TITLE 85.  STATE BANKING DEPARTMENT

CHAPTER 15.  MONEY ORDERS/SALE OF CHECKS MONEY SERVICE BUSINESSES

Notice of proposed PERMANENT rulemaking

PROPOSED RULES:

            Chapter 15.  Money Orders/Sale of Checks Money Service Businesses [AMENDED]

            Subchapter 1.  General Provisions and Definitions [NEW]

            85:15-1-1         Scope and purpose [NEW]

            85:15-1-2         Definitions [NEW]

            85:15-1-3         Exclusions [NEW]

            Subchapter 3   Money Transmission Licenses [NEW]

            85:15-3-1         License required [NEW]

            85:15-3-2         Application for license [NEW]

            85:15-3-3         Security [NEW]

            85:15-3-4         Issuance of license [NEW]

            85:15-3-5         Renewal of license [NEW]

            85:15-3-6         Net worth [NEW]

            Subchapter 5   Authorized Delegates [NEW]

            85:15-5-1         Relationship between licensee and authorized delegate [NEW]

            85:15-5-2         Unauthorized activities [NEW]

            Subchapter 7   Examinations; Reports; Records [NEW]

            85:15-7-1         Authority to conduct examinations [NEW]

            85:15-7-2         Cooperation [NEW]

            85:15-7-3         Reports [NEW]

            85:15-7-4         Change of control [NEW]

            85:15-7-5         Records [NEW]

            85:15-7-6         Money laundering reports [NEW]

            Subchapter 9   Permissible Investments [NEW]

            85:15-9-1         Maintenance of permissible investments [NEW]

            85:15-9-2         Types of permissible investments [NEW]

            Subchapter 11 Enforcement [NEW]

            85:15-11-1       Suspension and revocation [NEW]

            85:15-11-2       Suspension and revocation of authorized delegates [NEW]

            85:15-11-3       Orders to cease and desist [NEW]

            85:15-11-4       Consent orders [NEW]

            85:15-11-5       Civil penalties [NEW]

            85:15-11-6       Hearings [NEW]        

            The proposed rules will be new to Chapter 15 of Title 85 of the Oklahoma Administrative Code.  Chapter 15 had heretofore been ìreservedî for rules under the Oklahoma Sale of Checks Act (Title 6 O.S. ß 2101 et seq.).  The heading of Chapter 15 is being amended to reflect its general application to all types of ìmoney service businessesî (ìMSBsî) which may include sellers of checks, money transmitters, check cashers, etc.

            The proposed rules are a result of the enactment of the Oklahoma Financial Transaction Reporting Act (Title 6 O.S. ß 1511 et seq.), effective April 17, 2006 (the ìOFTRAî).  The OFTRA requires the registration and licensing of money service businesses and allows for the promulgation of rules by the Oklahoma State Banking Board.  The intended effect of the proposed rules is to further clarify the registration and licensing requirements to be imposed on MSBs that transmit currency, implement safety and soundness and consumer protection requirements on MSBs, and define the role of the Banking Department as the licensing agency.

            Proposed Subchapter 1 (General Provisions and Definitions) indicates that the scope of the registration and licensing requirements will be more narrow than called for by the OFTRA.  The Legislature gave the Banking Board authority to narrow or broaden the scope of the licensing requirement.  While the OFTRA imposed licensing requirements on all MSBs (defined in the OFTRA to include money transmission companies and their agents), Subchapter 1 provides that the licensing requirement will apply to money transmitter companies but not their ìauthorized delegates.î  The definitions provided in Subchapter 1 define important terms such as ìauthorized delegate,î ìlicensee,î ìmoney transmission,î and ìunsafe and unsound practice.î  Additionally, Subchapter 1 identifies ten types of entities to which the OFTRA will not apply, such as government agencies, banks (defined to include banks, trust companies, credit unions, and savings associations), and certain commodities merchants and securities broker-dealers.

            Proposed Subchapter 3 (Money Transmission Licenses) includes the requirement and procedures relating to applying for, renewing, and maintaining a license to engage in money transmission.  The contents of a license application are set forth in proposed rule 85:15-3-2.  Additionally, consumer protection requirements to maintain security (such as a surety bond) and minimum net worth (depending on the number of ìauthorized delegatesî) are set out in proposed rules 85:15-3-3 and 85:15-3-6, respectively.

With regard to licensing and renewal fees set by Subchapter 3, the Banking Boardís proposed licensing system will significantly lower the fees otherwise called for by the OFTRA.  The OFTRA required a separate license for all MSBs (which included money transmission companies and their authorized delegates).  The fee set by the OFTRA is $500 per licensee (i.e., the fee was set at the same amount called for by Title 6 O.S. ß 104(B), which is implemented by Banking Board Rule 85:10-3-21(j)). Therefore, under the fee set by the OFTRA, if a company utilized 100 authorized delegates in Oklahoma, its annual licensing fee would be at least $50,000 (100 x $500).  Under the proposed fee schedule, that same company with 100 authorized delegates would incur a one-time application fee of $3,000, an annual licensing fee of $2,000, and $50 (annually) per authorized delegate, for a total initial fee of $10,000.  Annual renewal fees for that same company would be $7,000 (because the initial application fee would not be charged in subsequent years), for a total annual fee reduction of $43,000 from that called for by the OFTRA. 

Proposed Subchapter 5 (Authorized Delegates) contains provisions that prohibit an authorized delegate (or any other person) from providing money transmission services for a person that does not have a license under the OFTRA or on behalf of a licensee whose license has been suspended or revoked.  The use of subdelegates is also prohibited.

Proposed Subchapter 7 (Examinations; Reports; Records) authorizes the Banking Commissioner or another agency authorized by the Commissioner to conduct an on-site examination of a licensee or its authorized delegates.  However, while examinations are authorized, the more common form of supervision will be through annual reports, called for by proposed rule 85:15-7-3.

If a licensee undergoes a change of control, proposed rule 85:15-7-4 requires notice to, and approval by, the Banking Commissioner.  A fee (equal to that required for a new license application, i.e., $3,000) must accompany the notice.  This is because the rule requires the Commissioner to investigate the new controlling party to assure the competence, experience, character, and general fitness of such party to operate the licensee and that the public interest will not be jeopardized by the change of control.

With respect to record keeping, proposed rule 85:15-7-5 requires both licensees and authorized delegates to maintain certain records for 3 years.  Of particular importance is the requirement that authorized delegates maintain a copy of a government-issued photo identification of a customer transmitting more than $100 per person, per day.  This is an important requirement to help deter and detect money laundering, drug trafficking, and terrorist funding.

Proposed Subchapter 9 (Permissible Investments) requires money transmitters to maintain a certain level of investments that are equal to the value of their outstanding obligations as a means of protecting individual consumers.  This is another safety and soundness requirement designed to safeguard funds received from consumers. The list of permissible investments reflects existing industry practice.  However, limitations are placed on the percentages of holdings in many of the investment categories because some permissible investments are riskier than others.  The current list of permissible investments is an attempt to balance the concerns of regulators for safety and soundness and of industry participants who have concerns about their ability to properly conduct business.  Receivables from authorized delegates are included as a category of permissible investments.

            Proposed Subchapter 11 (Enforcement) describes the circumstances under which the Commissioner may suspend or revoke a license or order a licensee to revoke the designation of an authorized delegate.  The Commissioner may also take action directly against an authorized delegate. This is an important mechanism for the prevention of money laundering and drug trafficking.  If the Commissioner determines that a violation of the OFTRA is likely to cause immediate and irreparable harm to the licensee, its customers, or the public as a result of the violation, or cause insolvency or significant dissipation of assets of the licensee, the Commissioner may issue an order requiring the licensee or authorized delegate to cease and desist from the violation. The Commissioner may also assess a civil penalty against a person that violates the OFTRA. The issuance of a cease and desist order, suspension and revocation of a license, or assessment of civil money penalties may only occur after a hearing in accordance with the state's administrative procedure act.

AUTHORITY:

            State Banking Board; 6 O.S., ß 1515.A.

COMMENT PERIOD:

Written and oral comments will be accepted during the period from December 15, 2006, through January 16, 2007, at:  Oklahoma State Banking Department, 4545 N. Lincoln Blvd., Suite 164, Oklahoma City, Oklahoma 73105, Attn: Dudley Gilbert

PUBLIC HEARING:

A public hearing will be held at 10:00 a.m. on Wednesday, January 17, 2007, at the State Banking Department, 4545 N. Lincoln Blvd., Suite 164, Oklahoma City, Oklahoma 73105.  Anyone who wishes to speak will be allowed a maximum of 5 minutes and must sign in at the door by 10:05 a.m.

REQUESTS FOR COMMENTS FROM BUSINESS ENTITIES:

            Business entities affected by these proposed rules are requested to provide the Banking Department with information, in dollar amounts if possible, about the increase in the level of direct costs, indirect costs, or other costs expected to be incurred by the business entity due to compliance with the proposed rules.  Business entities may submit this information in writing during the period from December 15, 2006, through January 16, 2007, at: Oklahoma State Banking Department, 4545 N. Lincoln Blvd., Suite 164, Oklahoma City, Oklahoma 73105, Attn:  Dudley Gilbert.

COPIES OF PROPOSED RULES:

Copies of the proposed rules may be obtained by contacting Angela Morris at the State Banking Department, 4545 N. Lincoln Blvd., Suite 164, Oklahoma City, Oklahoma 73105, (405) 521-2782.

RULE IMPACT STATEMENT:

            Pursuant to 75 O.S., ' 303(D), a rule impact statement will be prepared and available at the State Banking Department office at the above address on and after December 30, 2006.

CONTACT PERSON:

Dudley Gilbert, Legal Counsel, State Banking Department, (405) 521-2782.