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In the finance industry, there are several paths businesses owners can take to create a profitable career. One of those paths is as a money transmitter – the process of transmitting money for other people or businesses. As a money transmitter, businesses can work with traditional currencies or virtual options, such as Bitcoin, to help complete transactions for customers on a daily basis. However, as lucrative as a money transmitter business may be, there are steep hurdles to running a successful operation, including obtaining a money transmitter license.
Before helping customers transact with various currencies, a money transmitter must have a valid license to do business in the state or states where the business operates. Getting this license can be a challenge if the requirements are not understood or not closely followed. For money transmitters, in either fiat currency or virtual currency, here are the five steps to get a money transmitter license.
Understand State Criteria
Nearly all states have different requirements for money transmitters which must be met in order for a business to operate legally in that location. In most states, money transmitters must follow strict licensing criteria when they conduct the following transactions for customers.
- Processing money order or traveler’s checks
- Cashing checks as a business
- Exchanging or dealing in currency, including virtual currencies like Bitcoin
- Handling money transfers
Any business that does one or more of these tasks is likely to be considered a money transmitter, and therefore, requires a license. It is helpful to check with the specific state’s licensing or financial department to see what the definition of a money transmitter is and the process to follow in order to obtain a valid money transmitter license.
Complete Federal Requirements
If a business is deemed to be a money transmitter and needs to go through the licensing process with the state, there are also requirements to meet on the federal level. Money transmitters operating in the United States must register as a money service business, or MBS, with the Financial Crimes Enforcement Network, also known as FinCEN. This process is often the easiest part of getting a money transmitter license because it takes only a few moments to complete and it is done online.
However, failing to take this simple step can result in a business not getting its money transmitter license as quickly as it intended.
Get Documentation in Order
One of the reasons it can take some time to secure a money transmitter license involves the amount of documentation required by the state.
Although each state varies in its requirements, businesses submitting a money transmitter license application often need to provide detailed information about the owners or shareholders of the business, its physical location, and the nature of the transactions it will complete for customers.
Some money transmitter license applications also require an in-depth inspection of the business finances, including a balance sheet, income statement, or cash flow statement. It is helpful to have these documents organized and ready to submit along with other application materials to move the process forward.
Secure a Money Transmitter Bond
All states that require money transmitters to hold a valid license also want to see proof of a money transmitter surety bond. A money transmitter bond may be necessary for dealing in fiat or virtual currency, and it works as a form of protection for customers of the business. Should something go wrong in a transaction or the business fails to meet state or federal requirements while in operation, a claim can be made against a money transmitter bond to help cover financial losses.
Each state has its own requirements relating to the minimum bond amount, but this can range from $10,000 up to $500,000. Fortunately, money transmitters only have to pay a percentage of the total bond amount needed. Getting a money transmitter bond requires an application and a review of personal credit from a surety agency.
Meet Net Worth Minimums
Finally, getting a money transmitter license may mean a business has to meet certain net worth requirements imposed by the state. Like other licensing criteria, the net worth minimum varies by state, and this minimum must be met and proven through financial documentation at the time an application for a license is submitted. Recognizing that net worth minimums are imposed in many states and knowing what that number is will help money transmitter businesses prepare fully for submitting an application for a license.
Obtaining a money transmitter license in any state takes time. However, knowing the state and federal requirements along with preparing the right financial documentation, getting a surety bond, and meeting net worth minimums can make the process much smoother and ultimately faster.
Eric Weisbrot is the chief marketing officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.