Fintechs to Receive Streamlined Money Service Licensing in Seven States

By Lydia Beyoud

Seven states are banding together to harmonize parts of their money transmitter licensing procedures, a move that could give new fintech companies and cryptocurrency exchanges a leg up in expanding their business.

Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas, and Washington have agreed to streamline the initial phase for fintech applicants to obtain a money transmitter license, the Conference of State Bank Supervisors announced today. The group represents state-level financial regulators.

It takes one to two years and hundreds of thousands to millions of dollars in application fees and bonding requirements, not including capital requirements, to become licensed in all 50 states.

The program is partly a response to federal regulators’ interest in pre-empting state-level regulation of fintechs, such as the Office of the Comptroller of the Currency’s proposed special bank charter for fintech companies.

Under the new agreement, the partner states will accept the findings of any other state in the group that approves key elements of state licensing for a money transmitter. Those include a company’s business plan, cybersecurity, information technology, background check, and compliance with federal Bank Secrecy Act laws. That means companies applying for licenses within the group of states would only have to explain the details of their business plans to one state, rather than seven.

Some other aspects of the licensing process would still need to be conducted on a state-by-state basis.

The money service business (MSB) licensing agreement “will minimize the burden of regulatory licensing, use state resources more efficiently, and allow for broad participation by other states across the country,” John Ryan, CSBS president and CEO, said in a statement.

Moving to Nationwide Harmonization

The move is the first step toward a goal of including all 50 states, and more are expected to join the program soon, Catherine Pickels, a spokeswoman for the CSBS, told Bloomberg Law. The effort is part of CSBS’s broader “Money 2020” initiative, which aims to harmonize fintech licensing and supervision nationwide.

The CSBS filed suit in 2017 against the Office of the Comptroller of the Currency’s authority to create such a special bank charter for fintechs. Both parties — and prospective fintech applicants — are still awaiting a decision on CSBS’s challenge in the U.S. District Court for the District of Columbia. A judge in New York dismissed that state’s challenge to the charter Dec. 12, 2017.

The states’ agreement is likely to be welcome news to critics of the current system, who say the patchwork of state licensing statutes hampers growth in the fintech market.

State-by-state money transmitter regulations generate “uncertainty for innovative financial services businesses whose novel products and technologies straddle the statutory definitions of money transmission,” Peter Van Valkenburgh, research director for Coin Center, a Washington-based nonprofit focused on cryptocurrency and technology policies, said in a January report on money transmission services.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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