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The Latest inMoney Transmitter Licensing
Wednesday October 21, 2015
Presented By The Bryan Cave Payments Team
Agenda
• Introduction - Money Transmitter Licensing and Payments Innovation(J. Rinearson)
• Update from Money Transmitter Regulators Association (MTRA)Annual Meeting (J. Crowder)
• Recent Changes in the Laws (S. Iwarere)
• Recent Enforcement Actions (J. Crowder)
• The Bryan Cave Money Transmitter Licensing Compendium(S. Iwarere)
• Conclusion (J. Rinearson)
Money Transmitter Licensing Laws
• Genesis: “Safety and soundness” of non-bank issuers– Banks are generally exempt
• Typically regulate non-bank entities that:– Receive and hold consumer funds, with promise to return funds later or send funds elsewhere; or
– Issue or sell “payment instruments,” which include “stored value”
• 48 states have enacted MTL laws, which usually require:– Minimum capitalization ($50,000 – $1 million) and bonding
– Background checks on principals
– Holding 100% of consumer funds in “permissible investments”
• Must be licensed in every state where you are selling or offering services - -whether or not you are physically present
• Cost and time (for full licensing):– Approx. 1-2 years and $200,000; $70,000+ in filing & bond fees
– Net worth requirement of $50,000 – $1 million
• Risks – State and federal criminal penalties
• MTL laws– Valuable and important laws/protections
– But clearly a barrier to entry
– Does having 40+ licenses really enhance consumer protection?
– Recent restrictions on ability to appoint agents removes safety valve
• EU: E-Money Institution licenses (E-Money Directive);Authorized Payment Institution (Payment Services Directive)– Can be pass-ported to other jurisdictions - - different countries
– Can appoint agents if licensed entity takes responsibility
• London/EU – Fintech Boom – encouraged by government
View from London – MTL & and Innovation
UPDATE FROM THE MTRAANNUAL MEETING
Jennifer Crowder
• Annual meeting of MTL regulators
• This year’s highlights
• Announcement of Money Services Business Association– new trade association focused on non-bank paymentservices
• See www.msbassociation.org
MTRA – October 5-8, 2015 – Kansas City
RECENT CHANGES TO LAWS& REGULATIONS
Seyi Iwarere
2015 Changes to MTL laws/regulations
• Six major new laws impacting money transmitterspassed so far in 2015– Kansas – Makes a few changes to Act. One is to narrow scope of
licensed money transmitter’s ability to appoint an agent by restricting thedefinition of agent to a person who receives funds from a Kansasresident in order to forward the funds to the licensee to transmit money.
– North Dakota - Allows exempt entities such as banks, credit unionsand savings and loan associations to issue or sell payment instrumentsthrough authorized delegates that are not themselves banks, creditunions or savings and loan associations.
– Puerto Rico - Requires a 2% special charge on every moneytransmission processed or completed electronically, by check, moneyorder, fax, air transportation, or other means from Puerto Rico to anyentity located in any jurisdiction. Failure to post the notice will subjectthe entity to a $1,000 fine. – REPEALED EFFECTIVE OCTOBER 1
2015 Changes to MTL laws/regulations
• Six major new laws impacting money transmitters passedso far in 2015– Texas - Makes a number of changes to the money transmitter law.
Notably, persons who only solicit or advertise money transmissionservices are no longer deemed to engage in money transmission
– Utah - Enacts new Money Transmitter Act. New law updates moneytransmitter licensing requirements of Utah Administrative Rule R331-14(applicable to business of issuing and selling money orders, traveler’schecks, wire transfers and other instruments).
– West Virginia – Makes several changes to the money transmitter law.Among them are (a) moving the notification requirement for merger oracquisition resulting in change of control or change in principal from 15days prior to 60 days prior and (b) making the yearly expiration date formoney transmitter licenses December 31 (instead of one year from thedate issued).
RECENT ENFORCEMENTACTIONS
Jennifer Crowder
Enforcement Actions Increasing
• Both in number of actions and amount of fines/penalties
• Pre-2005, penalties ranged from $1,500 – $50,000
• Now penalties can exceed $500,000, with some reportedlyequaling more than $1 million
• Often no link to losses or actual criminal activity
• No need to prove intentional misconduct
• Penalty is seen as a necessary punishment anddisincentive for other companies
Typical Enforcement Process
• State learns of possible violation—often from acompetitor—and sends Inquiry or Demand Letter
• Company has 30 days to provide details of length oftime doing business and volume of business in state– Or can provide legal basis as to why no violation exists
• State reviews materials, makes a determination andissues a Consent Order
• Negotiations proceed on wording of the Consent Orderand amount and payment of fine/penalty
• Company signs Consent Order and pays penalty– Depending on state, Order may be publicly posted
Sampling of States with Significant RecentEnforcement Activity
• Arkansas, Florida, Illinois, New Hampshire,Pennsylvania and Texas
• Pennsylvania particularly hot in 2015– Five publicly available enforcement actions issued from
January to August for unlicensed money transmission
– Average penalty for 2015 Actions: $42,800
Remember: State Regulators Talk toEach Other!
• Enforcement action in one state can mean action inanother state may follow
• Good idea to know your regulator(s)– Money Transmitter Regulators Association (MTRA)
– Next MTRA Annual Conference: September 19-22, 2016 -Tucson, Arizona
– Website: www.mtraweb.org
BRYAN CAVE MTLCOMPENDIUM
Seyi Iwarere
• “One Stop Shop” for MTL information Statutes
Regulations
State Webpages linking to state websites
Forms (including documents from NMLS)
Guidance Documents
Additional MTL Information (regulator contact info, NMLS statesurvey; will add other tips as useful – let us know what youneed!)
• Site updated semiannually Exception: new laws and regs updated monthly
Why the MTL Compendium?
Logging In
Home Screen
Searching: Sample Search
Searching, Cont’d.
• Cost– $500 yearly (per company); clients get $250 credit on next MTL
matter bill
• Email Seyi or Jennifer with questions or to sign up– [email protected]
Signing Up
Conclusion
• Difficult times for unlicensed emerging payments businesses – fewoptions– Partnerships with banks/licensed money transmitters harder to accomplish
– Just getting a bank account is difficult
– Overseas competitors have it easier
• Must pay attention to these laws – often overlooked – penalties aregrowing
• Be careful in what positions are taken with state regulators;settlements with one regulator can haunt you in other states.
• Impact on US payment innovations:– Fear of extra-territorial enforcement outside the US
– Calls for more industry input
– Calls for more education about the MTL industry
– Calls for a single federal license or “pass-porting” with a “home regulator”
Thank You!For more information, please contact one
of the speakers listed below.
Judie Rinearson – [email protected]
Jennifer Crowder – [email protected]
Seyi Iwarere – [email protected]
