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Rule Impact Statement

TITLE 85. STATE BANKING DEPARTMENT

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

A. PURPOSE OF PROPOSED RULES:

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 ìActî). The Act was enacted for the purpose of assisting in the detection and prevention of money laundering, drug trafficking, and terrorist funding. The Act requires the registration and licensing of money service businesses (MSBs) that transmit currency 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.

The Act generally requires the registration and licensing of MSBs and gives the State Banking Board authority to clarify and define by rule the application of the Act. The proposed rules are intended to apply the licensing requirements to money transmitter companies but not their authorized delegates, except as otherwise provided. Furthermore, the proposed rules create standards for approval of such licenses, such as requiring a security bond for the protection of the public.

B. CLASSES OF PERSONS WHO MAY BE AFFECTED:

Money transmission companies doing business through ìauthorized delegatesî (often referred to as ìagentsî) located in Oklahoma will be affected by the proposed rules. Authorized delegates of money transmission companies will also be affected. The Oklahoma State Banking Department has not received any information or cost impacts from any private or public entities.

C. CLASSES OF PERSONS WHO WILL BENEFIT:

The proposed rules will aid in the general detection and prevention of money laundering, drug trafficking, and terrorist funding ñ which benefits all Oklahomans. The proposed rules will also provide Oklahoma consumers protection by ensuring that money transmission companies in Oklahoma will have sufficient security (e.g. a bond) and net worth to prevent losses to Oklahoma consumers.

D. ECONOMIC IMPACT OF THE PROPOSED RULE:

Since the Act became effective (April 17, 2006), the Banking Department has identified 24 money transmitter companies doing business in Oklahoma at approximately 2,100 agent locations. The Act requires a separate license for all ìmoney service businesses,î which it defined to include money transmission companies and their agents. The Act imposed a licensing fee of $500 per licensee. Therefore, under the fee set by the Act, the total licensing fees would exceed $1,000,000 based on the current number of agent locations. For the average money transmitter with 100 Oklahoma agent locations, its annual licensing fee would be at least $50,000 (100 x $500).

However, the Act provided that the fee would be $500 ìunless a different fee is otherwise promulgated by the Board.î After consideration and estimation of the supervisory costs and expenses to be incurred by the Banking Department under the Act, the Banking Boardís proposed rules significantly reduce the fees to be incurred by money transmitters. For example, under the Banking Boardís proposed fee schedule, a money transmission company with 100 Oklahoma agents 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 to that company of $43,000 from that called for by the Act.

The fee schedule proposed by the Banking Board under the Act is as follows:

Type of Fee	Amount	Justification for the Fee
Application Fee (one-time fee)	$3,000	The proposed rules call for the Commissioner to investigate the applicantís financial condition and responsibility, financial and business experience, character, and general fitness to conduct the business of money transmission. The Application calls for significant information to be submitted by the applicant. It is estimated that the review and analysis needed to consider an application will be similar to that required for a bank merger (which requires a fee of $3,500). This application fee is also necessary to help reimburse for training of personnel in money transmitter supervision and analysis of application information.
License Fee (annual fee)	$2,000	The proposed rules call for the licensee to submit an annual renewal report with the fee for license renewal. This fee will be used for continuing education and compensation of personnel needed to review annual reports and generally supervise licensees.
Agent Fee (annual fee)	$50	The Act and proposed rules give supervisory authority to the Banking Department over approximately 2,100 money transmitter agents. This fee will provide the bulk of the annual funds needed by the Banking Department to adequately supervise the money transmission industry in Oklahoma.
On-Site Investigation/ Exam Fee	$75 per hour, per examiner	This fee would be the same as the exam fee required under the Oklahoma Sale of Checks Act (i.e., money order sales). On site exams may be conducted by the Banking Department or another state agency authorized by the Commissioner - such as the Oklahoma Bureau of Narcotics. This fee would be necessary to reimburse for examination expenses during those extraordinary times when on-site investigation or examination of a company or its agents is necessary.
Change of Control - Request for Approval	$3,000	A change-of-control application requires the same type of investigation and analysis as that required for a new license application. Therefore, the fee is the same as that required for a new license application.
Late Fee - License Renewal	After a license is suspended, $100 per day	This is a fee of last resort when a company fails or refuses to renew its license. Under the proposed rules, if a company in good faith forgets to renew, it will first receive a notice from the Commissioner, then be given a 10-day grace period before any late fee will be imposed. Additionally, in extreme circumstances, a company may request an extension of time to renew so that it may avoid the late fees. However, in the absence of good faith, this fee may be imposed and must be paid before a company may again be licensed in Oklahoma.
Civil Money Penalty	Up to $100 per day	The Act creates a criminal penalty/fine of $1,000 per day for violations. However, in the absence of criminal prosecution by a District Attorney, the proposed rules would allow the Banking Commissioner to assess a civil penalty against a person that violates the Act. This fee may be imposed only after an administrative hearing and may be more appropriate when a violation of the Act is not pursued as a criminal matter by the District Attorney.

In summary, while the proposed rules will impose fees on the money transmission industry in Oklahoma, the proposed rules are intended to significantly lower the annual fees to be paid by the money transmitter industry and impose other fees (such as an application fee, change-in-control fee, or on-site exam fee) for those specific incidences when Department personnel are required to perform additional supervisory oversight.

With respect to the economic impact on the money transmission industry as it relates to the proposed requirement to maintain a bond or other form of security, this is a standard requirement in all other states (at least 35 other states) that regulate this industry. In other words, maintenance of a bond is standard industry practice and is likely already maintained by those 24 money transmission companies already identified as doing business in Oklahoma. Therefore, the bond requirement is not considered to be a significant economic impact.

E. COSTS AND BENEFITS TO THE AGENCY AND TO OTHER AGENCIES:

The Banking Department does not anticipate any unreimbursed costs associated with the implementation and enforcement of the proposed rules. That is, the fees have been set in an amount believed by the Banking Department to be appropriate for reimbursing the Banking Department for the costs of supervision of the money transmission industry. The fees will be the sole source of revenue used to implement and enforce the Act and proposed rules. There is no anticipated effect on state revenue, as the Banking Department is a self-funded agency and will not request funds from General Revenue for purposes of enforcement of the Act and the proposed rules.

The proposed rules may also benefit the Oklahoma Bureau of Narcotics and Dangerous Drugs Control (ìOBNî) because the Act allows the Banking Department to enter into information sharing agreements with other agencies. Such an agreement has already been entered into between the Banking Department and the OBN. The proposed rules would allow the OBN to conduct an examination of a licensee or of any of its authorized delegates, which will help to identify the money transmitting agents that are properly doing business in Oklahoma in contrast to those that may be involved with illegal activity such as drug trafficking.

F. ECONOMIC IMPACT OF IMPLEMENTATION:

It is not expected that implementation of the proposed rules will have an economic impact on any political subdivision or require their cooperation in implementing or enforcing the proposed rules.

G. ADVERSE EFFECT ON SMALL BUSINESS

The proposed rules will implement and clarify the existing requirements for licensing of the money transmission industry called for by the Act. It is anticipated that the application procedure, requirements for maintaining a bond and net worth, and annual reporting requirements will have an adverse impact on small business because the money transmission industry (i.e., wire transfers of currency) was not regulated in Oklahoma prior to the Act taking effect (April 17, 2006). However, the proposed rules are intended to reduce the economic impact by significantly lowering the annual fees to be paid by the money transmitter industry when compared to the fee structure called for by the Act.

H. CONSIDERATION OF LESS COSTLY METHODS:

The Banking Department is charged with implementation and enforcement of the Act. To minimize the compliance costs, the proposed rules establish a fee structure that is less costly than that imposed by the Act. With respect to the safety and soundness requirements and consumer protection provisions of the proposed rules, no less costly or nonregulatory method was apparent for achieving the purpose of the proposed rules.

I. EFFECT ON PUBLIC HEALTH, SAFETY AND ENVIRONMENT:

The proposed rules are expected to have an impact on the public health, safety and environment by regulating, for the first time, wire transfers of currency. Wire transfers of currency have been used for the purpose of money laundering, drug trafficking and terrorist funding. The proposed rules are designed to reduce significant risks to the public health, safety and environment by allowing the Banking Department and/or law enforcement agencies to examine the operations of money transmitters and detect those that are facilitating the transfer of currency for illegal purposes.

J. EFFECT ON PUBLIC HEALTH, SAFETY AND ENVIRONMENT IF NOT IMPLEMENTED:

Prior to the Act taking effect, Oklahoma was one of few remaining states that did not regulate the money transmission industry. As a result, the OBN has discovered several money transmission operations that were facilitating the drug trafficking industry. Failure to implement the proposed rules will have a detrimental effect on the public health, safety and environment because illegal money transmission operations will be able to continue their operations without sufficient oversight.

K. DATE OF RULE IMPACT STATEMENT:

December 15, 2006

REGULATORY & COMPLIANCE