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On January 7, the Conference of State Bank Supervisors (CSBS) released a report by its Fintech Industry Advisory Panel outlining progress made on several initiatives to streamline state licensing and supervision of financial technology companies. As previously covered by InfoBytes, the panel was convened in 2017 as part of Vision 2020—a state regulator initiative to modernize the regulation of fintech companies and other non-banks by creating an integrated, 50-state system of licensing and supervision. The Accountability Report charts progress on initiatives identified by the panel, which, according to the announcement, fit into four focus areas: (i) the use of CSBS regtech for licensing and exams, including expanding the use of NMLS among states across all license types for nonbank financial services, developing “state licensing requirements for multi-state consistency,” and launching a new state examination system; (ii) improved consistency among states, including 26 states signing on to the Multistate Money Service Business (MSB) Licensing Agreement, which is intended to streamline the MSB licensing process; (iii) the creation of uniform definitions and practices and the development of a 50-state MSB model law and state accreditation programs for MSBs, which will encourage greater consistency among states; and (iv) increased regulatory transparency, including online resources for state guidance and exemptions, as well as information sessions with regulators and industry to discuss fintech developments.
On October 1, the Conference of State Bank Supervisors (CSBS) issued a request for comments on its Draft Model Law Language for money services businesses (MSBs). According to CSBS, state regulation of MSBs is a primary part of Vision 2020—a state regulator initiative to modernize the regulation of fintech companies and other non-banks by creating an integrated, 50-state system of licensing and supervision. (Previously covered by InfoBytes here.) The model MSB law draft addresses recommendations made by the Payments Subgroup of the Fintech Industry Advisory Panel, and “is based on and overlays the Uniform Money Services Act.” In addition, the draft amends definitions and interpretations that vary between states, and consists of three primary policies: (i) regulations “must sufficiently protect consumers from harm, including all forms of loss”; (ii) regulations “must enable the states’ ability to prevent bad actors from entering the money services industry”; and (iii) regulations “must preserve public confidence in the financial services sector, including the states’ ability to coordinate.” According to the Fintech Industry Advisory Panel, differences in standards and procedures for change in control have created significant administrative burdens, which the working group addressed by standardizing change of control triggers and the definition of control persons. The draft also includes implementation language designed to provide the legal framework to facilitate interstate coordination and the adoption of consistent standards and processes. The proposed language is adapted from current state laws, which focus “on permitting interstate supervision and creating parity between national and state chartered banks.” CSBS notes that using these models will grant states the legal authority to adjust to new products, risks, processes, and technological capabilities in a coordinated manner.
Comment are due November 1.
On August 21, the Conference of State Bank Supervisors (CSBS) launched three online tools designed to assist financial institutions navigate the state regulatory landscape and protect against cyber risks. The tools are: (i) a portal of state agency guidance for nonbank financial services companies; (ii) an interactive map of agent-of-the-payee exemptions, which identifies the states that do not require a money transmitter license for receiving a payment on behalf of a third party; and (iii) a cybersecurity 101 resource center for banks and nonbanks that features a guide to help financial institutions develop comprehensive cybersecurity programs. The tools were created as part of the CSBS Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
On June 24, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from 23 states have now agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. As previously covered by InfoBytes, in February 2018, the original agreement included seven states. According to the announcement, 15 companies are currently involved in the initiative, and as of June 20, they have received 72 licenses. The 23 states participating in the MSB licensing agreement are: California, Connecticut, Georgia, Iowa, Idaho, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi. North Carolina, North Dakota, Nebraska, Ohio, Rhode Island, South Dakota, Texas, Tennessee, Utah, Vermont, Washington, and Wyoming.
Conference of State Bank Supervisors announces single, national exam for mortgage loan originator licensing
On August 8, the Conference of State Bank Supervisors announced that all states and U.S. territories now use a single, common exam to assess mortgage loan originators (MLOs) in order to simplify the licensing process and streamline the mortgage industry. MLSs who pass the National SAFE MLO Test with Uniform State Content (National Test) will no longer be required to take additional state-specific tests in order to be licensed within any state or U.S. territory. The National Test is part of CSBS’ Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
Find continuing InfoBytes coverage on CSBS’ Vision 2020 here.
On April 10, following a nationwide fintech forum for state banking regulators and financial services executives co-hosted by the New York Department of Financial Services and the Conference of State Banking Supervisors (CSBS), CSBS issued a press release announcing that regulators from all 50 states and the District of Columbia have designated an “Innovation Staff Contact” within each of their offices to facilitate and streamline communications between state regulators and the financial services industry. Fintech topics include money transmissions, payments, lending, and licensing. According to the president of CSBS, “State regulators see how fintech is reshaping the financial services industry. And an Innovation Contact is but the latest step that states are taking to engage with industry and modernize nonbank regulation.” Last year, as previously covered in InfoBytes, CSBS introduced “Vision 2020,” an initiative geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers. Additionally, this past February, 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, including fintech firms. (See previous InfoBytes coverage here.)
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.
Conference of State Bank Supervisors Announce Initiatives to Obviate Need for Fintech Charter, New York Joins Nationwide Mortgage Licensing System for Fintechs
On May 10, the Conference of State Bank Supervisors (CSBS) announced a “series of initiatives to modernize state regulation of non-banks, including financial technology [fintech] firms.” The draft of initiatives, branded “Vision 2020,” appear to be generally geared towards streamlining the state regulatory system so that it is capable of supporting business innovation, while still protecting the rights of consumers. As explained by CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper, the CSBS is “committed to a multi-state experience that is as seamless as possible,” and, to this end, “state regulators will transform the licensing process, harmonize supervision [and] engage fintech companies.”
The initial set of actions that CSBS and state regulators are taking includes the following:
- Redesign the Nationwide Multistate Licensing System (NMLS). CSBS plans to redesign the NMLS, which is a web-based system that allows non-depository companies, branches, and individuals in the mortgage, consumer lending, money services businesses, and debt collection industries to apply for, amend, update, or renew a license online. In particular, the CSBS’s redesign will “provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases.”
- Harmonize multi-state supervision. CSBS has created “working groups to establish model approaches to key aspects of non-bank supervision,” to “enhance uniformity in examinations, facilitate best practices,” and “capture and report non-bank violations at the national level.” CSBS also intends to “create a common technology platform for state examinations.”
- Form an industry advisory panel. CSBS will “establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes.”
- Assist state banking departments. CSBS intends to start “education programs” that “will make state departments more effective in supervising banks and non-banks.”
- Make it easier for banks to provide services to non-banks. CSBS is also “stepping up efforts to address de-risking—where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.”
- Make supervision more efficient for third parties. CSBS also intends to “support federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.”
By harmonizing the supervision and licensing system and working more closely together, state regulators appear to want to eliminate a key reason to seek the OCC charter, namely the ability to deal with one federal agency and follow a single set of rules. As previously covered in InfoBytes, the CSBS and a number of individual stakeholders have fiercely opposed the OCC’s other main fintech initiative—the development of a special purpose national bank charter for payments processors, online lenders and other new entrants in the financial industry. CSBS sued the OCC last month, arguing it lacked the legal power to move forward. The overall initiative appears to be a response to the OCC’s own “responsible innovation” efforts, which—as previously covered in InfoBytes—culminated in the creation of a new office last year to correspond with fintechs and the banks interested in partnering with them.
Concurrent with CSBS’s Vision 2020 initiatives, on May 11, the New York State Department of Financial Services (NYDFS) announced that beginning July 1, 2017, it will transition to the NMLS to manage the license application and ongoing regulation of all nondepository financial institutions conducting business in the state, commencing with money transmitters. Specifically, on July 1, 2017, financial services companies holding New York money transmitter licenses will have the opportunity to transition those licenses to NMLS, and companies applying for new licenses will be able to apply through NMLS. As previously covered in InfoBytes, NMLS—a secure, web-based licensing system—will allow for easier on-line licensing renewal and enable NYDFS to “provide better supervision of the money transmitter industry by linking with other states to protect consumers.” Financial Services Superintendent Maria T. Vullo stressed that “[b]y working with the CSBS, which is leading the modernization of state regulation through Vision 2020, DFS is supporting the strong nationwide regulatory framework created by states to provide improved licensing and supervision by State regulators.”
Additional information about NMLS can be accessed through the NMLS Resource Center.
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