The Conference of State Bank Supervisors (“CSBS”) has announced a multi-state framework for state regulators to process an application by a person to become a licensed money services business (“MSB”). The announcement forms part of the ongoing development of Vision 2020 for supervising non-depository financial institutions engaged in financial technology. The multi-state framework appears, at this time, to be limited. But as a necessary first step towards explicit harmonization―possibly leading to a system for a state-license “passport” for an MSB―the new framework is promising.
The details available concerning the new multi-state framework are set forth in a press release announcing the formation of an interagency agreement to standardize key elements of the licensing process for an MSB, as well as the interagency agreement itself.
Under the terms of the interagency Agreement for MSB Licensing, initially dated January 9, 2018 (the “Agreement”), several state regulators (“Signatory States”) have agreed to an expedited licensing process (the “Protocol”). The initial Signatory States were Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington. The CSBS has announced that additional states have declared their intention to join.
The Protocol provides for:
- Assignment to one of the Signatory States for review of each MSB application from an applicant that opts in to use the Protocol.
- Performance of a “Phase One Review” of any MSB application assigned to a Signatory State within 25 business days after the Phase One application is complete, and issuance of a Phase One Certification or denial.
- Reliance by each Signatory State on a Phase One Certification issued by another Signatory State to “the greatest extent possible under law.”
- Automation of the Protocol and sharing of information through NMLS.
The Agreement does not list the application materials that will be covered by a Phase One Review; however, the CSBS press release indicates that these will include key elements of a money transmitter application - IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act.
Following the successful completion of a Phase One Review, each Signatory State will then individually complete its own Phase Two Review of state-specific application materials and either approve or deny the license application after such review.
The Agreement does not specify a deadline for Signatory States to complete their individual Phase Two Reviews. The Agreement cannot rise to a level of a “passporting” system, such as the system adopted by EU member states under the Revised Payment Services Directive. Among other factors, the Signatory States appear to still be working through the following shortcomings:
- The Protocol does not appear to limit the scope of the state-specific application materials that may be reviewed during Phase Two, and does not specify a timeframe for completion of such review.
- The Signatory States currently include only a small minority of the states that require licensure for MSBs.
- A state that does not have the authority to collect criminal background and credit information is not eligible to be a Phase One Certifying State and may only accept Phase One Certifications from other Signatory States, and therefore the Protocol does not appear to be fully reciprocal.
- The Agreement does not provide for binding resolution of disputes between Signatory States relating to the Agreement or the Protocol, and Signatory States may withdraw from the Agreement at any time by giving written notice at least thirty days in advance of withdrawal.