Money transmission, once a service offered to individuals sending money abroad and at home, has grown into an international high profile business. After September 11, 2001, money transmission has been under scrutiny from local, state, federal as well as international authorities due to money laundering and other financial crimes.

A stricter regulatory environment has brought about a stricter and more comprehensive licensing process. These are the 10 basic steps in the money transmitter licensing process. Most of the steps occur concurrently with one another; this is not an exact sequencing.

Step 1: Apply for and receive Secretary of State registrations.

A company must first apply to do business in the state where it is planning on getting a licensing for money transmission. The application can be anywhere from 2 pages to 10 pages.  It usually requires a Certification of Good Standing from the home state, but sometimes it includes a request for a certified copy of the Articles of Incorporation as well. Some states require that the company publish its intent to do business in a local and/or legal journal.

The approval process of the business registration often referred to as the Certificate of Authority, can take from 2 days to 2 months depending on the backlog in each state.

Step 2: Complete cover sections of the state license applications, which generally request basic corporate information on the applicant.

Having a template of basic corporate information helps speed this step along.

Step 3: Request, develop and package key documents such as: written business plan; financial pro formas; audited financials; internal interim financials; AML compliance manual; certificate of good standing from state of incorporation; articles of incorporation and by-laws; bios of key personnel; confirmation of FinCEN registration; copies of federal tax filings; etc.

BSA requirements mandate that all MSBs must register with FinCEN. This registration should be done as soon as possible in the licensing process and can be filed electronically.

Money services businesses that conduct business in the U.S., but are located outside of the U.S., are now within the Bank Secrecy Act and U.S. MSB registration requirements. Failure to get a money transmitter license could result in severe civil and criminal charges.

If the company is a new U.S. subsidiary, the business plan should reflect information about the subsidiary and the parent if the U.S. subsidiary has no history. According to FinCEN, a parent company and subsidiary may share a bank account as long as the company is not trying to get around the FinCEN registration process.

Review of the company’s written policies, procedures, and processes is a first step in determining the overall adequacy of the BSA/AML compliance program. The company must provide for an independent review to monitor and maintain an adequate anti-money laundering program.

Step 4: Complete fingerprint cards and personal biographical/financial/professional history forms for corporate officers and directors for each state license application

The personal biographical/financial/professional history forms for corporate officers and directors should be sent to the executives at the beginning of the license application process. The personal forms are sometimes long and contain personal financial and family information. Once completed, the executive should seal the forms in separate envelopes, one per state, with his or her name and a table of contents on the outside for security and privacy.

Regarding fingerprinting, most states use the basic blue FBI fingerprint card; however, many have cards with pre-printed fields for processing that must be used. Sometimes the states have pre-printed cards blue FBI cards that need to be ordered.  Electronic fingerprinting is available in several states.

Step 5: Submit audited financials and interims to surety bond broker to secure bond underwriter; a bond will be submitted with each state license application

Surety bonds range from no minimum to upwards of $1 million. In addition, companies must maintain a specified minimum level of net worth that sometimes ranges from $5,000 to $100,000.

Step 6: Request, develop and prepare unique information requirements not necessarily found in all, or any, other states, e.g.: disaster recovery plan; description of local market and local business strategy; copy of specimen customer receipt with proper disclosures; references from third parties and banks.

Carefully read the license application because there are many small requirements unique to particular states or regions.  For example, an international company sending money for the license application fee needs to make sure that the U.S. dollar check is drawn on an American bank.  Some states require third party background checks that can take weeks and must begin very early in the license application process to ensure that it is completed in time for the license submission.

Step 7: Carefully review the draft completed application. Edit as necessary.

Step 8: Obtain the Corporate Executive’s signature(s). Client includes the state license application fee due to the state and the completed application package to the state regulatory agency.

Keep track of all courier and express mail service numbers for tracking. Scan the entire application package as a record and electronic back-up.

Item 9: Respond to requests for information or meetings with state regulators.

In addition to responding to requests for information, meeting with regulators either through an introductory call or in-person meeting and sending an introductory marketing package is a useful beginning to the licensing process.

Item: 10 Activate surety bonds once licenses are approved, or with the application submission, depending on each state’s requirements

These are the basic steps for licensing a money services business. Increased regulation means greater regulatory exposure.  As a result of recent changes to FinCEN’s definition of money services businesses, Bank Secrecy Act (BSA) rules now apply to all people and entities that conduct MSB activities within the United States, regardless of their physical location. In addition to federal regulations, state regulations are constantly evolving.

Once the company gets a license, the most effective protection from legal issues and penalties is compliance.

Trish Lagodzinski is a Compliance Specialist with Chartwell Compliance and can be reached at trishlagodzinski@chartwellcompliance.com.