Report Title:

Financial institutions

 

Description:

Eliminates obsolete requirements and improves procedures for the licensing and regulation of financial institutions.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

1313

TWENTY-FOURTH LEGISLATURE, 2007

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO THE CODE OF FINANCIAL INSTITUTIONS.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1. Section 412:2-306, Hawaii Revised Statutes, is amended by amending the title to read as follows:

     "§412:2-306  Removal or prohibition of institution-affiliated party[.]; grounds."

     SECTION 2.  Section 412:3-112, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Every Hawaii financial institution, at its own expense, shall file the following written reports with the commissioner:

(1)  An independent audit report of its financial statements as of the close of its fiscal year shall be filed by a Hawaii financial institution, other than a nondepository financial services loan company or credit union, within one hundred twenty days of the close of its fiscal year; provided that the commissioner for good cause shown may grant a reasonable extension of not more than forty-five days. For depository institutions, the independent audit report specified in this paragraph shall comply with the requirements for annual reports under section 36 of the Federal Deposit Insurance Act (12 U.S.C. §1831m), as amended; provided that for a depository institution which, in any fiscal year, is a small depository institution within the meaning of section 36(j) of the Federal Deposit Insurance Act, or any implementing regulations thereunder, the independent audit report specified in this paragraph shall comply with the requirements for annual independent audits of financial statements under section 36(d).  For trust companies, the independent audit report shall contain audited financial statements prepared in accordance with generally accepted accounting principles and shall be based on an audit performed in accordance with generally accepted auditing standards, the independent auditor's report on the fair presentation of the financial statements and any qualification to the report, any management letter, and any other report.  Hawaii financial institutions that are subsidiaries of a financial institution holding company may satisfy the requirements of this paragraph by filing an independent audit report of the financial institution holding company;

(2)  Unaudited financial statements as of the following dates shall be filed by a Hawaii financial institution within thirty days of the date of the financial statement as follows:

(A)  For a trust company or credit union, the statements shall be filed as of June 30 and December 31 of each year;

(B)  For a Hawaii financial institution, other than a nondepository financial services loan company, trust company, or credit union, the statements shall be filed as of March 31, June 30, September 30, and December 31 of each year; and

(C)  For a nondepository financial services loan company, the statement shall be filed as of the last day of the sixth month and the last day of the twelfth month of each fiscal or calendar year;

provided that the commissioner for good cause shown may grant a reasonable extension of not more than forty-five days.

     The reports shall be in a form prescribed by the commissioner and prepared in accordance with section 412:3-108.  In the alternative, the institution may file the Call Reports, Consolidated Reports of Condition and Reports of Income, or Thrift Financial Reports as of those dates which are submitted to the appropriate federal regulatory agency of the institution;

(3)  A notice of any change in the office of the person who has primary responsibility for the operation and management of the financial institution shall be filed by a Hawaii financial institution within ten days of the change.  The notice shall specify the name and address of the person, who shall be designated that institution's "chief executive officer"; [and]

(4)  A notice of any security breach, as defined by section 487N-1, following discovery or notification of the breach in the security of personal information of individuals whose personal information was, or is reasonably believed to have been, acquired by an unauthorized person.  The notice shall be made without unreasonable delay and shall be consistent with any measures necessary to determine the scope of the breach, and restore the reasonable integrity, security, and confidentiality of the data system; and

    [(4)] (5)  Any other reports and other information that the commissioner may require with respect to any financial institution at the times and in the form as the commissioner deems appropriate for the proper supervision and regulation of the institution.

     Each report shall be signed by an officer authorized by the institution's board of directors to sign the report, and shall contain a declaration of the officer's authority and a statement that the report is true and correct."

     SECTION 3.  Section 412:3-201, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  The application shall contain the following information, unless waived by the commissioner:

(1)  The proposed name of the financial institution;

(2)  The specific location of its principal office, branches, agencies, and support facilities, and any lease agreements for such principal office, branches, agencies, and support facilities;

(3)  Financial statements, employment history, education, management experience, and other biographical information for all applicants, organizers, proposed executive officers, and directors of the financial institution;

(4)  The name and address of each proposed subscriber of capital stock in the financial institution;

(5)  The proposed capital plan, if capital has not been fully raised, that shall include:

(A)  A description of any stock options, debentures, and stock warrants offered or proposed to be offered to any person; and

(B)  Any stock option plan;

(6)  The proposed capital stock solicitation plan, if subscriptions for capital stock will be solicited, that shall include:

         (A)  Information regarding the solicitation plan by which the applicant and the proposed financial institution propose to conduct the solicitation of subscribers;

         (B)  Information regarding the classes of shares, respective quantities of shares for each class, and the subscription price of each class of stock;

         (C)  A specimen subscription contract or purchase agreement and other related documents to be executed by subscribers;

         (D)  Any underwriting agreement or other agreement for the purchase or distribution of the capital stock;

         (E)  Any escrow agreements or other agreement for the holding of the purchase proceeds of the capital stock;

         (F)  Proposed advertising materials;

         (G)  If the offer and sale of the capital stock is subject to the Securities Act of 1933 and regulations thereunder, a copy of the registration statement most recently filed with the federal Securities and Exchange Commission or any other notices or other filings in lieu of registration required or permitted by that Act or regulation and any subsequent amendments thereto;

         (H)  If the offer and sale of the capital stock is subject to chapter 485, a copy of the registration or qualification statement most recently filed with the commissioner of securities and any subsequent amendments thereto; and

         (I)  If the offer and sale of the capital stock is not subject to the Securities Act of 1933 or chapter 485, whether exempted by law or regulation or otherwise, a copy of the most recent version of any prospectus, offering memorandum, offering circular, or other offering document proposed to be delivered to prospective subscribers to the capital stock, and any subsequent amendments thereto;

     (7)  The financial institution's proposed policies concerning loans and concentrations of credit, asset and liability management, conflicts of interest, investments, community reinvestment, bank secrecy, anti-money laundering, and customer identification;

     (8)  The financial institution's business plan for the first three years of operations;

     (9)  Financial projections regarding the financial institution's profitability for the first three years of operations;

    (10)  A market study or letters of support evidencing the need and advisability of granting authority to organize a financial institution;

    (11)  Except for trust companies, evidence that the financial institution has applied for federal deposit insurance from the Federal Deposit Insurance Corporation or other appropriate federal deposit insurer;

    (12)  Evidence that the financial institution has applied for fidelity bonds and other insurance appropriate to its size and operations, including the types and the amounts of coverage, and the respective deductible amounts, from insurance companies licensed in the United States;

    (13)  Evidence that the proposed directors and executive officers of the financial institution have the financial ability, responsibility, and experience to engage in the business of a financial institution;

    (14)  The employment agreements for all proposed executive officers of the financial institution;

    (15)  The proposed articles of incorporation and bylaws of the financial institution;

    (16)  A description of any existing or proposed service corporation, affiliate, or subsidiary; [and]

    (17)  Information for each of the proposed directors and executive officers of the financial institution, accompanied by the appropriate payment of the applicable fee for each criminal history record check to be conducted in accordance with section 846-2.7; and

   [(17)] (18)  Any other information that the commissioner may require."

     SECTION 4.  Section 412:3-301, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  The application shall contain the following information, unless waived by the commissioner:

(1)  The proposed name of the nondepository financial services loan company, the location of its principal office, and any lease agreements for such principal office;

(2)  Any intended or existing affiliates, subsidiaries, and holding company of the proposed nondepository financial services loan company and the extent and nature of the holding company's control over the operations of the proposed nondepository financial services loan company;

(3)  A business plan which shall contain the following:

(A)  A written description of the company's proposed financial products;

(B)  A written statement which explains how the scope of the proposed business complies with article 9 and why any existing lines of business do not conflict with the provisions of article 9;

(C)  A written description of the company's proposed plan of marketing its products, whether through affiliates, subsidiaries, service corporations, or holding company;

(D)  Financial projections regarding the nondepository financial services loan company's profitability; and

(E)  Any and all contractual arrangements which are intended to be executed between the nondepository financial services loan company and its holding company, affiliates, and subsidiaries;

(4)  Financial statements, employment history, education, management experience, and other biographical information for the proposed executive officers and directors of the nondepository financial services loan company and its holding company, if any;

(5)  Proposed policies regarding loans, investments, operations, accounting, recordkeeping, and compliance with applicable federal and state consumer laws;

(6)  The name and address of each proposed subscriber of capital stock in the nondepository financial services loan company or the majority shareholders in any holding company;

(7)  A copy of the nondepository financial services loan company's articles of incorporation and bylaws; [and]

(8)  Information for each of the proposed directors and executive officers of the nondepository financial services loan company, accompanied by the appropriate payment of the applicable fee for each criminal history record check to be conducted in accordance with section 846-2.7; and

    [(8)] (9)  Any other information that the commissioner may require."

     SECTION 5.  Section 412:8-103, Hawaii Revised Statutes, is amended to read as follows:

     "§412:8-103  Authority to serve as trustee.  Unless chartered as a trust company under this chapter or otherwise specifically authorized by the laws of this State, no person[, except an individual acting as a co-trustee,] shall hold itself out to the general public as being available to serve as a trustee or trust company, whether or not for compensation.  No person shall use the term "trust company" as part of its name unless chartered as a trust company pursuant to this chapter."

     SECTION 6.  Section 412:9-100, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

     ""Fixed-rate loan" means any loan or extension of credit on  which the interest rate remains constant to maturity.

     "Step-rate loan" means a loan or extension of credit on which the interest rate will increase or decrease to specified rates at specified times or intervals as established on the date the loan or extension of credit is originated, and the increase or decrease in interest rates and the times or intervals for the changes in interest rate are not subject to change and not dependent upon any contingent factors.  

     "Variable rate loan" means any loan or extension of credit that is not a fixed-rate loan or a step-rate loan."

     SECTION 7.  Section 412:10-103, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  The application shall contain the following information, unless waived by the commissioner:

(1)  The proposed name of the credit union;

(2)  Proposed lease agreements for its principal office;

(3)  The territory in which the proposed credit union will operate;

(4)  A business plan;

(5)  Employment history, education, management experience, and other biographical information for all original chartering applicants, and proposed executive officers of the credit union;

(6)  Proposed policies regarding loans, investments, operations, accounting, recordkeeping, and applicable federal and state consumer laws; [and]

(7)  Information for each of the original chartering applicants and proposed executive officers of the credit union, accompanied by the appropriate payment of the applicable fee for each criminal history record check to be conducted in accordance with section 846-2.7; and

    [(7)] (8)  Any other information that the commissioner may require."

     SECTION 8.  Section 412:11-102, Hawaii Revised Statutes, is amended to read as follows:

     "§412:11-102  Examination of financial institution holding company.  The commissioner may from time to time conduct such reasonable examinations of any financial institution holding company as may be necessary or appropriate to determine whether the condition or activities of the company are jeopardizing the safety or soundness of the operations of its financial institution subsidiary.  [The commissioner shall not conduct such examinations of holding companies unless the commissioner has good cause to believe that a holding company is experiencing financial adversity which will have a material negative impact on the safety and soundness of its financial institution subsidiary.]  The cost of such examinations shall be assessed against and paid by the financial institution holding company in the same manner as financial institutions under section 412:2-105."

     SECTION 9.  Section 412:13-222, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  No foreign bank that is licensed to establish and maintain a Hawaii state branch, Hawaii state agency, or Hawaii representative office shall relocate any Hawaii office without the commissioner's prior written approval[.]; provided that approval shall not be required if the relocation will be less than one mile from the foreign bank's present place of business, the foreign bank gives the commissioner written notice at least twenty days prior to the move, the type of business carried on at the new place of business will be the same as at the present place of business, and there will be no financial involvement in the relocation by a director, executive officer, or principal shareholder, or a related interest of any of these persons."

     SECTION 10.  Section 846-2.7, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  Criminal history record checks may be conducted by:

(1)  The department of health on operators of adult foster homes or developmental disabilities domiciliary homes and their employees, as provided by section 333F-22;

(2)  The department of health on prospective employees, persons seeking to serve as providers, or subcontractors in positions that place them in direct contact with clients when providing non-witnessed direct mental health services as provided by section 321-171.5;

(3)  The department of health on all applicants for licensure for, operators for, and prospective employees, and volunteers at one or more of the following:  skilled nursing facility, intermediate care facility, adult residential care home, expanded adult residential care homes, assisted living facility, home health agency, hospice, adult day health center, special treatment facility, therapeutic living program, intermediate care facility for the mentally retarded, hospital, rural health center and rehabilitation agency, and, in the case of any of the above-related facilities operating in a private residence, on any adult living in the facility other than the client as provided by section 321-15.2;

(4)  The department of education on employees, prospective employees, and teacher trainees in any public school in positions that necessitate close proximity to children as provided by section 302A-601.5;

(5)  The counties on employees and prospective employees who may be in positions that place them in close proximity to children in recreation or child care programs and services;

(6)  The county liquor commissions on applicants for liquor licenses as provided by section 281-53.5;

(7)  The department of human services on operators and employees of child caring institutions, child placing organizations, and foster boarding homes as provided by section 346-17;

(8)  The department of human services on prospective adoptive parents as established under section 346-19.7;

(9)  The department of human services on applicants to operate child care facilities, prospective employees of the applicant, and new employees of the provider after registration or licensure as provided by section 346-154;

(10)  The department of human services on persons exempt pursuant to section 346-152 to be eligible to provide child care and receive child care subsidies as provided by section 346-152.5;

(11)  The department of human services on operators and employees of home and community-based case management agencies and operators and other adults, except for adults in care, residing in foster family homes as provided by section 346-335;

(12)  The department of human services on staff members of the Hawaii youth correctional facility as provided by section 352-5.5;

(13)  The department of human services on employees, prospective employees, and volunteers of contracted providers and subcontractors in positions that place them in close proximity to youth when providing services on behalf of the office or the Hawaii youth correctional facility as provided by section 352D-4.3;

(14)  The judiciary on employees and applicants at detention and shelter facilities as provided by section 571-34;

(15)  The department of public safety on employees and prospective employees who are directly involved with the treatment and care of persons committed to a correctional facility or who possess police powers including the power of arrest as provided by section 353C-5;

(16)  The department of commerce and consumer affairs on applicants for private detective or private guard licensure as provided by section 463-9;

(17)  Private schools and designated organizations on employees and prospective employees who may be in positions that necessitate close proximity to children; provided that private schools and designated organizations receive only indications of the states from which the national criminal history record information was provided as provided by section 302C-1;

(18)  The public library system on employees and prospective employees whose positions place them in close proximity to children as provided by section 302A-601.5;

(19)  The State or any of its branches, political subdivisions, or agencies on applicants and employees holding a position that has the same type of contact with children, dependent adults, or persons committed to a correctional facility as other public employees who hold positions that are authorized by law to require criminal history record checks as a condition of employment as provided by section 78-2.7;

(20)  The department of human services on licensed adult day care center operators, employees, new employees, subcontracted service providers and their employees, and adult volunteers as provided by section 346-97;

(21)  The department of human services on purchase of service contracted and subcontracted service providers and their employees serving clients of the adult and community care services branch, as provided by section 346-97;

(22)  The department of human services on foster grandparent program, senior companion program, and respite companion program participants as provided by section 346-97;

(23)  The department of human services on contracted and subcontracted service providers and their current and prospective employees that provide home and community-based services under Section 1915(c) of the Social Security Act (42 U.S.C. §1396n(c)), as provided by section 346-97; [and]

(24)  The department of commerce and consumer affairs on proposed directors and executive officers of a bank, savings bank, savings and loan association, trust company, and depository financial services loan company as provided by section 412:3-201;

(25)  The department of commerce and consumer affairs on proposed directors and executive officers of a nondepository financial services loan company as provided by section 412:3-301;

(26)  The department of commerce and consumer affairs on the original chartering applicants and proposed executive officers of a credit union as provided by section 412:10-103; and

   [(24)] (27)  Any other organization, entity, or the State, its branches, political subdivisions, or agencies as may be authorized by state law."

     SECTION 11.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 12.  This Act shall take effect upon its approval.

 

INTRODUCED BY:

_____________________________

 

 

BY REQUEST