Are Money Transmitters Risking Licenses By Partnering With Virtual Currency Operators?

MSB Talk 4

Since March of this year, when FinCEN released new guidelines requiring virtual currency operators to be licensed as money transmitters, the subject of compliance has been the main topic of conversation within the virtual currency world. Conferences devoted to federal and state regulations such as the Virtual Currency Compliance Conference “VC3” hosted by the NMTA two weeks ago are being held in order to connect and learn from regulators, traditional money transmitters and virtual currency operators. And although the efforts of conference organizers are valiant, one huge piece of the compliance puzzle is being overlooked; Surety Bonds.

The process of getting licensed and bonded nationally is onerous for emerging startups in the money transmitter space. For that reason, a number of traditional money transmitters have expanded their business models to include an agent program that allows virtual currency operators to “piggyback” off of their licenses, and by extension, their surety bonds. But there is a mounting problem with that business model. The surety bond carriers that are denying bond applications from virtual currency operators are the same carriers that are currently providing the bonds to the money transmitters offering agent programs to the virtual currency industry. Surety bond carriers are beginning to question their desire to continue providing bonds to money transmitters interested in opening their licenses and bonds to be piggybacked on by virtual currency operators.

A leading underwriter for a large surety bond carrier expressed his concern for the business model in a recent message where he points out that one misstep by an agent could be a money transmitter’s demise and easily cause a claim on one of the bonds. He goes on to say that he understands that they are only underwriting the money transmitter, but that they are ultimately relying on the principal’s ability to underwrite the agents. The pinnacle of his concerns is this; “They (traditional money transmitters) are getting into the Bitcoin arena, which is a class of business we are not comfortable with at the moment.”

It is yet to be seen if surety bond carriers will take action against traditional money transmitters that partner with virtual currency operators by cancelling their bonds and therefore rendering them unlicensed. However, we do know that bond carriers have the right to cancel a bond at renewal for whatever reason they deem appropriate. For example, virtual currency companies that have been issued a money transmitter bond in the past are now seeing those bonds being cancelled upon renewal due to the uncertainty of the virtual currency industry. Without the ability for companies to secure the necessary surety bonds, there is no hope for a legitimate virtual currency market.

The success of math-based currency relies on the efforts of advocates involved in each aspect of compliance. Alpha Surety is working hard to educate surety bond carriers on the virtual currency industry by representing both virtual currency operators and traditional money transmitters seeking to provide solutions to emerging technology companies.


6 thoughts on “Are Money Transmitters Risking Licenses By Partnering With Virtual Currency Operators?

    • The issue is that companies registered outside of the US still have to comply with US regulations if their customers reside in the US. The only option is to find a way to comply or somehow block all US residents from using their platforms. Also, according to a comment made by Adam Atlas ( during the Virtual Currency Compliance Conference held in New York a couple weeks ago, it is nearly impossible for MSBs to get banked in Canada.

      • We are hosting online Remittance Merchants and have had no issues raised by them as to obtaining a Bank account. Was Adam referring to start ups or established MSBs?

      • The topic of licensing and banking in regards to Canada was not covered in enough detail during the conference to say for sure. No emphasis was put on one or the other during the brief conversation.

    • @rodtomita, Registering in Canada has no impact whatsoever with regulatory compliance or costs for companies operating in the US. If a financial institution in Canada is operating in the US that institution still has to register with FinCEN and is still subject to all of the MSB requirements of the various States they do business with in the states.

      If they do not register and seek licensing they are in violation of the law. Unfortunately, the reality is all too often companies outside the US conducting online MSB activity aren’t doing what is required, the states either do nothing about it or they don’t have any real ability to do anything to a company who ignores their cease and desist letters and fines. And that gives them an unfair advantage over those of us who do follow the law. MSB compliance is ridiculously expensive and is a revenue generator, jobs program for the states. The worst part is again, only those of us that bother to comply are affected.

      Obtaining a bank account is a totally different issue although US banks should be punished if they do business with unlicensed remittance businesses.

      It has been my experience the 15 years that I have worked in MSBs that the price of compliance means that the more you cooperate, the easier it is for regulators to deal with your company the more attention is paid to you. Especially the smaller companies. We spend way too much time and money hosting regulators and exams who always seem to visit us and our nice climate during the parts of the year where the weather is the hottest or the coldest. I’d love to see much more attention paid to those who do not comply.

      A company should never have to pay an enormous percentage of their revenue to deal with 40 something states, their often wildly different regulations. It has gotten out of hand.

      And quickly on Bitcoin- Bitcoin is so much easier to track and monitor for money laundering that cash will ever be. The gov’t needs to wake up and listen to those of us in the industry and not just the investors in bitcoin the folks who work it.

  1. Pingback: Headline News from - August 27, 2013 | Ideal Payment Solutions.comIdeal Payment

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