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Financial Services Law Insights and Observations

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  • Arkansas amends Uniform Money Services Act

    State Issues

    On February 13, the Arkansas Governor approved SB 187, which amends the state’s Uniform Money Services Act as it relates to money transmission licensees and currency exchanges. Among other things, the amendments (i) revise surety bond and net worth amounts money transmission licensees are required to maintain; (ii) specify application and renewal requirements and deadlines; (iii) permit the use of international financial reporting standards (in addition to generally accepted accounting principles) to compute the value of permissible investments licensees are required to maintain; and (iv) repeal certain savings and transitional provisions. The amendments take effect 90 days after adjournment.

    State Issues State Legislation Licensing Money Service / Money Transmitters

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  • Virtual currency is not considered “money” in Pennsylvania; platforms do not need money transmitter license

    State Issues

    The Pennsylvania Department of Banking and Securities recently published guidance stating that virtual currency, including “Bitcoin,” is not considered “money” under the state’s Money Transmitter Act (MTA). According to the guidance, only “fiat currency,” or currency issued by the U.S. government is considered “money” under the MTA and that to transmit money under the MTA, (i) fiat currency must be transferred with or on behalf of an individual to a third party; and (ii) the money transmitter must charge a fee for the transmission. Because virtual currency trading platforms (along with virtual currency kiosks, ATMs, and vending machines) never directly handle fiat currency and there is no transfer of money from a user to a third party, they are not money transmitters under the MTA and therefore do not need a license in order to operate in the state.

    State Issues Virtual Currency Licensing Money Service / Money Transmitters

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  • Georgia Department of Banking and Finance revokes money transmitter license

    State Issues

    On January 11, the Georgia Department of Banking and Finance (Department) announced the issuance of a Final Order taken against a Florida-based money transmitter and two of its officers for allegedly failing to, among other things, timely file suspicious activity reports (SARs) or conduct required background checks on covered employees. Following a hearing, the Department issued the Final Order on January 9 to revoke the company’s money transmitter license and order the officers to cease and desist. According to the Order, the officers’ failure to timely file SARs related to four cancelled money transmission transactions violated Georgia’s Rules and Regulations 80-3-1-.03(3), which obligate money transmitters to “comply with the recordkeeping requirements, currency transaction reporting, and suspicious activity reporting set forth in the Bank Secrecy Act.” Moreover, the Department further asserted that the officers materially misrepresented why the filings were delayed, and therefore deemed the officers “incompetent or untrustworthy to engage in the money transmission business.”

    State Issues Enforcement Money Service / Money Transmitters Bank Secrecy Act Licensing

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  • CFPB releases Remittance Rule assessment report

    Federal Issues

    On October 26, the CFPB released an assessment report of its Remittance Rule, in accordance with the Dodd-Frank Act’s requirements that the Bureau conduct an assessment of each significant rule within five years of the rule’s effective date. The Bureau’s 2013 Remittance Rule (Rule), including its subsequent amendments, requires providers to (i) give consumers disclosures showing costs, fees and other information before they pay for a remittance transfer; (ii) provide cancellation and refund rights; and (iii) investigate disputes and remedy certain errors. The assessment was conducted using the Bureau’s own research and external sources. Key findings of the assessment include:

    • Money services businesses (MSBs) conduct 95.6 percent of all remittance transfers and the volume of transfers from these businesses was increasing before the effective date of the Rule and continued to increase afterwards at the same or higher rate.
    • The average price of remittances was declining before the Rule took effect and has continued to do so.
    • Initial compliance costs for the Rule were between $86 million, based on analysis at the time of the rulemaking, and $92 million, based on estimates from a survey of industry conducted by the Bureau.
    • Ongoing compliance costs are estimated between $19 million per year and $102 million per year.
    • Consumers cancel between 0.3 percent and 4.5 percent of remittance transfers, according to available data sources, and there is evidence of some banks initiating a delay in the transfer to make it easier to provide a refund if a consumer cancels within the 30-minute cancellation window permitted under the Rule.
    • Approximately 80 percent of banks and 75 percent of credit unions that offer remittance transfers are below the 100-transfer threshold in a given year and are therefore, not subject to the Rule’s requirements.

    Federal Issues CFPB Remittance Dodd-Frank Money Service / Money Transmitters

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  • Colorado regulator exempts certain cryptocurrency exchanges from money transmitter licensing requirements

    State Issues

    On September 20, the Colorado Department of Regulatory Agencies Division of Banking (Division) issued interim guidance exempting certain types of cryptocurrency exchanges from the state’s money transmitter licensing requirements. Under the interim guidance—which outlines the Division’s interpretation of Colorado’s existing Money Transmitters Act (the Act)— the Division determined that the Act regulates the transmission of money, meaning legal tender, and that cryptocurrencies are not legal tender under the Act. As a result, virtual currency exchanges operating in Colorado do not require a license if transmitting only cryptocurrencies without any legal tender issued and backed by a government (fiat currency) involved in the transaction. However, if fiat currency is present in a transaction, then a virtual currency exchange may require a license. Additionally, a virtual currency exchange must obtain a license when it performs all of the following: (i) it engages in the business of selling and buying cryptocurrencies for fiat currency; (ii) it allows a Colorado customer to transfer cryptocurrency to another customer within the exchange; and (iii) it allows the transfer of fiat currency through the medium of cryptocurrency within the exchange. If a virtual currency exchange offers the ability to transfer fiat currency through the medium of cryptocurrency, the Division encourages the exchange to contact the Division to determine whether it must obtain a license.

    State Issues State Regulators Fintech Cryptocurrency Licensing Virtual Currency Money Service / Money Transmitters

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  • Seven state regulators agree to streamline money service licensing process for fintech companies

    Fintech

    On February 6, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from seven states have agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. The seven states initially participating in the MSB licensing agreement are Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington. The CSBS expects other states to join the compact. According to the CSBS, “[i]f one state reviews key elements of state licensing for a money transmitter—IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act—then other participating states agree to accept the findings.” CSBS noted that the agreement is the first step in efforts undertaken by state regulators to create an integrated system for licensing and supervising fintech companies across all 50 states.

    The announcement of the MSB licensing agreement follows a May 2017 CSBS policy statement, which established the 50-state goal, and—as previously covered by InfoBytes—is a part of previously announced “Vision 2020” initiatives designed to modernize and streamline the state regulatory system to be capable of supporting business innovation while still protecting the rights of consumers.

    Fintech State Issues State Regulators Licensing CSBS Money Service / Money Transmitters Compliance Bank Secrecy Act Vision 2020

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  • Money Transmitter Licensing Changes in New Hampshire and Washington for Virtual Currencies

    State Issues

    On August 1, New Hampshire HB 436 went into effect, “exempting persons using virtual currency from registering as money transmitters” under the state’s money transmitter licensing laws. The new exemption applies to persons who “engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency” or “receive convertible virtual currency for transmission to another location.” However, the exemption provides that such persons are “subject to” certain state consumer protection laws.

    Separately, Washington SB 5031 took effect on July 23, amending the state’s Uniform Money Services Act as it relates to money transmitters and currency exchanges. With respect to virtual currencies, the amendments, among other things: (i) define “virtual currency”; (ii) subject virtual currencies to the state’s money transmitter licensing laws (the definition of “money transmission” now includes virtual currency transmissions); (iii) require businesses that “store virtual currency on behalf of others” to provide the state with “a third-party security audit of all electronic information and data systems” when applying for a money transmitter license; (iv) require virtual currency licensees to “hold like-kind virtual currencies of the same volume . . . obligated to consumers”; and (v) require virtual currency licensees to provide certain disclosures “to any person seeking to use the licensee’s products or services,” including a schedule of fees and charges, and whether the product or services are insured.

    State Issues State Legislation Fintech Digital Commerce Virtual Currency Money Service / Money Transmitters

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  • Illinois Finalizes Digital Currency Regulatory Guidance

    Fintech

    On June 13, the Illinois Department of Financial and Professional Regulation (IDFPR) issued final guidance on the regulatory treatment of digital currencies with an emphasis on decentralized digital currencies. (See IDFPR news release here). As previously covered in InfoBytes, the IDFPR requested comments on its proposed guidance in December of last year in order to devise the proper regulatory approach to digital currency in compliance with money transmission definitions in the Illinois Transmitters of Money Act, 205 Ill. Comp. Stat. 657/1, et seq. (TOMA).

    The “Digital Currency Regulatory Guidance” clarifies that digital currencies are not money under TOMA, and therefore, those engaged in the transmission of digital currencies are not generally required to obtain a TOMA license. The IDFPR noted, however, that “should transmission of digital currencies involve money in a transaction, that transaction may be considered money transmission” and suggested persons engaging in such transactions request a determination regarding whether or not the activity will require a TOMA license.

    To provide additional clarity, the guidance includes examples of common types of digital currency transactions that qualify as money transmissions, as well as examples of activities that do not qualify as money transmission.

    Fintech State Issues Digital Commerce Virtual Currency Money Service / Money Transmitters

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  • New Hampshire Legislation Adds Money Transmitter Licensing Exemptions

    State Issues

    On June 7, New Hampshire Governor Chris Sununu signed into law H.B. 436, which exempts persons using virtual currency from registering as money transmitters. The law states that “persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or who receive convertible virtual currency for transmission to another location” are now exempt but are subject to the provisions of the state’s statute regulating business practices for consumer protection. The law takes effect August 1.

    Fintech Virtual Currency State Legislation Money Service / Money Transmitters

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  • PA Amends Money Transmission Business Licensing Law

    State Issues

    Pennsylvania’s Secretary of Banking and Securities, Robin L. Wiessmann, issued guidance to businesses engaged in money transmission to inform them of significant changes that will be required for their businesses as a result of amendments to the Money Transmission Business Licensing Law. Governor Tom Wolf signed the changes into law on November 3, 2016 (Act 129 of 2016) and the new law became effective on January 2, 2017.

    State Issues Digital Commerce Payments Money Service / Money Transmitters

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