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How the Money Transmitter Modernization Act could build a more unified future

Terri Luttrell, CAMS-Audit, CFCS
June 12, 2023
Read Time: 0 min

Money transmitter act encourages consistent standards

A single set of nationwide standards and requirements under the money transmitter act could have a host of benefits for consumers and businesses.

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In today's interconnected world, efficient and secure money movement is crucial for individuals and businesses alike. Money transmitters like Western Union, PayPal, MoneyGram, Zelle, and many others, facilitate secure digital transactions, allowing people to send and receive funds across borders and within the U.S. The money transmitter industry is growing, spiked by advances in fintech and the consumer demand for immediate payment mechanisms. According to the Conference of State Bank Supervisors, the number of money transmitters grew by 13% in 2021 in the U.S. alone, handling $6 trillion in payments.

A regulatory baseline

Benefits to adopting the model money transmitter act framework

Money transmitters are regulated at the state level, and the absence of a standardized licensing and regulatory framework across states can lead to consistency and challenges for money transmitters. In 2021, the CSBS approved the Model Money Transmission Modernization Act (MTMA), also known as the Money Transmitter Model Law, to address this issue. The act provided a single set of nationwide standards and requirements created by industry and state experts to create a common regulatory baseline across the country.

Since the passing of this model money transmitter act, many states have introduced or fully adopted these standardized guidelines. In addition to providing state regulators with the tools needed to regulate money transmitters, the legislation provides the following benefits to adopting the model framework:

  • Enhanced consumer protection: A uniform set of regulations ensures consistent consumer protection measures across states. The money transmitter act could hold companies to the same high standard regardless of their state, providing customers peace of mind.
  • Streamlined compliance: Compliance with varying state regulations significantly burdens money transmitters. Implementing a single set of standards under the money transmitter act would reduce complexity, allowing businesses to allocate resources more efficiently and focus on improving their services.
  • Encouraging innovation: Inconsistent regulations can deter fintech companies from entering certain markets. A national framework would provide a level playing field, fostering innovation and competition in the money transmitter industry.
  • Combating money laundering and terrorism financing: A unified regulatory approach would enhance anti-money laundering (AML) and counter-terrorism financing (CTF) efforts. Collaboration and information-sharing among states would strengthen the overall effectiveness of AML/CTF controls and satisfy regulatory requirements.
Basic framework

Components for states to adopt from the model money transmitter act

The MTMA includes several vital components that can form the basis of a model legislation framework for states to adopt:

  • Licensing and registration: Establish a single licensing and registration process for money transmitters operating within a state. This process should include thorough due diligence on applicants, ensuring they meet strict financial, operational, and security requirements. Having a single source of information under the money transmitter act would provide a clear set of standards across state lines.
  • Capital and liquidity requirements: Set minimum capital and liquidity requirements to ensure the financial stability of money transmitters. These requirements should be proportional to the risks associated with their operations and the volume of transactions.
  • Compliance and reporting: Mandate implementing robust AML and CTF programs by money transmitters. This includes the development of internal controls, customer due diligence procedures, ongoing monitoring, and suspicious activity reporting. One set of requirements will reduce the regulatory burden and compliance costs.
  • Cybersecurity and data protection: Enforce stringent cybersecurity measures to protect customer data and financial transactions. Money transmitters should be required to adopt best practices, conduct regular security assessments, and establish incident response plans.
  • Consumer protection: Define clear guidelines for transparency, disclosures, and complaint processes to safeguard consumer interests. Establish mechanisms for dispute resolution and consumer restitution in case of any misconduct or service failures.
  • Supervision and enforcement: Designate a competent regulatory authority responsible for overseeing money transmitters' compliance with the legislation. This authority should have the power to conduct inspections, impose penalties for non-compliance, and ensure effective enforcement of the regulations.
  • Interstate collaboration: Encourage states to establish information-sharing mechanisms and collaborate on cross-border issues. This would facilitate investigation cooperation, improve enforcement capabilities, and spread best practices.

A win-win for consumers and money transmitters

A single set of nationwide standards and requirements under the money transmitter act would make it easier for transmitters to obtain multiple state licenses, allow states to better coordinate the supervision of money transmitters operating within their borders, and provide consumers with increased protection. Collaboration and cooperation between states are crucial to realizing these benefits, ensuring a unified regulatory approach that prioritizes the interests of consumers and businesses alike.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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