Money transmitter law and its implications have undergone significant changes, particularly for payroll providers. This article explores the recent developments in money transmitter law and how they specifically affect payroll services. The evolving landscape presents a substantial challenge for employers and their trusted payroll service providers, emphasizing the need for awareness and compliance.
What is the Model Money Transmission Modernization Act?
The Model Money Transmission Modernization Act (MMTMA) serves as a template for updating money transmitter laws to reflect the realities of the 21st century. The Act broadens the definition of money transmission to include payroll processing services, which are further clarified within the Act.
This change has far-reaching implications for various entities, extending beyond large payroll companies like ADP and Paychex to encompass accounting firms, CPAs, and regional payroll providers.
Understanding the Impact on Payroll Providers
Payroll providers, regardless of their size, are now subject to money transmitter regulations. Even accounting firms that offer bookkeeping services and utilize payroll processing software like Intuit may fall under the definition of a money transmitter. The specific requirements for licensure and compliance vary by state, necessitating a comprehensive understanding of each state’s regulations.
Additionally, the increased scrutiny from banking partners adds another layer of enforcement, making compliance a vital aspect for maintaining banking relationships.
The Role of Banks in Enforcing Money Transmitter Laws
While HR-related compliance typically involves government agencies, money transmitter laws heavily rely on the banking system for enforcement. Banks have a vested interest in mitigating risk, prompting them to scrutinize the compliance status of their clients, particularly concerning money transmission licensing.
Financial institutions are increasingly demanding proof of compliance or regulatory exemptions from their clients as part of their due diligence process.
Key Compliance Considerations for Payroll Providers
Acquiring and maintaining money transmitter licenses is an ongoing commitment that spans all the jurisdictions in which a payroll provider operates.
Compliance often entails audited financial statements, surety bonds, net worth requirements, and tangible net worth calculations.
Disclosures and Updates
Qualifying individuals and business owners associated with money transmission licenses must disclose and update their information accurately and promptly to avoid potential fines.
Payroll providers should be cautious about investment choices, as certain high-risk investments may be restricted. The recent adoption of the MMTMA categorically excludes Triple B-rated bonds from acceptable permissible investments.
Payroll providers must obtain foreign qualifications in jurisdictions where they engage in money transmission activities, ensuring compliance with local regulations.
Money transmitter law has experienced significant changes with the introduction of the Model Money Transmission Modernization Act.
Payroll providers, including accounting firms and regional payroll companies, must adapt to these new regulations and comply with state-specific licensing requirements. Understanding the compliance obligations and implications of money transmitter laws is crucial for maintaining business operations, banking relationships, and mitigating financial and legal risks.
Stay up to date with the evolving landscape to ensure compliance in this changing environment. Learn more about partnering with Asure to provide payroll services to your clients.
Watch our video, NACHA, Bank Secrecy Act, Money Transmitter Law: What Businesses Must Know .