What Is a Money Transmitter License and Why Do Cryptocurrency Companies Need It? 

Written by: Maria Russinovich

While it may be touted as a new form of currency, a different way of life, and an unregulated form of exchange, in order to be successful, cryptocurrency still must perform the same fundamental functions that other currencies do.  

Money transmitters are regulated business entities that provide money transfer services or payment instruments to help people exchange currency. These companies are part of a group of entities called “money service businesses” or MSBs. Under the Federal Bank Secrecy Act (BSA), MSBs must register for a money transmitter incense when their activity falls under the definition of a money transmitter according to the laws of the state in which they are located.  

There are five federal categories of MSB: currency dealers or exchangers, check cashers, traveler’s check or money order issuers, traveler’s check or money order sellers or redeemers, and money transmitters like banks.  

Every state except Montana regulates MSBs, with laws varying from state to state. Most states require a surety bond ranging from as little as $25,000 to as large as $1 million in order to register as an MSB. Every money transmitter is required to meet a “minimum capital requirement,” which means how much capital a bank, money transmitter, or other financial institution is required to keep on hand.  

The Financial Crimes Enforcement Network (FinCEN) regulates and enforces the legislation on MSBs. If an MSB wishes to deal with crypto, they will have to comply with FinCEN, just like they already do for other currencies.  

FinCEN’s definition of “money transfer” states that money transmission services are the “acceptance of currency, funds, or other value that substitutes for currency from one person…” Because of this definition, crypto is regulated by FinCEN. Thus, if an MSB operates in a state that requires a license, it must get a money transmission license to conduct money transmissions in crypto. 

Sources: 

https://www.fincen.gov/resources/statutes-regulations/administrative-rulings/definition-money-transmitter-merchant-payment

https://kelman.law/insights/money-transmitter-licensing-for-u-s-crypto-companies/

https://www.licenselogix.com/faq/who-needs-a-money-transmitter-license

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