CSBS Launches Streamlined State Exams for Nationwide Payments Companies

The Conference of State Bank Supervisors (CSBS) announced last week that it was launching what it called a “state-initiated” program that would enable money transmitters operating in 40 or more states to undergo a single exam to satisfy all state exam requirements in 2021.

The program, which the organization has dubbed MSB Networked Supervision, will apply to 78 of the largest payments and cryptocurrency companies in the U.S. The affected companies move more than $1 trillion annually, it said in the announcement.

CSBS is an organization for state financial regulators. The group convened a Fintech Industry Advisory Panel in 2017 to come up with recommendations for developing a more efficient framework for regulating fintech companies at the state level. The networked supervision initiative is the latest in a series of steps that CSBS has taken to try to streamline the process of complying with different state-by-state requirements for nonbank companies.

Adhering to this patchwork of regulation can be a challenge for payment facilitators who choose to become money transmitters. Many PFs are able to take themselves out of scope for money transmitter licensing by using funds settlement options such as “for benefit of” (FBO) accounts that remove them from the flow of payment transaction funds.

But some larger payment facilitators, especially those who offer ancillary products that involve the movement of money between parties, such as lending or investment management, must obtain money transmitter licenses.

According to the announcement, the new exam protocol will involve one state leading a group of examiners from across the country. The launch follows a pilot program that took place during 2019 and early 2020.

“This announcement represents years of work by state agencies to move networked supervision forward,” Rick St. Onge, Money Transmitter Regulators Association Board president and Washington State Department of Financial Institutions examinations chief, said in a statement.

“The next stage will be equally important as we raise the bar for multistate exam coordination. For over a century, state regulators have responded to evolutions within the money transmission industry, and networked supervision is the logical next step to more effectively and more efficiently supervise the growing number of nationally operating companies.”