The first step in obtaining a crypto licence in the U.S. – MSB registration

In our recent article: “Overview of regulatory requirements for cryptocurrency companies in the U.S.” we discussed the general requirements for obtaining a cryptocurrency license in the United States. Today we are going to talk about the first step on the way to a legal crypto business in the U.S. – registering as a Money Services Business; (“MSB“).

MSB is a type of Money Services Business, which includes a large category of activity, specifically money transfers (most states require a Money Transfer Licence (“MTL“) to provide cryptocurrency services). Under the MSB activity type, multiple licences can be obtained depending on the services potentially offered, including MTL. 

Financial Crimes Enforcement Network (“FinCEN“) is the primary US AML/CFT regulator (the primary AML/CFT law is the US Bank Secrecy Act (“BSA“)). FinCEN exercises its regulatory functions primarily within the AML/CFT framework and regulates all MSBs. It is FinCEN that, through its regulations, treats most cryptocurrency-related companies in the United States as money transmitters and requires such companies to register as MSBs.

On 16 March 2013, FinCEN issued Guidance FIN-2013-G001 in response to questions regarding what constitutes MSBs and, in particular, cryptocurrency transfer entities. This guidance clarifies the application of FinCEN’s rules to persons managing, exchanging, or using virtual currencies.  In this guidance, FinCEN stated that virtual currencies are similar to traditional currencies. MSBs that engage in virtual currency activities are defined as money transmitters and must register with FinCEN as MSBs and comply with all relevant AML/CFT regulations.

Section 18 of the US federal law USC § 1960 prohibits conducting a money transfer business without a licence. A violation can occur if an MSB company fails to register with FinCEN as an MSB. By the way, Binance recently agreed to this very violation in a lawsuit with US federal agencies, which you can read about here: “The biggest corporate fine in history – what’s next for Binance“.

Thus, all cryptocurrency companies that operate in the U.S. or provide services to U.S. citizens should first register as MSBs with FinCEN.

Who is also an MSB?

According to FinCEN, an institution that provides the following goods or services will be considered an MSB:

• Money orders or traveler’s cheques: in the United States, an institution is considered a provider or seller of money orders or traveler’s cheques; if it is a traveler’s cheque or money order that exceeds $1,000 per day, it will be considered an MSB.
• Money transfer service: institutions that transfer currency or other monetary units from one person to another.
• Cheque cashing: a person or entity that accepts a cheque or similar monetary instruments in exchange for currency of at least US$1,000 on behalf of another individual. However, it does not apply to businesses that provide prepaid access in exchange for a cheque or monetary instrument; these businesses use monetary instruments as a form of payment for any goods or services; and entities that hold customer cheques as security for loan repayment.
• Currency exchange: a forex broker is a person or entity that accepts currencies of other countries that exceed $1,000 on behalf of another individual.
• Prepaid Access Vendor: this item refers to prepaid access providers and vendors. Typically, this category of the service provider is an organization that receives money from customers. This money can be subsequently redeemed by customers through an electronic device or similar means.

With some exceptions, every money services business (MSB) must register with FinCEN. For more details on who is an MSB, click here.

How do I submit an application?

MSB filings are made through the BSA E-Filing System (“BSAES“). FinCEN maintains the BSAES website, which allows the following types of forms to be filed with FinCEN:

• FinCEN’s Currency Transaction Report (FinCEN Form 112);
• FinCEN designation of an exempt person (FinCEN Form 110);
• FinCEN Suspicious Activity Report (FinCEN Form 111);
• FinCEN registration of a money services business (FinCEN Form 107);
• a report of foreign bank and financial accounts (FinCEN Form 114);
• a report of cash payments in excess of $10,000 received in a trade or business (FinCEN Form 8300).

Accordingly, Form 107 must be completed and filed to register as an MSB.

Requirements for application?

The following requirements must be met in order to successfully register as an MSB:

• Have a registered account on the BSAES website. Visit the BSA E-Filing System website. Click Become a BSA E-Filer and follow the instructions to register yourself as an individual user or your organisation as a controlling user. The registration process will only take a few minutes.
• Complete Form 107. To register as an MSB, you must complete Form 107. The form, “Money Services Business Registration, FinCEN Form 107,” must be completed and signed by the business owner or controlling person and filed within 180 days of the MSB’s founding date. It is recommended that the form be reviewed ahead of time and answers prepared for quick completion in the BSAES system.
• Designate AML Officer. To complete Form 107, designate an officer who will be responsible for compliance.
• Appoint an agent of the foreign company. The foreign company must appoint an agent to represent the company in the U.S. and keep all records at a physical location in the U.S. The foreign company must appoint an agent to represent the company in the U.S. and keep all records at a physical location in the U.S..
• Appoint a controlling person for the company. This person can be the agent in the case of a foreign company.
• Meet the registration deadline. For any person who becomes an MSB after 31 December 2001, the deadline for initial registration is the end of the 180-day period beginning on the day after the date of incorporation. 
• Cost of Registration. There is no cost to use BSAES, including filing Form 107 to register as an MSB.
• Have the appropriate AML/KYC documentation. At the time of application, the company should already have documentation developed that meets the AML/KYC standards in the U.S. as reflected in the Bank Secrecy Act, Anti-Money Laundering Act of 2020 and PATRIOT.
• Provide a list of its agents, if any, at the time of registration. An MSB that is required to register and has agents must prepare and maintain a list of its agents. This list must be updated annually.

What to do next?

FinCEN usually takes 2 weeks to review your application, after which you will become an MSB and will be required to comply with AML/CFT requirements (you will have additional reporting obligations, reporting suspicious transactions, transactions that exceed a certain amount, etc.).

After obtaining MSB registration, you can apply for an MTL license in your chosen state(s) to legally offer your cryptocurrency services in the future. We will talk about the process of obtaining an MTL in the next article!

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.  

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