Permissible Investments
Permissible investments are the categories of asset a licensed US money transmitter may count against its outstanding money transmission obligations. Under the model law states have been adopting, the licensee must hold permissible investments worth at least the whole of what it owes customers, and the eligible list runs wider than cash and government securities.
Also called: eligible investments
How the requirement works
A money transmitter that has taken a customer’s money but not yet paid the beneficiary is carrying an obligation. In US state money transmission law these are its outstanding money transmission obligations, measured continuously rather than at year end. The permissible investments rule says the licensee must hold assets of at least that value, drawn from a list the statute sets out.
The Money Transmission Modernization Act, the model law states have been adopting, is the clearest statement of that list, and it is worth naming because the older state definitions are narrower and differ from one another. Under the model law a licensee must hold at all times permissible investments whose market value, computed under US accounting standards, is not less than the aggregate of all its outstanding money transmission obligations.
Some categories count without limit: cash and cash equivalents, including customer funds held at a federally insured depository, ACH items and wires in transit, cash in transit and in smart safes, card-funded receivables owed by a bank, and AAA-rated money market funds; certificates of deposit and senior debt obligations of an insured depository institution; obligations of the United States, its agencies, a state or a subdivision; the full drawable amount of an irrevocable standby letter of credit naming the regulator as beneficiary; and any surety bond held above average daily money transmission liability. Others count only up to a cap: receivables from authorized delegates less than seven days old, to 50 percent of total permissible investments and 10 percent per delegate; rated short-term investments, commercial paper, bonds, tri-party repurchase agreements and certain funds, to 20 percent per category and 50 percent combined; and cash at qualifying foreign depositories, to 10 percent. Illiquid assets — equipment, capitalized software, goodwill, loans to affiliates — do not count at all, and the regulator may restrict a specific investment that carries undue risk its market value does not reflect.
Why it matters
The requirement exists so that customer obligations stay backed by assets that can actually be turned into money if the licensee stops trading. It is a solvency test aimed at one creditor class: the customers whose money is in transit. Some states go further and give those customers a statutory claim over the permissible investments ahead of general creditors.
Operationally it shapes treasury. Sweeping float into a higher-yielding instrument that is not on the list creates a shortfall even when the instrument is safe, and prefunding a payout partner through an arrangement a state does not recognize can do the same. Examiners test the calculation as at a specific date and compare it with what the licensee owed that day.
In practice
The point of the rule is that customer obligations stay backed by assets somebody can realize if the licensee fails, and under the model law the test is absolute: permissible investments at market value, at all times, of not less than everything owed to customers. Adoption is uneven, so the governing text is still the statute of each state where the firm is licensed — and as things stand in September 2026 the standard-setters were still issuing guidance on what counts, including virtual currency and stablecoin holdings. A profitable, well capitalized transmitter can still breach the rule by parking float in an instrument its state does not list.
Example
A licensee owes $4 million to customers whose transfers have not yet been paid out. It holds $1.5 million in a US bank account, $2 million in Treasury bills and $800,000 in a fund a particular state does not list. On that state’s calculation it holds $3.5 million against a $4 million liability and is short, even though its total assets comfortably exceed what it owes.
Commonly confused with
| Term | How it differs |
|---|---|
| Tangible Net Worth | Tangible net worth measures the licensee’s own capital cushion; permissible investments measure whether customer money in transit is covered. |
| Surety Bond | A surety bond is a third-party guarantee posted with the regulator; permissible investments are assets the licensee holds on its own balance sheet. |
| Safeguarding | Safeguarding is the UK and EU duty to hold customer funds separately; the US requirement is a coverage test against an eligible asset list, not a segregation rule. |
See also
- Surety BondA surety bond is a guarantee from a third-party surety company that a state regulator requires a money transmitter licensee to post, so consumers and the state can be paid if the licensee fails to meet its obligations. It is a guarantee the licensee buys, not money it sets aside.
- Tangible Net WorthTangible net worth is net worth with intangible assets such as goodwill stripped out. US state regulators use it as the minimum capital test a money transmitter must pass to obtain a license and to keep it, and it is computed to the state’s definition rather than the company’s.
- Money Transmission Modernization ActThe Money Transmission Modernization Act is a model state law drafted by the CSBS to harmonize US money transmitter licensing — definitions, net worth, permissible investments and control-person rules. It has no force of its own; each state decides whether to adopt it.
- Money Transmitter LicenseA money transmitter license is permission granted by a US state for a company to receive money from the public in that state and pay it, or its value, to someone else. Each state licenses separately.
- FloatFloat is customer money sitting with a payment firm between the moment it is received and the moment the beneficiary is paid, together with the working-capital and interest effects of holding that balance. Whether the firm may keep those benefits is set by its regime and its customer terms.
Go deeper
Regulatory information checked: 22/Sep/2026