Money Transmission and Payment Systems Licensing
This domain tests whether a virtual currency business needs a federal registration, a state money transmission license, or a state-specific virtual currency license - and what happens when it needs all three. The exam rewards careful analysis of who holds customer funds and who has discretion over them.
Federal layer
FinCEN registration as an MSB is required for CVC administrators and exchangers, with registration within 180 days of establishment, plus AML program, recordkeeping, and reporting duties. Federal registration is not a license and does not satisfy state law.
State layer
- Nearly every state requires a money transmission license for receiving money or monetary value for transmission, with surety bonds, minimum net worth, permissible investments, and examinations.
- The CSBS model law, adopted in several states, creates a harmonized framework but not uniform adoption.
- New York requires a BitLicense under 23 NYCRR Part 200 for virtual currency business activity, with a separate BitLicense application, cybersecurity requirements, and capital rules.
Exemptions to analyze carefully
Payment processors, agents of a payee, and persons providing only software without custody may fall outside licensing. The key fact is control: who receives the value, who can direct it, and who bears the risk of loss.
Worked example
A startup lets merchants accept BTC and converts it to USD. If the startup takes custody as principal, buys and sells CVC, and controls settlement, it looks like an exchanger needing FinCEN registration and state licenses. If it is truly the merchant's agent, never takes title, and merely passes value under the merchant's direction, an agent-of-payee analysis may apply - but state interpretations vary, so document the flow of funds.
Traps
- Assuming FinCEN registration permits nationwide operation.
- Relying on a non-custodial software argument when the company can move customer funds.
- Applying one state's exemption analysis to another state.