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DFI Interpretive Guidance for Ohio Money Transmitters

DFI Interpretive Guidance for Ohio Money Transmitters

Virtual Currency

Licensing of Cryptocurrency Businesses:

Under R.C. 1315.01(G), to “transmit money” means to receive, directly or indirectly and by any means, money or its equivalent from a person and to deliver, pay, or make accessible, by any means, method, manner, or device, whether or not a payment instrument is used, the money received or its equivalent to the same or another person, at the same or another time, and at the same or another place, but does not include transactions in which the recipient of the money or its equivalent is the principal or authorized representative of the principal in a transaction for which the money or its equivalent is received, other than the transmission of money or its equivalent.

For purposes of the Ohio Money Transmitters Act, the Division considers virtual currencies, like bitcoin, to be money or its equivalent. Therefore, if a person is holding or controlling virtual currency on behalf of another person, is acting as a third-party intermediary or exchange, or is otherwise engaging in activity that would fall within the above definition, then the Division considers the activity to be money transmission. 

PI - Funds in Transit

Receivables in Transit as Permissible Investments:

R.C. 1315.06 requires each licensee to maintain permissible investments having an aggregate market value of not less than the aggregate amount of all the licensee’s outstandings.  Permissible investments are those categories of assets set forth in R.C. 1315.06(B).

Funds in transit, specifically credit card and debit card receivables, and bank account automated clearing house (ACH) receivables, which are due to a licensee but have not been received by the licensee are not explicitly listed as an asset eligible as a permissible investment.

However, pursuant to R.C. 1315.06(B)(9), the Superintendent permits 100% of the assets described above to be included in a licensee’s Ohio permissible investment calculation as a component of the cash category.  Trade and other receivables remain excluded and shall not be used in the licensee’s permissible investment calculation.

Currency Transporter Exemption

Ohio Money Transmitter Exemption for Currency Transporters:

Under R.C. 1315.02(A), no person, regardless of the location of person, its facilities, or its agents, shall receive, directly or indirectly and by any means, money or its equivalent for transmission from a person located in this state, unless that person receiving the money or its equivalent for transmission is a licensee, an authorized delegate of a licensee that is not itself required to be licensed, or is exempt from licensing requirements. 

R.C. 1315.02(A)(1)-(10) describes specific types of business activities that are exempt from licensing requirements. Additionally, R.C. 1315.02(A)(11) provides the Superintendent of Financial Institutions the authority to determine that additional money transmitter activities are exempt from licensing requirements as the regulation of such activities would not serve the intended purposes of the regulation. 

Pursuant to R.C. 1315.02(A)(11), the Superintendent has determined that the money transmitter licensing requirements within Chapter 1315 of the Revised Code shall not apply to a person that is primarily engaged as a business in the physical transportation of money or its equivalent, such as an armored car, if the following requirements are met:

  1. This person must have no more than a custodial interest in the money or its equivalent at any time during its transportation.
  2. The transportation of money or its equivalent must be from one person to the same person at another location or to an account belonging to the same person at a depository financial institution.
  3. For purposes of this guidance, “depository financial institution” means a bank, credit union, savings and loan association, savings association, or savings bank with insured deposits organized under the laws of the United States or any state of the United States.

Delegate Due Diligence

State of Ohio Guidance for onboarding and ongoing due diligence of authorized delegates, foreign agents and counterparties of licensees.

Definitions

  • Authorized Delegate (AD) is defined by R.C. 1315.01(A)  as a person designated by a licensee under R.C. 1315.11 to receive, directly or indirectly, money or its equivalent for transmission by the licensee.
  • Foreign agents or counterparties includes foreign based entities used by a licensee to pay out funds to a beneficiary.

Background

The Division routinely conducts regulatory examinations on licensees pursuant to R.C. 1315.11. A common part of these examinations is a comprehensive review of files of ADs and foreign agents. Files are reviewed primarily to confirm compliance with R.C. 1315.11 (Conduct of Activities Through Authorized Delegate); and Title 31 Code of Federal Regulations (CFR) 1022.210 (Anti-Money Laundering (AML) Program). The Division also reviews files of foreign counterparties to confirm compliance with the Financial Crimes Enforcement Network (FinCEN) Interpretive Release 2004-1 and FinCEN Guidance FIN-2016-G001, which AML guidelines for foreign agents and counterparties. 

Ohio law requires licensees to monitor the activities of its ADs to ensure compliance with its written contract with the licensee and applicable laws concerning the business of transmitting money. This guidance is intended to outline the documentation licensees are expected to maintain to monitor its ADs. 

Additionally, federal law dictates that MSBs must develop, implement, and maintain a comprehensive AML program that is “reasonably designed to prevent the money services business from being used to facilitate money laundering and the financing of terrorist activities.” For MSBs that maintain relationships with ADs and foreign counterparties, the AML Program is expected to contain policies and procedures for the onboarding process, and ongoing and continuous monitoring of ADs and foreign counterparties. The onboarding and monitoring process should be designed to ensure the AD and foreign counterparty meets acceptable risk standards by conducting the appropriate level of due diligence on the business entity itself as well as any individuals involved in the transmission of money on behalf of the licensee. 

AD, Agent, and Foreign Counterparty Onboarding File Content

Documentation of onboarding due diligence will vary among licensees. However, examiners from the Division have identified the types of documentation expected to be maintained by licensees to support acceptable domestic agent, AD, and foreign counterparty onboarding due diligence. Files should contain the following documentation: 

  • Application for Agency Appointment 
  • Onboarding Approval Checklist 
  • Agent and AD BSA Policies and Procedures 
  • Approval by foreign regulators to conduct money transmission
    • Documentation demonstrating compliance with applicable foreign regulations 
  • Signed Agent/AD/Counterparty contract, with addendums 
  • Background on Owners and Principals 
    • Copies of Photo IDs
    • Social Security Numbers
    • Evidence of OFAC check on all key individuals
    • WorldCheck/LexusNexus/etc background check 
    • Credit Check 
    • Income Tax Returns and Proof of Filing 
  • Financial Review 
    • Yearly Financial Reports and/or Independent Audits 
    • Business Income Tax Returns 
    • Business Credit Report 
  • Funds Settlement Documents (ACH and Pre-Authorized Draft Authorization Agreement)
  • Secretary of State Filing (if applicable)
  • Legal Filings and Corporate Ownership Information Legal Documentation 
  • Initial BSA Review and Risk Rating 
  • Designation of Compliance Officer
  • Documentation of Initial BSA/AML Training 
  • Evidence of Receipt of BSA/AML Policies and Procedures 

AD, Agent, and Foreign Counterparty Ongoing Due Diligence

Documentation of periodic and ongoing due diligence will vary among licensees. However, the Division has identified the types of documentation expected to be maintained by licensees to support acceptable agent, AD, and foreign counterparty ongoing due diligence. Files should contain the following documentation: 

  • Evidence of periodic on-site and off-site reviews
    • Reports from visits/off-site reviews 
    • Findings identified
    • Recommended follow-up actions (remediation, escalation, termination)
  • Updated Risk Assessment of AD with supporting documents 
  • Sample of or test check confirmations of payouts by foreign agents and counterparties 
  • Current list of counterparties or subagents utilized by the foreign paying agent 
  • Documentation to support continuous monitoring and due diligence over subagents 
  •  Evidence of ongoing or periodic BSA/AML Training 
  • Copy of AD’s updated BSA/AML Policies and Procedures 
    • Documentation of review of the policies and procedures 
  • Documentation and information of AD’s Compliance Officer 
  • Documentation and copy of periodic independent AML review
  • Evidence of periodic Financial Review 
    • Periodic Business Credit Report 
    • Periodic financial statements
    • Yearly Financial Reports and/or Independent Audits 
  • Updated and ongoing Background on Owners and Principals 
    • Documentation of changes in ownership or other structural changes 
    • Updated Copies of Photo IDs 
    • Evidence of periodic OFAC check on all key individuals 
    • Evidence of periodic Worldcheck/LexusNexus/etc background check 
    • Evidence of periodic credit checks on key individuals, if applicable  
  • If applicable, Reports from Foreign Regulators 
  • Any New or Updated Legal Filings and Corporate Ownership Information Legal Documentation
  • Any New or Updated AD/Agent/Counterparty contracts, with addendums

File Organization – File Maintenance

As with file content, examiners from the Division have determined some file organization expectations to assist both the licensee and examiners with effective review of onboarding and ongoing due diligence documents. These standards are as follows: 

  • Documents can be provided either electronically or in paper form, although electronically is the preferred method. 
  • Documents within the files should identify those items that specifically pertain to onboarding due diligence and be separate from documents pertaining to ongoing due diligence. 
  • Within the “onboarding” and “ongoing” classifications, documents should be grouped together based on the nature of the document. For example, legal documents should be contained in a Legal sub-file; Background on Owners and Principals should be a sub-file containing the items listed above; and so on.
  • Documents should be arranged in a chronological order.