Federal requirements for money transmitter businesses
At the federal level, money transmitter businesses are considered “Money Service Businesses” (MSB). With few exceptions, every MSB must register with the U.S. Department of Treasury by filing through the BSA e-Filing System.
According to FinCEN, the term money service business includes any person doing business in one of the following capacities:
- Currency dealer or exchanger
- Check casher
- Issuer of traveler's checks, money orders, or stored value
- Seller or redeemer of traveler's checks, money orders, or stored value
- Money transmitter
- U.S. Postal Service
The form, Registration of Money Services Business, FinCEN Form 107, must be completed and signed by the owner or controlling person and filed within 180 days after the date on which the MSB is established.
There is no minimum or maximum threshold to be considered as an MSB. Therefore if your company engages in the business of transferring funds — regardless of the amount — you must obtain a money transmitter license and renew it every two years.
In certain instances, re-registration may be required. For example, a business that experiences a change of ownership or control under state law will have to re-register. Another trigger is a transfer of more than 10% of the voting power or equity interest (except MSBs who must report such transfers to the SEC). Lastly, an increase in the number of agents of the MSB by more than 50% also requires re-registration.
Civil and criminal penalties may be imposed for violation of the registration requirement.
State licensing requirements for money transmitter businesses
Nearly every state has some version of a money transmitter business license. One exception is Montana. The state does not require a money-service business to obtain a special license. However, the business must register with the Montana Secretary of State.
Another important point is that states have not adopted a uniform definition of money transmission, and so this can vary from state to state.
For example, Connecticut defines money transmission as –
“...engaging in the business of issuing or selling payment instruments or stored value, receiving money or monetary value for current or future transmission or the business of transmitting money or monetary value within the United States or to locations outside the United States by any and all means including, but not limited to, payment instrument, wire, facsimile or electronic transfer.”
In Maryland, a money transmitter business is defined as –
“...a business that sells or issues payment instruments or prepaid access, or receives currency, funds, or other value that substitutes for currency and transfers currency, funds, or other value that substitutes for currency to another person or a location within or outside the United States by any means, including electronically, through the Internet, through a mobile application, through a network of persons, or through an informal value transfer system. A Money Transmitter also includes providing bill payer services or accelerated mortgage payment services.”
When you register for a money transmitter license at the state level, you must do so for each business location. The application process typically involves the following prerequisites and supplemental items:
- Surety bond
- FBI criminal background check
- Fingerprints
- Financial statements
- Credit report
- Meeting minimum net worth qualifications (for licensee)
- Business plan
- Certificate of Good Standing
- Registered agent
- Management and organizational charts
- Registrations with the Secretary of State and Revenue authority for that state
State money transmitter licenses must be renewed annually.
Multi-state licensing
U.S. licensing requirements can be complex and time-consuming. However, state regulators are taking steps to ensure license reciprocity and standardize the application process across states via the Multi-State Money Services Businesses Licenses Agreement (MMLA) Program.
The MMLA is for MSB companies only. The term "money services businesses" for the purposes of the MMLA includes any person doing business in one of the following capacities:
- Money transmitter
- Issuer of traveler's checks, money orders, or stored value
- Seller or redeemer of traveler's checks, money orders, or stored value
- Currency deal or exchanger.
Local licensing requirements
In addition to state licenses, counties, cities, and towns may impose their own money-transmitter regulations. Be sure to check locally what money transmitter license and tax requirements you will need to comply with. Typically, these are based on your number of employees and gross revenue.
Money transmitter laws and virtual currency
If you operate a cryptocurrency-related business, most regulators will view your business as a money transmitter. As such, your business is subject to the U.S. Bank Secrecy Act (BSA) and must register for a money transmitter license. This applies in all states, except Montana.
Furthermore, if your crypto business is considered an MSB by FinCEN, you must register with FinCEN and renew that registration every two years. You must also maintain an anti-laundering program and keep records of certain transactions and report them to FinCEN.
If your crypto business is subject to money transmitter or virtual currency business activity laws in a given state, it’s your responsibility to maintain that license.
As part of this process, you may be subject to examinations by state regulators (generally at your expense) and be required to submit audited reports (including background information for executives, surety bonds, and minimum net worth, and/or collateral requirements).
Certain states may have additional requirements. In New York, your business must comply with New York laws and licensing requirements even if you operate an out-of-state money transmission business.
Conclusion
Managing compliance obligations amidst ever-changing regulations should occupy an important part of your company’s day-to-day operations. Keeping track of renewal dates, fees, and necessary documents can be complicated and time-consuming.
CT Corporation can help you navigate the uniquely complex regulatory and licensing challenges of a money transmitter business.
To learn more about how CT Corporation can help you manage your business license needs, contact a CT Corporation Service Representative or call (844) 878-1800.
