KENTUCKY MODERNIZES MONEY TRANSMISSION STATUTE

26 April 2006 - The Governor of Kentucky, Ernie Fletcher, signed into law on April 24, 2006, the Kentucky Money Transmitters Act of 2006 [KMTA]. The KMTA repeals the Kentucky Sale of Checks Act and requires that all persons engaged in the business of money transmission in Kentucky be either licensed as a money transmitter, or designated as an agent of a money transmitter. The bill was drafted from the model legislation outline of the Money Transmitters Regulators Association which Kentucky is a member state. The bill was further drafted with additions from other states’ money transmitters laws based on multi-state research, conversations with other state regulators, and input from the industry. The bill had the full support of the Kentucky Bankers Association, Kentucky Credit Union League, the Kentucky Retail Federation, and the national non-bank money transmitters. The KMTA requires that all licensees maintain a net worth of $500,000. The KMTA further requires that the licensee maintain a surety bond of $500,000, which can be raised to a maximum of $5,000,000 based on the discretion of the executive director of the Kentucky Office of Financial Institutions. Licensees must maintain a pool of permissive investments equal to the amount of the outstanding payment instruments. Next, licensees and agents under the KMTA will be required to comply with the reporting and recording requirements of FinCEN. Finally, the KMTA allows a licensee to share a copy of a Kentucky report of examination with a financial institution where the licensee has its account for the purpose of providing assistance with the financial institutions' compliance with the Bank Secrecy Act. The KMTA was designated emergency legislation and therefore went into effect immediately upon the signature of Governor Fletcher on April 24, 2006. However, the KMTRA provides that current licensees under the Kentucky Sale of Checks Act have three months from the effective date of the bill to file a renewal license application. All current licenses under the Kentucky Sale of Checks Act will expire at midnight on September 30, 2006 with the new licenses being issued having an effective date of October 1, 2006. The failure to license as a money transmitter or designated as an agent of a licensee can now result in state prosecution [Class C felony]. This will assist the federal government in the prosecution of money changers, a/k/a hawalas, in this state since the KMTA will now support a prosecution under 18 U.S.C. section 1960, which was strengthened in the USA Patriot Act. A copy of the bill can be downloaded at http://www.lrc.ky.gov/record/06RS/SB123/SCS1.doc. For further information, one may contact Greg A. Jennings, General Counsel, Kentucky Office of Financial Institutions, at (502) 573-3390.