Permissible investments
Permissible investments means the assets a US money transmitter may hold to cover its outstanding money transmission obligations. Under the CSBS model law, their value must always at least equal those obligations.
This page explains the rules in general terms and is not legal or regulatory advice. Check the primary source and take advice on how the rules apply to your firm.
United States: CSBS Money Transmission Modernization Act sections 10.03 and 10.04 (model approved in 2021). Binding rules depend on each state's enacted statute and its effective date.
How it works
Section 10.03 of the CSBS model law requires permissible investments, valued under US GAAP, at least equal to aggregate outstanding obligations. Those obligations include money received for transmission but not yet received by the payee or refunded. They also include unpaid payment instruments and stored value.
Section 10.04 lists eligible assets. These include cash, deposits at insured institutions, certain AAA-rated money market funds and US government obligations. Certificates of deposit, qualifying standby letters of credit and some short-dated receivables from authorized delegates also count. Caps apply, such as 50% of the total for delegate receivables under seven days old.
If the licensee becomes insolvent, permissible investments are held in trust for holders of outstanding obligations, even if commingled. State versions of the rule vary, so check each statute. Pitfalls include measuring coverage only at month end and counting assets above a cap.
Example
Illustrative example: A licensee owes $40,000,000 in outstanding obligations. It holds $25,000,000 in insured deposits, $10,000,000 in Treasury bills and $8,000,000 of delegate receivables under seven days old, spread across several delegates. Permissible investments total $43,000,000, a $3,000,000 surplus. Delegate receivables are 18.6% of the total, inside the 50% cap.
Frequently asked questions
Can stablecoins count as permissible investments?
The asset list in section 10.04 of the CSBS model law does not name stablecoins. However, Article XIII of the model (virtual currency) says virtual currency a licensee controls for customers is held for them and deemed a permissible investment, which covers obligations owed to those customers in that same virtual currency. Using stablecoins to cover fiat obligations is not provided for in section 10.04, and states differ in their enacted text and guidance, so confirm with each state regulator.
Are permissible investments the same as safeguarding?
They share a goal: protecting customers if the firm fails. The US model uses a coverage test and a statutory trust on insolvency. UK safeguarding relies on segregation or insurance, plus daily reconciliations.
Related terms
Sources
- CSBS Money Transmission Modernization Act (model law text) · Conference of State Bank Supervisors (hosted by NMLS)
- International Money Express, Inc. Form 10-K for fiscal year 2024 · U.S. Securities and Exchange Commission (EDGAR)
- Remitly Global, Inc. Form 10-K for fiscal year 2024 · U.S. Securities and Exchange Commission (EDGAR)
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