TOM BOLT, Corporate Place, Royal Dane Mall, St. Thomas, VI 00802, Chair

ARTHUR E. BONFIELD, University of Iowa, College of Law, Iowa, IA52242

52242

DAVID A. GIBSON, P.O. Box 1767, 10 Park Place, Brattleboro, VT 05302

MICHAEL HOUGHTON, P.O. Box 1347, 18th Floor, 1201 N. Market St.,Street, Wilmington, DE 19899

L. GENE LEMON, 1840 N. Central Avenue, Suite 2311, Phoenix, AZ 85077

SCOTT SCHERER, 1085 Palms Airport Drive, Las Vegas, NV 89119

SANDRA S. STERN, 509 Madison Avenue, Suite 612, New York, NY 10022

KEN H. TAKAYAMA, Legislative Reference Bureau, State Capitol, Honolulu, HI 96813

**ANITA RAMASASTRY, University of Washington, School of Law, 1100 N.E. Campus Parkway, Seattle, WA 98105-6627

**Reporter

EX OFFICIO

GENE N. LeBRUN, P.O. Box 8250, 9th Floor, 909 Joseph Street, Rapid City, SD 57709, President, National Conference

SCOTT N. HEIDEPRIEM, 431 N. Phillips Avenue, Suite 400, Sioux Falls, SD 57104, Division Chair

AMERICAN BAR ASSOCIATION ADVISOR

DAVID S. WILLENZIK, 643 Magazine Street, New Orleans, LA 70130-3405, Advisor

EXECUTIVE DIRECTOR

FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Norman, OK 73019, Executive Director

WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI, 48104, Executive Director, Emeritus

Copies of this Draft Act may be obtained from:

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

211 East Ontario, Suite 1300

Chicago, Illinois 60611

(312) 915-0195

http://www.law.upenn.edu/library/ulc/ulc.htm

MONEY SERVICESUNIFORM MONEY-SERVICES BUSINESS ACT

TABLE OF CONTENTS

ARTICLE 1

GENERAL PROVISIONS

SECTION 101. SHORT TITLE.

SECTION 102. DEFINITIONS.

SECTION 103. SUPERVISORY POWERS OF [SUPERINTENDENT].

SECTION 104. EXCLUSIONS.

SECTION 105. LICENSE REQUIRED.

ARTICLE 2

LICENSING OF MONEY TRANSMITTERS AND PAYMENT INSTRUMENT SELLERS

SECTION 201. APPLICATION FOR LICENSE.

SECTION 202. SECURITY.

SECTION 203. ISSUANCE OF LICENSE.

SECTION 204. RENEWAL OF LICENSE.

SECTION 205. APPLICATION AND LICENSE FEES.

SECTION 206. NET WORTH.

SECTION 207. PAYMENT INSTRUMENT IDENTIFICATION.

ARTICLE 3ARTICLE 3

LICENSING OF CHECK CASHERS AND CURRENCY EXCHANGERS

SECTION 301. APPLICATION FOR LICENSE.

SECTION 302. ISSUANCE OF LICENSE.

SECTION 303. RENEWAL OF LICENSE.

SECTION 304. APPLICATION AND LICENSE FEES.

SECTION 305. NET WORTH.

ARTICLE 4

AUTHORIZED DELEGATESARTICLE 4

ARTICLE 4

AUTHORIZED DELEGATESLICENSING OF CURRENCY EXCHANGERS

SECTION 401. RELATIONSHIP BETWEEN LICENSEES AND AUTHORIZED DELEGATES.APPLICATION FOR LICENSE.

SECTION 402. SCOPE OF AUTHORIZED DELEGATE'S ACTIVITY.ISSUANCE OF LICENSE.

SECTION 403. UNAUTHORIZED ACTIVITIES.RENEWAL OF LICENSE.

ARTICLE 5

EXAMINATIONS, REPORTS, AND RECORDSSECTION 404. FEES.

ARTICLE 5

AUTHORIZED DELEGATES

SECTION 501. AUTHORITY TO CONDUCT EXAMINATIONS.RELATIONSHIP BETWEEN LICENSEES AND AUTHORIZED DELEGATES.

SECTION 502. JOINT EXAMINATIONS.SCOPE OF AUTHORIZED DELEGATE'S ACTIVITY.

SECTION 503. UNAUTHORIZED ACTIVITIES.

ARTICLE 6

EXAMINATIONS; REPORTS AND OTHER RECORDS

SECTION 601. AUTHORITY TO CONDUCT EXAMINATIONS.

SECTION 602. JOINT EXAMINATIONS.

SECTION 603. REPORTS.

SECTION 504.604. CHANGE OF CONTROL.

SECTION 505. BOOKS, RECORDS, ACCOUNTS, ANDDOCUMENTS.

DOCUMENTS.

SECTION 506. RECORDS OF TRANSACTIONS.605. BOOKS, ACCOUNTS, DOCUMENTS, AND OTHER RECORDS.

SECTION 507.606. MONEY LAUNDERING REPORTS.

SECTION 508.607. ELECTRONIC FILING OF RECORDS.

SECTION 509.608. CONFIDENTIALITY OF RECORDS.

ARTICLE 6ARTICLE 7

PERMISSIBLE INVESTMENTS

SECTION 601.701. MAINTENANCE OF PERMISSIBLE INVESTMENTS.

SECTION 602.702. TYPES OF PERMISSIBLE INVESTMENTS.

ARTICLE 78

ENFORCEMENT

SECTION 701.801. ORDERS TO CEASE AND DESIST; POWERS OF SUSPENSION AND REVOCATION.

SECTION 702.802. AUTHORIZED DELEGATES; ORDERS TO CEASE AND DESIST.

SECTION 703.803. TEMPORARY ORDERS TO CEASE AND DESIST.

SECTION 704.804. CONSENT ORDERS.

SECTION 705.805. CIVIL PENALTIES.

SECTION 706.806. CRIMINAL PENALTIES.

SECTION 707. UNAUTHORIZED ACTIVITIES.

ARTICLE 89

ARTICLE 8

ADMINISTRATIVE PROCEDURES

SECTION 801.901. ADMINISTRATIVE PROCEDURES.

SECTION 802.902. HEARINGS.

ARTICLE 9ARTICLE 10

MISCELLANEOUS PROVISIONS

SECTION 901.1001. APPOINTMENT OF [SUPERINTENDENT] AS AGENT FOR SERVICE OF PROCESS.

SECTION 902.1002. UNIFORMITY OF APPLICATION AND CONSTRUCTION.

SECTION 903. SEVERABILITY.1003. SEVERABILITY CLAUSE.

SECTION 904.1004. EFFECTIVE DATE.

SECTION 905.1005. SAVINGS AND TRANSITIONAL PROVISIONS.

ARTICLE 1

GENERAL PROVISIONS

SECTION 101. SHORT TITLE. This [Act] may be cited as the Money ServicesUniform Money-Services Business Act.

Reporter's Note: The Proposed Money Services Business Act ("Proposed Act") was previously referred to as the Proposed Nondepository Providers of Financial Services Act. The name change was recommended at the last meeting of the Drafting Committee held in Washington, D.C. in October 1998. Observers and Drafting Committee members felt that "money services business" was a more appropriate description of the various types of entities that fall within the scope of the Proposed Act. The Financial Crimes Enforcement Network of the United States Department of Treasury ("FinCEN") has also suggested the use of this term in its proposed rules concerning the non depository providers such as money transmitters, check cashers, payment instrument sellers and stored value providers in its proposed rules concerning such industries. The Executive Committee of the National Conference of Commissioners on Uniform State Laws ("NCCUSL") approved the change of the Proposed Act's name at its last meeting in January 1999.

SECTION 102. DEFINITIONS. In this [Act]:

oviders in its proposed rules concerning such industries. The Executive Committee of the National Conference of Commissioners on Uniform State Laws ("NCCUSL") approved the change of the Proposed Act's name at its last meeting in January 1999.

SECTION 102. DEFINITIONS. In this [Act]:

(1) "Applicant" means a person filing an application for a license under this[Act].

[Act].

Source: Non-Bank Funds Transmitter Group Model Act Regulating Money Transmitters ("Model Act Regulating Money Transmitters") Section 3.

(2) "Authorized delegate" means a person designated by a licensee to engage in a money services business on behalf of thelicensee.

licensee.

Source: Model Act Regulating Money Transmitters Section 3 withmodifications.

modifications.

Reporter's Note: It is important to clearly define the outlets through which a money services business conducts its business. This definition will help to define the legal relationship between a money services business and those outlets. The Money Transmitters Regulators' Association Model Legislation Outline ("Model Legislation Outline") uses the term "authorized agent" as an alternative to authorized delegate. FinCEN, in its May 1997 proposed rulemaking concerning money services businesses, uses the term "agent" for those same entities. In its comments, FinCEN notes that "Treasury intends that the concept of 'agent' for the list requirement should be s, FinCEN notes that "Treasury intends that the concept of 'agent' for the list requirement should be as broad as the common law of agency would allow, that is, it would extend to any relationship that would be deemed to create obligations of principal and agent at common law. Thus, for example, it is likely that virtually all independent contractor arrangements for money services businesses -- whatever their characterization for employment law or income tax purposes -- would be treated as creating principal-agent relationships to define the parameters of the rights, obligations and direct and derivative liabilities of the parties. See Restatement (Second) of Agency Sections 28 and 14N." 62 Fed. Reg. 27895.

The Non-Bank Funds Transmitters Group has suggested another alternative, "money transmitter outlet" to refer to independently owned sales outlets. The definition of money transmitter outlet defines the entity as "a person, whether or not licensed or required to be licensed, who is engaged in the business of transferring funds through a money transmitter even if incidental to another business."

The principles of agency law may apply in some states with respect to the relationship of the licensee and its authorized delegates. Some of the Observers have noted that the relationship of delegate and licensee should explicitly be governed by agency principles. This issue needs to be discussed again during the March 1999 drafting meeting.

(3) "Check casher" means a person that accepts a payment instrument in exchange for money delivered to a presenter at the time and place of the presentation and receives compensation for the exchange and receives at least [$1,500] in such fees during any [30] - day period.

Source: New

Reporter's Note: Industry Observers proposed the new definition at the October 1998 drafting meeting. The main difference in the new definition is the method used to determine which businesses should be excluded because they cash checks as a service that is incidental to their primary business and which is also at a de minimis level. The exemption reflects an aggregate level of fees over a 30-day period rather than relying on a daily level of business.

Previously, the definition of check casher excluded "a person who cashes checks in an amount less than or equal to [$500] for any person on a single day." Such definitions are used to exempt small businesses -- such as grocery stores and businesses where check cashing is a service offered to customers incidental to another business (e.g., hotels) -- from having to obtain a license.

An alternative definition that is used in some of the states excludes "persons engaged in check cashing [or currency exchanging] which is incidental to the retail sale of goods and services, whose compensation for cashing checks [or exchanging currency] does not exceed 5 percent of the total gross income from the retail sale of goods or services . . ."

The Florida State Department of Banking has drafted suggested amendments to its Money Transmitters' Code. To date, these amendments have not been presented to the legislature. The proposed amendments include a revised definition of check casher:

"Check casher" means a person who, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, sells currency in exchange for payment instruments received, except travelers checks and foreign-drawn payment instruments.

Suggested Amendments to Florida Money Transmitters' Code Section 560.120.

(4) "Check cashing" means accepting, for compensation a payment instrument in exchange for money delivered to a presenter at the time and place of the presentation.

Source: Arizona Money Transmitter Act Section 6-1201 (with modifications).

Reporter's Note: It is important to have a definition for each of the services that have been grouped under the general heading of money services business. The Florida Banking Department has proposed an amendment to the definition of check cashing which mirrors the changes to the definition of check casher (i.e., it inserts the terms or gain or in the expectation of compensation or gain, either directly or indirectly into the definition).

(5) "Check issuer" means a person who engages in the business of issuing payment instruments and who is responsible for payment on the instrument.

Source: FinCEN proposed amendments to the Bank Secrecy Act Regulations -- Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103 (with modifications).

Reporter's Note: The definition of check issuer has been eliminated and the activity of issuing payment instruments has been included as part of the definition of check seller. Existing state legislation tends to group these activities together. Some Observers have also pointed out that the phrase check issuer is unique to federal regulations.

(ALTERNATIVE 1)

(5) "Control" means ownership of, or the power to vote, 25 percent or more of the outstanding voting securities of a licensee or controlling person. For the purpose of determining the percentage controlled by a person, the person's interest shall be aggregated with the interest of any other person controlled by an officer, partner, authorized delegate, spouse, parent, or child of the person.

Source: Model Act Regulating Money Transmitters Section 3 (first sentence); Arizona's A.R.S. 6-1201(3) (second sentence).

Reporter's Note: The previous language of Subsection (5) (formerly 1-102(8)) stated that "the interests of any other person controlled by that person are aggregated with that person's interest for the purposes of determining the percentage of a licensee controlled by a person." To Observers and Drafting Committee Members, this sentence appeared a bit vague. The addition of language from the Arizona statute is an attempt to provide clearer guidance as to when the interest of one person will be aggregated with the ownership interest of another.

More generally, the Drafting Committee felt that Subsection (5) was a formalistic definition of control and did not take into account the ability of persons to influence management in other ways such as the ability to elect directors or otherwise exert control. The circumstances under which shares will be aggregated is not fully defined. Furthermore, aggregation is only triggered when the interests of one person are controlled by the other person. Consequently, two alternatives have been offered which may provide for a more flexible approach to the notion of control.

(ALTERNATIVE 2)

(5) "Control" means:

(A) ownership, control of, or the power to vote, directly or indirectly, 25 percent or more of a class of voting securities of a licensee or controlling person; or

(B) control of the election of a majority of directors or trustees of the licensee or controlling person; or

(C) direct or indirect exercise of a controlling influence over the management of a licensee or controlling person, if the [superintendent], after notice and opportunity for hearing, so determines.

Source: Federal Bank Holding Company Act, 12 U.S.C.A. Section 1842(a)(2)(with modifications).

Reporter's Note: At the October 1998 Drafting Committee meeting, Drafting Committee members and Observers felt that the definition of control included in the September 1998 draft was too formalistic in that it required a threshold of 25 percent or more ownership to trigger control. Suggestions were made that the Federal Bank Holding Company Act might provide a useful definition that did not relate solely to a threshold of share ownership.

This is a very flexible category that allows for a broader interpretation of the concept of control. Additionally, the Bank Holding Company Act includes a presumption that a company that owns five percent or less of a bank's shares is not in control. Thus, there is a presumption against control if share ownership does not exceed five percent.

Selected Issues:

C Should discussion of how control is determined (e.g., how share ownership is aggregated, how control may be determined after notice and hearing?) be included in the substantive provisions concerning control under Article 6 of the Proposed Act?

C Should the definition of control include a provision which allows for determination of control through notice and hearing?

(6) "Controlling person" means a person having control.

Source: Arizona Money Transmitter Act Section 6-1201; Model Act Regulating Money Transmitters Section 3 (modified to include the word "indirectly").

Reporter's Note: Some Observers have commented that the definition of control essentially negates the use of the terms "directly or indirectly" in the definition of controlling person. This was the case previously because the circumstances under which the aggregation of shares would occur was unclear.

(7) "Currency" means the coin and paper money of the United States, or of a foreign government which is designated as legal tender and which circulates and is customarily used and accepted as a medium of exchange in the country.

Source: Florida Money Transmitters' Code Section 560.102.

Reporter's Note: The use of the phrase "foreign government" replaces the words "any other country" as suggested by NCCUSL's Committee on Style in order to make the definition of currency consistent with the definition of currency exchanger in 1-102(8) below.

(8) "Currency exchanger" means a person that, for compensation, exchanges currency of one government for currency of another government.

Source: Florida Money Transmitters' Code Section 560.102.

(9) "Engage in the business" means engage for compensation in activities regulated under this [Act] [more than 10 times in any calendar year].

Source: Modified version of definition of "Conduct the business" included in The President's Commission on Model State Drug Laws Model Money Transmitter Licensing and Regulation Act ("President's Commission Act") Section 4(c); and the President's Commission on Model State Drug Laws Model Financial Transaction Reporting Act (Model Financial Transaction Reporting Act Section 4 (d)).

Reporter's Note: Both Drafting Committee members and Observers noted that the previous draft used the term "conduct business" and "engage in the business" without further defining the term. The commentary to the President's Commission Act states "'[c]onduct the business' derives its meaning from federal tax law relating to deductions available to persons in the business of various profit-seeking pursuits. Its Application to federal gambling legislation, 18 U.S.C. 1955, provides useful case law examples."

(10) "Executive officer" means a licensee's president, chairman of the executive committee, chief financial officer, responsible individual, or any other individual that performs similar functions.

Source: Model Act Regulating Money Transmitters, Section 3.

(11) "Key shareholder" means a person, or group of persons acting in concert, that owns 25 percent or more of a voting class of the securities of an applicant or licensee.

Source: Model Act Regulating Money Transmitters Section 3.

(12) "Licensee" means a person licensed under this [Act].

Source: Model Act Regulating Money Transmitters Section 3.

(13) "Limited station" means a place where a check casher is authorized to engage in check cashing for the employees of a single business or office at a single location at or near the business or office.

Source: Modified version of definition of "Limited Station" included in Title 5, Chapter 27 of Delaware Code (Cashing of Checks, Drafts and money Orders) 5 Del. Code. Section 2701(4).

Reporter's Note: The previous definition of a "location" blurred the distinction between mobile locations (e.g., travelling check cashing stations) and limited purpose locations (e.g., check cashing services which cash payroll checks for a certain employer on or near the employer's premises). Therefore former 1-102(17) has been omitted and two new definitions of a mobile location and a limited facility have been added.

(14) "Material litigation" means litigation that, according to generally accepted accounting principles, is considered significant to an applicant's or licensee's financial condition and responsibility, and is referred to in that applicant's or licensee's [annual audited financial statements], reports to shareholders, or similar documents.

Source: Model Act Regulating Money Transmitters Section 3.

Reporter's Note: Some Observers noted that the language "and is referenced in that applicant's or licensee's annual reports" seems to leave what is "material" up to the licensee to decide. However, this does not take into account that the licensee would have to comply with certain accounting principles in preparing an annual report.

(15) "Mobile location" means a vehicle or other movable object where a check casher engages in check cashing.

Source: Modification of definition of "mobile unit" contained in Title 5, Chapter 27 of Delaware Code (Cashing of Checks, Drafts or Money Orders) 5 Del. Code. Section 2701.

Reporter's Note: The previous definition of a "location" blurred the distinction between mobile locations (e.g., travelling check cashing stations) and limited purposes locations (e.g., check cashing services which cash payroll checks for a certain employer on or near the employer's premises). Therefore former 1-102(17) has been omitted and two new definitions of a mobile location and a limited facility have been added. The term "movable object" replaces the term "movable means" used in the Delaware definition.

(1) "Applicant" means a person filing an application for a license under this [Act].

as broad as the common law of agency would allow, that is, it would extend to any relationship that would be deemed to create obligations of principal and agent at common law. Thus, for example, it is likely that virtually all independent contractor arrangements for money services businesses -- whatever their characterization for employment law or income tax purposes -- would be treated as creating principal-agent relationships to define the parameters of the rights, obligations and direct and derivative liabilities of the parties. See Restatement (Second) of Agency Sections 28 and 14N." 62 Fed. Reg. 27895.

The Non-Bank Funds Transmitters Group has suggested another alternative, "money transmitter outlet" to refer to independently owned sales outlets. The definition of money transmitter outlet defines the entity as "a person, whether or not licensed or required to be licensed, who is engaged in the business of transferring funds through a money transmitter even if incidental to another business."

The principles of agency law may apply in some states with respect to the relationship of the licensee and its authorized delegates. Some of the Observers have noted that the relationship of delegate and licensee should explicitly be governed by agency principles. This issue needs to be discussed again during the March 1999 drafting meeting.

(3) "Check casher" means a person that accepts a payment instrument in exchange for money delivered to a presenter at the time and place of the presentation and receives compensation for the exchange and receives at least [$1,500] in such fees during any [30] - day period.

Source: New

Reporter's Note: Industry Observers proposed the new definition at the October 1998 drafting meeting. The main difference in the new definition is the method used to determine which businesses should be excluded because they cash checks as a service that is incidental to their primary business and which is also at a de minimis level. The exemption reflects an aggregate level of fees over a 30-day period rather than relying on a daily level of business.

Previously, the definition of check casher excluded "a person who cashes checks in an amount less than or equal to [$500] for any person on a single day." Such definitions are used to exempt small businesses -- such as grocery stores and businesses where check cashing is a service offered to customers incidental to another business (e.g., hotels) -- from having to obtain a license.

An alternative definition that is used in some of the states excludes "persons engaged in check cashing [or currency exchanging] which is incidental to the retail sale of goods and services, whose compensation for cashing checks [or exchanging currency] does not exceed 5 percent of the total gross income from the retail sale of goods or services . . ."

The Florida State Department of Banking has drafted suggested amendments to its Money Transmitters' Code. To date, these amendments have not been presented to the legislature. The proposed amendments include a revised definition of check casher:

"Check casher" means a person who, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, sells currency in exchange for payment instruments received, except travelers checks and foreign-drawn payment instruments.

Suggested Amendments to Florida Money Transmitters' Code Section 560.120.

(4) "Check cashing" means accepting, for compensation a payment instrument in exchange for money delivered to a presenter at the time and place of the presentation.

Source: Arizona Money Transmitter Act Section 6-1201 (with modifications).

Reporter's Note: It is important to have a definition for each of the services that have been grouped under the general heading of money services business. The Florida Banking Department has proposed an amendment to the definition of check cashing which mirrors the changes to the definition of check casher (i.e., it inserts the terms or gain or in the expectation of compensation or gain, either directly or indirectly into the definition).

(5) "Check issuer" means a person who engages in the business of issuing payment instruments and who is responsible for payment on the instrument.

Source: FinCEN proposed amendments to the Bank Secrecy Act Regulations -- Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103 (with modifications).

Reporter's Note: The definition of check issuer has been eliminated and the activity of issuing payment instruments has been included as part of the definition of check seller. Existing state legislation tends to group these activities together. Some Observers have also pointed out that the phrase check issuer is unique to federal regulations.

(ALTERNATIVE 1)

(5) "Control" means ownership of, or the power to vote, 25 percent or more of the outstanding voting securities of a licensee or controlling person. For the purpose of determining the percentage controlled by a person, the person's interest shall be aggregated with the interest of any other person controlled by an officer, partner, authorized delegate, spouse, parent, or child of the person.

Source: Model Act Regulating Money Transmitters Section 3 (first sentence); Arizona's A.R.S. 6-1201(3) (second sentence).

Reporter's Note: The previous language of Subsection (5) (formerly 1-102(8)) stated that "the interests of any other person controlled by that person are aggregated with that person's interest for the purposes of determining the percentage of a licensee controlled by a person." To Observers and Drafting Committee Members, this sentence appeared a bit vague. The addition of language from the Arizona statute is an attempt to provide clearer guidance as to when the interest of one person will be aggregated with the ownership interest of another.

More generally, the Drafting Committee felt that Subsection (5) was a formalistic definition of control and did not take into account the ability of persons to influence management in other ways such as the ability to elect directors or otherwise exert control. The circumstances under which shares will be aggregated is not fully defined. Furthermore, aggregation is only triggered when the interests of one person are controlled by the other person. Consequently, two alternatives have been offered which may provide for a more flexible approach to the notion of control.

(ALTERNATIVE 2)

(5) "Control" means:

(A) ownership, control of, or the power to vote, directly or indirectly, 25 percent or more of a class of voting securities of a licensee or controlling person; or

(B) control of the election of a majority of directors or trustees of the licensee or controlling person; or

(C) direct or indirect exercise of a controlling influence over the management of a licensee or controlling person, if the [superintendent], after notice and opportunity for hearing, so determines.

Source: Federal Bank Holding Company Act, 12 U.S.C.A. Section 1842(a)(2)(with modifications).

Reporter's Note: At the October 1998 Drafting Committee meeting, Drafting Committee members and Observers felt that the definition of control included in the September 1998 draft was too formalistic in that it required a threshold of 25 percent or more ownership to trigger control. Suggestions were made that the Federal Bank Holding Company Act might provide a useful definition that did not relate solely to a threshold of share ownership.

This is a very flexible category that allows for a broader interpretation of the concept of control. Additionally, the Bank Holding Company Act includes a presumption that a company that owns five percent or less of a bank's shares is not in control. Thus, there is a presumption against control if share ownership does not exceed five percent.

Selected Issues:

C Should discussion of how control is determined (e.g., how share ownership is aggregated, how control may be determined after notice and hearing?) be included in the substantive provisions concerning control under Article 6 of the Proposed Act?

C Should the definition of control include a provision which allows for determination of control through notice and hearing?

(6) "Controlling person" means a person having control.

Source: Arizona Money Transmitter Act Section 6-1201; Model Act Regulating Money Transmitters Section 3 (modified to include the word "indirectly").

Reporter's Note: Some Observers have commented that the definition of control essentially negates the use of the terms "directly or indirectly" in the definition of controlling person. This was the case previously because the circumstances under which the aggregation of shares would occur was unclear.

(7) "Currency" means the coin and paper money of the United States, or of a foreign government which is designated as legal tender and which circulates and is customarily used and accepted as a medium of exchange in the country.

Source: Florida Money Transmitters' Code Section 560.102.

Reporter's Note: The use of the phrase "foreign government" replaces the words "any other country" as suggested by NCCUSL's Committee on Style in order to make the definition of currency consistent with the definition of currency exchanger in 1-102(8) below.

(8) "Currency exchanger" means a person that, for compensation, exchanges currency of one government for currency of another government.

Source: Florida Money Transmitters' Code Section 560.102.

(9) "Engage in the business" means engage for compensation in activities regulated under this [Act] [more than 10 times in any calendar year].

Source: Modified version of definition of "Conduct the business" included in The President's Commission on Model State Drug Laws Model Money Transmitter Licensing and Regulation Act ("President's Commission Act") Section 4(c); and the President's Commission on Model State Drug Laws Model Financial Transaction Reporting Act (Model Financial Transaction Reporting Act Section 4 (d)).

Reporter's Note: Both Drafting Committee members and Observers noted that the previous draft used the term "conduct business" and "engage in the business" without further defining the term. The commentary to the President's Commission Act states "'[c]onduct the business' derives its meaning from federal tax law relating to deductions available to persons in the business of various profit-seeking pursuits. Its Application to federal gambling legislation, 18 U.S.C. 1955, provides useful case law examples."

(10) "Executive officer" means a licensee's president, chairman of the executive committee, chief financial officer, responsible individual, or any other individual that performs similar functions.

Source: Model Act Regulating Money Transmitters, Section 3.

(11) "Key shareholder" means a person, or group of persons acting in concert, that owns 25 percent or more of a voting class of the securities of an applicant or licensee.

Source: Model Act Regulating Money Transmitters Section 3.

(12) "Licensee" means a person licensed under this [Act].

Source: Model Act Regulating Money Transmitters Section 3.

(13) "Limited station" means a place where a check casher is authorized to engage in check cashing for the employees of a single business or office at a single location at or near the business or office.

Source: Modified version of definition of "Limited Station" included in Title 5, Chapter 27 of Delaware Code (Cashing of Checks, Drafts and money Orders) 5 Del. Code. Section 2701(4).

Reporter's Note: The previous definition of a "location" blurred the distinction between mobile locations (e.g., travelling check cashing stations) and limited purpose locations (e.g., check cashing services which cash payroll checks for a certain employer on or near the employer's premises). Therefore former 1-102(17) has been omitted and two new definitions of a mobile location and a limited facility have been added.

(14) "Material litigation" means litigation that, according to generally accepted accounting principles, is considered significant to an applicant's or licensee's financial condition and responsibility, and is referred to in that applicant's or licensee's [annual audited financial statements], reports to shareholders, or similar documents.

Source: Model Act Regulating Money Transmitters Section 3.

Reporter's Note: Some Observers noted that the language "and is referenced in that applicant's or licensee's annual reports" seems to leave what is "material" up to the licensee to decide. However, this does not take into account that the licensee would have to comply with certain accounting principles in preparing an annual report.

(15) "Mobile location" means a vehicle or other movable object where a check casher engages in check cashing.

Source: Modification of definition of "mobile unit" contained in Title 5, Chapter 27 of Delaware Code (Cashing of Checks, Drafts or Money Orders) 5 Del. Code. Section 2701.

Reporter's Note: The previous definition of a "location" blurred the distinction between mobile locations (e.g., travelling check cashing stations) and limited purposes locations (e.g., check cashing services which cash payroll checks for a certain employer on or near the employer's premises). Therefore former 1-102(17) has been omitted and two new definitions of a mobile location and a limited facility have been added. The term "movable object" replaces the term "movable means" used in the Delaware definition.

(2) "Authorized delegate" means a person designated by a licensee to engage in a money-services business on behalf of the licensee.

(3) "Check casher" means a person that engages in the business of check cashing and receives at least $500 compensation for check cashing during any 30-day period.

(4) "Check cashing" means accepting a payment instrument in exchange for money delivered to a presenter at the time and place of the presentation.

(5) "Control" means:

(A) ownership, control of, or the power to vote, directly or indirectly, 25 percent or more of a class of voting securities or voting interests of a licensee or controlling person;

(B) controlling the election of a majority of directors, managers, trustees, or other persons exercising managerial authority of a licensee or controlling person; or

(C) direct or indirect exercise of a controlling influence over a licensee or controlling person, if the [superintendent], after notice and opportunity for hearing, so determines.

(6) "Controlling person" means a person having control.

(7) "Currency" means the coin and paper money of the United States, or of a foreign government, which is designated as legal tender and which circulates and is customarily used and accepted as a medium of exchange in the country. The term includes coin and paper money or a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments which is customarily used and accepted as a medium of exchange in more than one country.

(8) "Currency exchange" means exchanging money of one government for money of another government.

(9) "Engage in the business" means engage for compensation more than 10 times in any calendar year in activities regulated under this [Act].

(10) "Executive officer" means a licensee's president, chairman of the executive committee, chief financial officer, responsible individual, or other individual that performs similar functions.

(11) "Financial institution" means a bank, credit union, savings and loan association, or other similar institution.

(12) "Key shareholder" means a person or group of persons, acting in concert, that owns 25 percent or more of a voting class of the securities or of the voting interest of an applicant or licensee.

(13) "Licensee" means a person licensed under this [Act].

(14) "Limited station" means a private premises where a check casher is authorized to engage in the business of check cashing solely for the employees of the particular employer or group of employers specified in its license application, for no more than two days of each week.

(15) "Material litigation" means litigation that, according to generally accepted accounting principles, is considered significant to an applicant's or licensee's financial condition.

(16) "Mobile location" means a vehicle or a movable facility where check cashing occurs.

(16) (17) "Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.

Source: Uniform Commercial Code Section1-201(24).

1-201(24).

(17) "Money services business" means a person that is licensed under this [Act] or that engages in the business (see definition) including a check casher, payment instrument seller, money transmitter, and currency exchanger, that does any of thefollowing:

following:

(A) sells, issues, or provides paymentinstruments;

instruments;

(B) engages in the business of receiving money for transmission or transmitting money;

(C) engages in the business of exchanging payment instruments or money for any form of money or payment instrument;or

or

(D) engages in the business of receiving money for obligors for the purpose of paying the obligor's bills, invoices, oraccounts.

accounts.

Source: President's Commission Act Section 4(k) (with modifications).

RReporter's Note: The President's Commission Act groups all money services businesses (except stored value providers) together as "money transmitters." The current definition substitutes the term "money transmitter" with "money services business." Subsection (e) of the President's Commission definition which included entities that meet the definition of a bank, financial agency or financial institution as set forth in 31 U.S.C. Section 5312, was omitted from this draft by agreement of the Drafting Committee at its March 1998 meeting.

(18) "Money transmitter" means a person that engages, for compensation, in the transmission of money by any means, including transmissions within this country or to or from locations outside this country by payment instrument, wire, telecopier, facsimile, electronic transfer, or courier. The term does not include a clearinghouse or other association of banks that effects transfers of funds between or among banks through check clearing, wire transfer, automated clearinghouse, or similar services.

Source: Model Act Regulating Money Transmitters Section 3 (with modifications) proposed by New York Clearinghouse in letter dated October 2, 1997 to FinCEN concerning FinCEN's proposed amendments to the Bank Secrecy Act. The exclusion language proposed by the New York Clearinghouse is based in part on the New York Uniform Commercial Code Section 4A-105(1)(E) and the New York Superintendent of Banks Regulations on Money Transmitters, N.Y. Comp. Codes. R. & Regs. Tit. 3. Section 406.2(K)(7).

Reporter's Note: The current definition of money transmitter was previously included in the September 1998 draft as Alternative 1. Alternative 2 was the proposed definition of money transmitter included as part of FinCEN's proposed rulemaking concerning money services businesses. The Drafting Committee felt that there was less utility in harmonizing state definitions with federal definitions because: (1) state legislation had different goals and purposes with respect to oversight of money services businesses (as compared to federal oversight) and (2) the federal regulations concerning money services businesses had not yet been promulgated and therefore FinCEN's proposed definitions may change in the future.

Selected Issue: Should the current definition of money transmitter (and also the definition of payment instrument defined below) include electronic currency providers who provide customers with the ability to transmit funds over the Internet?

Discussion: At present, several states including Connecticut and West Virginia have amended their money transmission legislation to include stored value providers. Other states, such as Texas, have included stored value providers by interpretation. West Virginia defines "currency transmission" or "money transmission" to include "the transmission of funds through the issuance and sale of stored value cards which are intended for general acceptance and use in commercial or consumer transactions." See WV ST. Section 32A-2-1(6)

Connecticut has taken a different approach and has defined the term "payment instrument" to include "electronic payment instruments." The Connecticut Department of Banking, in a memorandum prepared concerning the amendments to Connecticut law noted:

The explosive growth in electronic commerce and the increasing use of electronic payment instruments such as electronic travelers checks and other prepaid instruments, exposes the consumers of such instruments to the potential for loss due to the insolvency of the issuers of such instruments or fraud. [The Connecticut bill] will provide protection to consumers of electronic payment instruments by making issuers of such instruments subject to the Commissioner's jurisdiction and by imposing licensing, net worth and bonding requirements on such issuers.

See Memorandum from John P. Burke, Banking Commissioner regarding An Act Concerning Electronic Payment Instruments and Currency and Foreign Transactions Reporting (S.B. 230) dated February 17, 1998 presented at Connecticut Banks Committee Public Hearing.

Based on recommendations from Observers, the current draft of the Proposed Act treats stored value instruments as payment instruments. Therefore, a stored value provider would also be a payment instrument seller (as opposed to a money transmitter). The current draft contains an additional definition of a stored value provider. This may not be necessary and it will be useful for Observers to provide input into whether the Connecticut approach seems the most appropriate and also whether a separate definition is needed for stored value providers as distinct from payment instrument sellers.

Additionally, the Drafting Committee will need to consider whether electronic currency which is transmitted over the Internet (as compared with stored-value instruments) would fall within the current definition of money transmitter and also whether this form of currency transmission needs to be separately addressed in the Proposed Act.

(19) "Outstanding", in regard to a payment instrument, means a payment instrument issued by a licensee, which has been sold directly by the licensee, or a payment instrument issued by a licensee which has been sold by an authorized delegate of the licensee, which has been reported to the licensee as having been sold and which has not yet been paid by or for the licensee.

Source: Model Act Regulating Money Transmitters Section 3.

(20) "Payment instrument" means a check, draft, money order, traveler's check whether in written or electronic form, stored-value instrument, or other instrument for the transmission or payment of money whether or not negotiable, and whether or not in written or electronic form. The term does not include a credit card voucher, letter of credit, or any instrument that is redeemable by the issuer in goods or services.

Source: Model Act Regulating Money Transmitters Section 3 with modifications. The term "stored value instrument" has been added. Additionally, proposed modifications to the definition of "payment instrument" in the Florida Money Transmitters' Code Section 560.103(14) have also been included which make reference to writing or electronic form.

Reporter's Note: Should the term payment instrument include stored value products? Connecticut, for example, has recently amended its money transmission legislation to include the term "electronic payment instrument" which is defined as "a card or other tangible object for the transmission or payment of money which contains a microprocessor chip, magnetic stripe, or other means for the storage of information, that is prefunded and for which the value is decremented upon each use, but does not include a card or other tangible object that is redeemable by the issuer in the issuer's goods and services." CT.ST. Section 36a-596. Connecticut has also amended its definition of "instrument" to include an electronic payment instrument. Id.

At the October 1998 meeting, the Drafting Committee affirmed its decision to include stored value products and stored value providers within the scope of the Proposed Act. Drafting Committee members felt that the use of stored value as a means of payment was similar to money transmission as a process. Therefore, to the extent possible, the Drafting Committee recommended including stored value within existing definitions of money services businesses. Industry Observers subsequently made a similar recommendation with respect to the expansion of the definition of payment instruments. Currently, the Proposed Act follows the Connecticut approach and treats stored value instruments (including electronic traveler's checks) as payment instruments.

(21) "Payment instrument seller" means a person that engages in the business of issuing payment instruments or selling payment instruments issued by another person, even if incidental to another business.

Source: FinCEN Proposed Amendments to the Bank Secrecy Act Regulations B Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103 with proposed modifications of Non-Bank Funds Transmitters Group.

Reporter's Note: The term used by FinCEN is check seller rather than payment instrument seller.

(22) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, or any other legal or commercial entity. The term does not include government; governmental subdivision, agency, or instrumentality; or public corporation.

Source: USL Drafting Manual.

Reporter's Note: This is the Standard NCCUSL formulation for this definition.

Reporter's Note on former Section 1-102(26): The previous definition of "permissible investments" has been moved into Article 7 of the Proposed Act. Many Observers and Drafting Committee members felt that the definition of permissible investments was more of a substantive provision that belonged within the permissible investments segment of the draft.

(23) "Remit" means to make direct payment of funds to a licensee or its representative authorized to receive the funds or to deposit funds in a bank, credit union, savings and loan association, or other similar financial institution in an account specified by the licensee.

Source: Model Act Regulating Money Transmitters Section 3(m).

(24) "Responsible individual" means an individual that is employed by a licensee and that has principal active management authority over the money services business of the licensee in this State.

Source: Arizona Money Transmitter Act Section 6-1210(4) (with modifications)

Reporter's Note: Many states have incorporated some notion of a "responsible" individual or controlling person, or money transmitter affiliated party to indicate persons who have oversight or managerial responsibility with respect to money services businesses. A responsible individual is someone who has an active role in management and operations as contrasted with a controlling person or key shareholder that may or may not have such a role.

(25) "State" means a State of the United States, the District of Columbia, Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States.

eporter's Note: The President's Commission Act groups all money services businesses (except stored value providers) together as "money transmitters." The current definition substitutes the term "money transmitter" with "money services business." Subsection (e) of the President's Commission definition which included entities that meet the definition of a bank, financial agency or financial institution as set forth in 31 U.S.C. Section 5312, was omitted from this draft by agreement of the Drafting Committee at its March 1998 meeting.

(18) "Money transmitter" means a person that engages, for compensation, in the transmission of money by any means, including transmissions within this country or to or from locations outside this country by payment instrument, wire, telecopier, facsimile, electronic transfer, or courier. The term does not include a clearinghouse or other association of banks that effects transfers of funds between or among banks through check clearing, wire transfer, automated clearinghouse, or similar services.

Source: Model Act Regulating Money Transmitters Section 3 (with modifications) proposed by New York Clearinghouse in letter dated October 2, 1997 to FinCEN concerning FinCEN's proposed amendments to the Bank Secrecy Act. The exclusion language proposed by the New York Clearinghouse is based in part on the New York Uniform Commercial Code Section 4A-105(1)(E) and the New York Superintendent of Banks Regulations on Money Transmitters, N.Y. Comp. Codes. R. & Regs. Tit. 3. Section 406.2(K)(7).

Reporter's Note: The current definition of money transmitter was previously included in the September 1998 draft as Alternative 1. Alternative 2 was the proposed definition of money transmitter included as part of FinCEN's proposed rulemaking concerning money services businesses. The Drafting Committee felt that there was less utility in harmonizing state definitions with federal definitions because: (1) state legislation had different goals and purposes with respect to oversight of money services businesses (as compared to federal oversight) and (2) the federal regulations concerning money services businesses had not yet been promulgated and therefore FinCEN's proposed definitions may change in the future.

Selected Issue: Should the current definition of money transmitter (and also the definition of payment instrument defined below) include electronic currency providers who provide customers with the ability to transmit funds over the Internet?

Discussion: At present, several states including Connecticut and West Virginia have amended their money transmission legislation to include stored value providers. Other states, such as Texas, have included stored value providers by interpretation. West Virginia defines "currency transmission" or "money transmission" to include "the transmission of funds through the issuance and sale of stored value cards which are intended for general acceptance and use in commercial or consumer transactions." See WV ST. Section 32A-2-1(6)

Connecticut has taken a different approach and has defined the term "payment instrument" to include "electronic payment instruments." The Connecticut Department of Banking, in a memorandum prepared concerning the amendments to Connecticut law noted:

The explosive growth in electronic commerce and the increasing use of electronic payment instruments such as electronic travelers checks and other prepaid instruments, exposes the consumers of such instruments to the potential for loss due to the insolvency of the issuers of such instruments or fraud. [The Connecticut bill] will provide protection to consumers of electronic payment instruments by making issuers of such instruments subject to the Commissioner's jurisdiction and by imposing licensing, net worth and bonding requirements on such issuers.

See Memorandum from John P. Burke, Banking Commissioner regarding An Act Concerning Electronic Payment Instruments and Currency and Foreign Transactions Reporting (S.B. 230) dated February 17, 1998 presented at Connecticut Banks Committee Public Hearing.

Based on recommendations from Observers, the current draft of the Proposed Act treats stored value instruments as payment instruments. Therefore, a stored value provider would also be a payment instrument seller (as opposed to a money transmitter). The current draft contains an additional definition of a stored value provider. This may not be necessary and it will be useful for Observers to provide input into whether the Connecticut approach seems the most appropriate and also whether a separate definition is needed for stored value providers as distinct from payment instrument sellers.

Additionally, the Drafting Committee will need to consider whether electronic currency which is transmitted over the Internet (as compared with stored-value instruments) would fall within the current definition of money transmitter and also whether this form of currency transmission needs to be separately addressed in the Proposed Act.

(19) "Outstanding", in regard to a payment instrument, means a payment instrument issued by a licensee, which has been sold directly by the licensee, or a payment instrument issued by a licensee which has been sold by an authorized delegate of the licensee, which has been reported to the licensee as having been sold and which has not yet been paid by or for the licensee.

Source: Model Act Regulating Money Transmitters Section 3.

(20) "Payment instrument" means a check, draft, money order, traveler's check whether in written or electronic form, stored-value instrument, or other instrument for the transmission or payment of money whether or not negotiable, and whether or not in written or electronic form. The term does not include a credit card voucher, letter of credit, or any instrument that is redeemable by the issuer in goods or services.

Source: Model Act Regulating Money Transmitters Section 3 with modifications. The term "stored value instrument" has been added. Additionally, proposed modifications to the definition of "payment instrument" in the Florida Money Transmitters' Code Section 560.103(14) have also been included which make reference to writing or electronic form.

Reporter's Note: Should the term payment instrument include stored value products? Connecticut, for example, has recently amended its money transmission legislation to include the term "electronic payment instrument" which is defined as "a card or other tangible object for the transmission or payment of money which contains a microprocessor chip, magnetic stripe, or other means for the storage of information, that is prefunded and for which the value is decremented upon each use, but does not include a card or other tangible object that is redeemable by the issuer in the issuer's goods and services." CT.ST. Section 36a-596. Connecticut has also amended its definition of "instrument" to include an electronic payment instrument. Id.

At the October 1998 meeting, the Drafting Committee affirmed its decision to include stored value products and stored value providers within the scope of the Proposed Act. Drafting Committee members felt that the use of stored value as a means of payment was similar to money transmission as a process. Therefore, to the extent possible, the Drafting Committee recommended including stored value within existing definitions of money services businesses. Industry Observers subsequently made a similar recommendation with respect to the expansion of the definition of payment instruments. Currently, the Proposed Act follows the Connecticut approach and treats stored value instruments (including electronic traveler's checks) as payment instruments.

(21) "Payment instrument seller" means a person that engages in the business of issuing payment instruments or selling payment instruments issued by another person, even if incidental to another business.

Source: FinCEN Proposed Amendments to the Bank Secrecy Act Regulations B Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103 with proposed modifications of Non-Bank Funds Transmitters Group.

Reporter's Note: The term used by FinCEN is check seller rather than payment instrument seller.

(22) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, or any other legal or commercial entity. The term does not include government; governmental subdivision, agency, or instrumentality; or public corporation.

Source: USL Drafting Manual.

Reporter's Note: This is the Standard NCCUSL formulation for this definition.

Reporter's Note on former Section 1-102(26): The previous definition of "permissible investments" has been moved into Article 7 of the Proposed Act. Many Observers and Drafting Committee members felt that the definition of permissible investments was more of a substantive provision that belonged within the permissible investments segment of the draft.

(23) "Remit" means to make direct payment of funds to a licensee or its representative authorized to receive the funds or to deposit funds in a bank, credit union, savings and loan association, or other similar financial institution in an account specified by the licensee.

Source: Model Act Regulating Money Transmitters Section 3(m).

(24) "Responsible individual" means an individual that is employed by a licensee and that has principal active management authority over the money services business of the licensee in this State.

Source: Arizona Money Transmitter Act Section 6-1210(4) (with modifications)

Reporter's Note: Many states have incorporated some notion of a "responsible" individual or controlling person, or money transmitter affiliated party to indicate persons who have oversight or managerial responsibility with respect to money services businesses. A responsible individual is someone who has an active role in management and operations as contrasted with a controlling person or key shareholder that may or may not have such a role.

(25) "State" means a State of the United States, the District of Columbia, Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States.

Source: USL Drafting Manual.

Reporter's Note: This is standard NCCUSL formulation.

(26) "Stored-value instrument" means a card or other tangible object for the transmission or payment of money which contains a microprocessor chip, magnetic stripe, or other means for the storage of information, which is prefunded, and for which the value is decremented upon each use, but does not include a card or other tangible object that is redeemable only by the issuer in the issuer's goods andservices.

services.

Source: Conn. Gen Stat. Ann 36a-596(1) (with modifications proposed by Observers).

Reporter's Note: Observers who represent electronic currency providers have suggested the use of the Connecticut definition as an alternative to the previous definition of stored value which was contained in the March 1998 and September 1998 drafts. See Memorandum to the Reporter for the Money Services Business Act dated October 29, 1998 from Mondex USA. This definition (as with the previous definition of closed end stored value product also excludes closed end products from the definition). One recommendation suggested by Observers is the addition of the terms "or other value" after the word "money." As noted, frequently stored value is not denominated in a national currency, but in a scrip, tied to a national currency, that represents the obligation of the issuer of stored value.

The previous definitions included in the earlier draft (which have been eliminated from the current draft) are:

C "Closed-end stored value product" means a stored value product where the issuer is also the payee and the product is issued to pay for a series of goods and services that are provided by the issuer.

This definition was derived from A Commercial Lawyer's Take on the Electronic Purse: An Analysis of Commercial Law Issues Associated with Stored Value Cards and Electronic Money prepared by the American Bar Association's Uniform Commercial Code Committee, Subcommittee on Payments, the Banking Law Committee, Subcommittee on Domestic and International Payments and EFT and the Committee on Law of Commerce in Cyberspace (1996). Many of the comments received by FinCEN with respect to registration requirements for stored value issuers discussed the distinction between closed-end systems such as phone cards and metro cards and open systems that can be used by consumers for a wide variety of transactions. The definitions previously provided in the Proposed Act were an attempt to distinguish between closed and open systems for purposes of licensing and regulation. Other exceptions that may still need to be included in the definition of stored value include a small dollar exception for issuers.

C "Stored value" means funds or monetary value [greater than $500] represented in digital electronics format, whether or not specially encrypted, and stored or capable of storage on electronic media so as to be retrievable and transferable electronically. [The term excludes funds or monetary value in digital electronics format that is part of a closed-end stored value network.]

The previous definition of stored value was derived from the FinCEN proposed amendments to the Bank Secrecy Act Regulations B Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103. As noted previously, most comments received in response to FinCEN's proposed money services business rules suggested that stored value products should be eliminated altogether from the definition of money services business. The major reason is that these products are very new and still changing rapidly. At the first Drafting Committee meeting, however, the Drafting Committee observed that it might be prudent to create a framework for regulation since it would take some time before the draft act would be promulgated. The comments that FinCEN received also suggested that closed-end systems be excluded from a definition of stored value. This would exclude private smart card and debit card systems such as university debit cards or metro cards, etc. In the preamble to the proposed rule, FinCEN stated that it may be appropriate to exclude closed system products that are limited to facilitating small transactions (also known as "micro" transactions) FinCEN also notes that "in a purely closed system, the stored value card is accepted only by a single merchant or entity and operates as prepayment for specific goods ands services, such as public transportation or telephone calls. . . ." See 62 Fed. Reg. 27894. The Federal Reserve Bank of New York has suggested that the phrase "funds or monetary value" should be replaced with "intangible entitlement to be paid" because the term "funds" may give the impression that a stored value product has inherent value whereas the product only has value if the issuer is credit worthy.

Selected Issue: Should stored value products be excluded from licensing if they are below a certain dollar threshold? Comments on FinCEN's proposed rules suggest that only stored value cards that are over $500 in value should be included in the definition of money services business. At the October Drafting Committee meeting, there was much discussion of the issue of whether stored value products would be created in the near future to carry sums over $500. Additionally, the Drafting Committee has previously discussed whether smaller denomination products might be purchased and used to launder funds in the aggregate (e.g., a money launderer buys several hundred phone cards). Alternatively, certain stored value products may hold less than $500 but can be reloaded several times and thus exceed the $500 threshold.

(27) "Stored-value provider" means a person that engages in the business of issuing, selling, or redeeming stored-value instruments. The term includes a person that is subject to regulation, supervision, and examination by a federal or state banking agency and which does not issue, sell, or redeem stored-value instruments to or from consumers.

Source: New.

Reporter's Note: The scope of regulation for stored value products needs to be clearly defined. As discussed above (under the definitions of payment instrument and money transmitter), states such as West Virginia and Connecticut have already included stored value within the scope of their money transmission statutes. As noted above, the definition of stored value instrument has been added (to replace the previous definitions of closed value stored value and stored value products). The new definition of stored value provider is consistent with the definition of stored value instrument. Mondex suggested in its comments to the Drafting Committee that the definition of stored value provider should exempt a provider that is "subject to regulation, supervision, and examination by a Federal or State banking agency, and which does not issue, sell or redeem stored value products to or from consumers." See Memorandum to Reporter for the Money Services Businesses Act prepared by Mondex USA dated October 29, 1998.

The Drafting Committee will need to consider whether stored value providers should remain distinct entities from payment instrument sellers and if so, the function of payment instrument seller should also be revised to exempt entities subject to supervision by a banking regulator.

(28) "[Superintendent]" means the [state superintendent of banks or other senior state regulator charged with the regulation of money services businesses].

Source: Model Act Regulating Money Transmitters Section 3.

Reporter's Note: States use different regulatory bodies to supervise the conduct of a money services business. In some states, the superintendent of banking is vested with this responsibility. In other jurisdictions, it is the State securities commissioner.

(29) "Traveler's check" means an instrument identified as a traveler's check on its face or commonly recognized as a traveler's check and issued in a specified denomination of currency with a provision for a specimen signature of the purchaser to be completed at the time of purchase and a countersignature of the purchaser to be completed at the time of negotiation.

Source: Model Act Regulating Money Transmitters Section 3.

(30) "Unsafe or unsound practice" means a practice or conduct that is contrary to [generally accepted standards] applicable to a money services business, or that is a violation of a rule or an order of the [Superintendent] under this act, if the practice, conduct, or violation creates the likelihood of material loss, insolvency, or dissipation of assets of the money services business or otherwise materially prejudices the interests of its customers.

Source: Florida Money Transmitters' Code Section 560.103(20).

Reporter's Note: During its annual meeting in July 1998, the Money Transmitter Regulators Association ("MTRA") noted that state regulators needed regulatory authority with respect to the unsafe or unsound practices of money services businesses. The Drafting Committee should also decide that the superintendent's ability to take into account the size of the money services business, the magnitude of the loss and the gravity of the violation should be moved into the substantive provisions of the Proposed Act.

(18) "Money-services business" means a person that is licensed under this [Act] or engages in the business of money transmission, check cashing, or currency exchange.

Reporter's Note: Observers who represent electronic currency providers have suggested the use of the Connecticut definition as an alternative to the previous definition of stored value which was contained in the March 1998 and September 1998 drafts. See Memorandum to the Reporter for the Money Services Business Act dated October 29, 1998 from Mondex USA. This definition (as with the previous definition of closed end stored value product also excludes closed end products from the definition). One recommendation suggested by Observers is the addition of the terms "or other value" after the word "money." As noted, frequently stored value is not denominated in a national currency, but in a scrip, tied to a national currency, that represents the obligation of the issuer of stored value.

The previous definitions included in the earlier draft (which have been eliminated from the current draft) are:

C "Closed-end stored value product" means a stored value product where the issuer is also the payee and the product is issued to pay for a series of goods and services that are provided by the issuer.

This definition was derived from A Commercial Lawyer's Take on the Electronic Purse: An Analysis of Commercial Law Issues Associated with Stored Value Cards and Electronic Money prepared by the American Bar Association's Uniform Commercial Code Committee, Subcommittee on Payments, the Banking Law Committee, Subcommittee on Domestic and International Payments and EFT and the Committee on Law of Commerce in Cyberspace (1996). Many of the comments received by FinCEN with respect to registration requirements for stored value issuers discussed the distinction between closed-end systems such as phone cards and metro cards and open systems that can be used by consumers for a wide variety of transactions. The definitions previously provided in the Proposed Act were an attempt to distinguish between closed and open systems for purposes of licensing and regulation. Other exceptions that may still need to be included in the definition of stored value include a small dollar exception for issuers.

C "Stored value" means funds or monetary value [greater than $500] represented in digital electronics format, whether or not specially encrypted, and stored or capable of storage on electronic media so as to be retrievable and transferable electronically. [The term excludes funds or monetary value in digital electronics format that is part of a closed-end stored value network.]

The previous definition of stored value was derived from the FinCEN proposed amendments to the Bank Secrecy Act Regulations B Definition and Registration of Money Services Businesses amending 31 C.F.R. Part 103. As noted previously, most comments received in response to FinCEN's proposed money services business rules suggested that stored value products should be eliminated altogether from the definition of money services business. The major reason is that these products are very new and still changing rapidly. At the first Drafting Committee meeting, however, the Drafting Committee observed that it might be prudent to create a framework for regulation since it would take some time before the draft act would be promulgated. The comments that FinCEN received also suggested that closed-end systems be excluded from a definition of stored value. This would exclude private smart card and debit card systems such as university debit cards or metro cards, etc. In the preamble to the proposed rule, FinCEN stated that it may be appropriate to exclude closed system products that are limited to facilitating small transactions (also known as "micro" transactions) FinCEN also notes that "in a purely closed system, the stored value card is accepted only by a single merchant or entity and operates as prepayment for specific goods ands services, such as public transportation or telephone calls. . . ." See 62 Fed. Reg. 27894. The Federal Reserve Bank of New York has suggested that the phrase "funds or monetary value" should be replaced with "intangible entitlement to be paid" because the term "funds" may give the impression that a stored value product has inherent value whereas the product only has value if the issuer is credit worthy.

Selected Issue: Should stored value products be excluded from licensing if they are below a certain dollar threshold? Comments on FinCEN's proposed rules suggest that only stored value cards that are over $500 in value should be included in the definition of money services business. At the October Drafting Committee meeting, there was much discussion of the issue of whether stored value products would be created in the near future to carry sums over $500. Additionally, the Drafting Committee has previously discussed whether smaller denomination products might be purchased and used to launder funds in the aggregate (e.g., a money launderer buys several hundred phone cards). Alternatively, certain stored value products may hold less than $500 but can be reloaded several times and thus exceed the $500 threshold.

(27) "Stored-value provider" means a person that engages in the business of issuing, selling, or redeeming stored-value instruments. The term includes a person that is subject to regulation, supervision, and examination by a federal or state banking agency and which does not issue, sell, or redeem stored-value instruments to or from consumers.

Source: New.

Reporter's Note: The scope of regulation for stored value products needs to be clearly defined. As discussed above (under the definitions of payment instrument and money transmitter), states such as West Virginia and Connecticut have already included stored value within the scope of their money transmission statutes. As noted above, the definition of stored value instrument has been added (to replace the previous definitions of closed value stored value and stored value products). The new definition of stored value provider is consistent with the definition of stored value instrument. Mondex suggested in its comments to the Drafting Committee that the definition of stored value provider should exempt a provider that is "subject to regulation, supervision, and examination by a Federal or State banking agency, and which does not issue, sell or redeem stored value products to or from consumers." See Memorandum to Reporter for the Money Services Businesses Act prepared by Mondex USA dated October 29, 1998.

The Drafting Committee will need to consider whether stored value providers should remain distinct entities from payment instrument sellers and if so, the function of payment instrument seller should also be revised to exempt entities subject to supervision by a banking regulator.

(28) "[Superintendent]" means the [state superintendent of banks or other senior state regulator charged with the regulation of money services businesses].

Source: Model Act Regulating Money Transmitters Section 3.

Reporter's Note: States use different regulatory bodies to supervise the conduct of a money services business. In some states, the superintendent of banking is vested with this responsibility. In other jurisdictions, it is the State securities commissioner.

(29) "Traveler's check" means an instrument identified as a traveler's check on its face or commonly recognized as a traveler's check and issued in a specified denomination of currency with a provision for a specimen signature of the purchaser to be completed at the time of purchase and a countersignature of the purchaser to be completed at the time of negotiation.

Source: Model Act Regulating Money Transmitters Section 3.

(30) "Unsafe or unsound practice" means a practice or conduct that is contrary to [generally accepted standards] applicable to a money services business, or that is a violation of a rule or an order of the [Superintendent] under this act, if the practice, conduct, or violation creates the likelihood of material loss, insolvency, or dissipation of assets of the money services business or otherwise materially prejudices the interests of its customers.

Source: Florida Money Transmitters' Code Section 560.103(20).

Reporter's Note: During its annual meeting in July 1998, the Money Transmitter Regulators Association ("MTRA") noted that state regulators needed regulatory authority with respect to the unsafe or unsound practices of money services businesses. The Drafting Committee should also decide that the superintendent's ability to take into account the size of the money services business, the magnitude of the loss and the gravity of the violation should be moved into the substantive provisions of the Proposed Act.

(19) "Money transmission" means the sale or issuance of a payment instrument, or engaging in the business of receiving money for transmission, or the business of transmitting money within the United States or to locations outside the United States, by any means including transmission by payment instrument, wire, facsimile, and electronic transfer.

(20) "Outstanding," with respect to a payment instrument, means a payment instrument issued by a licensee, which has been sold directly by the licensee; issued by a licensee, which has been sold by an authorized delegate of the licensee; or which has been reported to a licensee as having been sold but not yet paid by or for the licensee.

(21) "Payment instrument" means a check, draft, money order, traveler's check in record form, stored-value instrument, or other instrument for the transmission or payment of money, whether or not negotiable, and in record form. The term does not include a credit card voucher, letter of credit, or instrument that is redeemable by the issuer in goods or services.

(22) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, or any other legal or commercial entity. The term does not include a government, governmental subdivision, agency, or instrumentality, or public corporation.

(23) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

(24) "Remit" means to make direct payment of moneys to a licensee or its representative authorized to receive the moneys or to deposit moneys in a financial institution in an account specified by the licensee.

(25) "Responsible individual" means an individual who is employed by a licensee and has principal active managerial authority over the money-services business of the licensee in this State.

(26) "State" means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.

(27) "Stored-value instrument" means a card or other tangible object for the transmission or payment of money or other value which contains a microprocessor chip, magnetic stripe, or other means for the storage of information, which is prefunded, and for which the value is decreased upon each use. The term does not include a card or other tangible object that is redeemable by the issuer in the issuer's goods and services.

(28) "[Superintendent]" means the [state superintendent of banks or other senior state regulator charged with the regulation of money-services businesses].

(29) "Traveler's check" means an instrument identified as a traveler's check on its face or commonly recognized as a traveler's check and issued in a specified denomination of currency with a provision for a specimen signature of the purchaser to be completed at the time of purchase and a countersignature of the purchaser to be completed at the time of negotiation.

(30) "Unsafe or unsound practice" means a practice or conduct that is contrary to generally accepted standards applicable to a money transmitter, or that is a violation of an order of the [superintendent] against a money transmitter if the practice, conduct, or violation creates the likelihood of material loss, insolvency, or dissipation of assets of the money-services business, or otherwise materially prejudices the interests of its customers.

Sources: Definitions in this Act have been mainly derived from the Model Act Regulating Money Transmitters, the President's Commission Act, the Arizona Code, and the Florida Money Transmitter's Code. Several definitions are new.

Reporter's Note

1. "Authorized delegate." The ability of a state superintendent to regulate the conduct of authorized delegates is of vital importance to the prevention and detection of money laundering. It is important, therefore, to clearly define the outlets through which a money-services business, primarily a money transmitter, conducts its business. The term "authorized delegate" was selected rather than "agent" to avoid confusion as to the nature of the legal relationship between a money transmitter and the sales outlets through which it transacts business. Sales outlets provide money transmission on behalf of a money transmitter on a contractual basis. Although the delegates are not defined as "agents" of a money transmitter, there are circumstances under which the superintendent may take enforcement action against a licensed money transmitter on the basis of actions of its delegates. The Act does impose some statutory obligations on the licensee with respect to the conduct of its delegates. Additionally, the superintendent has the authority to take action directly against the delegate as well. See Section 801.

2. "Check cashing." The definition of check cashing excludes businesses that may offer a small amount of check cashing services incidental to their primary business. Hotels, for example, which cash checks as a courtesy for their guests, fall into the excluded category. This definition was agreed upon at the October 1998 drafting meeting. The main difference in the new definition (as compared with many existing state definitions) is the method used to determine which businesses should be excluded because they cash checks as a service that is incidental to their primary business and which is also at a de minimis level. The exemption reflects an aggregate level of fees over a 30-day period, rather than relying on a daily level of business.

3. "Control." The definition of control is derived from the definition contained in the Federal Bank Holding Company Act, 12 U.S.C. Section 1842(a)(2). It was decided that the definition of control included in the September 1998 draft was too formalistic in that it required a bright line threshold of 25 percent or more ownership to trigger control. The Drafting Committee decided that the Federal Bank Holding Company Act provided a useful definition that did not relate solely to a threshold of share ownership. The current definition is more flexible and allows for a broader interpretation of the concept of control.

4. "Engage in the business." Because the Act is intended to apply only to those entities engaged in the money-services business as a commercial enterprise, the current definition was added. The definition of engage in the business is a modified version of the definition of "conduct the business" included in the President's Commission on Model State Drug Laws, Model Money Transmitter Licensing and Regulation Act ("President's Commission Act") Section 4(c); and the President's Commission on Model State Drug Laws, Model Financial Transaction Reporting Act Section 4(d). The commentary to the President's Commission Act states that "'[c]onduct the business' derives its meaning from federal tax law relating to deductions available to persons in the business of various profit-seeking pursuits. Its application to federal gambling law, 18 U.S.C. 1955, provides useful case law examples."

5. "Limited station." This definition refers to sites where check-cashing services are solely offered to employees of one or several employers. Specifically, employers have arranged with a check casher to provide check cashing in connection with payroll checks. It was necessary to define this type of location because check casher licensees are required to list all of their locations (including limited stations) on their license application and their renewal reports.

6. "Mobile location." Mobile locations are movable locations (normally motor vehicles such as vans) from which check cashing or currency-exchange services are provided to members of the public. This term is defined because check casher and currency exchanger licensees are required to report these locations on their license applications and subsequent renewal reports.

7. "Money-services business." As explained in the Prefatory Note, money-services business is used to define a group of entities that engage in any of the following activities: money transmission, sale of payment instruments (i.e., money orders or traveler's checks or stored-value instruments), check cashing and currency exchange. The definition focuses on the activities engaged in rather than the entity that engages in the activities. The Drafting Committee decided to use an activity-based definition because different money-services businesses may engage in one or more of these money-services business activities.

8. "Money transmission." Money transmission subsumes several activities or functions: the transmission of funds as well as the sale or issuance of payment instruments and the sale or issuance of stored-value instruments. Stored-value instruments, as defined in the Act, are treated as payment instruments. The grouping of funds transmission and the sale or issuance of payment instruments is consistent with existing state practice. The Drafting Committee has consolidated related functions to simplify the Act.

9. "Payment instrument." At the October 1998 meeting, the Drafting Committee affirmed its decision to include stored-value products and stored-value providers within the scope of the Act. Drafting Committee members determined that the use of stored value as a means of payment was similar to money transmission as a process. Therefore, to the extent possible, the Drafting Committee included stored value within existing definitions of money-services businesses. The Act follows the Connecticut approach and treats stored-value instruments (including electronic traveler's checks) as payment instruments.

10. "Stored-value instrument." At the October 1998 drafting meeting, the Committee decided that stored-value providers should be required to obtain licenses under the Act. At present, stored-value instruments are encompassed within the definition of payment instruments. In 1998, Connecticut enacted the Act Concerning Electronic Payment Instruments and Currency and Foreign Transactions Reporting. The Connecticut statute amended existing money-transmission law so those stored-value products (referred to as "electronic payment instruments") are treated as payment instruments. Furthermore, issuers of such payment instruments are subject to licensing and regulation in Connecticut. See CT. Legis. 98-192, cited in 1998 Conn. Legis. Serv. P.A. 98-192 (S.S.B. 230) (West 1998). The Committee will continue to review the definition of "stored value" in the Act. For example, there have been suggestions that such a payment substitute should not be defined in relation to an instrument but more broadly in terms of the actual concept of its "value."

11. "Unsafe or unsound practice." Under the Act, the superintendent possesses the authority to take action against a money transmitter or its authorized delegates in the event that the money transmitter engages in an unsafe or unsound practice. The term unsafe and unsound is a general concept that has been used in state and federal banking and financial law. Unsafe and unsound practices are ones that may pose financial risk to a financial institution. The Act provides a definition of unsafe and unsound that applies solely to money transmitters. Money transmitters who engage in unsafe or unsound activity may leave consumers with unredeemed money orders or uncollected funds transfers. The superintendent is able to take protective action in the event than a money transmitter engages in an unsafe or unsound activity. This prevents the dissipation of licensee assets that should be used to fulfill obligations to customers.

The Drafting Committee determined that unsafe and unsound practices related solely to the risk of financial loss posed by the actions of the money transmitter. Currency exchangers and check cashers do not engage in an unsafe or unsound practice with respect to their check cashing or currency exchange activity because they provide their customers with funds immediately. To the extent that a check casher or currency exchanger dissipates its assets or becomes insolvent, it will typically have to cease business. However, this will not directly harm consumers, as they will not be left with unpaid obligations. Furthermore, if a check casher or currency exchanger engages in an unsafe activity with respect to money transmission this will not have any direct impact on or harm to individual consumers. This is because the check casher may only conduct money transmission as an authorized delegate. The money transmitter will remain liable to the holders of its money orders, even if an authorized delegate sells them. Because the money transmitter bears ultimate financial responsibility to customers, check cashers and currency exchangers are not considered to engage in unsafe or unsound practices.

SECTION 103. SUPERVISORY POWERS OF [SUPERINTENDENT]. Consistent with this [Act] the [superintendent] has supervision over all money services businesses and their authorized delegates.shall adopt rules pursuant to the [administrative procedure act] necessary to achieve the purposes of this [Act].

Source: Florida Money Transmitters' Code Section560.105.

560.105.

Reporter's Note: Some Observers have suggested that an alternative to multi-state supervision would be a home-state/host-state licensing regime. The Drafting Committee has rejected this approach as the state regulators and other Observers favor a state-based approach to regulation of money services businesses. Resource sharing in the form of information sharing and joint examinations, however, are provided for in the Proposed Act.

New

Reporter's Note

The State Superintendent for Banking or Banking Commissioner is usually the state regulator that supervises and regulates money-services businesses.

SECTION 104. EXCLUSIONS. This [Act] does not apply to:

(1) the United States or a department, agency, or instrumentality thereof;

(2) the United States Postal Service;

(3) a State or a political subdivision thereof;

(4) a bank, bank holding company, thrift company, credit union, building and loan association, savings and loan association, savings bank, or mutual bank, offices of an international banking corporation, branches of foreign banks, a corporation organized pursuant to the Bank Service Act, or an Edge Act Agreement Corporation organized under the laws of a State or the United States, if the person does not issue, sell, or provide payment instruments through an authorized delegate that is not such a person;

(5) electronic funds transfer of government benefits for a federal, state, [county], or governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality thereof, or a State or governmental subdivision, agency, or instrumentality thereof;

(6) a board of trade designated as a contract market under the Commodity Exchange Act or a person that in the ordinary course of business provides clearance and settlement services for a board of trade to the extent of its operation as such;

(7) a person registered as a futures commission merchant under the federal commodities laws to the extent of its operation as such;

(8) a person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from such registration granted under the federal securities laws to the extent of its operation as such;

(9) an operator of payment systems which provides processing, clearing, or settlement services, between or among persons excluded by this section or licensees, in connection with wire transfers, credit-card transactions, debit-card transactions, stored-value transactions, automated clearing house transfers, or similar funds transfers to the extent of its operation as such;

(10) a person registered as a securities broker-dealer under the federal securities laws to the extent of its operation as such; or

(11) [reserved for future use].

Source: President's Commission Act Section 6 (with modifications).

Reporter's Notes: Exemptions are provided liberally to reduce the cost of the act to a minimum both in terms of administration and in terms of regulation. This list should be modified to match a state's existing regulatory categories and terminology as appropriate.

Proposed exclusions involving boards of trade were submitted to FinCEN by various clearing organizations who collectively represent several of the largest commodities exchanges and commodities/options clearing organizations. In a letter dated October 8, 1997, these organizations recommended that FinCEN change the proposed definition of money services business to exclude regulated entities that are already subject to regulation by the SEC and the CFTC. The September 1998 Draft included a new exclusion under subsection (9) for payment systems operators who provide clearing and/or settlement services. This proposed exemption responded to the comments of Observers who note that the provision of those services is distinct from the issuing or selling of payment instruments or stored value products. This inclusion has been retained.

(1) the United States or a department, agency, or instrumentality thereof;

(2) the United States Postal Service;

(3) a State or a political subdivision thereof;

(4) a bank, bank holding company, thrift company, credit union, building and loan association, savings and loan association, savings bank, or mutual bank, offices of an international banking corporation, branches of foreign banks, a corporation organized pursuant to the Bank Service Act, or an Edge Act Agreement Corporation organized under the laws of a State or the United States, if the person does not issue, sell, or provide payment instruments through an authorized delegate that is not such a person;

(5) electronic funds transfer of government benefits for a federal, state, [county], or governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality thereof, or a State or governmental subdivision, agency, or instrumentality thereof;

(6) a board of trade designated as a contract market under the Commodity Exchange Act or a person that in the ordinary course of business provides clearance and settlement services for a board of trade to the extent of its operation as such;

(7) a person registered as a futures commission merchant under the federal commodities laws to the extent of its operation as such;

(8) a person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from such registration granted under the federal securities laws to the extent of its operation as such;

(9) an operator of payment systems which provides processing, clearing, or settlement services, between or among persons excluded by this section or licensees, in connection with wire transfers, credit-card transactions, debit-card transactions, stored-value transactions, automated clearing house transfers, or similar funds transfers to the extent of its operation as such;

(10) a person registered as a securities broker-dealer under the federal securities laws to the extent of its operation as such; or

(11) [reserved for future use].

Source: President's Commission Act Section 6 (with modifications).

Reporter's Notes: Exemptions are provided liberally to reduce the cost of the act to a minimum both in terms of administration and in terms of regulation. This list should be modified to match a state's existing regulatory categories and terminology as appropriate.

Proposed exclusions involving boards of trade were submitted to FinCEN by various clearing organizations who collectively represent several of the largest commodities exchanges and commodities/options clearing organizations. In a letter dated October 8, 1997, these organizations recommended that FinCEN change the proposed definition of money services business to exclude regulated entities that are already subject to regulation by the SEC and the CFTC. The September 1998 Draft included a new exclusion under subsection (9) for payment systems operators who provide clearing and/or settlement services. This proposed exemption responded to the comments of Observers who note that the provision of those services is distinct from the issuing or selling of payment instruments or stored value products. This inclusion has been retained.

(2) the United States Postal Service;

(3) a State or a governmental subdivision, agency, or instrumentality thereof;

(4) a bank, bank holding company, thrift company, credit union, building and loan association, savings and loan association, savings bank, mutual bank, an office of an international banking corporation, a branch of a foreign bank, a corporation organized pursuant to the Bank Services Act, or an Edge Act Agreement Corporation organized under the laws of a State or the United States if the person does not issue, sell, or provide payment instruments through an authorized delegate that is not such a person;

(5) electronic funds transfer of government benefits for a federal, state, [county], or governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality thereof, or a State or governmental subdivision, agency, or instrumentality thereof;

(6) a board of trade designated as a contract market under the Commodity Exchange Act or a person that provides in the ordinary course of business clearance and settlement services for a board of trade to the extent of its operation as such a board of trade or for such a board of trade;

(7) a person registered as a futures commission merchant under the federal commodities laws to the extent of its operation as such a merchant;

(8) a person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from such registration granted under the federal securities laws to the extent of its operation as such a provider;

(9) an operator of a payment system which provides processing, clearing, or settlement services, between or among persons excluded by this section or licensees, in connection with wire transfers, credit-card transactions, debit-card transactions, transactions involving stored-value instruments, automated clearing house transfers, or similar funds transfers to the extent of its operation as such an operator;

(10) a person registered as a securities broker-dealer under the federal securities laws to the extent of its operation as such a broker-dealer; or

(11) a person engaging in the business of issuing, selling, or redeeming stored-value instruments subject to regulation, supervision, and examination by a federal or state banking agency which does not issue, sell, or redeem stored-value instruments to or from individuals.

Source: President's Commission Act Section 6 (with several modifications and additions).

Reporter's Note

1. Exemptions are provided liberally to reduce the cost of the Act to a minimum both in terms of administration and in terms of regulation. This list should be modified to match a state's existing regulatory categories and terminology as appropriate. The entities listed in paragraphs (1) through (5) are exclusions normally included in relevant state licensing statutes for money transmitters.

2. Many of the new exclusions apply to organizations that provide clearing and settlement services (which do involve the transmission of money). Clearing and settlement often involves the transfer of funds from one bank account to another (e.g., the debiting and crediting of accounts of various participants in a trading system or credit card consortium) where funds are transferred from bank accounts of a participant's financial institution. The clearing and settlement organizations listed in the exemptions are already subject to supervision by other federal or other state regulators.

3. The proposed exclusion involving boards of trade was submitted to the Financial Crimes Enforcement Network of the United States Department of Treasury by various clearing organizations that collectively represent several of the largest commodity exchanges and commodities/options clearing organizations. In a letter dated October 8, 1997, these organizations recommended that FinCEN change the proposed definition of money-services business to exclude regulated entities that are already subject to regulation by the U.S. Securities and Exchange Commission and the U.S. Commodities and Futures Trading Commission.

4. The proposed exclusion for broker-dealers arises from the fact that broker-dealers are already subject to Bank Secrecy Act Reporting requirements and are highly regulated by the U.S. Securities and Exchange Commission.

5. The proposed exclusion for stored-value issuers, sellers or redeemers relates only to those entities that are subject to oversight by a federal or state banking agency and that do not issue, sell or redeem stored value directly to individuals. Such entities would already be regulated from a safety and soundness standpoint by banking agencies and would not have direct obligations to individuals. Instead, such entities would sell stored value on a wholesale basis to other institutions.

SECTION 105. LICENSE REQUIRED.

(a) A person may not engage in a money servicesmoney-services business without:

(1) first obtaining a license under this [Act]; or

(2) becoming an authorized delegate with respect to that business.

(b) A person that is not licensed under this [Act] and that is not an authorized delegate of a licensee is engaging inengaged in a money-services business if the person advertises, solicits, or holds itself out as a money servicesmoney-services business or engages in the business.

(c) A person that engages in thea money-services business only as an authorized delegate of a licensee and acts solely within the scope of a contract between the authorized delegate and the licensee is not required to be licensed under Article 2 or Article 3.[Article] 2, 3, or 4.

(d) A person that is an authorized delegate and also engages in the business other than as an authorized delegate must apply for a license under either Article 2 or Article3.

(e)3.

(e) (d) A license is not transferable or assignable except as otherwise provided in this [Act].by the [superintendent].

Source: Model Act Regulating Money Transmitters Section 2 combined with President's Commission Act Section 5. The restrictions on transfer or assignment of a license come from California Financial Code Section 12219 12219, which prohibits the transfer of check selling licenses.

which prohibits the transfer of check selling licenses.

Reporter's Note: The act will need to distinguish between authorized delegates who provide services solely pursuant to contracts with money services businesses and those entities who serve as delegates but also operate as principals with respect to some aspect of money services. For example, a check casher might operate as a principal with respect to check cashing services and also operate as an authorized delegate for a money transmitter.

transmitter.

ARTICLE 2

LICENSING OF MONEY TRANSMITTERS AND PAYMENT INSTRUMENT SELLERS

SECTION 201. APPLICATION FOR LICENSE.

(a) A person may not engage, for consideration, in money transmission, advertise the person's engagement in money transmission, or sell, issue, or provide a payment instrument, without first obtaining a license under this article.

(b) A person licensed under this article may also engage in check cashing and currency exchange as authorized under Article 3 without being licensed under Article 3.

(c) An applicant under this article must apply in writing, under oath, and in the form prescribed by the [superintendent]. The application must include the following:

(1) the legal name and residential and business addresses of the applicant and any fictitious or trade name used by the applicant in the conduct of its business;

(2) the applicant's material litigation for the past [five] years;

(3) a description of the money services business previously or presently engaged in by the applicant, and the business in which the applicant seeks to engage in this State;

(4) a list of the applicant's proposed authorized delegates, and the locations in this State at which the applicant and its authorized delegates propose to transmit money or sell, issue, or provide payment instruments;

(5) a sample form of contact for authorized delegates, if applicable, and a sample form of payment instrument, if applicable;

(6) the name and address of any clearing financial institution through which the applicant's payment instruments will be payable;

(7) a document confirming that the requirements for security and net worth as set forth in Sections 202 and 206 have or will be satisfied; and

(8) other information the [superintendent] reasonably requires with respect to the applicant.

(d) If an applicant is a corporation, the applicant shall also provide the following:

(1) the date of the applicant's incorporation and State or country of incorporation;

(2) a certificate of good standing from the State or country in which the applicant is incorporated;

(3) a description of the corporate structure of the applicant, including any parent or subsidiary of the applicant, and whether any parent or subsidiary is publicly traded on a national securities exchange;

(4) the legal and any fictitious name, business and residential addresses, and employment, for the last [five] years, of each executive officer, key shareholder, and responsible individual of the applicant;

(5) the material litigation and criminal convictions of each executive officer, key shareholder, and responsible individual of the applicant;

(6) a copy of the applicant's audited financial statements for the current year and, if available, for the next preceding [two] years, if available;

(7) a copy of the applicant's unconsolidated, unaudited financial statements for the current year, and for the next preceding [two] years, if available;

(8) if the applicant is a publicly traded company, copies of all filings made with the Securities and Exchange Commission within the year next preceding the date of the filing of the application; and

(9) other information the [superintendent] requires.

(e) If the applicant is not a corporation, the applicant shall also provide the following:

(1) evidence that the applicant is registered to do business in this State;

(2) the legal and any fictitious name, business and residential addresses, personal financial statements, and employment for the past [five] years, for each controlling person that is an individual and each responsible individual of the applicant;

(3) the material litigation and criminal convictions, for the past [five] years, of each controlling person that is an individual and each responsible individual of the applicant;

(4) a copy of the applicant's audited financial statements, for the current year, and, if available, for the next preceding [two] years; and

(5) other information the [superintendent]Reporter's Note

This section sets forth the overall licensing structure for money-services businesses created by the Act. All money-services businesses (including money transmitters as broadly defined, check cashers and currency exchangers) must either obtain a license or become an authorized delegate with respect to the type of money-service business it wishes to perform. Additionally, should a money-services business have neither a license nor status as an authorized delegate, the person is treated, for purposes of the Act, as if it is engaging in money-services business on its own behalf.

ARTICLE 2

LICENSING OF MONEY TRANSMITTERS

SECTION 201. APPLICATION FOR LICENSE.

(a) A person may not engage, for consideration, in money transmission, advertise the person's engagement in money transmission, or sell, issue, or provide a payment instrument, without first obtaining a license under this article.

(b) A person licensed under this article may also engage in check cashing and currency exchange as authorized under Article 3 without being licensed under Article 3.

(c) An applicant under this article must apply in writing, under oath, and in the form prescribed by the [superintendent]. The application must include the following:

(1) the legal name and residential and business addresses of the applicant and any fictitious or trade name used by the applicant in the conduct of its business;

(2) the applicant's material litigation for the past [five] years;

(3) a description of the money services business previously or presently engaged in by the applicant, and the business in which the applicant seeks to engage in this State;

(4) a list of the applicant's proposed authorized delegates, and the locations in this State at which the applicant and its authorized delegates propose to transmit money or sell, issue, or provide payment instruments;

(5) a sample form of contact for authorized delegates, if applicable, and a sample form of payment instrument, if applicable;

(6) the name and address of any clearing financial institution through which the applicant's payment instruments will be payable;

(7) a document confirming that the requirements for security and net worth as set forth in Sections 202 and 206 have or will be satisfied; and

(8) other information the [superintendent] reasonably requires with respect to the applicant.

(d) If an applicant is a corporation, the applicant shall also provide the following:

(1) the date of the applicant's incorporation and State or country of incorporation;

(2) a certificate of good standing from the State or country in which the applicant is incorporated;

(3) a description of the corporate structure of the applicant, including any parent or subsidiary of the applicant, and whether any parent or subsidiary is publicly traded on a national securities exchange;

(4) the legal and any fictitious name, business and residential addresses, and employment, for the last [five] years, of each executive officer, key shareholder, and responsible individual of the applicant;

(5) the material litigation and criminal convictions of each executive officer, key shareholder, and responsible individual of the applicant;

(6) a copy of the applicant's audited financial statements for the current year and, if available, for the next preceding [two] years, if available;

(7) a copy of the applicant's unconsolidated, unaudited financial statements for the current year, and for the next preceding [two] years, if available;

(8) if the applicant is a publicly traded company, copies of all filings made with the Securities and Exchange Commission within the year next preceding the date of the filing of the application; and

(9) other information the [superintendent] requires.

(e) If the applicant is not a corporation, the applicant shall also provide the following:

(1) evidence that the applicant is registered to do business in this State;

(2) the legal and any fictitious name, business and residential addresses, personal financial statements, and employment for the past [five] years, for each controlling person that is an individual and each responsible individual of the applicant;

(3) the material litigation and criminal convictions, for the past [five] years, of each controlling person that is an individual and each responsible individual of the applicant;

(4) a copy of the applicant's audited financial statements, for the current year, and, if available, for the next preceding [two] years; and

(5) other information the [superintendent] (a) A person may not engage in the business of money transmission, or advertise the person's engagement in money transmission without first obtaining a license under this [article].

(b) A person licensed under this [article] may also engage in check cashing without obtaining a separate license under [Article] 3 and currency exchange without obtaining a separate license under [Article] 4.

(c) A person applying for a license under this [article] must do so in writing, under oath, and in a form prescribed by the [superintendent]. The application must state or contain:

(1) the legal name and residential and business addresses of the applicant and any fictitious or trade name used by the applicant in the conduct of its business;

(2) the applicant's material litigation for the last five years;

(3) a description of any money-services business previously or presently engaged in by the applicant, and the business in which the applicant seeks to engage in this State;

(4) a list of the applicant's proposed authorized delegates, and the locations in this State where the applicant and its authorized delegates propose to engage in money transmission or other money-services business;

(5) a sample form of contract for authorized delegates, if applicable, and a sample form of payment instrument, if applicable;

(6) the name and address of any clearing financial institutions through which the applicant's payment instruments will be payable;

(7) a document confirming that the requirements for security and net worth as set forth in Sections 202 and 206 have been or will be satisfied; and

(8) other information the [superintendent] reasonably requires with respect to the applicant.

(d) If an applicant is a corporation, the applicant shall also provide:

(1) the date of the applicant's incorporation and State or country of incorporation;

(2) a certificate of good standing from the State or country in which the applicant is incorporated;

(3) a description of the corporate structure of the applicant, including any parent or subsidiary of the applicant, and whether any parent or subsidiary is publicly traded on a securities exchange;

(4) the legal and any fictitious name, business and residential addresses, and employment, for the past five years, of each executive officer, director, and key shareholder of the applicant;

(5) material litigation and criminal convictions for the past five years of each executive officer and key shareholder of the applicant;

(6) a copy of the applicant's audited financial statements for the current year and, if available, for the next preceding two years;

(7) a copy of the applicant's unconsolidated financial statements for the current year, whether audited or not, and, if available, for the next preceding two years;

(8) if the applicant is a publicly traded corporation, copies of all filings made with the United States Securities and Exchange Commission within the year next preceding the date of the filing of the application; and

(9) other information the [superintendent] reasonably requires.

(e) If the applicant is not a corporation, the applicant shall also provide:

(1) evidence that the applicant is qualified to do business in this State;

(2) the legal and any fictitious name, business and residential addresses, personal financial statements, and employment for the last five years, for each controlling person that is an individual and each responsible individual of the applicant;

(3) material litigation and criminal convictions, for the last five years, of each controlling person that is an individual and each responsible individual of the applicant;

(4) a copy of the applicant's audited financial statements for the current year, and, if available, for the next preceding two years; and

(5) other information the [superintendent] reasonably requires.

(f) The [superintendent] may waive any (f) The [superintendent] may waive a requirement of this section or permit an applicant to submit substituted information in lieu of the required information.

Source: Arizona Money Transmitter Law Section 6-1203; President's Commission Act Section 7; Florida Money Transmitters' Code Section 560.205.

Reporter's Notes: Selected Issue: Note