MSB Networked Supervision Aims to Streamline Regulatory and Registration Processes, Creating Single Unified Standard

On Sept. 15, 2020, the Conference of State Bank Supervisors (CSBS) announced the creation of “MSB Networked Supervision.” The MSB Networked Supervision would allow a single comprehensive regulatory exam by a joint group of state regulators for nonbank financial institutions and fintech firms, Money Services Businesses (MSBs), that would satisfy all state regulatory requirements. The initiative is introduced as part of the CSBS Vision 2020 initiative to create a networked system of nonbank licensing and supervision after the success of the “One Company, One Exam Pilot.”  Under the program, which is scheduled to begin in 2021, MSBs and fintech firms licensed in at least 40 states will no longer be subject to individual state exams assessing their compliance with different standards. Rather, the exam will be led by one state overseeing a group of examiners with cybersecurity and anti-money laundering expertise from multiple state agencies. 

Previously, fintech firms without a banking charter were subject to separate licensing and registration processes with each state’s regulators as well as examinations by each state in which they were licensed. For fintechs and MSBs operating in a digital environment, one examination per year by the states collectively is especially appealing and likely allows them to expand with less regulatory cost. The uniform exam under the MSB Networked Supervision would also likely benefit state regulators, as it would help streamline the examination process and would allow state resources to be deployed more efficiently. MSBs would likely be able to cut costs and business disruptions as they undergo one regulatory exam instead of the time and expense of multiple individual state examinations each year. Additionally, the MSB Networked Supervision exam could result in more uniform compliance standards among the various states, which may help simplify the MSBs’ compliance efforts.

The initiative comes as the Office of the Comptroller of the Currency (OCC) makes attempts to regulate fintechs through its special-purpose fintech charter allowing fintech companies to apply to the OCC for approval to operate nationwide without facing individual state regulations. The CSBS and other regulators have filed multiple lawsuits against the OCC, challenging the fintech charter arguing states historically work with the MSBs, and have better expertise and more authority to supervise MSBs and fintechs.

Guidehouse can help you deal with the changing regulatory environment. Stay tuned for more information.

Special thanks to contributing author Joseph Frenkel.

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