Who needs a money transmitter license? This question was raised again in February when the Illinois Department of Financial & Professional Regulation (the “Department”) issued a Cease and Desist Order for Square, Inc., alleging that Square doesn’t have the license required to engage in money transmission services in the State of Illinois.
Under the Illinois Transmitters of Money Act, the term “transmitting money” means “the transmission of money by any means, including transmissions to or from locations within the United States … by payment instrument, facsimile or electronic transfer, or otherwise.” Under the Illinois Transmitters of Money Act businesses are required to obtain a money transmitter license in order to “transmit money”. That’s a pretty broad definition which arguably encompasses the activities of a large number of electronic payments providers. The Department alleged that Square offers and provides money transmission services, and thus, requires a money transmitter license to do business.
The Order highlights a problem our clients regularly encounter: Who is required to obtain a money transmitter license? The answer is a complicated one and requires careful analysis of the laws of every State where money transmissions are sent and received as well as where the money transmitter is located, and applicable Federal laws. For instance, money transmitters may also be money services businesses (MSBs), which are regulated under the Bank Secrecy Act. The Financial Crimes Enforcement Network (FinCEN) maintains a website listing all of the entities registered as MSBs pursuant to the Bank Secrecy Act.
Think no one is complying? The web site, which at the time of this posting was current as of March 29, 2013, contains data on 32,880 registered MSBs, which constitutes an increase of 134 MSB registrations in 4 days. Wow.
Our banking regulatory scheme hasn’t kept up with the way personal banking is done today. We should expect to see more regulations and Orders such as the one issued to Square as payment technologies continue to expand and offer payment options that exist outside of traditional payment channels with financial institutions.