Washington and six other states have launched a new national approach to licensing money service businesses.
These businesses, known as “fintech” companies, include money transmitters, payment service providers and currency exchangers.
Fintech refers to new technology used to support or enable banking and financial services.
Generally, money service businesses have to apply for a license in each state in which they want to offer services.
As technology in the financial services area has advanced, state regulators have heard complaints from innovative startups providing money services about the difficulties of varying licensing requirements in multiple states and challenges of having their full application reviewed separately by each individual state before they can offer their services nationwide, according to state Department of Financial Institutions, or DFI.
Recognizing this problem, last year the Conference of State Bank Supervisors, or CSBS, of which the Washington DFI is a member, began a campaign to transform the licensing process, harmonize supervision and engage these so-called “fintech” companies.
In September 2017, the DFI approached a handful of states around the country to enter into the agreement to streamline the licensing process.
The multi-state agreement includes Georgia, Illinois, Kansas, Massachusetts, Tennessee and Texas.
The agreement will create efficiencies in the multi-state licensing process by allowing participating states to rely on each other’s work during the license application review process. It also divides the multi-state licensing process into two phases.
The first phase allows states to rely on each other’s work regarding licensing requirements that are common across state lines, leaving the few remaining state-specific licensing requirements to an expedited second phase that will be performed by each participating state.
“When the Washington DFI initially proposed this concept, we found that the current participating states expressed real interest,” said Charlie Clark, DFI’s deputy director, in a release. “We worked hard to get consensus among that initial group of states in order to get the project off the ground, but the participating states are still encouraging other states to join the agreement.”
Under the agreement, DFI will still require that money service businesses satisfy state licensing standards.
“While we are streamlining the licensing process, there are no shortcuts in consumer protections or ensuring a company’s fitness to provide financial services,” said DFI’s Director Gloria Papiez. “This agreement will create a multi-state licensing process that supports innovative companies and helps them get off the ground, which is good for those businesses and good for Washington State.”
The licensing process is voluntary for states and applicants. Participating states likely will undertake a pilot licensing project around April of this year. After making adjustments based on the pilot project, states will offer multi-state licensing under the agreement more broadly to new applicants.
“This (money service business) licensing agreement will minimize the burden of regulatory licensing, use state resources more efficiently, and allow for broad participation by other states across the country,” said John Ryan, CSBS president and chief executive officer.
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