Own Money Transmitter Licenses vs Authorized Delegate

People often ask, why they should not start by owning their own money transmitter licenses. The answer is not so simple. It depends on so many factors. Are you a startup? Do you have adequate funding and resources?

Obtaining your own Money Transmitter Licenses

Money transmitter licenses can be a costly affair. Both from time and money perspective. Applying for licenses first of all takes time. Assuming you have fulfilled all the requirements of obtaining a license, it can take anywhere from 3-6 months before the licenses for small States are showing up. States like Florida, Illinois, New Jersey, Massachusetts, North Carolina, Maryland, Pennsylvania, etc. take longer (between 6-9 months). The big three, California, Texas and New York, take considerably longer. Though everyone will cite 6-9 months, in reality expect a delay between 12-18 months.

Some of the aspects of owning your own licenses are:

  • Minimum Net Worth
  • Surety Bonding
  • Application Fees
  • Audit Fees (various)
  • Permissible investments
  • Banking Limitations
  • AML/KYC Compliance Program (including the requirement of having a dedicated AML Compliance Officer)
  • Lawyer Filing Fees
  • Internal Technology Team & Back-Office Support
  • Subscriptions for various Databases for AML/KYC
  • Etc.

A great document that outlines the costs associated with just the licensing aspect, is 50 US States Licensing Requirements.

Compare the pain points associated with obtaining your own licensing versus starting out as an Authorized Delegate, which is a much easier process.

How does one become an Authorize Delegate?

First and foremost, you need to find an existing license holder who would be willing to work with you. We can certainly assist in that.

To become an Authorized Delegate, you must understand and appreciate what it is required of you. The Principal License Holder needs to understand who you are, what you do, and where do you fit in the scheme of things with respect to the Principal License Holder’s business ventures.

Understanding An Authorized Delegate Relationship.

Before the Principal License Holder starts dialogue with a potential Authorized Delegate, we start, they would like you to know the axioms that would be critical for the Agent on-boarding process:

  1. The Agent on-boards the client on behalf of the principal licensee, i.e.Principal License Holder.
  2. The monetary transaction flow has to be as such, so that all flow of funds (and bitcoins, if utilized) have to be through the principal licensee’s bank account and the Bitcoin Exchange (if applicable)
  3. The product &/or service that the Agent is marketing or extending out, has to tie-in to the core product &/or service of the principal licensee.

It is point # 3 that is of most importance to the Principal License Holder, as this is what the regulators would be looking for, to establish that if your company (if and when it becomes an agent) is extending the core product/services of Principal License Holder .

Understanding the Business of the Authorized Delegate

The Principal License Holder will seek a lot of information prior to even talking with you. They essentially are screening out any non-fit or risky delegates.

Be prepared to provide a lot many documents, sign NDAs, and provide confidential information like Audited Reports, Financials, Projections, etc.

Some of the items requested by the Principal License Holder are:

  • A short 1 page summary of your business plan
  • Need to have a detailed flow of funds and flow of coins (if Bitcoins are being utilized).
  • What’s your go to market date? This is perhaps the most important question? Is it in 60 days? 90 days? 6 months? 1 year?
  • Do you have the adequate capital/funding to sustain an agreement engagement with Principal License Holder? Or is it something that you will be raising later on?
  • 12-months of projected financials (revenue)
  • States in which you want to do business in?
  • A brief project plan (timelines)
  • A clear understanding of the physical locations and/or virtual locations you may be requiring.

Based on the information supplied, the Principal License Holder will take between 5-7 working days and revert back to you with any questions or clarifications. There is usually a back-and-forth, to modify the flows and hopefully the Principal License Holder will have a finalized version of the flows with the least amount of iterations.

Go / No-Go!

Once this is provided, the Principal License Holder revert back to the client within a week to 10 days, if they can work with you or not based on the information supplied.

Due Diligence

If the Principal License Holder  does decide to work with you, then due diligence is the next step. They will provide you with Due Diligence documentation and would request you to fill it out and pass it back to them, where it is examined by their Compliance Officer.

Depending on your readiness, the Due Diligence can take about 1-2 weeks to submit and then 1-2 weeks for the Principal License Holder to revert back with any questions, gaps to be filled, etc.

Post Due Diligence

Once you are cleared from due diligence, the following is provided to you…

  • the contract draft, and
  • quote for services is provided to you along with the necessary information pertaining to regulatory onboarding,
  • banking requirements,
  • processing requisites,
  • deposit requirements,
  • risk and compliance parameters,
  • AML/KYC manual,
  • Audit information,
  • Integration information
  • Branding and advertising guidelines
  • API information, etc.
  • Implementation timelines.
  • Any other prerequisites and/or information pertinent to your situation.

In most cases, the Principal License Holder will not provide this information before the completion of the due diligence process, even if the clients wants to prep themselves up to save time or get everything ready in order.

Once the potential Authorized Delegate agrees to the above (quote, contract, etc.) , and would like to proceed ahead (provided no red-flags from Compliance), then you would typically pay for as per the commercial timelines, test integration and confirm that the two entities can indeed talk the way you and we are visioning.

Each Principal License Holder has their own method of going live and more detailed is shared, once the Go milestone has been passed.