Financial Institutions Enforcement Act (FIEA)

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:

PART I — PRELIMINARIES

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 Commerce Secretary xXTheoryXx. (4) This Act has been sponsored by Speaker Antonfr and co-sponsored by Representatives Musclebound and Dan_ie_laa. (5) 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 or hold customer funds, advertise fixed returns, and route money 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 and customers without protection.

(2) This Act establishes a complete framework for the regulation and enforcement of financial activity in the Commonwealth. It is intended to: (a) regulate financial activity by its economic substance rather than its label, so that relabeling a deposit as a purchase, commodity, or token does not defeat regulation; (b) require that regulated financial activity be carried on only through a registered and incorporated institution, and protect customer money through segregation and custody rules; (c) give the Department of Commerce a full enforcement ladder, including investigation, audit, cease and desist, freeze, asset recovery, receivership, and administrative sanctions, exercisable whether or not the operator is incorporated and against operators personally; (d) empower the Department to recognise, classify, and license new types of financial institution and instrument, and to protect market integrity through offering-disclosure, trading-suspension, and product-intervention powers; (e) coordinate the Department's role with that of the Federal Reserve Bank; and (f) close the corporate-law loopholes through which such schemes hide ownership and evade accountability.

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.

(j) Client Funds. Money or value a person receives and holds for or on behalf of a customer that is not a deposit, including funds held for custody, escrow, brokerage, settlement, investment under mandate, or as a customer account balance.

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. Custody and Client Funds

(1) A person registered to hold or manage customer funds otherwise than as a Commercial Bank may receive and hold client funds, but shall: (a) hold them as liquid cash or on deposit with a registered Commercial Bank; (b) keep them fully segregated from the person's own funds; and (c) not lend, pledge, invest, or otherwise use them for the person's own account, or to meet the person's own liabilities or operating costs.

(2) Client funds may be invested only as agent under the customer's mandate, with the customer bearing the investment risk, and only by a financial institution registered for that activity.

(3) Only a registered Commercial Bank may take deposits, lend or invest them for its own account, and operate a reserve of less than one hundred percent.

(4) Client funds are the property of the customer, do not form part of the person's estate, and are not available to the person's creditors.

(5) The Department of Commerce may set, by regulation, the manner of segregation, reserve, reconciliation, and reporting requirements for client funds.

(6) Nothing in this section limits the powers of the Department of Commerce under this Act. The Department may, by regulation or order, vary, supplement, waive, or grant exemptions from any requirement of this section, determine what constitutes client funds, segregation, or permitted use, and otherwise enforce this section at its discretion.

9. 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

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. Test Transactions and Covert Checks

(1) The Department of Commerce may conduct test transactions, including by posing as a customer, to verify the compliance of any person carrying on or suspected of carrying on regulated financial activity.

(2) Information so obtained may be used in any investigation, sanction, or proceeding under this Act.

20. Third-Party Directions

(1) The Department of Commerce may direct any third party that holds funds, assets, records, or infrastructure of or for an Operator, including an exchange, payment provider, custodian, or host, to freeze, preserve, produce, or deliver them.

(2) A third party that complies in good faith with a direction is immune from liability for doing so.

(3) Failure to comply with a direction is an offence under Part VII.

21. No-Action Determinations and Advance Rulings

(1) A person may apply to the Department of Commerce for a determination as to whether a proposed product, service, or activity constitutes regulated financial activity or requires registration under this Act.

(2) The Department may issue a binding ruling, which it may make subject to conditions, and on which the applicant may rely while it remains in force.

(3) The Department may vary or revoke a ruling, with effect only from the date of variation or revocation, where the facts or the law have changed.

22. Product Intervention

(1) The Department of Commerce may, by order, prohibit, suspend, or restrict the offering of a financial product or arrangement that it reasonably believes poses a risk of harm to customers or the financial system.

(2) An order may apply to a named product, a person, or a class of products or persons, and takes effect on publication.

(3) Offering a product in contravention of an order is an offence under Part VII.

23. Regulatory Sandbox

(1) The Department of Commerce may permit a person to test a new or innovative financial product, service, or model under supervision, on conditions and for a limited period the Department sets, with such modifications to the requirements of this Act as the Department considers appropriate.

(2) Participation does not exempt the person from liability to customers, and the Department may end participation at any time.

(3) The Department may set the eligibility, safeguards, and customer protections that apply to the sandbox.

24. Enforceable Undertakings

(1) The Department of Commerce may accept a written undertaking from a person to do, or refrain from, any act in order to remedy or prevent a contravention of this Act, including to cease activity, segregate or return funds, or compensate customers.

(2) An accepted undertaking is binding, and the Department may apply to the Federal Court to enforce it.

(3) Breach of an undertaking is an offence under Part VII.

25. Independent Monitor

(1) The Department of Commerce may appoint an independent monitor to a registered financial institution to observe, report on, and supervise its compliance, where the Department's concerns fall short of requiring receivership.

(2) The institution shall give the monitor full access to its records, accounts, and personnel, and shall bear the reasonable costs of the monitor.

(3) Obstructing the monitor is an offence under Part VII.

26. Emergency Temporary Rules

(1) Where the Department of Commerce reasonably believes that an emerging practice or scheme poses an immediate risk to customers or the financial system, it may issue emergency temporary rules that take effect immediately on publication.

(2) An emergency temporary rule remains in force for up to 60 days and may be renewed or replaced through ordinary regulation-making.

(3) Emergency temporary rules have the same effect as regulations under this Act while in force.

27. Trading Suspension

(1) The Department of Commerce may, by order, suspend or halt trading in a security, financial product, or listing on a Stock Exchange where it reasonably believes that the available information is inadequate or inaccurate, that the market is disorderly, or that suspension is necessary to protect customers or investors.

(2) A suspension takes effect on publication and remains in force for the period stated, which the Department may extend or lift.

(3) Trading in contravention of a suspension is an offence under Part VII.

28. Securities Offering Disclosure

(1) No person shall offer a security or financial product to the public unless a disclosure document, in the form required by the Department of Commerce, has been filed with and registered by the Department.

(2) The disclosure document shall fairly present the nature of the offering, the risks, the use of funds, and the financial position of the issuer.

(3) The Department may refuse, suspend, or revoke the registration of a disclosure document that is inadequate, inaccurate, or misleading, and may exempt an offering or class of offerings from this section.

(4) Offering a security or financial product to the public without a registered disclosure document, or on the basis of a materially false or misleading one, is an offence under Part VII.

PART IV — LIABILITY

29. 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.

30. 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

31. 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

32. 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.

33. 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

34. 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.

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.

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.

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, direction, requirement, undertaking, 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.

Operating or Participating While Barred or Disqualified Offence Type: Indictable Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Extension of the Bar Order or disqualification by up to 2 months. A person commits an offence if the person: (a) is subject to a Bar Order under the Financial Institutions Enforcement Act, or to a disqualification order under the Legal Entity Act; and (b) operates, controls, manages, finances, or materially participates in a financial institution or legal entity in a capacity prohibited by that Order, whether directly or through a nominee, intermediary, or other person. This offence shall not occur where: (c) the person acted with the prior written authorisation of the Department of Commerce.

Aggravated Operation of an Unregistered Financial Institution Offence Type: Indictable Penalty: Up to 1500 Penalty Units; Up to 60 minutes imprisonment; Restitution. A person commits an offence if the person commits the offence of Operating an Unregistered Financial Institution, and one or more of the following aggravating circumstances apply: (a) the total customer funds taken or placed at risk exceed 500 Penalty Units in value; or (b) the scheme targeted new players or otherwise exploited the inexperience of customers; or (c) customer funds were dissipated, concealed, or moved to a personal balance; or (d) the person had previously been warned, sanctioned, or barred in respect of similar conduct.

Operating a Ponzi or Pyramid Scheme Offence Type: Indictable Penalty: Up to 2000 Penalty Units; Up to 60 minutes imprisonment; Restitution; Disgorgement of any benefit derived. A person commits an offence if the person: (a) operates, promotes, or induces participation in an arrangement; and (b) returns, payouts, or yields to existing participants are paid wholly or substantially from contributions made by new participants, rather than from genuine revenue or investment profit. This offence shall not occur where: (c) the returns are genuinely and substantially derived from the lawful trading or investment activity of a financial institution registered under the Financial Institutions Enforcement Act.

Misuse of Client Funds Offence Type: Indictable Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the funds or their value. A person commits an offence if the person: (a) receives or holds client funds, as defined in the Financial Institutions Enforcement Act; and (b) lends, pledges, invests, encumbers, or otherwise applies them for the person's own account, or to meet the person's own liabilities or operating costs, or fails to keep them segregated as required by that Act. It is a defence to a charge under this section if the person: (c) applied the funds strictly as agent under the customer's written mandate, with the customer bearing the investment risk.

False Representation as a Financial Institution Offence Type: Indictable Penalty: Up to 400 Penalty Units; Up to 30 minutes imprisonment. A person commits an offence if the person: (a) represents, whether by name, advertising, conduct, or otherwise, that the person is a bank, a registered financial institution, or an insured or government-backed institution; and (b) the person is not registered as such under the Commercial Standards Act or the Financial Institutions Enforcement Act.

Unlawful Offering of a Security or Financial Product Offence Type: Indictable Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment. A person commits an offence if the person: (a) offers a security or financial product to the public without a disclosure document registered by the Department of Commerce; or (b) offers a security or financial product on the basis of a disclosure document the person knows, or ought reasonably to know, is materially false or misleading. This offence shall not occur where: (c) the offering, or a class of offerings to which it belongs, is exempted from the disclosure requirement by the Department of Commerce.

Breach of a Product Intervention or Trading Suspension Order Offence Type: Indictable Penalty: Up to 750 Penalty Units; Up to 45 minutes imprisonment. Each day of continued contravention is a separate offence. A person commits an offence if the person offers, deals in, or trades a financial product or security in contravention of a product-intervention order or a trading-suspension order issued under the Financial Institutions Enforcement Act.

Reckless Facilitation of Unregistered Financial Activity Offence Type: Indictable Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment. A person commits an offence if the person: (a) hosts the infrastructure of, processes or routes payments for, or advertises or promotes, regulated financial activity carried on in contravention of the Financial Institutions Enforcement Act; and (b) is reckless as to whether that activity is unregistered. It is a defence to a charge under this section if the person: (c) took reasonable steps to verify the registration status of the activity before providing the facilitation.

Tipping Off Offence Type: Indictable Penalty: Up to 300 Penalty Units; Up to 30 minutes imprisonment. A person commits an offence if the person: (a) knows or suspects that an investigation under the Financial Institutions Enforcement Act is being, or is likely to be, conducted; and (b) discloses information to the subject of the investigation, or to any other person, in a manner likely to prejudice the investigation.

(2) Section 17 (Persistent Corporate Violation), in Part X of the Criminal Code Act, is amended as follows:

Before: (c) has received more than three warnings from the DOC within 2 weeks. After: (c) has received more than three warnings from the DOC concerning the same or related conduct, or has persistently violated the Legal Entity Act.

(3) Section 6 (Embezzlement), in Part VII of the Criminal Code Act, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; 10 minutes imprisonment After: Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the misappropriated assets or their value.

(4) Section 2 (Market Manipulation), in Part VII of the Criminal Code Act, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 60 minutes imprisonment.

(5) Section 4 (Third-Party Misrepresentation), in Part VII, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; 10 minutes imprisonment After: Penalty: Up to 400 Penalty Units; Up to 30 minutes imprisonment.

(6) Section 7 (Fraud), in Part VII, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the loss or its value.

(7) Section 8 (Concealment of Criminal Proceeds), in Part VII, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.

(8) Section 10 (Exploitation of New Players), in Part VII, is amended as follows:

Before: Penalty: Up to 400 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

(9) Section 14 (Tax Evasion), in Part VII, is amended as follows:

Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

(10) Sections 15 to 18 (Market Allocation, Bid Rigging, Price Fixing, and Monopolisation), in Part VII, are amended as follows:

(a) Section 15 (Market Allocation): Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

(b) Section 16 (Bid Rigging): Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

(c) Section 17 (Price Fixing): Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

(d) Section 18 (Monopolisation): Before: Penalty: Up to 200 Penalty Units; Up to 10 minutes imprisonment; Forced divestiture of entities After: Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment; Forced divestiture of entities.

(11) Sections 21 and 22 (Unrecognized Foreign Exchange and Foreign Exchange Fraud), in Part VII, are amended as follows:

(a) Section 21 (Unrecognized Foreign Exchange): Before: Penalty: Up to 200 Penalty Units; Up to 60 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 60 minutes imprisonment.

(b) Section 22 (Foreign Exchange Fraud): Before: Penalty: Up to 200 Penalty Units; Up to 60 minutes imprisonment After: Penalty: Up to 500 Penalty Units; Up to 60 minutes imprisonment.

PART VIII — CONSEQUENTIAL AMENDMENTS AND TRANSITION

35. Amendment to the Redmont Civil Code Act

(1) Part X of the Redmont Civil Code Act is amended by adding the following violations:

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

Breach of Client-Fund Segregation Duty Violation Type: Strict Liability Remedy: Restitution; Up to 250 Civil Penalty Units; Disgorgement A person commits a violation if the person: (a) receives or holds client funds; and (b) fails to segregate them from the person's own funds, or applies them otherwise than as permitted under the Financial Institutions Enforcement Act. This violation shall not occur where: (c) the funds were applied strictly as agent under the customer's written mandate. Relevant Law: Financial Institutions Enforcement Act

Mis-selling of a Financial Product Violation Type: Intentional/Negligent Remedy: Rescission; Restitution; Up to 250 Civil Penalty Units A person commits a violation if the person: (a) recommends, sells, or supplies a financial product to a customer; and (b) the product is unsuitable for that customer, or is supplied without fair disclosure of its risks, returns, fees, or the possibility of loss of principal; and (c) the customer suffers loss as a result. This violation shall not occur where: (d) the customer was a sophisticated party who did not rely on the person's recommendation. Relevant Law: Financial Institutions Enforcement Act

Failure to Honour Withdrawal or Redemption Violation Type: Strict Liability Remedy: Specific performance; Restitution; Up to 200 Civil Penalty Units A person commits a violation if the person: (a) without lawful excuse, fails to honour a customer's valid withdrawal, redemption, or repayment request within the time required by the agreement or by law. This violation shall not occur where: (b) performance was prevented by a Freeze Order, court order, or other lawful restraint. Relevant Law: Financial Institutions Enforcement Act

Misleading Promotion of a Financial Product Violation Type: Intentional/Negligent Remedy: Up to 250 Civil Penalty Units; An order for corrective disclosure A person commits a violation if the person: (a) promotes a deposit or financial product using representations of fixed, guaranteed, insured, or risk-free returns; and (b) those representations are false, or are not reasonably substantiated at the time they are made. This violation shall not occur where: (c) the representation constitutes puffery (obvious exaggeration) on which no reasonable person would rely. Relevant Law: Financial Institutions Enforcement Act

Failure to Register a Financial Institution Violation Type: Administrative Remedy: Up to 250 Civil Penalty Units; Compliance order A person commits a violation if the person: (a) carries on regulated financial activity without being registered and incorporated as required by the Financial Institutions Enforcement Act. This violation shall not occur where: (b) the person is taking reasonable steps to register, or to cease the activity and return customer funds. Relevant Law: Financial Institutions Enforcement Act

Failure to File Required Reports or Disclosures Violation Type: Administrative Remedy: Up to 100 Civil Penalty Units per failure; Compliance order A person commits a violation if the person, being registered under the Financial Institutions Enforcement Act, fails to file a report, return, or disclosure required by that Act or by regulation within the time required. Relevant Law: Financial Institutions Enforcement Act

Failure to Comply with an Audit Demand Violation Type: Administrative Remedy: Up to 250 Civil Penalty Units; Adverse inference A person commits a violation if the person fails to obtain and submit an independent audit required under the Financial Institutions Enforcement Act, or obstructs such an audit. Relevant Law: Financial Institutions Enforcement Act

Failure to Maintain or Reconcile Client-Fund Records Violation Type: Administrative Remedy: Up to 100 Civil Penalty Units; Compliance order A person commits a violation if the person, being a holder of client funds, fails to maintain or reconcile the records of those funds in the manner required by the Department of Commerce. Relevant Law: Financial Institutions Enforcement Act

36. Amendment to the Commercial Standards Act

(1) Section 9(1)(b) of the Commercial Standards Act is amended as follows:

Before: There are four types of financial institutions: Commercial Banks, Investment Banks, Stock Exchanges, and Credit Unions. After: There are four types of financial institutions: Commercial Banks, Investment Banks, Stock Exchanges, and Credit Unions, together with any additional type of financial institution designated by the Department of Commerce under the Financial Institutions Enforcement Act.

(2) Section 9(2)(c) of the Commercial Standards Act is amended as follows:

Before: Companies not registered as Commercial Banks may not take interest bearing deposits from customers for bank accounts. After: No person, whether or not a registered company, may take interest-bearing deposits, or offer any return on a deposit, without registration as a Commercial Bank. The term "deposit" is interpreted in accordance with the Financial Institutions Enforcement Act, by reference to economic substance rather than label.

(3) Section 4 of the Commercial Standards Act is amended by adding the following subsection:

(7) The Department additionally holds the powers granted under the Financial Institutions Enforcement Act, including to register financial institutions and designate new types of financial institution, to investigate and audit, to issue cease and desist and freeze orders, to trace and seize assets, to seek receivership, and to impose administrative sanctions. A financial institution must be registered with the Department and incorporated under the Legal Entity Act.

37. Amendment to the Legal Entity Act

(1) Part I, Section 2 of the Legal Entity Act is amended by adding the following subsection:

(6) The Department of Commerce may change the owner of, or disband, an in-game company used to carry on or disguise regulated financial activity in contravention of the Financial Institutions Enforcement Act.

(2) Part I, Section 3 (Receivership) is amended by adding the following subsections:

(10) A receiver may also be appointed under the Financial Institutions Enforcement Act over an operation carrying on regulated financial activity, together with the relevant assets of its operators, whether or not the operation is a legal entity. Such a receiver holds the powers and immunities provided in this section. (11) The Department of Commerce may apply to the Federal Court to place a legal entity into receivership where the entity is insolvent, is being used to commit fraud, or persistently and seriously violates the law. Where creditor or customer funds are at immediate risk, the Department may impose an interim receivership for no longer than 72 hours pending the Court's decision.

(3) Part III, Section 3 (Fiduciary duty), subsection (4) is amended as follows:

Before: Only the contractual parties, the shareholders, or members of the Incorporated Entity may use breach of fiduciary duty as a claim in legal action. After: The contractual parties, the shareholders or members of the Incorporated Entity, the creditors of the Incorporated Entity where it is insolvent, and the Department of Commerce, may use breach of fiduciary duty as a claim in legal action.

(4) Part III, Section 10 (Dissolution and winding up) is amended as follows:

(a) subsection (6)(a) is amended as follows:

Before: All persons that do not contact the Incorporated Entity, its directors, or the DOC within 14 days following such announcement shall be regarded as giving up any claim voluntarily and permanently. After: All persons that do not contact the Incorporated Entity, its directors, or the DOC within 30 days following such announcement shall be regarded as giving up any claim voluntarily and permanently. The Incorporated Entity shall give direct notice of the winding up to every creditor known to it.

(b) the following subsections are added:

(9) The Department of Commerce, or a creditor owed a debt that is due and unpaid, may apply to the Federal Court to wind up and dissolve an Incorporated Entity that is insolvent or has abandoned its business, and the Court may appoint a receiver to conduct the winding up. (10) Any transfer, distribution, or payment made by an Incorporated Entity to a shareholder, member, director, officer, or related party while insolvent, or that leaves the entity unable to pay its debts, may be set aside by the Federal Court and recovered for the benefit of creditors.

(5) Part III, Section 11 (Liability) is amended by adding the following subsection:

(7) Notwithstanding subsections (1) to (3), a court may impose personal liability for the debts, obligations, or liabilities of an Incorporated Entity on a shareholder, member, or agent who used the Incorporated Entity to commit fraud, to evade the law or an existing obligation, or as a mere instrument or alter ego with which their own affairs were commingled. The Department of Commerce may bring such a claim.

(6) Part IV, Section 5 (Share Certificates) is amended as follows:

(a) subsection (2)(d)(iv) is amended as follows:

Before: (iv) the name of the shareholder, or to bearer. After: (iv) the name of the shareholder.

(b) the following subsection is added:

(6) Shares may not be issued or held to bearer. Every share must be registered to a named holder in the share register, and any bearer instrument purporting to represent shares is void.

(7) Part IV, Section 8 (Share Register) is amended by adding the following subsection:

(4) An Incorporated Entity shall, on the request of the Department of Commerce, disclose the beneficial owners of its shares, being the natural persons who ultimately own or control them, including where the shares are held through a nominee, custodian, or exchange.

(8) Part VII, Section 1 (Administrative Sanctions) is amended by adding the following subsection:

(5) The Department's administrative sanction powers under this section extend to the enforcement of the Financial Institutions Enforcement Act.

(9) Part VII is amended by adding the following sections:

4 - Disqualification of Persons (1) The Department of Commerce may apply to the Federal Court to disqualify a person from acting as, or forming, a director, manager, or officer of any legal entity for a specified period, where the person has committed fraud, persistently breached this Act, or was an agent of an entity wound up for misconduct or insolvency. (2) A disqualified person who acts in a prohibited capacity contravenes this Act.

5 - Investigation and Records (1) The Department of Commerce may, for the purpose of investigating compliance with this Act, require a legal entity or its agents to produce books, records, filings, and information relevant to the investigation. (2) Failure to comply permits the Department to draw adverse inferences and to pursue administrative sanctions.

38. Relationship to Other Acts and Authorities

(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.

(3) The Federal Reserve Bank sets and enforces reserve ratios and monetary reserve requirements for deposit-taking financial institutions. Where this Act empowers the Department of Commerce to set reserve requirements, the Department shall act in consultation with the Federal Reserve Bank and consistently with the reserve requirements it sets. This subsection does not affect the Department's authority over client-fund segregation under Section 8, or its registration, conduct, and enforcement powers.

39. 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.

40. 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.