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Government watch
The Impossible Dream?
startup company but also would appear to lock a licensed entity into only offering and selling existing products, and restricting the addition of new product lines, services or brands.
But wait. The question has to
be asked: What’s wrong with
an innovative startup payments company deciding to do licensed business through a licensed money transmitter instead of directly by itself? Where does the law say
a company must obtain its own license, instead of making the business decision to become an authorized delegate?
Similarly, why shouldn’t a licensed money transmitter, like a bank,
be allowed to market new products or services through third-party authorized delegates? (Would you tell a commercial entity that uses
a bank for payment services to “get your own bank charter”? Of course not.)
I realize that states are worried about so-called “rent-a-license” activities, but I think they’re miss- ing the point—and a huge op- portunity. Rather than trying to stop licensed money transmitters from appointing unrelated yet innovative payments businesses from partnering as their auth- orized delegates, I urge states to consider encouraging such activ- ity—subject, of course, to reason- able state guidelines that will ensure both consumers and the payment system are protected.
Those guidelines (which already exist in a few states) might include:
• Requiring a written contract
in which, among other things, the authorized delegate agrees to be subject to the super- vision of and examination
by the state regulator;
• Displaying the licensed money transmitter’s name/ contact information so consumers know which entity is licensed;
• Requiring the licensed money transmitter to perform due diligence on the authorized delegate, review its owner- ship, and its AML policies and procedures;
• Requiring the licensed money transmitter to report to the states the names and ad- dresses of all such authorized delegates, their business activities and their transac- tion volumes;
• Requiring the licensed money transmitter to monitor, super- vise, oversee and ultimately be responsible for the ac- tivities of the authorized delegates; and
• Requiring the licensed money transmitter to hold sufficient bonds and permissible in- vestments to cover both its own liability and those of
its authorized delegates.
The U.S. needs innovation to stay ahead in the global marketplace.
In recent years many well-operated and innovative payments companies have partnered successfully with
a licensed money transmitter, and were thereby able to securely and compliantly launch valuable and useful products. This legitimate use of money transmitter licenses and authorized delegates should be lauded as beneficial for consumers, businesses and the U.S. economy and not restricted or forbidden.
I’m already getting calls from well- managed, highly innovative new payments businesses expressing concern about their ability to do business in the U.S. given recent constraints on the authorized delegate solution. I hope calmer heads prevail and that a new approach is taken, so state money transmitter licensing laws aren’t
a barrier to entry but are a safe and secure way to grow our future payments infrastructure.
Judith Rinearson leads the payments practice team for Bryan Cave LLP, where she is a partner in the firm’s New York City office. She has been a contribut-
ing editor to Paybefore and was named a Paybefore Top10 Payments Lawyer earlier this year. Judie may be reached at judith.rinearson@bryancave.com.
endnotes
1 thisapproachisoneI’veespousedatconferencesand in other publications, such as my dec. 17, 2014, American Banker article “surprise: state Licensing Laws Could Help Payments Innovation.”
2 texasdepartmentofBankingsupervisoryMemorandum 1038 (issued oct. 13, 2014) at www.dob.texas.gov/laws- regulations/new-actions
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