U.S. multi-state agreement on money services business license applications: regulators are listening to FinTechs

On February 6, 2018, the U.S. Conference of State Bank Supervisors (CSBS) announced that seven states (Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas, and Washington) have agreed to create a multi-state license application solution for money services businesses (MSBs). FinTech companies can officially celebrate and have confidence that state regulators are listening to their concerns.

How will the MSB solution work?

The state coalition has agreed that if one state reviews the common key elements of a money transmitter licensing application, the other states will agree to accept that state’s findings. The common key elements of the license applications that will be granted this reciprocity are the applicant’s:

  • Cybersecurity plan;
  • Business plan;
  • Background checks for key employees and board members;
  • IT systems; and
  • Anti-money laundering (AML) program.

Although this multi-state agreement does not go as far as to grant reciprocity for the MSB license itself, it may become the foundation for such an arrangement in the future.

Lightening the load for new applicants

Importantly, the effort will relieve the burden many new applicants face when attempting to obtain licenses in these states. Operating an MSB across multiple states generally means the company must conduct an expensive and time-intensive national licensing campaign, taking several months or even years.

The application redundancies between states contribute to the cost and time required to become licensed and, in some cases, serve as a barrier to entry for companies with perfectly marketable products. For example, state application requirements to submit background check forms for key employees may call for individuals (often at the executive level) to complete questionnaires and fingerprint cards. Each questionnaire and fingerprint card requires detailed personal information that may not be readily accessible to that individual, making the process time consuming and requiring resources to help decipher the exact information being requested. The information requested in the forms themselves may also slightly vary between states, even though the goal is to obtain a substantially similar picture of the individual’s financial, personal, and criminal background. As each state regulator reviews the information provided, it may request clarification on certain items or for the fingerprint cards to be resubmitted (depending on the quality of the prints), adding more time to the process. When multiplied by the number of states in which the entity is seeking licensure, these requirements quickly become very time- and resource-intensive. A state’s review of the other multi-state application requirements creates similar redundancy issues for MSBs that are, otherwise, ready to provide services in the relevant state.

A first step towards a simpler multi-state licensing process?

The coalition between the states will help reduce the review time of the common key elements of the license applications and will reduce the uncertainty about the acceptability of these items between these states. This announcement illustrates that states, with the CSBS, are taking strides to streamline and ease the licensing burden on MSBs wishing to enter new jurisdictions. MSB and fintech industry members hope this is the first of many steps to make the multi-state licensing process easier. Given the commitment from the CSBS in its Vision 2020 initiative, we expect to see additional helpful announcements in the near future.

For further information about the CSBS, MSB licensing requirements, and related issues, please contact Ashley Hutto-Schultz at Hogan Lovells or any member of the Hogan Lovells International Payments Team.

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