In the world of banking, payments, and money transmitter licenses, particularly in the United States, the term “permissible investments” refers to a specific set of assets that licensed money transmitters are required to hold. These assets are regulated to ensure that these companies maintain a certain level of financial stability and can meet their obligations to customers.
Definition of Permissible Investment
A permissible investment is an asset or a type of investment that is legally allowed and deemed safe for money transmitters to hold. This is a regulatory requirement to safeguard the financial integrity of these companies and protect consumers.
Types of Permissible Investments
Permissible investments typically include low-risk and highly liquid assets. Common examples are:
- Government bonds: These are considered safe because they are backed by the government.
- Treasury bills: Similar to bonds, but with shorter maturity periods.
- Certificates of Deposit (CDs): These are time deposits at banks with a fixed term and usually offer a fixed interest rate.
Who It Applies To
This requirement mainly applies to licensed money transmitters, which include companies involved in transferring money, providing payment services, and similar financial activities. Examples include traditional money transfer companies, certain types of fintech companies, and other businesses that handle consumer funds.
Purpose of Permissible Investments
The primary purpose of holding permissible investments is to ensure that money transmitters have enough liquid assets to meet their obligations to customers. In case of financial difficulties, these investments can be quickly converted to cash to cover operational needs or customer claims.
Restrictions
The restriction to specific types of investments is due to their low risk and high liquidity. Riskier investments, like stocks or real estate, are generally not allowed because they can lose value quickly or cannot be easily sold for cash.
Examples
- Government Bonds: A money transmitter might hold U.S. Treasury bonds as they are backed by the government and are considered very safe.
- Certificates of Deposit: These are issued by banks and offer a fixed interest rate, representing a stable investment.
By focusing on these types of investments, money transmitters ensure they have the necessary resources to operate securely and reliably, protecting both their business and their customers. This regulation is essential in maintaining trust in the financial system and ensuring the smooth functioning of money transfer services.
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This page was last updated on December 30, 2023.
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