May 24, 2018

States unite to create efficiencies for the licensing process

While everyone is certainly aware that banks and financial institutions are governed by and benefit from a myriad of uniform federal laws and regulations that address how and where banks can operate, modern money services businesses (MSB) remain bound by different sets of regulatory hoops whenever they seek to expand their businesses across state lines.

On Feb. 13, 2018, in an attempt to ease this burden, seven states joined together in an effort to streamline the regulation and registration process for MSBs by executing the Agreement for Money Service Business Licensing (the Agreement). The Agreement defines an MSB to include financial service providers who are:

  • Currency dealers or exchangers;
  • Issuers of traveler’s checks, money orders, prepaid access and/or stored value;
  • Sellers or redeemers of traveler’s checks, money orders, prepaid access and/or stored value; and
  • Money transmitters.

The Agreement is designed to standardize the many state licensing benchmarks across the seven signatory states, which include Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington. The Agreement’s scope covers MSB licensing related to information technology, cybersecurity, business planning, background checks and compliance with the Bank Secrecy Act.

The licensing process is divided into two phases. The first phase captures the requisite data common to all states which are a party to the Agreement. It also reduces the redundancy of requiring MSBs to complete multiple applications in different states that ultimately seek the same materials and information now issued in the Nationwide Multistate Licensing System (NMLS). Member states must complete phase one reviews in no more than 25 business days from the date the MSB completes its NMLS application. Phase two in the licensing process then addresses state-specific information where requirements diverge among the participants. If an MSB elects to apply to multiple states when it provides the information on the NMLS, the second phase’s state-specific requirements are then addressed for each participant state in which an applicant seeks to register. The timeline for evaluation of phase two varies between the participating states.

State chartered banks with subsidiaries or affiliate entities that conduct business as an MSB stand to benefit from this streamlined oversight. For national banks that operate in the MSB space, the greater uniformity provided by the Agreement will ultimately help lower costs and provide a modicum of certainty in how states will evaluate licensing applications, thanks to creating a more level playing field where businesses can grow. As the ubiquity of this process grows, MSBs regulation will become even more efficient.

If you have questions about the Agreement or streamlining the licensing application to save costs, contact a Chuhak & Tecson Banking Law attorney.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client Alert authored by: Edmond M. Burke, Principal and 
Christopher A. Pellegrini, Associate

This alert originally appeared in 
the Summer 2018 Banking Focus newsletter.