On September 12, 2016, the Nationwide Multistate Licensing System (“NMLS” or the “System”) will begin receiving and tracking Electronic Surety Bonds (“ESBs”). In an unprecedented departure from the traditional uploading of a copy of a surety bond document to the applicant’s or licensee’s record followed by the delivery of the paper bond to the state regulator, Idaho, Indiana, Iowa, Massachusetts, Texas, Vermont, Washington and Wisconsin have publicly announced the adoption of ESB in 2016 for several license types. This is the first group of states to “bond online,” but all states are expected to have a common bond process through NMLS.

Many states require licensed financial services businesses to get a surety bond so that state regulators or consumers may file claims against the bond to cover fines or penalties assessed or provide restitution to consumers if the licensee fails to comply with licensing or regulatory requirements. NMLS reports that 177 license authorities currently managed on the system require a licensed company to maintain a surety bond as a condition of licensure. States have even imposed bond requirements on individual mortgage loan originators (“MLOs”) in accordance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”) but allow for MLOs to be covered under a company bond.

NMLS was created to serve as a comprehensive system of record for licensing information. However, as it relates to surety bonds, the System’s current functionality is antiquated, limited and does not allow for the tracking of bond requirements or the maintenance of bond information validated by authorized surety companies and/or bond producers. State regulators have also cited the tracking of surety bond compliance as a reason for processing delays in license applications, amendment filings and renewal approvals. For those reasons, the State Regulatory Registry LLC, which administers NMLS, believed a fully electronic surety bond process would provide efficiencies for both industry and regulators.

The first phase of this ESB process entailed the creation of an account by each participating surety company and association with those accounts by surety bond producers. The second phase, which will begin September 2016, entails implementation of bond issuance, tracking and maintenance.

If you have not already done so, and especially if you are licensed or intend to become licensed in one of the eight states listed above that will be implementing this new functionality in September, you should ensure that your surety bond company has created an account in the System and be aware of the new application and conversion deadlines that are listed on the NMLS ESB Adoption Map and Table.

If you maintain a license in a state that has publicly announced their participation in the ESB process in NMLS, be reminded that NMLS is offering a live complimentary training webinar on the upcoming ESB enhancements. The training is expected to provide an overview of the ESB enhancements, including the bond creation and management process, a demonstration of the new functionality, the resources available on the NMLS Resource Center and a live question-and-answer opportunity. Mayer Brown’s Regulatory Compliance Analysts are completing the training and will be available to assist our clients in this transition. Details on the webinar are below.