Payments Law Tool Kit

Venable / 28 27 / Venable Money Transmission documentation. In addition, once licensed, compliance requirements apply in each state, including maintaining appropriate capital relative to the licensee’s transmission obligations, reporting and recordkeeping requirements, and consumer-facing disclosure and advertising requirements, among others. Exemptions to state money transmission laws vary from state to state. The following exemptions are available in some but not all states (note that federal registration may still be required): • Authorized Delegate of a Licensed Principal: Most states permit an “authorized delegate” to engage in money transmission without a license if the company is an agent of a licensed money transmitter • Agent of a Bank: Some states permit an agent of a bank to engage in money transmission without a license • Agent of the Payee: Some states provide an exemption where the money transmitter acts as an agent of the payee (merchant/supplier), and payment to the transmitter constitutes payment to the payee. This exemption is similar in many respects to the federal Payment Processor exemption Money transmitters are regulated under federal and state law. Under federal law, money transmission is defined as the “acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.” In general, most states use a similar definition. For example, New York defines money transmission as “receiving money for transmission or transmitting the same.” Federal Law At the federal level, money transmitters must (1) register with the federal Financial Crimes Enforcement Network (FinCEN), a division of the Treasury Department; and (2) implement a Bank Secrecy Act (BSA)/anti-money laundering (AML) program, including appointing an officer responsible for the program, collecting required information on customers, monitoring for and reporting suspicious transactions, training appropriate personnel in anti-money laundering procedures, and engaging an independent auditor to review the program on an annual basis. A “payment processor” exemption is available for an entity that (a) facilitates the purchase of goods or services, or the payment of bills for goods or services other than money transmission itself; (b) operates through clearance and settlement systems that admit only BSA- regulated financial institutions; and (c) provides services pursuant to a formal agreement with the seller or creditor that provided the goods or services and receives the funds. An entity likely satisfies requirement (b) if it receives and disburses payments only through ACH. State Law In the states, money transmitters must obtain a license in their home state and each jurisdiction where customers reside. The license application process requires extensive disclosures on the company and its officers, financial statements, surety bonding, and other supporting