Key takeaways
- State regulators examine licensed money transmitters periodically, often jointly with other states.
- Examiners test whether permissible investments covered outstanding obligations at all times, not only at quarter end.
- They rebuild key figures, such as outstanding liability and average daily liability, from the firm's own records.
- The best preparation is a daily, reconciled record that already answers the questions examiners will ask.
How examinations work
State regulators examine licensed money transmitters to check that they are safe, sound and following the law. For firms licensed in many states, examinations are often carried out jointly, with one team acting for several states, using shared procedures and the information already filed through NMLS. The Money Transmission Modernization Act supports this coordinated approach.
An examination typically covers financial condition, permissible investments, consumer protection, anti-money laundering controls, information security and management oversight. This guide focuses on the financial and reconciliation areas, where findings are most directly tied to the safety of customer money.
Examination scope is usually informed by the firm's call report filings, prior findings, complaints and changes in its business, such as rapid growth, new products or new payout corridors. A firm whose filings show sharp swings in outstanding liability or permissible investments should expect examiners to look closely at how those figures were produced.
What examiners test
Examiners do not simply accept the firm's figures. They select dates, often mid-quarter, and rebuild the position from source records.
| Area | What examiners ask | Evidence that answers it |
|---|---|---|
| Permissible investments | Did eligible assets cover obligations on the dates selected? | Daily position history with asset eligibility applied |
| Outstanding liability | Is every unpaid transmission included? | Reconciled obligations ledger tied to payouts |
| Average daily liability | Was it calculated from daily figures? | Daily obligation history by state |
| Delegate receivables | Were ageing and concentration limits applied? | Aged receivables by delegate |
| Call report accuracy | Do reported figures agree to records? | Call report figures traced to daily records |
| Reconciliation | Are bank and ledger reconciled, and are breaks resolved? | Reconciliation records with aged, owned breaks |
Common findings
Findings in these areas tend to repeat across the industry. Permissible investment calculations performed only at quarter end, missing mid-quarter shortfalls. Delegate receivables counted without the seven-day test or 10% limit. Outstanding liability that omits returned or unclaimed transmissions. Call report figures that cannot be traced to records. Reconciliations with old, unexplained breaks. Each is a sign that the firm does not know its daily position with confidence.
Findings in these areas usually lead to required corrective action with deadlines, follow-up reviews and, where problems are serious or repeated, enforcement action, fines or conditions on the licence. Because states share examination results, a finding in one examination is visible to every state that licenses the firm.
Our guides to permissible investments, authorized delegate receivables and the MSB call report cover each area in detail.
How to prepare
The firms that handle examinations best do not prepare for them as a separate project. They keep a daily record of reconciled obligations, eligible assets and breaks, by entity and state, and they can produce the position for any date an examiner names within hours. Before an examination, they test themselves: pick three random dates in the period, rebuild the position independently and compare it with what was reported.
Management should also review open findings from the previous examination before the next one begins. Examiners check whether earlier corrective actions were completed and whether the same issue has recurred. A repeat finding is treated more seriously than a new one, because it suggests the original fix addressed the symptom rather than the cause.
Safeheld keeps that daily record and can reproduce the position for any historical date. See Safeheld reconciliation and FBO account reconciliation.
Frequently asked questions
What do state examiners test at money transmitters?
Financial condition, permissible investments, liability calculations, reconciliation, call report accuracy, AML, security and oversight.
Do examiners check permissible investments only at quarter end?
No. They often select mid-quarter dates, because the requirement applies at all times.
Are money transmitter exams done by each state separately?
Often they are coordinated across several states, with one team examining on behalf of many.
How can a money transmitter prepare for an exam?
Keep a daily reconciled position history and test it by rebuilding the position for random dates.
References
- Massachusetts General Laws c.169B §9: net worth, security and permissible investments
- Iowa Code §533C.804: types of permissible investments (Uniform Money Transmission Modernization Act)
- 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.