State regulators harmonize quarterly reporting for MSBs

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WASHINGTON — The Conference of State Bank Supervisors announced a raft of measures Tuesday designed to simplify multistate licensing and regulatory oversight for fintechs and other companies registered as money-services businesses.

Money-services businesses will be allowed to fill out a single form when submitting their quarterly financial data to the 18 state regulators currently involved in the effort, rather than individual filings for each locality.

“We are proud to launch the MSB Call Report,” Sue Clark, the director of regulatory and consumer affairs at the Vermont Department of Financial Regulation, said in a press release. “The information collected through these call reports will provide complete and meaningful information on MSBs.”

The streamlined call report, which has been in the works since 2015, has been adopted for first quarter filings this year. Most of the states also participate in the Nationwide Multistate Licensing System, a single database that companies can use to manage their state licenses.

The states say that with this additional step toward coordination they will be able to glean more data on the fintech industry.

“Having this data will allow state regulators [to] share data, to identify national trends, and to move toward a more risked-based model of supervising these entities,” a spokesperson for the bank supervisor group said. "With fintech firms in particular, this will provide — we believe for the for the first time — a comprehensive nationwide database on transaction volume and activity of fintech companies."

Some states have been more vocal than others in advocating better coordination on fintech issues, particularly in response to the Office of the Comptroller of the Currency’s plan to create limited-purpose bank charter for fintech firms.

Jan Owen, California’s financial regulator, convened several fintech companies last month to hear their concerns on the state licensing and regulatory framework. The top financial regulator in Illinois, Bryan Schneider, has also called for the creation of a fintech advisory group to encourage discussions among states.

But the New York State Department of Financial Services has instead decided to assert its independence on the matter and even tried to expand the number of fintech companies that need a license in the state.

The New York regulator has not currently adopted the streamlined call report, but said it was supportive of the initiative. NYDFS "strongly supports the innovative efforts of CSBS to bring together state financial services regulators,” said Superintendent Maria T. Vullo in a statement.

The changes appear to be a welcome relief for companies involved in money transfers and others that have to obtain MSB licenses from each state where they plan to do business.

“Anything that CSBS can do to the NMLS [database] to add consistency and ease to the process while still giving agencies the information they need is great for fintech,” said Erin Fonte, a payments lawyer at Dykema. “These companies coming from the technology space abhor anything that's not efficient.”

The desire for a more uniform system for fintech companies to interact with their regulators is one of the major selling points of the fintech charter, which has been hotly opposed by the states.

“One of the things that come up frequently is, why is state X asking for information Y and nobody else?” said Lawrence Kaplan, a counsel at Paul Hastings. “If you can kill multiple birds with one stone, this will be great in reducing the burdens that you're facing.”

However, he noted that the effort has its limitations. Typically, beginner fintech companies are advised to start out in five large states, before going on to apply for all 50 licenses. But out of those states – New York, Florida, Texas, California and Illinois – only the latter two have signed up for the uniform call report.

Still, it's a sign that state regulators are putting their money where their mouth is, when it comes to coordinating on issues that affect fintech companies, observers said. The initiative was in part a result of a dialogue with the industry.

“The CSBS... is really trying to institute some comprehensive new products and services through [the NMLS] system,” said Fonte. “They started with mortgages but they're trying to expand more with other types of businesses.”

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