In the evolving landscape of financial regulation, the Model Money Transmission Modernization Act (MTMA) stands out as a beacon for states aiming to refine and enhance their licensing requirements for money transmitters. This model act, gaining traction across the United States, is reshaping the regulatory framework not just for traditional money transmitters but also for entities like small payroll companies and accountants who manage payroll. This article explores the MTMA, its implications for these smaller entities, and how they can navigate this new regulatory environment.

Understanding the MTMA

The MTMA is designed to standardize and streamline the licensing process for money transmitters across different states. By providing a model framework, it aims to reduce the regulatory burden on businesses, ensuring a more efficient, uniform approach to money transmission regulation. This is particularly relevant in today’s digital age, where the flow of money transcends traditional boundaries, necessitating a modernized regulatory approach.

The biggest shift coming from the MTMA is the inclusion of “payroll processing services” in the definition of “money transmission.” The change to the legal framework formalizes the growing trend of states interpreting existing money transmission laws to require payroll companies to be licensed as money transmitters. It is important to note that the definition of payroll processing services will include small payroll companies and accountants that handle payroll. Traditionally, these entities have not been the primary targets of stringent money transmission regulations, but the expanding scope of the MTMA means they must now navigate a complex regulatory landscape previously unfamiliar to them.

The Impact on Small Payroll Companies and Accountants

Increased Regulatory Scrutiny

Using the MTMA as a model, many states have crafted laws governing money transmitters, meaning small payroll companies and accountants that handle payroll are now subject to increased scrutiny and licensing requirements. Given that some states have requirements that money transmitters have AML/BSA compliance programs, independent of the federal requirements for money services business, this includes undergoing regular audits, and ensuring compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations. For many, this represents a significant shift in operational focus, requiring adjustments in how they manage and report financial transactions.

Licensing and Compliance Costs

Obtaining and maintaining the necessary licenses can be costly, both in terms of time and money. Small businesses, in particular, may find these costs burdensome, impacting their operational efficiency and profitability. This is compounded by the need to stay abreast of varying state regulations, which can differ significantly from one jurisdiction to another.

Operational Challenges

Implementing the systems and processes necessary to comply with the MTMA can pose operational challenges, especially for smaller entities that lack the resources of larger corporations. This includes the adoption of new technology for AML and KYC compliance, the development of secure money transmission processes, and the training of staff to handle regulatory requirements effectively.

Adoption of New Technology

The need for AML and KYC compliance necessitates sophisticated technology capable of conducting thorough customer due diligence and ongoing monitoring. Small businesses often operate with limited IT resources, making the integration of such advanced systems a significant challenge.

Development of Secure Transmission Processes

Creating processes that ensure the secure transmission of money is non-negotiable under many states’ interpretation of the MTMA, as well as recent changes to the NACHA Operating Rules (the rules impacting how banks transmit money through the ACH system). However, designing and implementing these systems demands both financial and technological investment, alongside a deep understanding of cybersecurity best practices—areas where smaller entities may not have in-depth expertise.

Training Staff

Ensuring that all staff are well-versed in the new regulatory requirements and understand how to apply them in their daily operations is essential. This requires comprehensive training programs that many small businesses might find difficult to develop and execute without external help.

Navigating the New Regulatory Environment

Despite the numerous challenges, there are strategies that small payroll companies and accountants can employ to navigate the new regulatory environment effectively:

Education and Awareness

Staying informed about the latest regulatory developments is crucial. This includes understanding the specific requirements of the MTMA as they apply to small payroll companies and accountants, as well as any state-specific adoptions of the model act. Since the MTMA is a model act, many states have adopted it with changes.

Seeking Expertise

Leveraging external expertise can help in navigating the complexities of licensing and compliance. This might involve consulting with legal experts in financial regulation or partnering with compliance firms specializing in money transmission laws.

Technological Solutions

Investing in technology can streamline compliance processes, making it easier to manage the requirements of the MTMA. This includes software solutions for AML and KYC compliance, secure payment processing, and efficient record-keeping.

Advocacy and Collaboration

Engaging in advocacy and collaboration with industry groups can provide a platform for small businesses to voice their concerns and influence the development of regulations that are more conducive to their operational realities.


The inclusion of small payroll companies and accountants by many states’ definition of money transmitters, using the MTMA as a model, marks a significant shift in the regulatory landscape. While this presents challenges, it also offers an opportunity for these entities to enhance their operational security and compliance. By staying informed, seeking expertise, leveraging technology, and engaging in advocacy, small payroll companies and accountants can navigate this new frontier successfully, ensuring their businesses remain compliant, efficient, and competitive in the modern financial ecosystem.

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