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Networked Supervision: An Opportunity for Regulatory Change

For 12 years, regulators and industry met in person at destinations across the United States for the NMLS Annual Conference & Training – an event that had grown from a small gathering of 100 people to nearly 800 people in San Francisco in February 2020. But something changed last year.

Shortly after our return from what had been the largest NMLS Annual Conference to date, the COVID-19 pandemic gripped the U.S. We saw shifts in our economy, changes in how and where we work, and use of new technologies to keep us connected. Like other industries, we decided to host the 2021 NMLS Annual Conference virtually. The environment had forced us to shift, and we succeeded. Approximately 1,000 attendees joined the NMLS Annual Conference this year – all online.

Similar to how we have adapted and responded to the pandemic in ways that are vital for our safety and those we support, Networked Supervision provides us with a framework for adapting and preparing for the future of financial regulation at the state level. The future will require more robust technology, specifically technology that is data driven and automated. In addition, standardized approaches will drive the licensing and examination process.
As CSBS President and CEO John Ryan announced at the start of the NMLS Annual Conference, our commitment to Networked Supervision includes building a modernized NMLS. The money services businesses (MSB) industry will be the first industry to transition to the new system, starting in 2022.   The standard for the MSB industry will be the MSB Model Law and Multistate MSB Licensing Agreement.

The benefits of a modernized NMLS include: 

  • Uniform standards for state agencies 
  • Integrated data analytics 
  • Greater efficiencies for state licensees 

We are already seeing the benefits of standardization with the exam process in the State Examination System (SES). SES lets agencies share information collectively about companies they supervise, allowing agencies to find out more about a company’s risk profile. Information sharing in SES also allows state agencies to see if a company is already undergoing an exam, reducing the likelihood of being issued a request for examination by another state agency. Currently, 32 state agencies use SES. As of the end of February, 550 company exams are moving through the system – 165 have been completed, 200 are in progress, and the remaining 154 have been scheduled.
During the NMLS Annual Conference, hundreds of attendees gathered in online breakout sessions to hear companies share their experiences with SES, eager to find out what it is like. In addition, more than 150 NMLS users participated in a live demo to share their thoughts on early design aspects of the modernized NMLS. 

Here is the reality – achieving Networked Supervision will not be without challenges. For example, moving to a modernized NMLS will take more than state agencies’ desire to do so, agencies must be prepared to make changes to their operational processes. For some agencies, adopting standardized requirements to support a new licensing model will require adopting new legal standards.

However, Networked Supervision provides state agencies an opportunity to increase collaboration, information sharing and interdependence to strengthen the state system of financial regulation for the long haul.
As we reflect on the ideas shared at the NMLS Annual Conference in the months ahead, continue to be engaged, continue to be a voice for Networked Supervision. Imagine the progress we will have made by the time we meet again next year – in person – at the NMLS Annual Conference.

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