Complying With Money Transmission Laws: FBO Accounts and Other Exemptions, Federal and State Regulatory Framework

Description

Any business looking to move money in connection with its products or services needs to consider how laws and regulations applicable to money transmission might apply to their business. Fintech and other companies must distinguish between primary and incidental money transmission, and the federal and state requirements with respect to each activity. They must also have an understanding of the available exemptions.

The Bank Secrecy Act of 1970 governs money transmission at the federal level, with the Financial Crimes Enforcement Network (FinCEN) being tasked with enforcing compliance. State regulations are varied and inconsistent and can present the most difficult part of figuring out a compliance strategy.

FinCEN has approved exemptions for certain types of businesses, including companies that process payments as their primary business activity and use regulated payment networks like ACH and Fedwire, and e-commerce companies like Airbnb and Uber which handle payments on behalf of a provider of goods or services.

To reduce money transmitter risk, fintechs may partner with banks that offer FBO accounts opened for the benefit of the fintech's customers, with funds flowing through an account owned and controlled by the bank. But they must structure their relationships and services to fit the bank's requirements. Contractual provisions and operational procedures must be sufficient to give the bank comfort that proper transaction monitoring and accounting will be done.

Listen as our authoritative panel discusses the state and federal regulatory framework around money transmission and the available exemptions, including FBO accounts. The panel will also discuss the proposed Money Transmission Modernization Act and how it could create a unified and consistent approach to the application process and regulation of money transmitters.