e banking agencies. The primary federal agencies that supervise banks include the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of Currency (OCC), which impact the payment service environment by processing payments and issuing payment cards. Some forms of payments, including electronic funds transfers, are subject to specific regulations, which may include the Electronic Fund Transfer Act (EFTA) and CFPB Regulation E (establishing error resolution requirements for unauthorised transfers and requirements for payment transfers outside of the United States). The payment service-related activities are also subject to requirements imposed by industry associations, including payment card association (like Visa, MasterCard and American Express), and industry groups (like Payment Card Industry Security Standards Council).
Under federal law, non-bank financial institutions that engage in “money transmission” are considered to be MSBs that, unless exempted, must register with FinCEN, and be licensed in those states where the non-bank financial institution operates. Money transmission is defined under FinCEN regulations (made pursuant to the BSA) as the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. In addition to registration, the non-bank financial institution would be required to: (i) conduct a comprehensive risk assessment of its exposure to money laundering; (ii) implement a written anti-money laundering program based on that risk assessment; and (iii) comply with the recordkeeping, reporting and transaction monitoring, including filing Currency Transaction Reports and Suspicious Activity Reports (SARs), and recordkeeping related to the sale of negotiable instruments. Furthermore, to the extent that any of the non-bank financial institution’s transactions constitute a “transmittal of funds” under FinCEN’s regulations, then the non-bank financial institutions must also comply with the “Funds Transfer Rule” and the “Funds Travel Rule.” Additionally, money transmitters are subject to, among other requirements, net worth requirements, and disclosure requirements. Some states also require criminal background checks as part of the application process.
At the state level, all states except Montana generally require a money transmitter licence for businesses engaging in funds transfers (including international transfers) with additional ongoing compliance requirements, whose requirements may differ from state to state. The specific regulatory restrictions applicable to money service businesses depend on the relevant statutes and the business plan the business submitted to regulators regarding its anticipated operations. Most state money transmitter laws include a broadly inclusive statutory definition, which is typically limited by a few narrowly drawn exceptions. Therefore, despite definitional differences between federal laws and state laws, money transmission potentially encompasses almost any commercial activity in which money is taken from one (1) person or place and delivered to another. This means that while a business could be exempted or excluded from regulation as a money transmitter in one (1) state, that same business could be required to obtain a license in a different state. Most states require a surety bond with amounts ranging from as little as $25,000 to over $1,000,000.
Federal law provides for an exemption from FinCEN registration for payment processors provided that the payment processor (i) facilitates the purchase of goods or services or the payment of bills for goods or services (other than money transmission itse