MSB license in the USA

Obtaining a money services business license in the U.S. requires compliance with several federal and state requirements that are critical to the legal and efficient operation of MSBs in this jurisdiction.

Federal requirements for MSBs

Several federal requirements for MSBs to legally operate include the following:

• Registration with FinCEN.

MSBs are required to register with the U.S. Bureau of Financial Crimes Enforcement. Registration is accomplished by submitting FinCEN Form 107 electronically through the BSA E-Filing system. Initial registration must be completed within 180 days of commencement of operations, with renewal every two years thereafter.

• Bank Secrecy Act (BSA) Compliance.

MSBs must comply with the requirements of the Bank Secrecy Act, including the following:

Anti-Money Laundering (AML) program

MSBs must develop and implement an effective AML program, which involves the following:

• written policies and procedures;
• regular risk assessments;
• employee compliance training;
• independent audits to evaluate the effectiveness of the program;
• designating of a compliance officer is mandatory to ensure compliance with the AML program.

Currency Transaction Reporting (CTR)

A commitment to file cash transaction reports for cash transactions over $10,000 within one business day for any person.

Suspicious Activity Reporting (SAR)

The obligation to report suspicious transactions of $2,000 or more when there is reason to suspect illegal activity.

• Recordkeeping and Record Retention.

MSBs must maintain detailed records of certain transactions, such as fund transfers and purchases of monetary instruments of $3,000 or more, and safeguard them by BSA requirements.

State licensing requirements

In addition to federal requirements, money services businesses must comply with the licensing requirements of each state in which they plan to operate. These requirements can vary significantly between states and include the following key aspects:

1. Money transmitter license.

Many states require MSBs to obtain a money transmitter license or similar state-specific license. The application process typically includes providing detailed information about the business, its owners, and the services offered. For example, the state of Georgia requires an MT (Money Transmitter) license.

2. Financial Requirements.

States often set minimum net worth requirements and require a surety bond. The amounts of these requirements vary. For example, in Colorado, the minimum net worth is $50,000, and the surety bond amount is $250,000. In Delaware, the minimum net worth is $100,000, and the surety bond is $25,000.

3. Background Checks.

Many states require background checks on the owners, officers, and key personnel of the company. This may include criminal record checks, fingerprinting, and credit history assessments.

4. Financial statements.

Providing audited financial statements is a common requirement. This helps regulators assess the financial stability and solvency of the company.

5. Business Plan and Organizational Chart.

States may require the submission of a detailed business plan, as well as management and organizational charts, to demonstrate the company’s operational competence.

6. Registration with the National Multistate Licensing System (NMLS).

Many states use NMLS to process MSB license applications. This streamlines the multi-jurisdictional application process.

Maintaining and renewing a license for a financial services business requires ongoing compliance with both federal and state regulations. Key aspects include:

• Regularly updating registration with FinCEN.

FinCEN registration must be renewed every two years by December 31 through Form 107. You can update your registration through the BSA E-Filing system.

• Filing Suspicious Activity Reports (SARs).

Businesses must report any transactions that appear suspicious, especially if they exceed $2,000. A transaction is considered suspicious if there is reason to believe that funds have been obtained or are intended for illegal activity, are intended to circumvent Bank Secrecy Act requirements, or have no apparent business or lawful purpose.

A Suspicious Activity Report (SAR) must be filed within 30 days of identifying a suspicious transaction.

• Recordkeeping and Reporting.

MSBs are required to maintain detailed records of their activities, including information on large transactions (over $10,000), and retain this data for at least five years. This includes records of extensions of credit, transfers of currency or other monetary instruments, and information about customers and their transactions.

• Anti-Money Laundering (AML) Program.

Companies must develop and implement an effective AML program that includes written policies and procedures, designation of a compliance officer, staff training, and independent audits. The purpose of this program is to prevent the company from being used for money laundering or terrorist financing.

• Agent List.

MSBs are required to establish and maintain an up-to-date list of their agents, including their personal information. This list must be kept within the United States and made available to FinCEN or the Internal Revenue Service (IRS) upon request.

• Updating Information.

In the event of changes in ownership structure, control, or other material aspects of the company’s business, MSBs must update registration information and notify the appropriate regulatory authorities promptly.

Licensing allows MSBs to legally operate and access banking services. Licensing also minimizes the risks of fines and prosecution for noncompliance.

Obtaining a license to provide financial services in the United States requires compliance with both federal and state-specific requirements. Also, the burgeoning remittance and financial services industry comes with stricter regulations and requirements, requiring companies to invest in compliance programs such as AML and KYC.

Gofaizen & Sherle is here to help you through the MSB license process faster and easier by providing professional guidance every step of the way.