Connecticut Releases Advisory on Money Transmission

With the Connecticut Department of Banking’s recent advisory on money transmission and statewide licensing requirement, it’s important to understand which payments-related services are subject to money transmission regulation. 

In our experience, the most common type of transaction that triggers a licensing requirement for payroll processors are tax impound transactions where a payroll processor holds clients’ tax monies in the processor’s account until the taxes are due and makes payments on behalf of their client.

However, this is just one example; money transmission laws cover all impounded funds, not only taxes. Non-compliance with your state’s guidelines can result in cease and desist orders or fines, and in some cases, retroactive fines can be levied for non-compliant transactions dating back years.

At this point, you may be asking, what can I do as a payroll processor?

- Stop impounding client funds. With a high potential of penalties and legal headaches, a number of entities have discontinued impounding funds. While this solution is simple if you are only impounding for a few clients, it will not work for everyone.

- Become a licensed money transmitter. Attaining a money transmitter license can be costly and burdensome. If you are doing business in more than one state, you may be required to obtain a license in each of those states bringing application fees into the thousands.

- Kotapay may be able to help. Kotapay has received confirmation from several state Departments of Banking affirming our solution has allowed the processor to fall under our financial institution exemption by setting the Processor up with a For Benefit Of (FBO) account.

This solution may not cover all states and it not intended to be legal advice, please work with your legal counsel.

For more information, view our white paper or contact the Kotapay team.