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CONGRESS OF THE
COMMONWEALTH OF REDMONT
A BILL TO
Regulate and Enforce Standards Upon Financial Institutions
The people of the Commonwealth of Redmont, through their elected Representatives in the Congress and the force of law ordained to that Congress by the people through the constitution, do hereby enact the following provisions into law:
1. Short Title and Enactment
(1) This Act may be cited as the "Financial Institutions Enforcement Act" or the "FIEA".
(2) This Act shall be enacted immediately upon its signage.
(3) This Act has been authored by xXTheoryXx.
(4) This Act has been sponsored by Deputy Speaker MJL.
(5) This Act has been co-sponsored by Musclebound.
(6) This Act amends the following acts:
(a) Commercial Standards Act
(b) Criminal Code Act
(c) Redmont Civil Code Act
(d) Legal Entity Act
2. Reasons and Intent
(1) A person may currently take deposits from the public, advertise fixed returns, and route customer funds through personal balances while claiming to fall outside financial regulation, including by operating without any registered or incorporated entity. The existing framework assumes a registered institution or an in-game company, leaving the Department of Commerce without a timely remedy against such operators.
(2) This Act is intended to regulate financial activity by its economic substance rather than its label; to give the Department of Commerce a complete enforcement ladder of investigation, audit, cease and desist, freeze, asset recovery, and receivership against unregistered or non-compliant activity whether or not it is conducted through a legal entity; to enable the preservation and return of customer funds; to allow the Department to recognise and license new types of financial institution as the economy develops; and to hold the individuals who operate such schemes personally responsible.
3. Definitions
(1) For the purposes of this Act, the following definitions shall apply:
(a) Person. A natural person or a legal entity, including any group of persons acting in concert.
(b) Financial Institution. Any person carrying on regulated financial activity, whether or not registered under the Commercial Standards Act and whether or not incorporated.
(c) Regulated Financial Activity. Carrying on, or holding oneself out as carrying on, the business of taking deposits, investing or managing funds or assets for others, lending, or operating an exchange or fund, as those activities are described in the Commercial Standards Act, and any further type of financial activity designated by the Department of Commerce under this Act.
(d) Deposit. Any arrangement under which a person receives funds or value and is obligated, whether legally, contractually, or in practice, to repay or return money or equivalent value, where one or more of the following applies:
(i) the principal is fixed, determinable, or represented to be stable, and repayable at or near its original value on demand or within a determinable period;
(ii) the funds are withdrawable, redeemable, or transferable on demand or on limited notice;
(iii) the holder is not exposed to a material risk of loss of principal under normal or reasonably foreseeable conditions;
(iv) the return is fixed, guaranteed, administratively determined, or otherwise not materially dependent on the recipient’s performance; or
(v) the arrangement is marketed or functions as a store of value, passive income, cash equivalent, or means of payment.
(e) Financial Product. Any instrument, token, account, contract, or arrangement offered to the public that, in substance, constitutes a deposit, security, investment, or other regulated financial interest, whatever it is called.
(f) Operator. Any person who carries on, controls, directs, manages, finances, or materially participates in regulated financial activity, including any individual who receives, holds, or disburses customer funds.
(g) Administrative Sanction. A coercive and non-punitive measure imposed by the Department of Commerce under this Act to compel compliance, including a penalty, disgorgement order, or restitution order.
(h) Receiver. A person appointed under this Act or the Legal Entity Act to take control of, administer, and wind down an operation or its assets.
(i) Cease and Desist Order; Freeze Order. Mean, respectively, a binding order under this Act to stop a specified activity, and a binding order under this Act to restrain the movement, transfer, or disposal of specified funds or assets.
4. Interpretation
(1) For the purposes of this Act:
(a) the economic substance and practical effect of a transaction, instrument, or arrangement prevails over its legal form, label, or characterization;
(b) a transaction includes a series of transactions or steps, whether or not documented, and rights or expectations may be express or implied and may arise from conduct, practice, or marketing;
(c) designating a payment as a purchase, sale, donation, commodity, token, or investment does not exempt it where it functions in substance as a deposit or other regulated financial product;
(d) carrying on regulated financial activity in contravention of this Act is a continuing course of conduct, and each day it continues constitutes a fresh contravention; and
(e) where a provision admits more than one reading, the reading that best protects customers and prevents avoidance prevails.
PART II — REGULATED ACTIVITY AND REGISTRATION
5. Requirement to Register
(1) No person shall carry on, or hold themselves out as carrying on, regulated financial activity unless that person is both an Incorporated Entity in good standing under the Legal Entity Act and registered and authorised for that activity by the Department of Commerce under the Commercial Standards Act.
(2) A person who receives deposits or customer funds otherwise than through a registered and incorporated financial institution contravenes this Act, notwithstanding any disclaimer, terms of service, or characterization of the funds as anything other than a deposit.
(3) Compliance with this Act does not relieve a person of any obligation under the Commercial Standards Act, the Banking Income Tax Act, the Legal Entity Act, or any other enactment.
6. Authority to Designate and Classify Financial Institutions and Instruments
(1) The Department of Commerce may, by regulation, create, define, recognise, license, and regulate new types or categories of financial institution, in addition to those recognised by the Commercial Standards Act.
(2) This power is intended to be broad and is not limited by the types of financial institution named in this or any other Act. The Department may bring within regulation any business that deals in deposits, investments, lending, custody, escrow, insurance, payments, funds, or any other financial activity, however described, structured, or labelled.
(3) The Department may, by regulation, classify, define, and regulate financial instruments, products, and arrangements, including deposits, bonds, notes, securities, derivatives, foreign exchange, funds, tokens, and any new or hybrid instrument, and may determine how any such instrument or arrangement is treated under this Act and the Commercial Standards Act.
(4) Where it is unclear whether an arrangement is a deposit, a security, an investment, or another instrument, the Department may determine its classification by reference to its economic substance, and that determination governs unless set aside on appeal or by a court.
(5) In designating a type or classifying an instrument, the Department may set and amend the registration requirements, permitted and prohibited activities, capital, reserve, or client-fund segregation requirements, reporting obligations, and fit and proper standards that apply.
(6) A designated type or classified instrument carries the protections, obligations, and enforcement consequences of this Act and the Commercial Standards Act, and a person carrying on the activity without registration contravenes this Act.
(7) Regulations under this section take effect on publication by the Department and shall serve a legitimate governmental purpose and be reasonably tailored to achieve it.
7. Prohibited Conduct
(1) No person carrying on regulated financial activity shall:
(a) take deposits, or offer interest, yield, payout, or any return on a deposit, without registration as a Commercial Bank;
(b) invest or manage funds for others, or offer a financial product to the public, without registration as the appropriate financial institution;
(c) represent that they are a bank or other financial institution when not registered as such; or
(d) make a false or misleading representation as to the safety, return, insurance, or registration status of any financial product.
(2) No person shall knowingly facilitate regulated financial activity carried on in contravention of this Act, including by hosting its infrastructure, processing or routing its payments, or advertising or promoting it. Accessory and accomplice liability under the Criminal Code Act applies to such conduct.
(3) Nothing in this Act prohibits the issuance of bonds, notes, or other debt instruments to raise capital for the issuer’s own business, or the offering, trading, or dealing in securities, derivatives, foreign exchange, or other financial instruments, where conducted by or through the appropriate institution registered under the Commercial Standards Act or as the Department of Commerce may provide by regulation. Such instruments are regulated as securities or investments, not as deposits, unless in substance they constitute deposit-taking under this Act.
8. Fit and Proper Persons and Barred Operators
(1) The Department of Commerce may assess whether a person seeking to register, or to act as an Operator of, a financial institution is fit and proper, having regard to honesty, prior contraventions, and any Bar Order.
(2) A person subject to a Bar Order shall not register, operate, control, or materially participate in any financial institution for the duration of the Order.
(3) The Department may refuse, condition, suspend, or revoke a registration where an Operator is not fit and proper or where continued operation would endanger customer funds.
PART III — POWERS OF THE DEPARTMENT OF COMMERCE
9. Supervisory and Investigative Powers
(1) The Department of Commerce may supervise, investigate, and enforce compliance with this Act in respect of any person reasonably suspected of carrying on regulated financial activity, whether or not registered or incorporated, and may exercise its powers against any Operator personally.
(2) The Department may, by notice, require any such person or Operator to produce records, transaction logs, communications, and account data, to identify all persons and accounts involved and all customers and amounts owed, and to account for the location and disposition of all customer funds.
(3) On the opening of an investigation or the service of a notice, the person and every Operator shall preserve all relevant records and data and shall not delete, alter, conceal, or destroy them.
(4) Failure to comply with this section permits the Department to draw adverse inferences and to proceed on any reasonable basis.
10. Audit Power
(1) The Department of Commerce may require any registered financial institution, or any person reasonably suspected of carrying on regulated financial activity, to obtain and submit an independent audit of its accounts, funds, and customer liabilities, prepared by a licensed accountant.
(2) The audit shall be conducted at the expense of the person audited.
(3) Failure to comply, or obstruction of the audit, permits the Department to draw adverse inferences and to proceed on any reasonable basis, and is an offence under Part VII.
11. Cease and Desist Orders
(1) Where the Department of Commerce reasonably believes a person is carrying on regulated financial activity in contravention of this Act, it may issue a binding Cease and Desist Order requiring that person to immediately stop the activity, the related advertising, and the acceptance of further funds, and may require the person to honour outstanding withdrawal or repayment requests.
(2) The Order takes effect on service and remains in force unless stayed or set aside under Part VI.
(3) Contravention of the Order is an offence under Part VII, and each continued day of contravention is a separate offence.
12. Emergency Freeze Orders
(1) Where the Department of Commerce reasonably believes customer funds are at risk of dissipation, concealment, or loss, it may issue a Freeze Order restraining the transfer or disposal of specified funds or assets held by or on behalf of an Operator, including funds in an Operator’s personal balance.
(2) A Freeze Order may be issued without prior notice, takes effect immediately on service, and shall be limited to the amount reasonably necessary to protect customer funds and satisfy potential restitution.
(3) A Freeze Order lapses 72 hours after service unless, within that period, the Department applies to the Federal Court to extend or confirm it; the Court may extend, vary, confirm, or discharge it and make any further order necessary to preserve customer funds.
(4) Disposing of, transferring, withdrawing, or concealing funds in contravention of a Freeze Order is an offence under Part VII.
13. Asset Tracing, Seizure, and Third-Party Recovery
(1) The Department of Commerce may trace customer funds through any account, balance, or transaction, including funds moved to an Operator’s personal balance or to a third party.
(2) The Department may seize the assets of an Operator, with the least practicable disruption to the Operator’s estate, and apply them to the restitution of customers and the costs of enforcement.
(3) Where a third party received customer funds otherwise than in good faith and for fair value, the Department may recover those funds from that third party for the benefit of customers.
(4) This section operates alongside the Proceeds of Crime provisions of the Criminal Code Act and the Knowing Receipt provisions of the Redmont Civil Code Act.
14. Receivership and Wind-Down
(1) Where the Department of Commerce reasonably believes it necessary to protect customer funds, it may apply to the Federal Court to place an operation carrying on regulated financial activity, together with the relevant assets of its Operators, into receivership, whether or not the operation is registered or incorporated.
(2) A receiver appointed under this section has, in addition to the powers of a receiver under the Legal Entity Act, the power to take control of all customer funds and operational assets, suspend the activity, and wind down the operation.
(3) The receiver shall apply recovered assets first to the restitution of customers, and thereafter to creditors, penalties, and the costs of the receivership.
(4) In extraordinary circumstances, including active or imminent dissipation of customer funds, the Department may take temporary control of the operation’s accounts and assets pending a receivership application, for no longer than 72 hours unless extended by the Court.
(5) A receiver under this section is entitled to the immunities of a receiver under the Legal Entity Act.
15. Administrative Sanctions, Disgorgement, and Restitution
(1) The sanctions under this Act are administrative, coercive, and not punitive, consistent with Part VII of the Legal Entity Act.
(2) Where the Department of Commerce determines that a person has contravened this Act, it may impose a proportionate administrative penalty, order the disgorgement of any profit or benefit derived from the contravention, and order restitution to affected customers.
(3) Amounts recovered, including frozen, seized, or disgorged funds, shall be applied first to the restitution of customer deposits and thereafter to penalties and enforcement costs.
(4) An administrative sanction may be contested before a judicial officer in accordance with the Redmont Civil Code Act, and does not bar criminal prosecution for the same conduct.
16. Public Warnings, Bar Orders, and Register
(1) The Department of Commerce may issue public warnings identifying an unregistered person or operation and stating that it is unregistered and uninsured.
(2) The Department may, by Bar Order, prohibit a named individual from operating, controlling, or materially participating in any financial institution for a specified period where that individual has operated an unregistered scheme or seriously or repeatedly contravened this Act.
(3) The Department shall maintain a public register of Cease and Desist Orders, Freeze Orders, Bar Orders, and prohibited operators.
17. Ancillary Powers
(1) Where an in-game company is used to carry on or disguise regulated financial activity in contravention of this Act, the Department of Commerce may, consistent with the Commercial Standards Act and the Legal Entity Act, disband the company or change its registered owner.
(2) The Department may share records, evidence, and findings obtained under this Act with the Department of Justice, the Federal Reserve Bank, and the Department of Homeland Security for the purposes of investigation, prosecution, or financial stability.
PART IV — LIABILITY
18. Personal Liability of Operators
(1) Every Operator of an operation that carries on regulated financial activity in contravention of this Act is personally, jointly, and severally liable for the repayment of customer deposits and for any penalty, disgorgement, or restitution ordered under this Act.
(2) Where the activity is carried on without a registered and incorporated entity, no limitation of liability applies and the Operators are liable as principals.
(3) Liability is not avoided by characterising the funds as a purchase, investment, commodity, or token; by the resignation, removal, or substitution of an Operator after the conduct; by the transfer or purported transfer of ownership or control; or by reliance on terms to which customers did not demonstrably and knowingly assent.
19. Anti-Avoidance
(1) Any arrangement entered into wholly or mainly to avoid the application of this Act shall be disregarded, and this Act shall apply as if it had not been made.
(2) The use of a sham entity, nominee, or intermediary to obscure the true Operator shall not defeat liability or enforcement under this Act.
PART V — WHISTLEBLOWERS
20. Whistleblower Protection and Leniency
(1) A person who, in good faith, reports regulated financial activity carried on in contravention of this Act is a whistleblower and is entitled to the protections of the Commercial Standards Act and the Criminal Code Act.
(2) No Operator or person shall retaliate against a whistleblower; retaliation is subject to the offences in the Criminal Code Act.
(3) The Department of Commerce may recommend to the Department of Justice the reduction or waiver of sanctions for an Operator or employee who voluntarily discloses the activity and cooperates fully before being notified of an investigation.
PART VI — DUE PROCESS, DELEGATION, AND PROTECTION
21. Notice, Appeals, and Court Recourse
(1) On issuing an order or sanction under this Act, the Department of Commerce shall serve notice stating the order, the conduct concerned, and the basis for it in reasonable detail; service in respect of an unincorporated operation may be effected on any Operator.
(2) A person subject to an order or sanction may appeal to the Secretary of the Department of Commerce, or a designated officer not involved in the original decision, within 7 days of service, and the reviewing authority may confirm, vary, or set aside the order.
(3) A person dissatisfied with the decision on appeal may seek relief before the Federal Court.
(4) An order or sanction remains in force during any appeal unless stayed by the Secretary or the Federal Court, and nothing in this Part limits the Court’s power to grant urgent relief or to preserve customer funds.
(5) The Department acts under this Act on reasonable belief; where a sanction is contested before a judicial officer, the standard of proof is that set by the Redmont Civil Code Act for administrative violations.
22. Delegation and Immunity
(1) The Secretary of the Department of Commerce may delegate any power under this Act to an officer or delegate of the Department, except the power to make regulations.
(2) The Department, its officers, and any receiver appointed under this Act are immune from civil liability for actions taken in good faith in the exercise of their powers under this Act; this immunity does not apply to criminal conduct or to acts outside the scope of their authority.
PART VII — OFFENCES
23. Amendments to the Criminal Code Act
(1) Part VII of the Criminal Code Act is amended by adding the following sections immediately after Section 39:
Operating an Unregistered Financial Institution
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.
A person commits an offence if the person carries on, operates, or knowingly facilitates regulated financial activity, including taking deposits or offering interest, yield, or a payout on funds received, without the registration and incorporation required by the Financial Institutions Enforcement Act.
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.
A person commits an offence if the person carries on, operates, or knowingly facilitates regulated financial activity, including taking deposits or offering interest, yield, or a payout on funds received, without the registration and incorporation required by the Financial Institutions Enforcement Act.
Breach of a Cease and Desist Order
Offence Type: Indictable
Penalty: Up to 750 Penalty Units; Up to 45 minutes imprisonment.
A person commits an offence if the person continues, resumes, or causes the continuation of an activity after being served a Cease and Desist Order under the Financial Institutions Enforcement Act. Each day of continued contravention is a separate offence.
Offence Type: Indictable
Penalty: Up to 750 Penalty Units; Up to 45 minutes imprisonment.
A person commits an offence if the person continues, resumes, or causes the continuation of an activity after being served a Cease and Desist Order under the Financial Institutions Enforcement Act. Each day of continued contravention is a separate offence.
Dissipation of Frozen Funds
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.
A person commits an offence if the person transfers, withdraws, conceals, or disposes of funds or assets in contravention of a Freeze Order issued under the Financial Institutions Enforcement Act.
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.
A person commits an offence if the person transfers, withdraws, conceals, or disposes of funds or assets in contravention of a Freeze Order issued under the Financial Institutions Enforcement Act.
Obstruction of Financial Regulation
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.
A person commits an offence if the person obstructs, hinders, or misleads the Department of Commerce in the exercise of its powers under the Financial Institutions Enforcement Act, fails to comply with a lawful order, requirement, or audit demand under that Act, or deletes, alters, conceals, or destroys records the person is required to preserve.
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.
A person commits an offence if the person obstructs, hinders, or misleads the Department of Commerce in the exercise of its powers under the Financial Institutions Enforcement Act, fails to comply with a lawful order, requirement, or audit demand under that Act, or deletes, alters, conceals, or destroys records the person is required to preserve.
Liability of Operators, Directors, and Officers
Offence Type: Indictable
Penalty: Same as the underlying offence.
A person commits an offence where an operation commits an offence under the Financial Institutions Enforcement Act and the person directed, authorized, permitted, or materially participated in it, or knew or ought reasonably to have known of it and failed to take reasonable steps to prevent it.
Offence Type: Indictable
Penalty: Same as the underlying offence.
A person commits an offence where an operation commits an offence under the Financial Institutions Enforcement Act and the person directed, authorized, permitted, or materially participated in it, or knew or ought reasonably to have known of it and failed to take reasonable steps to prevent it.
PART VIII — CONSEQUENTIAL AMENDMENTS AND TRANSITION
24. Amendment to the Redmont Civil Code Act
(1) Part X of the Redmont Civil Code Act is amended by adding the following violation:
Breach of the Financial Institutions Enforcement Act
Violation Type: Administrative
Remedy: Up to 250 Civil Penalty Units; Compliance order; Disgorgement; Restitution; Receivership
A person commits a violation if the person:
(a) carries on or facilitates regulated financial activity in contravention of the Financial Institutions Enforcement Act; or
(b) fails to comply with a lawful order or sanction of the Department of Commerce under that Act.
This violation shall not occur where:
(c) the person is taking reasonable steps to remedy their compliance.
Relevant Law: Financial Institutions Enforcement Act
Violation Type: Administrative
Remedy: Up to 250 Civil Penalty Units; Compliance order; Disgorgement; Restitution; Receivership
A person commits a violation if the person:
(a) carries on or facilitates regulated financial activity in contravention of the Financial Institutions Enforcement Act; or
(b) fails to comply with a lawful order or sanction of the Department of Commerce under that Act.
This violation shall not occur where:
(c) the person is taking reasonable steps to remedy their compliance.
Relevant Law: Financial Institutions Enforcement Act
25. Relationship to Other Acts
(1) This Act supplements and does not limit the Commercial Standards Act, the Banking Income Tax Act, the Legal Entity Act, the Criminal Code Act, or the Redmont Civil Code Act, and where its deposit or substance provisions and those of the Banking Income Tax Act both apply, they shall be read consistently and in favour of preventing avoidance.
(2) The Department of Commerce may make regulations to give effect to this Act, including the procedures and requirements for registration, fit and proper assessment, and the conduct of registered deposit-taking institutions, provided such regulations serve a legitimate governmental purpose and are reasonably tailored to achieve it.
26. Severability
(1) If any provision of this Act is held invalid or unenforceable, the remainder of the Act shall continue in full force and effect.
27. Application and Transition
(1) This Act applies to regulated financial activity carried on before, on, or after its coming into force, and to all outstanding customer funds and deposits, regardless of when the activity commenced or the funds were received.
(2) The supervisory, recovery, and remedial powers in Part III and the liability in Part IV apply to conduct, activity, and funds arising before or after the coming into force of this Act.
(3) Any person who is or was carrying on regulated financial activity shall, within 48 hours of the coming into force of this Act, either register and incorporate as required or cease the activity and return all customer funds.
(4) An offence under Part VII is committed where the relevant conduct, including the continued carrying-on of regulated financial activity, the failure to register, the failure to return customer funds, or the breach of an order, occurs on or after the coming into force of this Act.
(5) Nothing in this Act affects any existing legal action or any liability already accrued.