Who Needs A Money Transmitter License - Faisal Khan and Company

Who Needs A Money Transmitter License?

If you’re looking for a legal definition of who needs a money transmitter license. This is not the page you are looking for. This brief article is about trying to explain to people, in plain English, why they need a money transmitter license. No complex law jargon to be used.

Legal Disclaimer

The content presented here is not legal advice and should not be considered as such. It is an opinion. Our opinion. We could be right, or wrong or half-way there. So it is necessary to say: I am not a lawyer. This is not legal advice. If you desire legal advice, please consult a competent, (subject matter expert) licensed attorney in your region/country that specializes in this area of the law.

If you drive a car, you are called a ‘driver’ and in order to drive a car, you need a driver’s license. Same analogy is true for an airplane. If you fly airplanes, you are a ‘pilot’ and in order to be a pilot, you have to have a pilot’s license. Money is no different. In most cases if you are in the business of moving money (physically or electronically) across US state lines, you would be deemed to be a Money Services Business (an MSB for short) and you are required to obtain the necessary state issued Money Transmitter License (or MTL for short).

First, let us understand why the need for licensing. The need for licensing (amongst other reasons) is instilled upon you, because the money that you are handling, does not belong to you. As a company that is engaged a business that touches client funds, you have the ability to do whatever with the money, this includes nefarious intent.

As the money is sitting in your bank account, you could on any given day, decide to fulfill the years long desire to go and buy for yourself the Lamborghini that you’ve always been dreaming about! Why? Because dammit, you deserve it. And the funds you decide to use, are the funds that belong to the customers.

You could be a disgruntled employee or partner and decide to show ‘em your lasting impression before you go. So you dip your hand into the cookie jar, take the money out and spend it.

This is precisely the reason why you are licensed. To discourage you from nefarious intent as far as client’s money is concerned.

As a licensed Money Services Business (MSB), when you apply for a bank account, you get two accounts. One is your operational account, i.e. an account you do have access to. This is where your payroll goes and administrative expenses are paid out of. The other is a segregated client account pool. This is where your clients’ money resides. You don’t necessarily have access to this account usually (depending on how the accounts are structured for your business). The idea is to segregate client funds from on a either pooled or segregated named accounts basis.

Having explained essentially why the need for licensing (amongst other reasons which we won’t go into), the more important part is to understand, when are you classified as a money services business and hence required to obtain the necessary money transmitter licenses?

Here is a simple way of looking at into things:

If you are not the originator of the transaction (from where money starts) and you’re not the end beneficiary of the transaction (where money ends), but are in some way facilitating the transfer (transit) of this money, then you might be a money transmitter.

When you act as an intermediary between two parties that are using your platform (product/service) to transmit money across, then this most likely makes you a money transmitter. There is a federal definition as given out by FinCEN as to what a Money Services Business is, and then there are definitions on a state level, as given by each financial regulator as to what that states defines and classifies as a money services business and hence requiring a money transmitter license from the state.

You can see the complete list of all the US States Financial Regulators here.

Many companies/startups will argue, that they are not money services businesses or that what they do, does not come under the umbrella of money transmission.

Our reply to such is as follows:

  1. The rules are complex, so you should not be the sole judge if what you are doing classifies you as a Money Services Business or not and therefore requires a money transmitter license.
  2. You must have a flow of funds and transaction set that a law firm that specializes in payments can look at, and then determine if you need MTL licenses or not.
  3. If you don’t want to get licenses then you must be either an Agent of a Principal License Holder or have perhaps Bank Sponsorship for Money Transmitter Licenses or work with someone who is the Program Manager and providing you money transmitter license coverage through their (or their associated) licenses.
  4. If you are masking or merging two or more different transaction sets, in your flow-of-funds, then there is a very good chance the regulator could look at the intent of the transfer. Many companies under inaccurate advice try to argue that they are not money transmitter by projecting their POV (point-of-view). That may be true, but the regulator will see things from their own POV and what the local state law says.

It is always a good idea to complete a flow of funds and a transaction set and then run it through a competent payments attorney or compliance specialist who understands the money transmission laws.

More often than not, if you remotely think you are a money transmitter – always a good idea to get it checked out.

If would like to obtain money transmitter license coverage for your project and cannot afford &/or do not have the time to apply, wait and then be awarded all the licenses, maybe it is a good time to connect with us and learn how we can help you with regulatory coverage.

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