United States: Money Services Businesses Call Report Q1 Submission Deadline Quickly Approaching

The NMLS Money Services Businesses (MSB) Call Report, described by the Conference of State Bank Supervisors (CSBS) as "a new tool within the Nationwide Multistate Licensing System (NMLS) that will streamline MSB reporting, improve compliance by the industry, and create the only comprehensive database of nationwide MSB transaction activity," is now live in the NMLS, and the initial report is due May 15, 2017.

Since state regulators decided to transition the licensing of money services businesses on to the NMLS, they have been developing a more uniform report, which standardizes a number of definitions and the categorization of transactions, by which MSBs could report on their money service-related activities through the NMLS. Further, with the development and use of a more standardized MSB report, the need for MSBs to have additional tracking and reporting systems that can slice and dice transactions into each state's unique buckets is reduced or eliminated.

Consequently, the new MSB Call Report was adopted by CSBS and released in NMLS on April 1, 2017. As a former Assistant Commissioner with the State of Maryland, I served on both the MSB Call Report Working Group and the NMLS Policy Committee (NMLSPC). The NMLSPC was responsible for recommending the approval of the Report, which was envisioned to operate along the lines of the Mortgage Call Report required of mortgage finance licenses, to CSBS.

Generally, the NMLS MSB Call Report applies to licensees who conduct money transmission, check cashing, issuing or selling travelers checks, issuing or selling drafts, foreign currency dealing and exchange, issuing or selling money orders, bill paying, issuing or selling prepaid access/stored value products, and virtual currency activities, and is due 45 days after the end of each quarter (even entities with a fiscal year that does not end on December 31st must still file the report on a calendar year basis as required). Entities holding an MSB license in a state that has adopted the NMLS MSB Call Report during the calendar quarter are required to file the Report. As the Report may be submitted only through NMLS, entities must also have an active record in NMLS to submit the report. MSBs licensed in states through the NMLS may still need to submit reports directly to their state regulators if the MSB law of that state has not provided for the MSB Call Report to replace the state specific MSB report. Of course, MSBs licensed in states that have not transitioned their MSB licenses to the NMLS may still need to file their reports directly with the state regulators. MSB licensees should review the state adoption table and, if necessary, check with the regulators in each state in which they hold a license to understand their state or NMLS reporting obligations.

The NMLS MSB Call Report comprises four sections: company financial information, information about the licensee's company and state level transactional activity, company permissible investments information, and transaction destination country information.

Section I: Financial Condition Report (At Company Level)

Submission of the Financial Condition section is mandatory each quarter and includes categories for assets, liabilities, equity, capital, income, and expenses. The requested information is only submitted once each quarter and must be consolidated at the submitting licensee level and include information for any of the licensee's subsidiaries. The Financial Condition report is reflective of the licensee and should not include consolidated information of the licensee's parent company or companies. Licensees must include any outstanding liabilities or assets held by the company and its subsidiaries.

Unless otherwise directed in the NMLS MSB Call Report Field Definitions, the report requires licensees to present their financial condition (i) in accordance with U.S. generally accepted accounting principles (GAAP), and (ii) in U.S. Dollars.

Additionally, if applicable to the licensee's report, virtual currency valuation must be in U.S. Dollars and should be based on a generally accepted exchange rate. Best practice dictates that the licensee document and maintain proof of the determination of the valuation as it may be requested by the regulator at a later date.

Section II: Transaction Activity Reporting

Company-wide Transactions Detail

The licensee's company-wide (relating to U.S. states and territories) transaction details are only required to be submitted once per calendar quarter, even if the entity is licensed in multiple states.

The section is organized by transaction type: money transmission, payment instruments, stored value, check cashing, fiat currency exchange, and virtual currency. Company-wide transactions reporting includes all business activities the licensee conducted nationwide during the specified period. The values reported in this section reflect transactions for the entire company and are greater than or equal to the total values reported in the state-specific transactions section.

State Transactions Detail

The transaction details for each state that adopts the NMLS MSB Call Report are only required to be submitted once per quarter for each adopting state in which the company is licensed.
The section is organized by transaction type: money transmission, payment instruments, stored value, check cashing, fiat currency exchange, and virtual currency. State-specific transactions reporting includes all business activities per state for the specified period. The values reported in this section cannot cumulatively exceed the values reported in the Company-wide transactions section.

Section III: Permissible Investments Report (At Company Level)

Although an MSB may be licensed in multiple states, only one permissible Investments Report is required. That report must be submitted once per quarter and encompasses the activities of the licensee and any subsidiaries on a nationwide basis. Reporting must include deposits foreign and domestic, cash on hand, debts due from agents, letters of credit, investments in bonds and U.S. securities, transmission liabilities, and virtual currency.

Unless the state regulators instruct otherwise, completion of this section is not required of check cashers or currency exchangers.

Section IV: Transactions Destination Country Reporting

The reporting of "company-wide (relating to U.S. states and territories) transactions destination country details" and the companion "State transactions destination country details" is only required for licensees who indicate they transmit money from the United States whether to a foreign country or to multiple foreign countries, and is not required to be submitted for transmission to the United States from foreign countries. This feature of the Report, as applicable, is only required at the end of 4th calendar quarter and, at this time, is not yet available in NMLS.

Confidentiality and Information Sharing

Also of interest, all data submitted in the MSB Call Report is confidential, but similar to other data in the NMLS, the sharing of information among state and federal regulators is specifically permitted under the federal SAFE Act (12 U.S.C. § 5111). The confidentiality provision of the SAFE Act does not specifically mention "MSBs," but it pertains to "any information provided to [NMLS]," and it permits information and material in NMLS to be shared with all state and federal regulatory officials with mortgage or financial services industry oversight authority without the loss of privilege or the loss of confidentiality protections provided by federal and state laws. Since MSB information is now in NMLS, the confidentiality provision applies to MSB data.

Supplemental Thoughts

States that adopt the Report adopt all sections of the Report, with the exception of the optional State Transactions Destination Country Detail Section. All required Report sections must be submitted at the same time, but can be prepared in the system prior to final submission. If the company is licensed in multiple states that have adopted the Report, the company-level sections only need to be completed in the system once per submission. If the entity holds more than one license type in a single state (e.g. money transmitter, and check cashing, for instance), that entity is only required to submit one NMLS MSB Call Report for that state. However, an entity licensed in multiple states will complete separate State Transactions Details for each state.

An entity's failure to submit the required Report within 45 days of the end of the calendar quarter may result in the placement of a deficiency (called a "license item" for MSB purposes in the NMLS) on the entity's NMLS record and may further result in a state regulatory action. The addition of such a deficiency/license item also may prevent the renewal of the entity's license.

To assist users in preparation for their quarterly submissions of the Report, NMLS has made a manual practice worksheet available for use outside the system. However, noticeably unavailable for dedicated use is test upload functionality. We caution that, despite best efforts, new NMLS functionality does not always perform as expected and since regulators have not yet advised whether leniencies will be shown to entities that have difficulty with this inaugural submission, we recommend that you start the submission process as early as possible.

Contact

We suspect that you will have some questions as you navigate this new functionality. You may contact the NMLS Call Center at 1-855-NMLS-123 (1-855-665-7123), but we also hope that you will consider contacting us, as we have been active participants in the NMLS MSB Call Report development and implementation phases and will continue to seek clarification of the evolving issues.

Originally published April 25, 2017

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© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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