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Hope for Regulatory Relief on the Horizon? State Regulators to Standardize Licensing Process for Money Transmitters

The Conference of State Bank Supervisors (CSBS) recently announced that seven states, Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington, have agreed to a multi-state compact (the Compact) that will standardize certain aspects of the licensing process for money services businesses (MSBs).

Under the Compact, if one of the participating states reviews “key elements of state licensing for a money transmitter” as part of that state’s initial licensing process, the other participating states agree to accept the findings of the review.  The CSBS identifies the key elements as IT, cybersecurity, business plan, background check, and compliance with federal Bank Secrecy Act requirements.  With the announcement of the Compact, the CSBS took a notable step toward accomplishing one of the six objectives provisioned under its “Vision 2020” initiative — harmonizing multistate supervision.  Its other objectives include: creating a FinTech advisory panel; redesigning the Nationwide Multistate Licensing System; assisting state banking regulators; enabling banks to service non-banks; and improving third-party supervision.

The Compact will begin as a pilot program in early April 2018, and MSBs that are interested in licensure through the program may contact the Washington State Department of Financial Institutions.  According to the CSBS, additional states are expected to join the Compact in the future.

Many industry participants will likely view the Compact as a welcome attempt at streamlined licensing and coordinated regulatory supervision at the state level, while they continue awaiting a decision from the Office of the Comptroller of the Currency (OCC) on possible issuance of a federal FinTech charter and the outcome of a pending lawsuit brought by the CSBS challenging the OCC’s authority to issue such a charter.  Others may view this effort as too little, too late.  Even with streamlined applications, licensed money transmitters will still have to obtain separate licenses, pay separate application fees, establish separate bonds, and comply with other separate, non-uniform state law requirements.  Nevertheless, it is good to see some states recognizing and trying to address the significant burdens of the current state money transmitter licensing framework.

Copyright 2020 K & L GatesNational Law Review, Volume VIII, Number 86


About this Author

Eric A. Love, KL Gates, Capital Markets Compliance Lawyer, Treasury Legislation Attorney
Law Clerk

Eric A. Love is a member of K&L Gates’ Public Policy and Law Practice and is based in the Washington, D.C. office. Mr. Love focuses on federal legislative and regulatory policy issues related to financial services and capital markets, with a particular emphasis on securities and corporate governance. 

Prior to joining K&L Gates, Mr. Love served as a special assistant in the Office of Legislative Affairs at the U.S. Department of the Treasury. In this capacity, he worked to help advance Treasury’s legislative agenda on a broad portfolio...

Judith E. Rinearson, KL Gates, federal consumer protection lawyer, anti money laundering attorney

Judith Rinearson is a partner in the firm’s New York and London offices. Ms. Rinearson concentrates her practice in prepaid and emerging payment systems, electronic payments, crypto/virtual currencies, reward programs, ACH and check processing. She has more than 25 years of experience in the financial services industry, including 18 years at American Express’s General Counsel’s Office. Her expertise focuses particularly in the areas of emerging payments and compliance with state and federal consumer protection laws, anti-money laundering laws, state money transmitter licensing laws and abandoned property laws. 

Fully experienced in both the “issuing” and “acquiring” side of the payments business, Ms. Rinearson has drafted and negotiated complex agreements with strategic co-branded partners, processors and Independent Sales Organizations (ISOs), ATM networks, major retailers and service providers, prepaid card issuers and program managers, international remittance companies, virtual and mobile payment providers, as well as the Terms and Conditions and disclosures that usually accompany such products. She has hands-on experience in all legal aspects of launching and managing a range of payment products, from prepaid cards of all kinds, to Bitcoin exchanges and miners, wire transfer services, ACH, electronic banking, money orders and credit cards. Her practice includes advising on fraud avoidance and compliance with federal banking and anti-money laundering laws, as well as state money transmitter licensing laws, consumer protection laws and abandoned property laws. On the international level, Ms. Rinearson has supervised the launch of a range of payment and foreign currency products in Europe, Asia and Latin America; met with international regulators; and spoken on the issue of payment regulation.