Overview
If your trading platform touches customer funds in any way - holding deposits, facilitating payments between users, or handling crypto assets - you may need a Money Transmitter License (MTL) in each state where you operate.
Money transmitter licensing is one of the most complex and expensive regulatory requirements for fintech companies. With 48+ state licensing requirements, the cost and time to achieve nationwide compliance can be substantial.
⚠ Serious Consequences
Operating as an unlicensed money transmitter is a federal crime under 18 U.S.C. 1960, carrying penalties up to 5 years imprisonment. States can also pursue civil and criminal enforcement.
What is Money Transmission?
Generally, "money transmission" means receiving money from one person to transmit to another person or location. Key activities that typically trigger MTL requirements:
- Holding customer funds in accounts
- Transferring funds between users
- Exchanging currency or crypto
- Issuing or selling stored value or prepaid access
- Operating a payment platform
Activities That Usually DON'T Require MTL
- Banks and credit unions (federally regulated)
- Agents of licensed money transmitters
- Payment processors acting on behalf of payees
- Securities/commodities broker-dealers (for regulated activities)
State-by-State Landscape
| Category | States | Notes |
|---|---|---|
| MTL Required | 48 states + DC + PR | Most states require licensing |
| No MTL Requirement | Montana, South Carolina | No general MTL law |
| Highest Bond | New York, California | $500K - $2M+ bonds |
| Crypto-Specific | New York (BitLicense) | Separate crypto license |
| Sandboxes Available | AZ, UT, WY, others | Limited scope testing |
Application Process
Typical Requirements
- Application form (often via NMLS)
- Background checks on control persons
- Fingerprinting for principals
- Surety bond ($25K - $2M+ depending on state and volume)
- Net worth requirements (often $100K - $500K minimum)
- Audited financial statements
- Business plan and compliance policies
- AML/BSA program documentation
Timeline
Expect 3-12 months per state depending on complexity and state backlog. Some states (like New York) can take 18+ months.
Cost Estimates
| Cost Category | Range |
|---|---|
| Application fees (per state) | $500 - $5,000 |
| Surety bond (annual) | $1,000 - $50,000 |
| Legal fees (per state) | $5,000 - $25,000 |
| Compliance system setup | $25,000 - $100,000 |
| Annual renewal fees | $200 - $2,000/state |
| Total for nationwide | $500K - $2M+ |
Alternatives to Direct Licensing
1. Partner with Licensed Entity
Work with a licensed money transmitter (bank sponsor or MTL holder) who provides the licensed infrastructure. You operate as their agent.
2. Regulatory Sandboxes
Several states offer fintech sandboxes allowing limited operations without full licensing while testing your product.
3. Restructure Business Model
Restructure to avoid holding customer funds - partner with a bank for custody, use instant settlement, etc.
💡 NMLS System
Most states use the Nationwide Multistate Licensing System (NMLS) for MTL applications. While not a single license, it streamlines the multi-state application process.
Next Steps
- Analyze your funds flow - do you touch customer money?
- Use the State Finder to identify requirements
- Consider partnerships with licensed entities
- Budget appropriately - this is expensive
- Engage specialized counsel - MTL is complex