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CSBS Announces Multi-State Compact to Standardize Money Transmitter Licensing

On February 6, 2018, the Conference of State Bank Supervisors (“CSBS”) – the nationwide organization representing banking regulators from all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands – announced that seven states have agreed to a compact that standardizes five major areas of the licensing process for money services businesses (“MSBs”).

Under the compact, the state financial regulators of Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington agreed to accept each other’s findings on money transmitter license applicants regarding a company’s IT, cybersecurity, business plan, background check, and compliance with the Bank Secrecy Act. Although other state-by-state licensing processes will remain in place, the CSBS stated that the agreement will reduce the regulatory burden of applying state-by-state, and the organization characterized the agreement as an important “first step” in achieving “an integrated, 50-state system of licensing and supervision for fintechs.” The group expressed an expectation that other states will join the compact.

The announcement comes as both federal and state regulators are exploring – and at times competing over – avenues for standardizing the current patchwork of MSB regulation faced by money transmitters. In December 2016, the Office of the Comptroller of the Currency (“OCC”) announced plans to begin issuing special purpose national bank charters to fintech companies. The CSBS expressed opposition to the plan, partly on the theory that federally-chartered fintech banks would be exempt from state consumer protection laws by virtue of preemption afforded to national banks under the National Bank Act. In April 2017, the CSBS sued to block the OCC from going forward with the special purpose fintech charter. The U.S. District Court for the District of Columbia has not yet ruled in that case, although the U.S. District Court for the Southern District of New York has dismissed as premature a similar suit brought by the New York State Department of Financial Services.

© 2020 Covington & Burling LLPNational Law Review, Volume VIII, Number 42


About this Author

Luis Urbina, Covington Law Firm, regulatory and public policy lawyer

Luis Urbina advises clients on state and federal financial regulations. He assists banks, lenders, and technology companies with regulatory issues including bank chartering and compliance with consumer protection laws. He monitors developments regarding the Consumer Financial Protection Bureau (CFPB) and regarding the deployment of fintech services, including those dependent on blockchain technology.