What is a Money Transmitter License, who needs one, and how do you get one? If a crypto business engages in transactions involving securities, such as selling security tokens or coins, or issuing securities such as equity in a fund or venture in the US, then that business is subject to US securities laws and regulation by the SEC. This is why most exchanges are based off-shore and don’t accept US customers. All issuances of securities are subject to registration or exemption therefrom to be legally sold or traded in the US.
If however, a business exchanges, sells, or issues non-security based tokens or coins, which most of the established crypto has been generally held to be (no token on Coinbase is a security), including Bitcoin, then that business is a currency exchanger and must have an MTL and register with FinCen as a Money Service Business. Furthermore, such business is subject to the Bank Secrecy Act and all laws related to money laundering, know-your-customer, and fund custody obligations. It needs to be stated that unless a legal opinion already exists regarding a specific token or coin’s status as a non-security, then one should be obtained by the issuer or an exchange so as to allay any doubt as to its legal status.
The process of obtaining an MTL begins with FinCen registration, then registration with NMLS, which is a national database where over 30 states participate to approve a MTL in their respective states. So, the NMLS system is national, but each MTL is reviewed and approved by each individual state’s regulators. Furthermore, a few states have specific crypto-business licenses which are similar, and obviate the need for obtaining an MTL in that state.
The NMLS system requires a variety of documents to be uploaded or on-hand for review, such as business plan, financials/projections, fund flow structure, security policy, AML policy, employment status, background check, credit check, and numerous other minor things need to be done. Then during the state review process, the regulator may, and probably will, request additional documents and changes to the subject website. Each state must be applied to separately, and each state has their own fees. In total, you may be looking at $50k-$100k for all 30+ NMLS states including legal fees. States that do not participate in NMLS will need to be applied to independently adding to the total cost.
Overall, the MTL process is onerous but not overly difficult or complicated. The NMLS system certainly has some bugs, the process is not standardized with regulators making various odd and seemingly pointless requests (they’re just bureaucrats trying to show that they’re useful), and the costs are extremely burdensome for most start-up crypto businesses (significant barrier to entry).
It should be noted that Coinbase is an MTL or crypto-license holder in every US state, but they are a huge and wealthy company with attorneys and CPAs on staff, that can afford it. If your company is just starting out, consider getting a single license in the state where you have the largest number of customers, or your home state and start with that. Then every 3-6 months you can seek a new state license, and after a few years, you can be doing business in most states. Unfortunately, there is no way around an MTL simply because your company does not engage in securities transactions, so carefully consider the pros and cons before you dive in, and remember that you will definitely need a CPA and legal counsel to assist you through the process.