The international money transfer business is a vibrant and growing industry. As the world becomes a more globalized marketplace, the need to transfer money and purchase goods in foreign currency is ever increasing. So how does one start a licensed money transfer business? Looking at two of the top market players – the United States and the UK – we see that the processes are very different based on where you’re located.
There’s defined licensing processes no matter where you go. However, there are some notable differences in the policies and procedures that businesses have to go through to achieve licensing.
Licensing in the UK
In the United Kingdom, there is one organization who controls all eMoney operator licensing: The Financial Conduct Authority (or the FCA). The FCA is a UK-only, self-funded authority, who assists in regulating and approving money transfer operations to transfer and repatriate money across international borders.
This single organization handles day to day supervision, thoroughly investigating any customer complaints, forming regulation committees, issuing warnings against any unauthorized money transfer organizations, and enforcing an anti-money laundering agenda. By keeping the regulation under one roof it’s focused and efficient, without losing the thoroughness of regulation and making sure that all money transfer operations are working legally.
The FCA doesn’t only regulate money transfer operations. They also regulate the financial firms, and other financial institutions in the United Kingdom to ensure the entire financial market is protecting consumers. The FCA regulates through competition law, enforcement, and supervision.
Licensing in the United States
On the other hand, licensing for money transfer operations in the United States is significantly more complicated. Rather than having a single government entity regulating and supervising all money transfer operations, if one is looking to start a money transfer business in the United States you have to be regulated and approved on a state to state basis.
Every state has its own set of requirements, so it’s important for an aspiring money transfer operation to make sure they’re up to date on all of their particular state regulations. Once they ensure they meet their state’s minimum regulation requirements, they have to pay all applicable application fees and apply within their state in order to operate.
After the original application and license has been submitted, the operator needs to obtain and proceed to submit a Registration of Money Services Business application to the Financial Crimes Enforcement Network within the Department of Treasury. This needs to be filed within 180 days of their original state application. Once everything has been filed and approved, the merchant will be required to open a merchant bank account specifically for their operation. Then, and only then, can a merchant open their money transfer operation and begin to work within the state they’ve been approved in.
Obviously, the process for money transfer operators to receive licensing in the United States is significantly more complex than it is in the United Kingdom. Between the strict regulations, the higher registration costs, and the complex business licensing process in the United States, it’s incredibly difficult for a new money transfer operation to get registered.
Competition Suffers in the United States
While it might seem that this over-regulation would prevent money laundering or unqualified operations from opening their metaphorical doors, it is actually harming the money transfer industry as a whole. The financial marketplace thrives on competition, and this competition directly benefits consumers. In the money transfer industry, whether that’s remittance, travel money exchange, or otherwise, having a globalized marketplace where there are more market players pushes more competitive exchange rates as well as lower fees.
On a broader scale, this over-regulation is harming the personal finance industry in general in the United States. By forcing state to state regulations on businesses who are attempting to do financial transactions internationally, they’re restricting the flexibility that these institutions often need to operate in the best interest of their customers.
The Future of Regulation in the United States
Although the money transfer industry, and the personal finance industry as a whole, has been suffering from stifling over-regulation in recent years, with President Donald Trump now in office things may change. Although it’s never entirely guaranteed what a new President will do when they take office, President Trump has vowed to decrease the amounts of regulation on aspiring money transfer operations and on the financial markets in general. This could, if it is enacted correctly, bring more competition and more options to the financial market, and allow more globalization in the industry. Regardless of what happens now or in the future, noting the differences in the two markets and focusing on how to improve the regulation process for all sides is key to ensuring a better marketplace for the consumer.