X, formerly known as Twitter, has made headlines in the past year for its ambitious aim to secure money transmitter licenses (MTLs) throughout the United States. The company has chronicled its licensing journey and, as of this writing, is expectantly waiting to hear back from regulators in heavily populated states like New York and California.
In the U.S., each state has its own requirements and processes for securing money transmission licenses. While they can vary, there are common elements across most jurisdictions to prepare for, including creating a business plan, registering with the Financial Crimes Enforcement Network (FinCEN), completing the state application, and undergoing background checks for certain company employees. Many states use the Nationwide Multistate Licensing System & Registry (NMLS) for application submissions, but requirements vary. The process of securing all necessary MTLs can take several months to years, depending on the number of states and the complexity of the individual requirements.
Additional requirements for money transmission licenses
Beyond what’s mentioned above regarding the initial application, the Money Services Business (MSB) must demonstrate vigilance and expertise in the U.S. financial system by developing and implementing an Anti-Money Laundering (AML) program that complies with the Bank Secrecy Act (BSA) and state regulations. Often, this will mean hiring or consulting with experts in financial services compliance & regulation at both the federal and state level. It’s critical to have demonstrated experience in financial management and reporting, risk management, and compliance with financial regulations, as well as actively developing and managing operational processes that comply with regulatory requirements. The hard costs associated with securing money transmitter licenses (MTLs) can also include:
- Surety bonds: Applicants are required to post a surety bond. The amount varies by state and can range significantly based on the volume of transactions and perceived risk.
- Application and licensing fees: These vary by state but can amount to several thousand dollars per state.
- Legal, consulting, & operational costs: Significant legal and consulting fees can accrue from navigating the application process and compliance requirements. Plus, there may be initial setup costs to establish a compliance infrastructure, including ongoing AML programs, cybersecurity measures, and other operational systems.
- Net worth requirements: Many states have minimum net worth requirements that must be met and maintained. These can range from $100,000 to over $1,000,000 depending on the state and the scale of operations.
- Permissible investments: States often require that money transmitters hold permissible investments exceeding the sum of all outstanding transmission obligations. The specifics vary by state.
Securing MTLs requires a significant upfront investment in time, resources, and capital, and demands ongoing commitment to regulatory compliance and operational integrity. After obtaining the licenses, companies must maintain compliance with both federal and state regulations, which can require regular reporting, renewals of licenses, and continuous monitoring of compliance programs.
What’s required to maintain money transmitter licenses?
Maintaining money transmitter licenses (MTLs) requires ongoing compliance with a set of regulatory obligations that can vary by state. These obligations are designed to ensure that licensed money transmitters continue to operate within the legal framework, maintain financial stability, and protect consumers. The critical areas for any MSB seeking MTLs to consider in maintaining their licensing in each state are outlined below.
Compliance with State and Federal regulations
- Anti-Money Laundering (AML) program: Maintaining an AML program, including the appointment of a compliance officer, development of internal policies, procedures, and controls, ongoing training for employees, and independent testing of the AML program.
- Reporting and record-keeping: Submitting regular reports to state regulators and FinCEN, including call reports, suspicious activity reports (SARs), currency transaction reports (CTRs), and more. Companies must also keep detailed financial records and transaction data for a period defined by each jurisdiction (often five years).
- Consumer protection measures: Adhere to federal and state-specific consumer protection laws, including transparent disclosure of fees, terms and conditions of service, resolution of complaints, and protection of consumer funds.
Financial requirements
- Net worth and surety bonds: Maintaining a minimum net worth and surety bonds as required by each state.
- Audited financial statements: Submitting annual audited financial statements to regulators, demonstrating the company's financial health and stability.
- Licensing fees: Paying annual licensing and renewal fees to each state where the company operates.
Operational integrity
- Cybersecurity measures: Protecting the integrity and confidentiality of customer information and transaction data through robust cybersecurity measures.
- Business continuity and disaster recovery plans: Implementing and regularly updating plans to ensure the continuity of operations in the event of a disaster or significant interruption.
- Change management: Notifying regulators of significant changes to the business, such as changes in control, business model, key management personnel, or operational infrastructure.
Periodic examination, compliance reviews, & training
- Regulatory examinations: Cooperating with state regulators during periodic examinations of the company’s operations, compliance programs, financial health, and other aspects of the business.
- Compliance reviews and audits: Conducting internal compliance reviews and audits through independent third-party reviewers to ensure ongoing adherence to regulatory requirements and internal policies.
- Continuing education: Providing ongoing training and education to employees on compliance matters, regulatory changes, and best practices in money transmission and financial services.
While we can’t say for sure how long it will take X to secure MTLs, we know first-hand that it’s an arduous process. Alviere is a regulated financial institution, with money transmitter licenses (MTLs) throughout the country. In the next article of the series, we dive into Centralized vs. state-by-state: Licensing for financial institutions in the EU and U.S. Learn more about Alviere’s commitment to Security & Compliance here.
