March 27, 2016
For money transmitters, 2016 is shaping up to be a year of rapid changes in the financial industry, much like 2015 was. Innovative new ways to exchange funds are emerging with the rise of things like virtual currency and crowdfunding, and that trend shows no sign of slowing down. But with these unorthodox new businesses comes more scrutiny from the government. A few states have already seen new legislations pertaining to money transmitters, and there are surely more to come. Let’s have a look at the 4 Predictions for the Money Transmitter Legislation in 2016.
For the last few years, bitcoin and other virtual currencies have been in a bit of a legislative gray area and authorities have been scrambling to catch up. A few states, including New Hampshire and New York, have passed the legislation to designate sellers and administrators of virtual currency as money transmitters, requiring them to be licensed and bonded accordingly. The federal government is leading this push, so expect more states to pass clearer laws about virtual currency and exactly who qualifies as a money transmitter.
This could mean that, in the future, individuals won’t legally be allowed to sell bitcoins for cash, without being licensed and bonded money transmitters. These new regulations could also provide some much-needed security for bitcoin users. More mainstream consumers may also be more attracted to bitcoin once they see virtual currency affirmed and regulated by the law.
Another area where tech has enabled financial innovation is crowdfunding, with companies like Kickstarter taking the practice mainstream and helping numerous individuals raise capital from their peers. Again, regulations have been slow to evolve with the market, with the SEC only releasing their landmark new crowdfunding rules in late October of last year. In the case of crowdfunding, it’s the states that have led the charge with the feds only recently following suit.
With the SEC now permitting so-called regulation crowdfunding under their watchful eye, companies already engaged in the practice can expect more, and clearer, regulations. Eventually, crowdfunding sites may have to get money transmitter licenses. This will mean more legal considerations for private crowdfunding firms and more compliance expenses.
More and more, lawmakers are concerned with how money transmitter services overlap with other key areas, including national security and financial crime. Meanwhile, as money transmitters take their businesses entirely online and become increasingly decentralized, states are rushing to close loopholes. For one thing, state governments are worried about losing revenue if their residents take more and more of their transactions online to out-of-state businesses.
This means that some states are redefining their regulation jurisdictions – declaring authority over out-of-state businesses who accept payments from in-state residents – and demanding compliance with state laws. These include California, Texas and Indiana to name a few. For example, a company that accepts payments from Californians may need to be licensed in California even if they don’t have an office or any employees in the Golden State.
These rules – and their interpretations – are changing fast and can vary widely between states. This means money transmitters will have to be very careful in 2016 as they may be subject to different rules simply depending on whose payments they transfer and to whom.
By now, it’s clear that technology has changed the financial services industry for good. Things like virtual currency and crowdfunding have demonstrated their potential, and the more traditional financial institutions, like banks and more old-fashioned money transmitters, have taken notice. This means the bigger, more established players in the business may even unveil their own takes on some of these new services.
At the same time, startups are finally seeing legislation catch up to their vision and may struggle to adapt to changing money transmitter regulations in 2016. Newer, smaller companies can get hit the hardest when the rules change. So, we might see more of these fresh new business models teaming up with the old pros to maximize both skill sets.
What does the year ahead look like for you? Are there any changes you’d like to see in the money transmitter laws in 2016? Share your thoughts in the comments!
Guest Contributor - Vic Lance is the Founder and President of Lance Surety Bond Associates. He is a surety bond expert who helps business owners become licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.