State Bank Regulators Launch Single-Exam Plan for Multistate Money Transmitters in wake of OCC’s Payments Charter Proposal

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The Conference of State Bank Supervisors (CSBS) recently announced plans to establish a program under which money transmitters licensed in multiple states will undergo a single comprehensive exam that seeks to satisfy all state examination requirements, beginning in 2021. Money transmitters, payments firms and cryptocurrency companies licensed in 40 or more states would be covered by the program, to be known as “MSB Networked Supervision”. Currently, there are 78 companies that meet this threshold. The launch of this program follows the “One Company, One Exam” pilot conducted in 2019 – 2020.

The CSBS announcement explains that each exam will be led by one state overseeing a group of examiners sourced from across the country, and posits “…this exam protocol will enable states to fine tune a risk-based approach to each company’s operations.” Given this structure, one concern might be whether covered companies may find themselves subject to significant differences in interpretation of state and federal laws and regulations, depending on which state is leading an exam.

This initiative could be viewed as an effort by the CSBS to compete with the potential OCC national payments charter recently discussed by Acting Comptroller Brian Brooks. The OCC payments charter, which, according to a Politico report, Acting Comptroller Brooks has said the OCC has the authority to offer now without additional rulemaking, has been the subject of attacks from bank trade associations and state banking regulators.

However, the CSBS single-exam approach for multistate money transmitters, payments and cryptocurrency companies would not eliminate other substantial burdens imposed by varying state licensing requirements, such as those pertaining to initial filing and documentation, ongoing reporting, governance requirements, fees, bonds and other state-specific requirements. A similar single-exam plan for the mortgage industry initiated by the CSBS in conjunction with the American Association of Residential Mortgage Regulators (AARMR) has demonstrated that this approach does not alleviate separate and sometimes contemporaneous single-state exams, as there are states that will not, or are not permitted to, join in compacts for such joint state examinations. Further, the 40-state threshold means numerous multistate money transmitters and payments companies will not be covered, likely defeating the goal of driving efficiency in state banking supervision, and furthering the possibility of discrepancies in interpretation of laws and regulations.

The CSBS announcement hints at further efforts forthcoming to drive “harmonization and streamlining of state supervision across the board”. Earlier in the year, the CSBS released a report tracking its progress on initiatives to streamline state licensing and supervision of financial technology companies, informed by recommendations of the CSBS Fintech Industry Advisory Panel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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