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volume 8 • spring 2015
substantially reducing the risk of money laundering.
Trouble in Paradise
So what’s the problem? Un- fortunately, a few bad apples have led some states to view
all authorized delegate relation- ships with suspicion, deeming many perfectly appropriate ar- rangements to be nefarious “rent-a-license” arrangements.
One case in point is Texas. Tradi- tionally one of the most forward- thinking states for financial services regulation, Texas recently issued a Supervisory Memorandum that appears to prohibit appointing any authorized delegate that’s not in the same business as the licensed money transmitter. So, yes, a remittance company, such as Western Union, can appoint
authorized delegates to sell West- ern Union’s remittance products. But Western Union could not appoint an authorized delegate to offer bitcoin exchanges, mobile payment applications or geoloca- tion-based loyalty programs.
The Texas Department of Banking2 explained:
“With the rise of money transmis- sion conducted via the Internet, the Texas Department of Banking (Department) became aware of some unlicensed money transmit- ters attempting to use the AD [authorized delegate] provision in an effort to circumvent the required licensing process. These unlicensed money transmitters become ap- pointed as an AD by entering into a contract with an MSB [money services business] that is currently
licensed as a money transmitter in Texas. However, a review of the parties’ relationship reveals the unlicensed entity is actually con- ducting its own business and not the business of the license holder and is therefore not a legitimate AD [emphasis added].”
Another recent example is North Carolina, which also advised that a licensed money transmitter couldn’t appoint an authorized delegate unless that delegate only sold or distributed goods or services that were already being sold/marketed by the licensed entity. But then North Carolina went a step further, suggesting that the goods and services sold by an authorized delegate also would have to carry the licensed entity’s existing brand and logo. This narrow approach not only would stifle innovation by a
I realize that states are worried about so-called ‘rent-a-license’ activities, but I think they’re missing the point— and a huge opportunity.
—Judith Rinearson, Bryan Cave LLP
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