The effort to drive some uniformity within the patchwork of state regulations faced by fintech companies – including many payment facilitators – has taken another small step forward.
Last week, the Conference of State Bank Supervisors (CSBS) released steps it plans to take as it implements feedback from its Fintech Industry Advisory Panel.
The panel was formed in 2017 as part of the board’s Vision 2020 initiative, a plan to develop a consistent framework for regulating nonbank entities across states. According to the press release, the 33-member panel includes companies such as Alipay, First Data and PayPal.
Among the steps the CSBS plans to take is to expand the use of the Nationwide Multistate Licensing System to all nonbank industries supervised at the state level.
As PaymentFacilitator has previously reported, the NMLS was originally used as a portal to submit applications for state mortgage licenses, but its usage has grown to allow other types of online submissions – including, in some states, money transmitter license applications.
Also among the advisory panel’s recommendations was the need to develop uniform practices across the states, standardizing definitions and procedures for money services business (MSB) licensure. In response, the CSBS said it plans to develop what it called a “50-state model MSB law.”
The group also recommended forming a working group to “evaluate differences in state MSB prudential requirements and explore harmonization opportunities through regulatory and state legislative action.”
According to Evan Minsberg, an attorney with the Banking and Financial Services Regulatory practice at law firm Venable LLP, the steps the organization has outlined in this announcement would all benefit payment facilitators who are considering applying for money transmitter licenses by clarifying definitions of money transmission and expanding use of the NMLS licensing portal.
However, even with a more standardized set of application requirements, the core issue of each state individually reviewing license applications in what for many businesses could end up being anywhere from 25 to 50 states remains cumbersome.
“At the end of the day, the application review process would continue to be a real hurdle,” he said.
Each state has different application requirements and reviews the applications individually, often with state-specific follow-up requests. In states with the most requirements, the process can end up taking as much as two years.
For the best hope of relief there, Minsberg pointed to a related CSBS initiative announced last year, in which seven states had agreed to accept the others’ findings on certain elements of the licensing application.
“That was a significant step forward which, if adopted nationwide, would absolutely streamline the licensing process, particularly if that level of reciprocity expanded to the majority of the application,” Minsberg said.
According to a CSBS spokesperson, that initiative has expanded to include 21 states.
In its report to the CSBS, the advisory panel’s payments industry subgroup outlined the importance of money services businesses and the challenges they face in obtaining licensing.
“The variations in definitions and related exemptions, as well as varied licensing and supervision regimes among states lead to operational challenges that hinder innovation, drive up the cost to customers, and limit access to financial services,” the report said.