Earlier this month, money transmitters and those who are interested in money transmission issues had the opportunity to meet state and federal regulators at the annual Money Transmitter Regulators Association (“MTRA”) conference, held in Seattle, Washington.  Panels of industry experts discussed issues facing regulators and industry participants, ranging from the risks and opportunities associated with emerging payment technologies to the challenges associated with increased globalization and cross-border payments. 

Money laundering risks and fraud prevention were cited as significant concerns for both regulators and industry.  Regulators are particularly concerned with fraud (especially by insiders) and IT system vulnerabilities and cross-border regulation.  However, several presenters noted that electronic payments actually have better safeguards against money laundering than traditional payment methods because of the transparency and better record-keeping inherent in digital transactions. 

Another area of particular emphasis was the appropriate scope of the state money transmitter statutes and their applicability to novel business models. While there were no clear-cut answers about whether and how money transmitter laws apply to rapidly evolving payment systems, a recurring theme throughout the discussions was “who controls the money?” Specifically,

  • Who has control of the money?
  • Who has liability?
  • Who does customer think they are dealing with?
  • What are customer’s remedies and who controls this process?

Also left unanswered is the availability of a payment processing exemption to money transmission licensing requirements.  When presented with the question, a panelist affirmed that while payment processing is expressly exempt in some states, there are a few states that are seeking to regulate payment processors if the funds are held at any time in the processor’s account, even if it is a “for benefit of” or  “FBO” account.  This uncertainty and increase in regulation is particularly troubling to innovators, especially those operating in states where there is little or no interpretive guidance on the scope of the money transmitter regime.

The next meeting of the MTRA will be in New Orleans, September 23-26, 2013.