The Act aims to modernize and streamline state regulation of money transmitters while promoting innovation and consumer protection.

By Parag Patel, Mik Bushinski, and Deric Behar

More than a dozen US states have enacted the Money Transmission Modernization Act (MTMA) in whole or in part, while several others have introduced bills to implement some or all of the model legislation that seeks to establish a uniform set of regulatory standards applicable to money transmitters at the state level.

The Conference of State Bank Supervisors (CSBS), a trade association of state financial services regulators that regulate money transmitters (among other providers of financial services), finalized the MTMA in August 2021 after receiving feedback from industry stakeholders.

The MTMA aims to reduce regulatory burden for money transmitters that operate in many states, streamline regulatory efforts and coordination among state regulators of money transmitters, encourage innovation by money transmitters, and protect small businesses and consumers that rely on money transmitters. The potential impact from more uniform and streamlined licensing across states is significant: in 2021, money transmitters handled $4.9 trillion, of which 99.8% was transmitted by companies licensed in multiple states, according to the CSBS.

Provisions Established in the MTMA

The MTMA establishes provisions regarding:

  • the money transmitter licensing process, including the vetting of owners, officers, and directors;
  • exemptions from money transmitter licensing requirements;
  • safety and soundness requirements (such as surety bonds, permissible investments, and net worth);
  • customer disclosures;
  • recordkeeping and reporting; and
  • examinations and enforcement.

Importantly, the MTMA standardizes exemptions from money transmission regulatory requirements recognized by many states, such as those applicable to:

  • companies receiving payment as an agent of the payee;
  • companies regulated under other financial services regulatory regimes, such as securities broker-dealers or futures commission merchant, to the extent of their operation as such; and
  • companies that should not be subject to regulation as a money transmitter because the lack of such regulation is in the public interest (as determined in the discretion of the state regulator).

The MTMA also establishes supplemental and optional provisions regarding virtual currency regulation. For instance, it requires any person engaging in “virtual currency business activity” to obtain a money transmitter license and comply with the obligations triggered by such licensure (referenced above). As the regulatory treatment of virtual currency activities under state money transmission laws remains unclear in many states, the MTMA’s inclusion of provisions related to virtual currency provides much-needed clarity on the applicability of state money transmission regulation to virtual currency activities.

State Adoption of the MTMA

To date, several states have enacted the MTMA in whole or in part since it was finalized:

  • In March 2022, West Virginia enacted certain portions of the MTMA, making it the first state to enact any portion of the MTMA.
  • Other states that have enacted the MTMA in part include Arkansas, Georgia, Hawaii, New Hampshire, and South Dakota, as well as additional states that have enacted smaller discrete provisions of the MTMA.
  • In May 2022, Arizona became the first state to enact the MTMA in whole. Indiana (effective January 1, 2024), Iowa, Minnesota, Nevada, North Dakota, Tennessee, and Texas (effective September 1, 2023) have since enacted the MTMA in whole.
  • North Dakota and Minnesota are the only states that have enacted the virtual currency portion of the MTMA to date.
  • Multiple states have pending bills to implement some or all of the MTMA, including California, Hawaii, Illinois, Massachusetts, Missouri, and Rhode Island.

State implementation of the MTMA has significant potential to improve outcomes for money transmitters, regulators, and consumers. Specifically, the adoption of the MTMA should promote regulatory consistency and efficiency for money transmitters operating in many states, enhance risk detection, and drive economic growth. However, whether the application of the MTMA by state regulators achieves its underlying goals, or results in less regulatory consistency and efficiency than anticipated, remains to be seen.

Latham & Watkins will continue to monitor developments in this area.