CSBS Issue Talking Points - March 2021

MSB Federal Legislation

CSBS Position CSBS opposes any federal legislation that would create a national licensing structure for money services businesses (MSBs) under a federal regulator. CSBS supports an alternative under which the regulatory authority over the licensing and supervision of MSBs remains with the states supported by a backup federal regulator. Summary Currently, state regulators oversee a robust system of MSB supervision and continue to work towards a streamlined licensing structure. State supervision involves the licensing, examination, enforcement and complaint handling for nearly 300 money transmitters that are responsible for $1.4 trillion in activity annually. The states focus their regulatory oversight on consumer protection, safety and soundness and adherence to Bank Secrecy Act and Anti-Money Laundering (BSA/AML) requirements. In the past few years, states have made significant strides towards harmonization and consistency of MSB licensing and supervision. The states launched the State Examination System (SES) and expanded the use of Nationwide Multistate Licensing System (NMLS) to better coordinate decisions and reduce regulatory burden. The Multistate MSB Licensing Agreement (MMLA) allows a money transmitter to submit a single application to a participating MMLA state and receive licenses from all MMLA participants. Additionally, the states implemented One Company One Exam in which a single multistate examination of a nationwide payments firm satisfies all state examination requirements. Finally, the states developed a MSB Model Law to provide consistent approaches and statutory language for licensing requirements. All of these initiatives strive towards an effective and efficient process of state MSB supervision. As discussion of a national licensing structure looms, the states propose an alternative federal solution that incorporates the provisions outlined in the MSB Model Law and retains the basic structure of the SAFE Act. These provisions establish federal ceilings in notable problem areas for industry and Congress while creating federal floors for other areas in which the states can make individual determinations. Under this proposal, individual states would have two years to pass the law or risk oversight from a federal regulator. This proposal allows the states to preserve its supervisory and regulatory authority over MSBs while receiving additional support from a backup federal regulator. The purpose of this alternative remains to demonstrate state cohesion of interpretation, supervision, regulation, and licensing of money services businesses at the federal level. Why It Matters to State Regulators The states have held exclusive prudential jurisdiction over MSBs for over a hundred years. Federal preemption of this state authority would undermine consumer protection, stifle innovation and mitigate the applicability of sound state money transmission laws. The states continually strive to harmonize their laws and standards to provide consistent supervision for MSBs. The states’ ability to adapt with the evolving nature of technology and consumer preferences ensures the safe and sound supervision of MSBs. Talking Points • The local and unique perspective of the states allow them to respond quickly to emerging risks in the evolving and innovative MSB space.

FOR STATE REGULATOR USE ONLY