Key takeaways
- A US money transmitter must hold permissible investments, safe and liquid assets, with a market value at least equal to all of its outstanding money transmission obligations, at all times.
- The Money Transmission Modernization Act (MTMA), a model law from the Conference of State Bank Supervisors, has been adopted in whole or in part by more than 30 states.
- Cash, deposits, certain government securities and short-term rated investments count in full. Receivables from agents and some rated investments count only within set limits.
- Receivables from any single authorized delegate count only up to 10% of total permissible investments, which can create a shortfall even when gross assets exceed obligations.
- Licensees report permissible investments and outstanding liability every quarter in Section III of the NMLS MSB Call Report.
What permissible investments are
A money transmitter is a business licensed by a US state to receive money from one person and send it to another, for example a remittance company, a payments app or a business payments platform. Because it holds customer money between receipt and payout, each state requires it to hold assets that could repay customers if the business failed. These assets are called permissible investments.
Under the MTMA, a licensee must maintain at all times permissible investments with a market value, calculated under US generally accepted accounting principles, of not less than the aggregate amount of all its outstanding money transmission obligations. Outstanding money transmission obligations are, in plain terms, the money the transmitter has received and not yet paid out to recipients.
The test applies across the business, not state by state. A transmitter licensed in 40 states compares its total permissible investments with its total outstanding obligations in all of them.
Which states use the MTMA rule
The MTMA is a model law developed by industry and state regulators and approved by the Conference of State Bank Supervisors. More than 30 states have adopted it in whole or in part, including recent adopters such as Massachusetts, Wisconsin and Colorado. States that have not adopted it still impose permissible investment requirements under their own statutes, but the definitions, the categories that count and the limits can differ. A multi-state transmitter needs to know which version applies in each state where it is examined.
What counts as a permissible investment
The MTMA sorts assets into those that count in full and those that count only within limits. The table summarises the main categories. An eligible rating means a credit rating at or above a specified level from a recognised rating agency.
Receivables from authorized delegates, the agents who collect money on the transmitter's behalf, count only if they are less than seven days old and are not past due or doubtful. Receivables from any single delegate count only up to 10% of the licensee's total permissible investments. A surety bond counts to the extent it exceeds the licensee's average daily money transmission liability in the state.
| Asset | How it counts under the MTMA |
|---|---|
| Cash and demand deposits | In full |
| US government securities and short-term investments with an eligible rating | In full |
| Money market funds rated AAA or equivalent | In full |
| Receivables from authorized delegates, under seven days old | Counted, but no more than 10% of total permissible investments from any single delegate |
| Commercial paper, bonds and other rated debt | Limited to 20% per category, within an overall cap |
| Surety bond above average daily liability | The excess counts |
| Other assets | Only if the regulator approves them |
Worked example: how a concentration limit creates a shortfall
A money transmitter has $142.8 million of outstanding money transmission obligations at the end of a day. On a gross basis it holds $144.0 million of assets, so it appears to be covered.
But $16.0 million of the assets is a receivable from one authorized delegate, a large retail partner that collects cash for the transmitter. That receivable can count only up to 10% of total permissible investments. Solving for the cap, the eligible total is $142.22 million, of which only $14.22 million can come from that delegate. The remaining $1.78 million does not count.
The result is a shortfall of $0.58 million that a simple comparison of assets and obligations would never show. The fix is operational: settle with the delegate faster, so less is outstanding at any time, or add cash or securities to the permissible investment pool.
| Line | Amount (USD millions) |
|---|---|
| Cash and deposits | 60.00 |
| US Treasury bills | 50.00 |
| Money market fund (AAA) | 12.00 |
| Receivables from other delegates | 6.00 |
| Receivable from Delegate A (gross) | 16.00 |
| Gross assets | 144.00 |
| Delegate A receivable above the 10% limit | (1.78) |
| Eligible permissible investments | 142.22 |
| Outstanding money transmission obligations | 142.80 |
| Shortfall | (0.58) |
How permissible investments are reported
Licensees report their position every quarter in Section III of the NMLS MSB Call Report, the shared reporting system state regulators use. The report lists permissible investments by category, including money market funds, short-term investments and receivables from authorized delegates above the 10% limit, and the licensee's total outstanding transmission liability and average daily transmission liability for the quarter. Our guide to average daily money transmission liability explains that second figure.
Because the rule applies at all times, a quarter-end snapshot is not enough. Examiners can ask for the position on any day in the period, so the calculation needs to run daily, from reconciled figures.
Where firms go wrong
The common failures are predictable. Obligations are understated because pending payouts or unclaimed funds are left out. Delegate receivables are counted in full, with no check against the 10% limit or the seven-day age test. Assets are valued at cost rather than market value. And the calculation is run at quarter end only, so a mid-quarter shortfall is never seen.
Safeheld reconciles each entity's obligations and assets daily and applies each state's permissible investment rules to the reconciled position, including concentration limits and receivable ageing. See Safeheld reconciliation and what payment reconciliation involves.
Frequently asked questions
What are permissible investments for a money transmitter?
Safe and liquid assets, such as cash, deposits, government securities and highly rated short-term investments, that a licensed money transmitter must hold at a value at least equal to its outstanding money transmission obligations.
How much must a money transmitter hold?
Under the MTMA, permissible investments with a market value of not less than the aggregate of all outstanding money transmission obligations, at all times.
Do agent receivables count as permissible investments?
Yes, if they are under seven days old, but receivables from any single authorized delegate count only up to 10% of total permissible investments.
Where are permissible investments reported?
Quarterly, in Section III of the NMLS MSB Call Report.
Is the requirement calculated per state?
Under the MTMA, it is calculated across all outstanding money transmission obligations of the licensee, not separately for each state.
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.