The Conference of State Banking Supervisors (CSBS) recently requested public comment on its Draft Model Language (Model Law) for state laws that regulate money services businesses (MSBs), including money transmitters. The Model Law is designed to help develop uniform licensing and supervisory processes across the 50 states and the District of Columbia. Comments are due by November 1, 2019.
The effort is an extension of CSBS's Vision 2020—a push to develop an integrated, uniform regulatory and supervisory system that would bring efficiency for MSBs across all states, while maintaining protections for consumers. We have previously discussed the difficulties that come from a lack of national standards for money transmission licensing. Because every state has its own distinct laws, MSBs face a cumbersome and often complex process navigating through requirements for 49 jurisdictions that license money transmitters. MSBs that operate nationally grapple with individual state interpretations, definitions, and exemptions, along with "differences in standards and procedures for change in control."
The Uniform Law Commission last revised the Uniform Money Services Act (UMSA) in 2004. It is no exaggeration to say that the entire money services industry has changed in the last 15 years. The Model Law addresses the lack of uniformity across states and proposes language that accounts for the impact of financial technology.
The Model Law focuses on recommending regulations that (1) "protect consumers from harm," (2) "enable the states' ability to prevent bad actors from entering the money services industry," and (3) "preserve public confidence in the financial services sector, including the states' ability to coordinate." To address past inconsistent interpretations of the UMSA, CSBS proposes several new definitions, including for covered activities, various exemptions, control, and control persons. The Model Law also considers two different methods for measuring an MSB's financial risk (a combination of net worth, permissible investments, and surety bonds versus a ratio of tangible assets to total liabilities).
If implemented by the states, the Model Law would standardize and streamline the licensing process and promote consistent regulations for MSBs. We have discussed the benefits and efficiency of a uniform standard, and the industry is surely interested in seeing the CSBS make progress. For more information about the impact of the Model Law, please contact the authors.