Conference of State Bank Supervisors Proposes Model Money Transmitter Law

Eversheds Sutherland (US) LLP
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Eversheds Sutherland (US) LLP

The Conference of State Bank Supervisors (CSBS) issued a proposed model money transmitter law on September 9, 2021 as part of its ongoing effort to streamline licensure, supervision and examination processes for money transmitters. The model law, called the Model Money Transmission Modernization Act (MTMA), is part of a broader CSBS initiative to reduce obstacles for money transmitters seeking to operate across state lines.

A major obstacle to the CSBS’s regulatory standardization efforts has been variation in the states’ respective statutory provisions governing money transmitters. In particular, state statutory regimes diverge in their coverage of prepaid products, virtual currency, payroll processors, and payment processors and the availability of the so-called “agent of the payee” exemption. The MTMA attempts to address this root cause of fragmentation by providing standardized definitions and exemptions. For example, the MTMA includes a separate article that would, to the extent not pre-empted by federal law, regulate certain activities involving virtual currencies.

In addition to providing standard definitions of covered activity, the MTMA grants regulators express authority to modify their licensing and supervisory processes to facilitate collaboration with their counterparts in other states. Regulatory agencies are generally authorized to interpret and implement statutory provisions within their jurisdiction, but the scope of this authority is usually not clearly defined. By expressly encouraging collaboration, the MTMA may embolden regulators to be proactive in harmonizing their processes.

The MTMA is based on the recommendations of a working group of regulators and industry experts convened in 2018. Because it is a model law, the MTMA will only become effective in those states where it is passed by the state legislature. Model laws may undergo changes during the legislative process, meaning that the final text can vary among states. Provided there is widespread adoption of the MTMA’s core provisions, however, the MTMA can still have a significant standardizing effect on state money transmitter regulation.

In addition to the MTMA, the CSBS is pursuing standardization through the Multistate MSB Licensing Agreement, which currently has 29 state signatories. The program attempts to streamline multi-state licensure using the NMLS, a national, online platform used for mortgage originator and money transmitter licensure in most states. The program reduces duplicative information requests and standardizes evaluation of core licensure requirements (e.g. financial information, anti-money laundering compliance) by assigning a single state regulator to review and report findings to the other participating states.

In addition to lowering the initial licensing hurdle, the CSBS is working to minimize ongoing supervision and examination burdens on multi-state operators by introducing what it calls “networked supervision”. The program, announced in fall 2020, uses a collaborative examination process that allows larger companies to submit to a single annual exam by a team of examiners from participating states. Through NMLS, the CSBS has also implemented a multi-state money transmitter “call report” that serves as a standardized reporting mechanism for licensees and facilitates data sharing and analytics among regulators.

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