Overview
If your trading platform transmits money, exchanges currency (including cryptocurrency), or provides certain financial services, you may need to register as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN).
MSB registration is both a federal requirement (FinCEN) and often triggers state-level money transmitter licensing obligations. This guide covers the federal registration process, state licensing requirements, and exemption analysis.
⚠ Federal Crime
Operating an unregistered MSB is a federal crime under 18 U.S.C. § 1960, punishable by up to 5 years imprisonment and significant fines. States also impose civil and criminal penalties for unlicensed money transmission.
What Triggers MSB Registration?
Under 31 CFR § 1010.100, a "money services business" includes any person doing business in one or more of the following capacities:
MSB Categories (Trading Platform Context)
| Category | Definition | Common Examples |
|---|---|---|
| Money Transmitter | Accepts currency/funds/value for transmission to another location or person | Crypto exchanges, P2P platforms, payment processors |
| Currency Exchanger | Exchanges currency of one or more countries for another | Forex platforms, crypto-to-fiat exchanges |
| Currency Dealer | Deals in currency as a business (buying/selling for profit) | OTC crypto desks, forex dealers |
| Check Casher | Cashes checks for a fee (>$1,000/person/day) | Rare for trading platforms |
| Issuer/Seller of Stored Value | Issues or sells prepaid access/stored value products | Trading credits, platform tokens, gift cards |
💡 Crypto Guidance
FinCEN's 2013 guidance clarified that administrators and exchangers of convertible virtual currency are money transmitters. This includes centralized crypto exchanges, OTC desks, and certain DeFi protocols with identifiable administrators.
Checklist: Is Your Platform an MSB?
Answer these questions to determine MSB status:
⚠ If You Checked Any Box
If you answered "yes" to any question above, you likely need MSB registration unless an exemption applies. Consult with BSA/AML counsel to confirm your obligations.
Common Exemptions: When You DON'T Need MSB Registration
Several categories are excluded from MSB definition or exempt from registration:
Statutory Exemptions
| Exemption | Requirements | Application to Trading Platforms |
|---|---|---|
| Banks & Credit Unions | FDIC-insured or federally regulated depository institutions | If you're a chartered bank, you're not an MSB (different regs apply) |
| Securities Broker-Dealers | Registered with SEC; only for regulated securities activities | BD exemption ONLY covers securities transactions, NOT crypto or money transmission |
| Futures Commission Merchants | Registered with CFTC; only for futures activities | FCM exemption ONLY covers futures/derivatives, NOT spot crypto |
| Payment Processor Exemption | Only accepts/transmits funds for goods/services on behalf of merchant payees | If you ONLY process payments for merchants (not P2P), may qualify |
| Armored Car Service | Only provides physical currency transport | Not applicable to digital platforms |
| Agents of MSBs | Operate as authorized agent of a registered MSB | If partnering with licensed MSB as their agent, MSB handles registration |
Exemption Analysis Examples
✔ Likely Exempt: Pure Securities Broker-Dealer
Scenario: You operate a platform that only trades SEC-registered securities (stocks, bonds, ETFs). You're registered as a broker-dealer with FINRA.
Analysis: Securities BD exemption applies. You're NOT an MSB for these activities. However, if you add crypto trading or money transfer features, those activities would trigger MSB obligations.
✘ NOT Exempt: Crypto Exchange
Scenario: You operate a centralized crypto exchange where users buy/sell BTC, ETH, and other cryptocurrencies with USD.
Analysis: You are a money transmitter and currency exchanger. No exemptions apply. You MUST register as an MSB with FinCEN and obtain state money transmitter licenses.
⚠ Partial Exemption: Hybrid Platform
Scenario: You're a registered BD offering stocks AND cryptocurrency trading.
Analysis: BD exemption covers stock trading only. Crypto activities require MSB registration. You need BOTH BD registration (for securities) AND MSB registration (for crypto).
Federal FinCEN Registration Process
If you determine you're an MSB without an applicable exemption, you must register with FinCEN within 180 days of commencing operations.
Step-by-Step Registration
Visit https://bsaefiling.fincen.treas.gov/ and create an account. This is a free system maintained by FinCEN.
Registration of Money Services Business form. Required information includes:
- Legal business name and DBA names
- Business address and physical locations
- Type of MSB activities (check all that apply)
- Ownership information (names, addresses, DOB for owners with 10%+ ownership)
- Agent information (if operating through agents)
File through BSA E-Filing system. Submission is immediate and electronic.
You'll receive an acknowledgment with a BSA ID number. Keep this for all future FinCEN filings.
MSB registration expires every 2 years. You must re-register by December 31 of each renewal year.
FinCEN Form 107 Key Sections
| Section | Information Required |
|---|---|
| Part I: Type of Filing | Initial registration, renewal, or amendment |
| Part II: MSB Information | Legal name, DBA, EIN, business address, phone, email |
| Part III: MSB Activities | Check boxes: money transmitter, currency exchanger, check casher, etc. |
| Part IV: Branch/Agent Locations | Number of US branches and agents (if applicable) |
| Part V: Ownership Information | All owners with 10%+ equity (name, address, DOB, SSN/TIN) |
💡 No Filing Fee
FinCEN MSB registration is completely free. Be wary of third-party services charging excessive fees to "file for you" - the process is straightforward and can be completed directly.
State Money Transmitter Licensing
Federal MSB registration is just the beginning. Most states require separate money transmitter licenses to operate in that state.
State-by-State Licensing Matrix
| Requirement Level | States | Notes |
|---|---|---|
| Full MTL Required | 48 states + DC + Puerto Rico | Nearly all states require licensing for money transmission |
| No MTL Requirement | Montana, South Carolina | No general money transmitter licensing law |
| Special Crypto License | New York (BitLicense) | Separate crypto-specific license beyond MTL |
| Conditional Licenses | Various states | Some states offer limited licenses for specific activities |
| Regulatory Sandboxes | AZ, UT, WY, NV, KY, HI, FL | Limited testing period without full license |
Typical State License Requirements
- Application via NMLS - Nationwide Multistate Licensing System (most states)
- Background checks - FBI fingerprinting for all control persons
- Surety bond - Ranges from $25,000 to $2,000,000+ depending on state and transaction volume
- Minimum net worth - Typically $100,000 to $500,000 minimum tangible net worth
- Permissible investments - Maintain qualifying liquid assets equal to outstanding payment obligations
- AML/BSA program - Written policies and procedures
- Audited financials - Annual audited financial statements by CPA
- Business plan - Detailed description of operations and compliance
- Application fees - $500 to $5,000+ per state
Expensive States for MTL Compliance
| State | Key Challenges | Typical Timeline |
|---|---|---|
| New York | BitLicense for crypto; extensive due diligence; $500K+ bond; strict ongoing compliance | 12-24 months |
| California | High bond requirements; extensive document requests; strict examinations | 6-12 months |
| Texas | Detailed application; high net worth requirements; thorough vetting | 6-12 months |
| Illinois | Strict permissible investments rules; high bond; extensive reporting | 6-9 months |
| Washington | Complex regulations; frequent exams; strict enforcement | 4-8 months |
Federal vs State Registration Comparison
| Aspect | Federal (FinCEN) | State MTL |
|---|---|---|
| Registration Scope | Nationwide (one registration) | State-by-state (48+ separate licenses) |
| Filing Fee | $0 (free) | $500 - $5,000 per state |
| Bond Requirement | None | $25,000 - $2,000,000+ per state |
| Timeline | Immediate (electronic filing) | 3-24 months per state |
| Renewal | Every 2 years | Annually (most states) |
| Examination | Rare (typically enforcement-driven) | Regular state examinations |
| Total Cost (Nationwide) | $0 | $500,000 - $2,000,000+ (all states) |
⚠ Both Required
Federal MSB registration does NOT satisfy state licensing requirements. You need BOTH FinCEN registration AND state money transmitter licenses in every state where you operate.
Registration Timeline and Costs
Federal FinCEN Registration
| Component | Timeline | Cost |
|---|---|---|
| BSA E-Filing account setup | 1-2 hours | $0 |
| Complete Form 107 | 2-4 hours | $0 |
| Filing and confirmation | Immediate | $0 |
| Legal counsel (optional but recommended) | - | $2,000 - $5,000 |
| Total Federal Registration | 1 day - 1 week | $0 - $5,000 |
State MTL Licensing (Per State Average)
| Component | Timeline | Cost |
|---|---|---|
| Application preparation | 2-4 weeks | - |
| Application fee | - | $500 - $5,000 |
| Surety bond (annual premium) | - | $1,000 - $50,000 |
| Background checks/fingerprinting | 2-4 weeks | $200 - $500 |
| Legal fees | - | $5,000 - $25,000 |
| State review and approval | 3-12 months | - |
| Annual renewal fee | - | $200 - $2,000 |
| Total Per State (Initial) | 4-14 months | $10,000 - $80,000 |
Nationwide Licensing Costs (All 48 States)
| Cost Category | Low Estimate | High Estimate |
|---|---|---|
| Application fees (48 states) | $24,000 | $240,000 |
| Surety bonds (annual premiums) | $48,000 | $2,400,000 |
| Legal fees (all states) | $240,000 | $1,200,000 |
| Compliance infrastructure | $50,000 | $200,000 |
| Ongoing compliance staff | $100,000/year | $500,000/year |
| Total First Year | $462,000 | $4,540,000 |
⚠ Plan for Multi-Year Timeline
Achieving nationwide money transmitter licensing typically takes 2-4 years due to staggered state approvals and complex compliance buildout. Budget accordingly and consider phased state rollout.
Ongoing Compliance Obligations
MSB registration is not a one-time event. You have ongoing obligations at both federal and state levels.
Federal FinCEN Obligations
- Implement AML Program - Written policies, designated compliance officer, training, independent testing
- File SARs - Suspicious Activity Reports for transactions over $2,000 (suspicious activity)
- File CTRs - Currency Transaction Reports for cash transactions over $10,000
- Maintain KYC/CIP - Customer Identification Program and identity verification
- BSA Recordkeeping - Maintain records for 5 years (transactions, SARs, CTRs, customer files)
- OFAC Screening - Screen customers/transactions against sanctions lists
- Renew Registration - File updated Form 107 every 2 years
- Report Material Changes - Within 180 days of ownership changes, location changes, etc.
State MTL Obligations
- Annual renewal - Submit renewal application and fees each year
- Quarterly/annual reports - Transaction volume, permissible investments, financial condition
- Maintain surety bond - Keep bond in force; increase if volume grows
- Permissible investments - Maintain qualified assets equal to outstanding obligations
- State examinations - Respond to periodic regulatory exams and audits
- Audited financial statements - Annual CPA audit and filing
- Report material changes - Change of control, new locations, product changes
- Authorized representatives - Maintain agent/branch registrations
Alternatives to Direct MSB Registration
Given the cost and complexity, many platforms explore alternatives:
1. Partner with Licensed MSB or Bank
How it works: Partner with an entity that already has FinCEN registration and state MTL licenses. You operate as their agent or service provider.
Pros: Avoid direct licensing costs; faster time to market; leverage partner's compliance infrastructure
Cons: Revenue sharing; less control; partner risk; still need robust compliance program
Examples: Banking-as-a-Service (BaaS) providers, licensed MSB platforms, sponsor banks
2. Restructure Business Model
How it works: Redesign product to avoid money transmission triggers (e.g., never hold customer funds, use instant settlement, peer-to-peer only architecture)
Pros: Avoid MSB obligations entirely; lower regulatory burden
Cons: May limit product features; engineering complexity; may not be viable for all models
Examples: Pure order-matching platforms (no custody), direct bank connection models
3. Use Regulatory Sandbox
How it works: Several states offer fintech sandboxes allowing limited operations without full licensing for testing period (typically 2 years, up to 10,000 customers)
Pros: Test product before full licensing; deferred compliance costs; state cooperation
Cons: Limited scope; temporary; must apply for full license to scale; not available nationwide
States with sandboxes: Arizona, Utah, Wyoming, Nevada, Kentucky, Hawaii, Florida, West Virginia
4. Obtain Only Critical State Licenses
How it works: Initially license in only your home state and largest target markets rather than nationwide
Pros: Reduced initial cost; focus compliance resources; expand as revenue grows
Cons: Limited addressable market; still expensive; may need geofencing
Strategy: Start with 5-10 states representing 50%+ of US population
Next Steps
Use the checklist in this guide. Map your money flows. Identify which MSB categories apply to your activities. Document your analysis.
If you qualify for BD, FCM, payment processor, or other exemptions, document the basis. Consult counsel to confirm exemption applicability.
Complete Form 107 via BSA E-Filing within 180 days of commencing MSB activities. This is free and immediate.
Implement written AML program with required five pillars. Appoint compliance officer. Establish KYC/CIP procedures. Set up SAR filing capability.
Determine which states you'll operate in. Research each state's MTL requirements. Budget for multi-year licensing timeline and significant costs.
Evaluate BaaS providers, MSB sponsors, or bank partnerships. Compare direct licensing costs vs partnership economics.
MSB and MTL compliance is highly technical. Retain counsel experienced in BSA/AML, money transmitter licensing, and fintech regulation.