Understanding the Process of Obtaining Money Transmitter License Sponsorship in the United States
A Guide to Securing MTL Sponsorship for Foreign Financial Firms
Expanding a financial services business into the United States involves navigating a complex regulatory landscape. For foreign companies, one viable strategy is to partner with a U.S. sponsor bank that holds the necessary Money Transmitter Licenses (MTLs). This article outlines the key steps, challenges, and options available for firms seeking money transmitter license sponsorship in the U.S., drawing insights from a conversation with an industry expert.
The Need for MTL Sponsorship
When a foreign financial services company, such as a money services business (MSB), wishes to enter the U.S. market, it must comply with federal and state regulations. One crucial requirement is obtaining Money Transmitter Licenses (MTLs), which are mandated in most U.S. states for businesses that engage in money transmission activities, including foreign exchange (FX) transactions, payments, and remittances.
However, acquiring MTLs can be a time-consuming and resource-intensive process. To expedite market entry, many companies opt to partner with a U.S. sponsor bank that already holds the necessary licenses. This approach allows the foreign entity to operate under the regulatory umbrella of the sponsor bank, ensuring compliance while focusing on its core business operations.
Challenges in Finding the Right Sponsorship Partner
The process of finding a suitable sponsor bank is not without challenges. As discussed, several prominent U.S. banks, including Community Federal Savings Bank (CFSB), Cross River Bank, and Evolve Bank, have recently faced regulatory scrutiny, resulting in the issuance of consent orders. These orders limit the ability of these banks to onboard new clients, making it increasingly difficult for foreign companies to secure sponsorship.
For instance, even well-established program managers, who typically facilitate relationships between banks and fintech clients, are facing hurdles. These program managers are essential intermediaries that handle compliance, integration, and customer onboarding on behalf of the bank. However, despite their critical role, many are unable to offer a parallel processing model with multiple banks, leading to significant delays if a primary application is rejected.
Option 1: Partnering with a Program Manager
One option for obtaining MTL sponsorship is to partner with a high-quality program manager. A program manager acts as a bridge between the foreign company and the U.S. bank, ensuring that all regulatory and compliance requirements are met. This model can be particularly effective if the program manager has strong relationships with multiple banks and can seamlessly switch between them if one application fails.
However, it’s important to note that the process can take between six to nine months, with the majority of cases leaning towards a longer timeline. If an application is rejected midway, the company must restart the process with another bank, further delaying market entry.
Option 2: Partnering with a Firm Holding 50 State MTLs
A more reliable and efficient alternative is to partner directly with a company that already holds MTLs across all 50 U.S. states. These firms typically have multiple banking partners, ensuring redundancy and resilience in their operations. This approach is particularly advantageous for businesses involved in both person-to-person (P2P) and business-to-business (B2B) payments, as it allows for greater flexibility in handling international transactions.
Such firms are also well-versed in the nuances of different state regulations, making them better equipped to manage cross-border payments and navigate complex compliance requirements, including those imposed by the Consumer Financial Protection Bureau (CFPB) and the Dodd-Frank Act.
Timeframe for Securing MTL Sponsorship
The timeline for securing MTL sponsorship can vary depending on the chosen approach. If partnering with a firm that holds 50 state MTLs, the process can be expedited, with an initial discussion taking place within six to ten days. From there, a term sheet can be negotiated within a week, followed by parallel processes involving API integration, compliance checks, and legal contracts.
In an ideal scenario, the entire process can be completed within six to eight weeks. However, to ensure adequate safety measures and account for potential delays, a more conservative estimate would be four months.
Moving Forward
For companies looking to expand into the U.S. market, securing money transmitter license sponsorship in the U.S. is a critical step that requires careful planning and strategic partnerships. While the process may seem daunting, partnering with the right firm—one that has extensive regulatory coverage and multiple banking relationships—can significantly streamline market entry.
By understanding the options and challenges involved, foreign companies can make informed decisions that align with their business goals and regulatory obligations.
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This page was last updated on September 3, 2024.
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