Seven state regulators are collaborating to harmonize parts of their money transmitter licensing procedures, a move that could benefit fintech (financial technology) companies and cryptocurrency exchanges. The agreement, which the group hopes to roll out to all 50 states, could save as much as two years’ time and thousands to millions of dollars in application fees and bonding measures for these companies, according to Bloomberg Law.
Washington, Illinois, Massachusetts, Texas, Georgia, Kansas and Tennessee have agreed to streamline the initial phase for fintech applicants to obtain a money transmitter license, said the Conference of State Bank Supervisors (CSBS). The group represents state-level financial regulators.
The agreement process includes having one state review a business for the critical elements of state licensing for a money transmitter — IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act
— then other participating states agree to accept the findings. The result is expected to significantly streamline the Money Service Business
“Last Spring, we came together and adopted this policy through CSBS that would include a 50-state licensing for non-bank companies,” said Charles Clark, deputy director of the Washington State Department of Financial Institutions. “We are taking the ball and running with it.”
The group has cut the process time in half, allowing some of the standard information to be reviewed by one state, which will certify them for all the other states. “We have agreed to divide the process into two parts,” said Clark. “Phase one will include all the common licensing requirements. One state could review the company regarding the agreed licensing standards and approve the company and certify it for the other (participating) states.”
Ultimately, he thinks the seven-state collaboration will cut down on repeated paperwork and help make the turnaround windows on licensing approvals more consistent.
As for Phase 2 of the expedited plan, each state has unique financial requirements and individual net worth or bond requirements, according to Clark. In the second phase, “states laws differ,” he said. The policy does not address the individual state law requirements.
“In speaking with fintech companies, we found the same pain points for companies that must file the same information over and over.” Clark thinks the Phase 1 process will help fintech companies that are looking for a more streamlined licensing process, more clarity on if and where they need licenses and more freedom to try out new and innovative ideas.
The next step in the process is to introduce one or more pilot projects with a fintech company. Once the pilot projects have proved worthwhile, the group will begin working on a website to offer the program more broadly to the industry.
The group is also working towards a faster turnaround time for initial certification (Phase 1). The group agreed on a 25-day turnaround for the first phase of the money transmitter license. “We want to help innovative companies get off the ground and encourage a good economy,” Clark said. A quick turnaround will be a good incentive.
To ameliorate these pain points the group has put together Vision 2020
. It includes a series of initiatives from CSBS to modernize state regulation of non-banks, including financial technology firms. The group sees that by 2020, state regulators will adopt an integrated, 50-state licensing and supervisory system, leveraging technology and smart regulatory policy to transform the interaction between industry, regulators and consumers.
Economic development is at the forefront for states that have already joined in this pilot project, according to Clark. “It is our incentive to come together and streamline these processes without reducing consumer protections,” he said.
To accomplish the 50-state licensing system, the group hopes to:
- Form a Fintech Industry Advisory Panel of 33 companies to identify pain points and recommend solutions.
- Build a next-generation technology platform to streamline both the licensing and supervision of non-banks.
- Work with states to harmonize their licensing and supervisory practices, such as the announcement today.
While the group has started out with a handful of states, Clark expects other states to come on board when the pilot project is over quickly. “Other states are interested in this policy, and we’ve written the policy in such a way it is easy for the states to adopt,” he said. “We have been very encouraged by the positive response.”