services of digital assets.
(1) (a) A bank may provide custodial services consistent with this section upon
providing 60 days written notice to the commissioner.
(b) A bank that elects to provide custodial services under this section shall comply with
the provisions of this section.
(2) A bank may serve as a qualified custodian of a digital asset, as specified by the
United States Securities and Exchange Commission defined in 17 C.F.R. Sec. 275.206(4)-2.
(3) In performing custodial services for a digital asset, a bank shall:
(a) implement all accounting, account statement, internal control, notice, and other
standards specified by applicable state or federal law and rules for custodial services;
(b) maintain information technology best practices relating to digital assets held in
custody;
(c) fully comply with applicable federal and anti-money laundering, customer
identification, and beneficial ownership requirements; and
(d) take other actions necessary to carry out this section, which may include:
(i) exercising fiduciary powers similar to those permitted to national banks; and
(ii) ensuring compliance with federal law governing digital assets classified as
commodities.
(4) The commissioner may by rule made in accordance with Title 63G, Chapter 3, Utah
Administrative Rulemaking Act, specify required best practices described in Subsection (3)(b).
(5) (a) If a bank takes custody of a digital asset under this section, the digital asset is
not a depository liability or asset of the bank.
(b) A bank, or a bank's subsidiary, may register as an investment adviser, investment
company, or broker dealer as necessary.
(c) A bank shall maintain control over a digital asset while the bank has custody of that
digital asset.
(6) A customer shall elect, with respect to each of the digital assets of the customer
over which the bank maintains custody, a written agreement stating whether the bank's custody
is:
(a) under bailment as a nonfungible or fungible asset; or
(b) under bailment pursuant to Subsection (8).
(7) Digital assets held under bailment pursuant to Subsection (6)(a) shall be strictly
segregated from other assets.
(8) (a) A bank may undertake transactions with a customer's digital asset if:
(i) the customer elects for a bank to hold custody under bailment in Subsection (6)(b);
and
(ii) the customer provides instructions for the bank to undertake transactions with the
customer's digital asset.
(b) A bank maintains possession or control of a digital asset as described in Subsection
(6) if the bank enters into an agreement with the counterparty to a transaction which contains a
time for return of the asset.
(c) A bank shall not be liable for any loss suffered with respect to a transaction under
this subsection, except for liability consistent with fiduciary and trust powers as a custodian.
(9) A bank and a customer shall agree in writing to:
(a) the source code version the bank will use for each digital asset; and
(b) the treatment of each asset under Title 70A, Uniform Commercial Code.
(10) Any ambiguity in Subsection (9) shall be resolved in favor of the customer.
(11) A bank shall provide written notice to the customer, and require written
acknowledgment from the customer:
(a) of any non-emergency updates, including the material source code updates, relating
to any of the customer's digital assets of which the bank holds custody;
(b) of the heightened risk of loss from transactions under Subsection (8);
(c) that some risk of loss as a pro rata creditor exists as the result of custody as a
fungible asset or custody under Subsection (6)(b);
(d) that custody under Subsection (6)(b) may not result in the segregation of the
customer's digital assets from other customer assets; and
(e) that the bank is not liable for losses suffered under Subsection (8), except for
liability consistent with the bank's fiduciary and trust responsibilities.
(12) (a) A bank and a customer shall agree in writing to:
(i) a time period within which the bank must return to the customer a digital asset the
bank holds in custody; and
(ii) other material terms.
(b) If a customer makes an election under Subsection (6)(b), the bank and the customer
may also agree in writing to the form in which the bank shall return the digital asset.
(13) (a) All ancillary or subsidiary proceeds relating to digital assets held in custody
under this section shall accrue to the benefit of the customer, except as specified by a written
agreement with the customer, except as specified by a written agreement between the bank and
the customer.
(b) The bank may elect not to collect certain ancillary or subsidiary proceeds, as long
as the bank's election not to collect is disclosed in writing.
(c) A customer who makes an election under Subsection (6)(a) may withdraw the
digital asset in a form that permits the collection of the ancillary or subsidiary proceeds.
(14) (a) A bank may not authorize or permit rehypothecation of digital assets.
(b) A bank may not engage in any activity to use or exercise discretionary authority
relating to a digital asset except activity the bank engages in based on customer instructions.
(15) A bank may not take any action which would likely impair the solvency or the
safety and soundness of the bank.
(16) The commissioner shall make rules, in accordance with Title 63G, Chapter 3,
Administrative Rulemaking Act, and in consideration of the nature of customary banking
custodial services, to determine whether a bank's actions would impair the solvency or the
safety of the bank in violation of Subsection (15).
Section 8. Section 
7-27-201
 is enacted to read:
Part 2. Virtual Currency
 7-27-201.
Definitions.
(1) "Adverse claim" means a claim that a claimant has a property interest in a virtual
currency and that it is a violation of the rights of the claimant for another person to hold,
transfer, or deal with the virtual currency.
(2) "Qualifying purchaser" means a purchaser that obtains control of a virtual currency
for value and without notice of an adverse claim.
Section 9. Section 
7-27-202
 is enacted to read:
 7-27-202.
Rights in virtual currency.
(1) A purchaser of a virtual currency acquires all rights in the virtual currency that the
transferor had or had power to transfer.
(2) A purchaser of a limited interest in a virtual currency acquires rights only to the
extent of the interest purchased.
(3) In addition to acquiring the rights of a purchaser, a qualifying purchaser acquires
the purchaser's rights in a virtual currency free of any adverse claim.
(4) An action based on an adverse claim to a virtual currency, whether framed in
conversion, replevin, constructive trust, equitable lien, or another theory, may not be asserted
against a qualifying purchaser.
(5) A person has notice of an adverse claim if:
(a) the person has actual knowledge of the adverse claim; or
(b) the person is aware of facts sufficient to indicate that there is a significant
possibility that the adverse claim exists and deliberately avoids information that would
establish the existence of the adverse claim.
(6) The filing of a financing statement with the Division of Corporations and
Commercial Code, created in Section 
13-1a-1
, is not sufficient to serve as notice of an adverse
claim to a purchaser of a virtual currency.
Section 10. Section 
7-27-203
 is enacted to read:
 7-27-203.
Control of virtual currency.
(1) A person has control of a virtual currency if:
(a) the virtual currency, or the system in which the virtual currency is recorded, if any,
gives the person:
(i) the power to derive substantially all the benefit from the virtual currency;
(ii) subject to Subsection (2), the exclusive power to prevent others from deriving
substantially all the benefit from the virtual currency; and
(iii) subject to Subsection (2), the exclusive power to transfer control of the virtual
currency to another person or to cause another person to obtain control of a virtual currency
that derives from the virtual currency; and
(b) the virtual currency, a record attached to or logically associated with the virtual
currency, or the system in which the virtual currency is recorded, if any, enables the person to
readily identify the person as having the powers described in Subsection (1)(a).
(2) A power described in Subsection (1)(a)(ii) or (1)(a)(iii) is exclusive even if:
(a) the virtual currency or the system in which the virtual currency is recorded, if any,
limits the use to which the virtual currency may be put or has protocols to result in a transfer of
control; and
(b) the person has agreed to share the power with another person.
(3) For the purposes of Subsection (1)(b), a person may be identified through any
method, including:
(a) name;
(b) identifying number;
(c) cryptographic key;
(d) office; or
(e) account number.