Updated May 15, 2013 - As a law firm advising US payments businesses, we thought it would be helpful to provide some general information concerning the money transmitter licensing regimes.
This site is published and updated by Adam Atlas Attorney at Law, licensed in the State of New York, a law firm advising over five hundred payments businesses. This site is not legal advice; it is information only. For your MSB, seek suitable legal advice.
Visite también nuestro latinoamericano blog de empresa de servicios financieros aquí: Centros Cambiarios y Transmisores de Dinero
We'll miss this year's Electronic Transactions Association Expo 2013 / ETAEXPO2013, in New Orleans, but have made a short video to help you get the most of it:
We'll miss this year's Electronic Transactions Association Expo 2013 / ETAEXPO2013, in New Orleans, but have made a short video to help you get the most of it:
United States Federal Registration of Money Services Businesses (MSB) with FinCEN
With few exceptions, each money services business (MSB) must register with the Department of the Treasury. Note that failure to register when required to do so, can lead to jail time. A person that is an MSB solely because that person serves as an agent of another MSB is not required to register. US Federal registration is done through the Financial Crimes Enforcement Network of the United States Department of the Treasury, also known as FinCEN. In most cases, FinCEN registration is can be completed within 60 days of filing a FinCEN Form 107. FinCEN registrations must be renewed every two years.
FinCEN BSA E-Filing System
Entities that are registered with FinCEN are required to make filings with FincEN under the US Bank Secrecy Act. As of July 1, 2012, all such filings must be electronic and made through the BSA E-Filing System. Reports that must be filed through this system include, but are not limited to:
FinCEN Administrative Rulings
FinCEN has a collection of published administrative rulings that give us an understanding of some of the rules concerning which kinds of businesses should and which need not register as MSBs with FinCEN.
We have drafted summaries of all FinCEN rulings through June of 2011.
Consumer Financial Protection Bureau (CFPB) Rule Concerning Receipts
The CFPB requires that as of February 7, 2013, all providers of international remittances issue to the senders thereof receipts that contain certain prescribed information.
Payments businesses should monitor CFPB regulation as it may creep into areas of payments that were previously unregulated.
State by State United States Regulatory Agencies Administering MSB Licensing
FinCEN BSA E-Filing System
Entities that are registered with FinCEN are required to make filings with FincEN under the US Bank Secrecy Act. As of July 1, 2012, all such filings must be electronic and made through the BSA E-Filing System. Reports that must be filed through this system include, but are not limited to:
- Currency Transaction Report (FinCEN Form 104)
- Designation of Exempt Person (FinCEN Form 110)
- Suspicious Activity Report (Form TD F 90-22.47)
- Suspicious Activity Report by the Securities and Futures Industries (FinCEN Form 101)
- Suspicious Activity Report by Money Services Business (FinCEN Form 109, formerly 90-22.56)
- Suspicious Activity Report by Casinos and Card Clubs (FinCEN Form 102)
- Currency Transaction Report by Casinos (FinCEN Form 103, formerly 8362)
- Registration of Money Services Business (FinCEN Form 107)
- Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1)
Bank Secrecy Act (BSA)
Money services businesses (MSBs) and other financial institutions serving the United States are regulated, in part, by the Federal Bank Secrecy Act (BSA) and its regulations, Chapter X--Financial Crimes Enforcement Network of the United States Department of the Treasury. The Federal Deposit Insurance Corporation (FDIC), maintains a useful set of links to 31 CFR Chapter X. Here is another set of the same US Federal regulations.
FinCEN Administrative Rulings
FinCEN has a collection of published administrative rulings that give us an understanding of some of the rules concerning which kinds of businesses should and which need not register as MSBs with FinCEN.
We have drafted summaries of all FinCEN rulings through June of 2011.
Consumer Financial Protection Bureau (CFPB) Rule Concerning Receipts
The CFPB requires that as of February 7, 2013, all providers of international remittances issue to the senders thereof receipts that contain certain prescribed information.
Payments businesses should monitor CFPB regulation as it may creep into areas of payments that were previously unregulated.
State by State United States Regulatory Agencies Administering MSB Licensing
Most states require money services businesses operating within their territory to be licensed with the state banking department. Note that many states also require registration of foreign MSBs that transact with their residents. For example, money transmitters with no physical presence in New York that transact with residents of New York must be licensed in the State of New York.
The Nationwide Mortgage Licensing System (NMLS) offers a portal through which some states are cooperating to provide a single portal through which applications for money services businesses may be made.
State regulators remain the arbiters of which entities may be licensed within the state. Below are links to the various state regulators:
Alabama
Alaska
Arizona
Arkansas
California: Great memo on current CA issues, CA Licensees
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho - Apply through NMLS
Illinois
Indiana
Iowa
Kansas
Kentucky - Apply through NMLS
Louisiana
Maine
Maryland - Apply through NMLS
Massachusetts, Memo Re Foreign Correspondents
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York, Licensed Money Transmitters
North Carolina
North Dakota
Ohio
Oklahoma - Apply through NMLS
Oregon
Pennsylvania PA Guidance Letters - Apply through NMLS
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont - Apply through NMLS
Virginia
Washington - Apply through NMLS
West Virginia
Wisconsin
Wyoming
US Money Transmitter Associations
Am I an MSB?
Your MSB status is a matter of Federal and State law, and should be ascertained by advice from a qualified lawyer.
We maintain www.paymentsbusinessideas.com that we hope will jog your creativity and see some models that are MSBs and some that are not.
Most likely, yes.
FinCEN has finally published guidance on this very issue.
This is the single most frequently asked question in MSB compliance today. Some e-wallets are categorized as providers of prepaid access within the meaning of the FinCEN Prepaid Access Final Rule, which is summarized here, while others are registered with FinCEN as money transmitters. The definitive answer to this question lies in the applicable federal and state law in each of the states in which you propose to operate your e-wallet. That said, the ability to: (i) load real currency into an e-wallet; (ii) maintain a balance; (iii) transfer e-currency between users; and (iv) unload e-currency and convert it to real currency, together, would most often fall within what state regulators would characterize as a prepaid access provider or money transmitter. Given that the definition of a prepaid access provider is relatively new (2011), we have only seen a handful of entities claim that that is their primary activity, most of which are classic prepaid branded card issuers or sellers.
We recently published an article on the MSB status of e-wallets in the E-Finance and e-Payments Law and Policy.
Lists of MSBs and Other Payments Businesses
Your MSB status is a matter of Federal and State law, and should be ascertained by advice from a qualified lawyer.
We maintain www.paymentsbusinessideas.com that we hope will jog your creativity and see some models that are MSBs and some that are not.
Is an E-Wallet a Money Transmitter?
Most likely, yes.
FinCEN has finally published guidance on this very issue.
This is the single most frequently asked question in MSB compliance today. Some e-wallets are categorized as providers of prepaid access within the meaning of the FinCEN Prepaid Access Final Rule, which is summarized here, while others are registered with FinCEN as money transmitters. The definitive answer to this question lies in the applicable federal and state law in each of the states in which you propose to operate your e-wallet. That said, the ability to: (i) load real currency into an e-wallet; (ii) maintain a balance; (iii) transfer e-currency between users; and (iv) unload e-currency and convert it to real currency, together, would most often fall within what state regulators would characterize as a prepaid access provider or money transmitter. Given that the definition of a prepaid access provider is relatively new (2011), we have only seen a handful of entities claim that that is their primary activity, most of which are classic prepaid branded card issuers or sellers.
We recently published an article on the MSB status of e-wallets in the E-Finance and e-Payments Law and Policy.
Entities Registered with FinCEN
There are 38,859 MSBs registered with FinCEN, but that number includes many duplicate registrations for multiple entities each with common ownership or a common brand.
Below are examples of entities that have had multiple money transmitter licenses:
Google Payment Corp.
Amazon
American Express
First Data
Obopay
PayPal
Ruesch International Inc.
Trans-Fast
Western Union
FinCEN maintains a list of all US registered MSBs, that can be searched here.
Payments Business Ideas
The best place for a survey of new payments ideas is www.paymentsbusinessideas.com.Bitcoin
Bitcoin gets a lot of talk. Bitcoin is an e-currency that is anonymous and de-coupled from traditional banking. Bitcoin operates largely in the unlicensed arena. Here is a site that helps explain Bitcoin. The Bitcoin marketplace is interesting from an academic perspective, because it serves as a nexus for interesting debates between anti-statists, statists, privacy advocates and others. The efficiency of Bitcoin, being a means for the free and secure exchange of value, poses challenging questions for (a) traditional banking that offers the same service, but at enormously higher costs; and (b) law enforcement that has a legitimate right to oversee suspicious activity in the financial system.
On May 15, 2013, the U.S. Department of Homeland Security seized assets of Dwolla, a popular payment processor for Mt.Goxhttps://mtgox.com/, the world's largest Bitcoin exchange which is based in Japan. Bitcoin is under intense scrutiny from U.S. law enforcement, which will hopefully resolve some of the ambiguities as to its legal status.
Here is the seizure affidavit:
Without referring to Bitcoin by name, FinCEN has characterized it as a decentralized virtual currency for which users do not need to become MSBs, but for which administrators and exchangers are. Long story short, Bitcion exchanges are likely MSBs under the BSA.
Anti-Money Laundering (AML) Policies
In order to comply with Federal and State statutes, MSBs are required to have AML policies. An MSB AML policy is a set of rules and procedures to prevent the introduction of the proceeds of crime into the financial system by means of an MSB. An AML policy will address, amongst other things, underwriting of new clients and transactions, OFAC checking policies, transaction limits, policies to prevent facilitation of money laundering or the funding of terrorism and policies on the reporting of suspicious transactions.
In the United States, the essential criteria for an AML policy are set out, in part, in the Bank Secrecy Act which specifies that such policies must include the following elements: (1) a system of internal controls; (2) independent testing for compliance; (3) the designation of an individual, or individuals, to coordinate and monitor day-to-day compliance; and (4) training of appropriate personnel.
Failure of an MSB to draft, adopt and honor such a policy may result in severe repercussions for the MSB and those individuals who operate the MSB.
AML Training
Each entity that is required to have an AML policy must have a chief compliance officer (CCO). The CCO should be experienced in anti-money laundering and have some training and qualifications in that regard.
A leading source of certification for AML professionals is the Association of Certified Anti-Money Laundering Specialists (ACAMS).
Terrorist Watch Lists
Some MSBs are careless enough to operate without any particular compliance regime, such as an AML policy. That way of operating exposes the operators, directors and owners to the risk of prosecution and jail-time and must be avoided. By way of example, one of the necessary, rudimentary and important tasks for an MSB to undertake, especially if they are money transmitters, is to regularly (i.e. on sign-up and then at least monthly after that), verify that none of the clients of the business are listed on the various applicable terrorist and other criminal watch lists. This is only one of dozens of steps that an MSB should take in order to assemble a compliance regime that fits its business model. Here are a sample of some of the watch lists. This collection is not complete:
There are other lists, so the reader must not rely on this as a complete collection of such lists. Local laws will impact upon how these lists are to be used within a given MSB. If an MSB finds a client of theirs on one of these lists, they should contact law-enforcement immediately.
High Risk Jurisdictions
The Financial Action Task Force (FATF) publishes a list of high-risk and non-cooperative jurisdictions. MSBs should either not transact with these jurisdictions or should exercise extreme caution in transacting with them, as it may be illegal for an MSB in a given country to transact with entities or individuals in these countries.
MSB Business Opportunities
There are a number of new payments startups that are announced every week in the business press. Few of these startups have sorted out their regulatory compliance needs. Here is a presentation that illustrates examples of contemporary payments startups that could benefit from collaborating with licensed MSBs.
Bitcoin
One of the emerging markets for licensed money transmitters is to service the Bitcoin market, which operates largely in the unlicensed arena.
Bank Account for a US Money Services Business
Once licensed, the hardest task for a new MSB is to obtain a commercial bank account. We believe that the following banks have, on some occasions, provided banking services to MSBs:
Key Bank
Mellon Trust of New England
Sterling Savings Bank
US Bank
Wells Fargo Bank
TwinStar Credit Union
Bank of America
Mountain Pacific Bank
West Coast Bank
South Sound Bank
These banks have attended the National Money Transmitters Association events and they are familiar with transmitters:
Merchants Bank of California
1st Constitution Bank
We do not have any referral relationships with any banks, but if you call the above banks, please mention where you learned about them.
International Money Services Business Regulations
Some of the key national regulators are listed here.
Mexico and Latin America
Visite también nuestro latinoamericano blog de empresa de servicios financieros aquí: Centros Cambiarios y Transmisores de Dinero
Canada Federal FINTRAC MSB Registration
In order to comply with Federal and State statutes, MSBs are required to have AML policies. An MSB AML policy is a set of rules and procedures to prevent the introduction of the proceeds of crime into the financial system by means of an MSB. An AML policy will address, amongst other things, underwriting of new clients and transactions, OFAC checking policies, transaction limits, policies to prevent facilitation of money laundering or the funding of terrorism and policies on the reporting of suspicious transactions.
In the United States, the essential criteria for an AML policy are set out, in part, in the Bank Secrecy Act which specifies that such policies must include the following elements: (1) a system of internal controls; (2) independent testing for compliance; (3) the designation of an individual, or individuals, to coordinate and monitor day-to-day compliance; and (4) training of appropriate personnel.
Failure of an MSB to draft, adopt and honor such a policy may result in severe repercussions for the MSB and those individuals who operate the MSB.
AML Training
Each entity that is required to have an AML policy must have a chief compliance officer (CCO). The CCO should be experienced in anti-money laundering and have some training and qualifications in that regard.
A leading source of certification for AML professionals is the Association of Certified Anti-Money Laundering Specialists (ACAMS).
Terrorist Watch Lists
Some MSBs are careless enough to operate without any particular compliance regime, such as an AML policy. That way of operating exposes the operators, directors and owners to the risk of prosecution and jail-time and must be avoided. By way of example, one of the necessary, rudimentary and important tasks for an MSB to undertake, especially if they are money transmitters, is to regularly (i.e. on sign-up and then at least monthly after that), verify that none of the clients of the business are listed on the various applicable terrorist and other criminal watch lists. This is only one of dozens of steps that an MSB should take in order to assemble a compliance regime that fits its business model. Here are a sample of some of the watch lists. This collection is not complete:
- U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC), Specially Designated Nationals List (SDN)
- The United Nations Consolidated List established and maintained by the 1267 Committee with respect to Al-Qaida, Usama bin Laden, and the Taliban and other individuals, groups, undertakings and entities associated with them
- UK Financial Services Authority List of Prohibited Individuals
- Canadian Anti-Terrorism Act, Listed Entities
There are other lists, so the reader must not rely on this as a complete collection of such lists. Local laws will impact upon how these lists are to be used within a given MSB. If an MSB finds a client of theirs on one of these lists, they should contact law-enforcement immediately.
High Risk Jurisdictions
The Financial Action Task Force (FATF) publishes a list of high-risk and non-cooperative jurisdictions. MSBs should either not transact with these jurisdictions or should exercise extreme caution in transacting with them, as it may be illegal for an MSB in a given country to transact with entities or individuals in these countries.
MSB Business Opportunities
There are a number of new payments startups that are announced every week in the business press. Few of these startups have sorted out their regulatory compliance needs. Here is a presentation that illustrates examples of contemporary payments startups that could benefit from collaborating with licensed MSBs.
Bitcoin
One of the emerging markets for licensed money transmitters is to service the Bitcoin market, which operates largely in the unlicensed arena.
Bank Account for a US Money Services Business
Once licensed, the hardest task for a new MSB is to obtain a commercial bank account. We believe that the following banks have, on some occasions, provided banking services to MSBs:
Key Bank
Mellon Trust of New England
Sterling Savings Bank
US Bank
Wells Fargo Bank
TwinStar Credit Union
Bank of America
Mountain Pacific Bank
West Coast Bank
South Sound Bank
These banks have attended the National Money Transmitters Association events and they are familiar with transmitters:
Merchants Bank of California
1st Constitution Bank
We do not have any referral relationships with any banks, but if you call the above banks, please mention where you learned about them.
International Money Services Business Regulations
Some of the key national regulators are listed here.
Mexico and Latin America
Visite también nuestro latinoamericano blog de empresa de servicios financieros aquí: Centros Cambiarios y Transmisores de Dinero
Canada Federal FINTRAC MSB Registration
The regulatory framework for MSBs (money services businesses) in Canada is much simpler than in the United States. With some exceptions, there are few provincial licensing requirements. There is, however, a Federal agency calledhe Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) that requires registration of certain MSBs.
Financial Consumer Agency of Canada
The FCAC (like its US counterpart, the CFPB) was created to bolster regulation of consumer financial services, but its mandate has gone further into merchant-facing credit card payment processing, in part through the Code of Conduct for the Credit and Debit Card Industry in Canada.
Payments businesses operating in Canada, should monitor CFPB regulations as they may creep into previously unregulated payments markets.
Canadian Provincial MSB Registration
Quebec has become the first the ten Canadian provinces to enact MSB licensing requirements. As of January 1, 2013, all Quebec MSBs will require a license from the L’Autorité des marchés financiers - Quebec MSB Regulator to operate an MSB in Quebec. Other Canadian provinces have yet to enact similar legislation.
EU
In order to increase efficiency in the licensing of financial services in the European Union, the European Commission has enacted directives concerning financial services within the EU. For example, the EU E-Money Directive (2009/110/EV) (EMD) provides for the licensing of electronic money institutions and issuers which licenses are recognized throughout the EU.
United Kingdom
The Financial Services Authority (FSA) is the competent authority for most aspects of money services businesses in the UK under the Payment Services Regulations (PSR) of the Payment Services Directive (PSD). The UK implemented the PSD through the Payment Services Regulations 2009 (PSRs), which came into effect on 1 November 2009.
The following are some key categories of entities of particular interest in the UK:
- Small Payment Institution (Small PI): < €3million in payment transaction volume;
- Authorised Payment Institution (Authorised PI): > €3million in payment transaction volume and/or entity wishes to passport into other EU States.
Rather than a surety bond (as required in US states) the FSA requires that the payments business have a certain minimum capitalization:
- €20,000: capital required for authorization as a money transmitter;
- €50,000: capital required for authorization as a paperless money transmitter; and
- €125,000: capital required for authorization as another payment service.
Application for registration in the U.K. is pursuant to the The Payment Services Regulations 2009.
Here is some analysis of the various payment systems in France that we have published.
Brazil
Money transmission in Brazil is regulated by Conselho de Controle de Atividades Financeiras - Council for Financial Activities Control (COAF) which has promulgated an interesting COAF - RESOLUTION Nº 006, OF JULY 2, 1999, requiring independent sales organizations to comply with record-keeping and reporting requirements of MSBs within Brazil. (Ironically, the COAF site does not have a trusted internet security certificate.)
China (中国的钱变送器, 中国支付处理)
One of the challenges in dealing with money transmission in and out of China (中国) are the strict restrictions on remittances (汇款) in and out of China. One popular provider of international remittance from China is ICBC (工商银行). 如有查詢，歡迎來自中國的。
Payments Business Modelling
When planning a payments business, it's important to have a clear understanding of the flow of funds and who is taking risk on the loss of funds at each moment. Here is a sample 3D model to jog your imagination. You can also check out our www.paymentsbusinessideas.com.
____________________________________________________
Published by Adam Atlas Attorney at Law
Disclaimer
Money transmission in Brazil is regulated by Conselho de Controle de Atividades Financeiras - Council for Financial Activities Control (COAF) which has promulgated an interesting COAF - RESOLUTION Nº 006, OF JULY 2, 1999, requiring independent sales organizations to comply with record-keeping and reporting requirements of MSBs within Brazil. (Ironically, the COAF site does not have a trusted internet security certificate.)
China (中国的钱变送器, 中国支付处理)
One of the challenges in dealing with money transmission in and out of China (中国) are the strict restrictions on remittances (汇款) in and out of China. One popular provider of international remittance from China is ICBC (工商银行). 如有查詢，歡迎來自中國的。
Payments Business Modelling
When planning a payments business, it's important to have a clear understanding of the flow of funds and who is taking risk on the loss of funds at each moment. Here is a sample 3D model to jog your imagination. You can also check out our www.paymentsbusinessideas.com.
____________________________________________________
Published by Adam Atlas Attorney at Law
Disclaimer
NOTHING ON THIS BLOG SHALL BE INTERPRETED AS LEGAL ADVICE. THE INFORMATION ON THIS BLOG IS MOST LIKELY OUT OF DATE AND MUST NOT BE RELIED UPON. SEEK ADVICE FROM COMPETENT LEGAL COUNSEL PRIOR TO ESTABLISHING OR OPERATING ANY MONEY SERVICES BUSINESS IN THE UNITED STATES OR ELSEWHERE. FAILURE TO HOLD THE CORRECT LICENSES MAY RESULT IN CRIMINAL PROSECUTION AND JAIL TIME.
Published by Adam Atlas Attorney at Law, advising payments businesses worldwide since 2003.
