The Need for a Federal Alternative to State Money Transmission Licensing
A plan for policymakers to clear one of the biggest obstacles to financial innovation.
The several states rather than the federal government are the primary regulators of money transmitters. State-by-state money transmission licensing is inefficient because transmitters provide a networked good that inherently crosses state lines, and because state regulators cannot and do not account for these externalities when they calibrate their regulations. These inefficiencies hinder effective regulatory cooperation, economic growth, American competitiveness in financial technology, effective consumer protection efforts, and financial inclusion. Possible solutions are various and range from least to most extensive: (a) the creation of a license passporting regime resembling the E.U.’s e-money system, (b) the creation of a federally administered alternative license and limited preemption of state law for federal licensees, (c) the creation of a federally administered license and full preemption of all state money transmission licensing, and (d) the creation of a more comprehensive CFTC-run investor protection regime focused on digital currency exchanges that also preempts state licensing. All approaches must also include a safe harbor for novel businesses that do not create the sort of risks to consumers that money transmission licensing is meant to address. Coin Center prefers federal legislation that would create a federal money transmission license as an alternative to state licensing for companies that seek it out.