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Money Services Businesses: A State Regulated Industry Integral to Everyday Life

Everybody uses the money services business (MSB) industry, but few people know the terminology. MSBs are a broad category of financial services we all use in everyday life, just not at the bank. MSB products include:

  • Sending money to friends and family (Money Transmission) 
  • Mobile wallets on our phones (Stored Value)
  • Prepaid cards in the checkout lines of grocery stores and pharmacies (Stored Value)
  • Money orders at the corner store (Payment Instruments)
  • Travelers Checks before a foreign vacation (Payment Instruments)
  • Exchanging currency at the airport (Currency Exchange)
  • Cashing checks (Check Cashing) 
  • Taking, holding or sending bitcoin on behalf of a consumer can be considered an MSB activity (Virtual Currency Transactions).

Just because these services aren’t offered by banks doesn’t mean they are not regulated. States take the lead in making sure these companies operate in a manner that protects consumers from harm, whether it be misleading fees or failing to send money as instructed. States also make sure MSBs don’t support criminal activity – either accidentally or on purpose – like money laundering or terrorist financing. 

Since MSBs are not banks, their funds are not necessarily insured. To protect consumers from loss of uninsured funds, states have legal requirements. Generally, states require MSBs to have a minimum net worth, or put simply, enough money to do business. They also require MSBs to have bonds that can be triggered to pay consumers in the event of something going wrong.

Perhaps most importantly, most states have a self-insurance mechanism called “Permissible Investments.” In short, for every dollar held by an MSB for a consumer, the MSB must hold an additional dollar for security. If the money is lost for any reason, the MSB would be able to cover the consumer’s loss with the permissible investments set aside.

In addition to these financial consumer protections, states examine MSBs for compliance with disclosure requirements, unlawful activity requirements, cybersecurity, and other operational areas within the MSB business. Nobody wants to be told the wrong fee, accidentally support a fraud scheme, or become victim to another data breach – states work to prevent these types of events from happening at MSBs.

Most state legislatures have placed jurisdiction over MSBs with the banking department. As a result, CSBS helps states with MSB issues and works to increase transparency in this regulated area.

Recent Posts

A new series of CSBS papers will describe the various business segments within the nonbank industry, explain how they are currently licensed and supervised by state financial regulators, and discuss issues affecting regulatory changes going forward
Jun 4, 2019
In February 2019, CSBS sought public input on issues related to state money transmission and payments regulation as regulators begin work on model legislation to introduce in all 50 states.
Apr 24, 2019
The purpose of this paper is to outline the state system of supervision of MSBs in order to make clear the existence, structure and degree of an established regulatory system for MSBs.
Nov 16, 2017
In addition to banks, state regulators also license and regulate several other non-bank financial services providers.
Oct 30, 2017