For Cryptos, Money Transmitter Licensing Isn’t One-And-Done

February 10, 2020
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You’re not done once you get your MTL license in-hand. In fact, the hard part has just begun.

More and more states are requiring cryptocurrency businesses to obtain money transmitter licenses, and this is a trend that’s only going in one direction — toward more states requiring licensure, not fewer.

We’ve been getting a lot of questions about this, particularly after Nevada started requiring money transmitter license for bitcoin ATMs last summer, and we’ve noticed a recurring theme.

Many business owners and entrepreneurs ask us about the steps needed to obtain the license in the first place.

“Who do I need to reach out to?” “How long does the process take?” “What are my state’s money transmitter laws?” “What does a money transmitter license cost?”

— Some of the common questions we get about money transmitter licensure.

It’s understandable. Getting a state money transmitter license is a difficult, resource-intensive process. Hundreds of businesses are having a hard time with this. It’s one of the reasons we launched the ComplyFit tool to help businesses keep track of their license status.

But here’s the problem we’ve noticed.

Once cryptocurrency financial institutions get a license in the state they need, many of them breathe a sigh of relief, thinking that the hard work is over. In truth, it hasn’t even begun.

We field a lot of questions about getting a money transmitter license. We don’t hear a lot of questions about the ongoing maintenance of money transmitter licensure.

Yes, it’s a thing.

And it’s a thing cryptocurrency businesses can’t afford to fall behind on.

We wrote this post to correct some assumptions about money transmitter licenses (hereinafter, MTL or MTLs), and to provide cryptocurrency business owners (be they cryptocurrency exchanges, international companies seeking to do business in the U.S., even ATM operators) with some critical points to consider as they put together ongoing MTL maintenance.

If that sounds like you, read on!

Why Do Cryptocurrency Businesses Require A Money Transmitter License?

As we’ve covered at some length, all cryptocurrency businesses are considered money services businesses/money transmitters in the eyes of federal regulators.

This means that these financial institutions are required by law to develop AML compliance policies and procedures, as well as comply with any unique regulations enforced in the individual state(s) where they do business.

So far, most states observe what’s commonly referred to as a “no action” stance for cryptocurrency companies. This means that state licensing is not required, and other potential regulations for financial companies do not apply.

Not yet, anyway.

Some crypto institutions have spent thousands in legal fees obtaining “no action” letters from the states in which they operate. While open dialog with state regulators (in writing) is a best practice we evangelize for often, we’ve also advised that “no action” is not a sustainable strategy.

Sooner or later, the state regulators will catch up to crypto and start requiring things. In California, a large “no action” state with hundreds of cryptocurrency businesses providing thousands of jobs, there are signs of that already.

In short, every state will someday require every crypto to obtain an MTL.

But once you get one, the work is far from over. That leads us to ongoing maintenance.

I Have An MTL. Now What?

It’s important not to confuse obtaining a license with ongoing maintenance. The license application process, once complete, is indeed a one-time deal, unless the licensee makes a mistake, misses a renewal period, and needs to reapply.

But a state money transmitter license is not like a driver’s license or fishing license that you slip into your wallet and forget about unless a government official asks to inspect it.

Cryptocurrency Exchanges Get The Worst Of It (But No One Is Exempt)

To put this in context, let’s take a look at what’s required in terms of ongoing MTL maintenance from the biggest business model in the space: cryptocurrency exchanges.

These online trading platforms do business internationally, and in all 50 states (if they can, anyway). To do business in any other country, you need to meet the AML or financial compliance requirements of that country.

But to do business in the U.S., every crypto exchange also needs to meet the AML or financial compliance requirements enforced at the federal level…

and all of the requirements of each individual state.

There are as many different state regulators as one has licenses. If a crypto exchange is licensed in 30 U.S. states, that means it has to maintain logs and records of its open, ongoing dialogs with 30 different state regulators.

And remember, because state regulation can change overnight and without warning, that’s a lot of proactive following up.

The U.S. isn’t just one country to a Malta-based crypto exchange. It’s 50+.

The Pain Doesn’t End There

Besides the stress and potential disorganization of managing that many individual relationships on a spreadsheet completely by yourself, the states themselves in some ways make it even more difficult.

Most states use the Nationwide Multistate Licensing System & Registry (NMLS) for quarterly reporting. Some states use it as their sole method of reporting, while some use it in addition to their own state-specific reporting requirements. Some don’t use it at all.

The NMLS was an attempt at a centralized reporting portal. You can visit the NMLS site for yourself if you want to see how “user-friendly” it is.

The point is, there is no single funnel for state reporting that is widely recognized and adopted. Complicating matters further, it’s not even the only one many states use.

Many states do have deadlines in December, but there is no requirement for all states to wrap up their reporting by any specific date. All 50 can do it whenever they feel like it.

“State money transmitter license is not like a driver’s license or fishing license that you slip into your wallet and forget about.”

As if it couldn’t get more complicated, the states that use NMLS add “checklists” (usually starting about August) for businesses like yours to complete by the year’s end. Sometimes these forms are the same as they were last year (and indeed, the same as they’ve always been).

Sometimes they aren’t, though! Some of them change every year.

And not all checklists are created equal. Who knows what you are going to need each year to complete all of these checklists? Some of them are similar to one another and pretty straightforward, others have their own laundry list of requirements that can seem impossible to fulfill.

What’s worse, there is never any indication that these checklists are about to change. Even if you call regulators directly and ask if a checklist is going to change this year, they will not be able to tell you.

Fines, Fines, And More Fines

Consequences for missing these deadlines arrive in the form of fines. 

Some regulators are more helpful than others. If you’re lagging on a deadline, they might send you an email reminder if you have a good established relationship with them.

But don’t count on this, because some will just decide to schedule an onsite visit to conduct an examination.

What You Have To Do

We’ve emphasized this before, and we can’t emphasize this enough: The buck stops with you.

Your business is fully responsible for tracking your money transmitter license status in every state in which you operate. That means you, someone on your staff, maybe even a full team has to:

  • Complete the initial state licensing application
  • Maintain open dialogs with state regulators in each state you do business in
  • Constantly monitor for changes (or hints of changes) in regulations in each state
  • Check the NMLS and other state-specific reporting portals frequently for checklists and deadlines
  • Complete these checklists and reporting requirements thoroughly
  • Keep amazing records of all of this as a matter of compliance policy
  • Do it all again next year in a completely different regulatory environment.

This is what we mean by ongoing maintenance.

Even though we used cryptocurrency exchanges as our main example, these pain points are also felt vividly by multi-state crypto kiosk operators we’ve talked to, as well as other MSBs with a more regional presence. 

Even if you run a single crypto ATM, you still need to follow this process for your state, which means constant vigilance.

There’s Good News

Simply put, you’re not alone. Many crypto businesses are in the same boat you are, and though regulators aren’t cutting any breaks, everyone seems ot understand that this process is too difficult and too unwieldy for its own good.

We encourage what we always do: open, healthy dialog with state regulators, and, though you want your business to grow, careful consideration of things like this when you expand into a new state. 

We understand what a counter-intuitive, resource-intensive, and opaque process this is, which is why we developed the ComplyFit tool to help cryptocurrency businesses of all sizes track their license status, among other things, more easily and intuitively. Consider a demo.

ComplyFit - Schedule a demo


If nothing else, you can always reach out to the compliance experts at BitAML. We’re unique in that we specialize in the cryptocurrency industry exclusively. If you have questions, schedule a free consultation.

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