Key takeaways
- Average daily money transmission liability is the average of a licensee's end-of-day outstanding money transmission obligations in a state over a period.
- Under MTMA-based laws, it sets the surety bond: the greater of $100,000 or 100% of the average for the most recently completed three-month period, capped at $500,000.
- A licensee that holds the maximum bond is not required to calculate the figure for bonding purposes in that state.
- The part of a surety bond that exceeds the average counts as a permissible investment.
- The quarterly average is also reported in Section III of the NMLS MSB Call Report.
What the figure means
A money transmitter's outstanding money transmission obligations are the amounts it has received from customers in a state and not yet paid to recipients. The figure changes every day as money comes in and goes out. Average daily money transmission liability smooths those movements into one number: the obligations at the end of each day in a period, added together and divided by the number of days in the period.
Regulators use the average rather than a single day because a transmitter's balances can swing sharply around payroll dates, holidays and month ends. A single-day figure could make a business look far larger or smaller than it usually is.
Why it matters: the surety bond
States that follow the Money Transmission Modernization Act require each licensee to hold a surety bond or other acceptable security. The amount is the greater of $100,000 or 100% of the licensee's average daily money transmission liability in the state for the most recently completed three-month period, up to a maximum of $500,000. A licensee that already holds the $500,000 maximum does not need to calculate the average for that purpose.
The bond and the permissible investment rule are connected. Under the MTMA, the part of a surety bond that exceeds the average daily liability in the state counts as a permissible investment. Our guide to money transmitter permissible investments explains the main rule.
How to calculate it, step by step
First, take the outstanding money transmission obligations owed to customers in the state at the end of every day in the period. These must come from reconciled records, not from an unreconciled ledger. Second, add the daily figures together. Third, divide by the number of days in the period. For the bond calculation, the period is the most recently completed three-month period.
The figure is state-specific. A transmitter licensed in 40 states calculates 40 separate averages, one for each state, using only obligations to customers in that state. Firms should confirm with each regulator how the state defines a customer in its state and how non-business days are treated in its calculation.
Worked example
A money transmitter calculates its average for one state for the third quarter, which has 92 days. Rather than list 92 daily balances, the table summarises each month by its own daily average and number of days.
The quarter's total of daily end-of-day obligations is $333.8 million. Divided by 92 days, the average daily money transmission liability in the state is $3.63 million. The bond requirement is the greater of $100,000 or $3.63 million, capped at $500,000, so the transmitter needs a $500,000 bond.
A smaller transmitter in the same state with an average of $240,000 would need a $240,000 bond. If it chose to hold a $500,000 bond, the $260,000 above its average would count toward its permissible investments.
| Month | Days | Average end-of-day obligations (USD) | Month total (USD) |
|---|---|---|---|
| July | 31 | 3,200,000 | 99,200,000 |
| August | 31 | 3,600,000 | 111,600,000 |
| September | 30 | 4,100,000 | 123,000,000 |
| Quarter | 92 | 333,800,000 | |
| Average daily money transmission liability | 3,628,261 | ||
| Bond required (greater of $100,000 or average, capped at $500,000) | 500,000 |
Common errors
The most common error is using month-end balances instead of daily ones, which can understate the average when balances peak mid-month. Other errors include mixing in obligations to customers in other states, leaving out pending or unclaimed payouts, and taking figures from a ledger that has not been reconciled to the bank.
Each of these shows up in an examination, because examiners can rebuild the average from the transmitter's own daily records. A calculation that starts from a reconciled daily position for each state is the only one that holds up. Safeheld reconciles obligations by entity and state each day and keeps the daily history that this calculation and the quarterly call report depend on. See Safeheld reconciliation and what payment reconciliation involves.
Frequently asked questions
What is average daily money transmission liability?
The total of a licensee's end-of-day outstanding money transmission obligations in a state over a period, divided by the number of days in the period.
How is the money transmitter surety bond calculated under the MTMA?
The greater of $100,000 or 100% of the average daily money transmission liability in the state for the most recently completed three-month period, up to $500,000.
Do I need to calculate it if I hold a $500,000 bond?
Not for bonding purposes in that state. A licensee holding the maximum bond is not required to calculate the average for that purpose.
Does a surety bond count as a permissible investment?
Under the MTMA, the part of the bond that exceeds the average daily money transmission liability in the state counts.
Is the average calculated per state or nationally?
Per state. Each state's figure uses only obligations to customers in that state.
References
- Massachusetts General Laws c.169B §9: net worth, security and permissible investments
- Wisconsin Department of Financial Institutions, Money Transmission Modernization Act
- NMLS, MSB Call Report Section III: Permissible Investments Report
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.