Subchapter F. ACCESS TO INFORMATION

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), adopts the repeal of §4.3, concerning reporting and recordkeeping, §4.4, concerning change of location, §4.6, concerning exemptions, §4.10, concerning mobile currency business, and §4.11, concerning fees. The repeal of §§4.3, 4.4 and 4.10 is adopted without changes to the proposal as published in the May 12, 2006, issue of the Texas Register (31 TexReg 3768). The repeal of §4.6 and §4.11 is adopted without changes to the proposal as published in the June 23, 2006, issue of the Texas Register (31 TexReg 4890).

Prior to September 1, 2005, Texas law regulated money services businesses under Finance Code, Chapter 152 (Sale of Checks Act) and Chapter 153 (Currency Exchange Act). During the 79th Regular Session, the Texas Legislature enacted the Money Services Act (Act of May 26, 2005, 79th Leg., R.S., H.B. 2218, §1), effective September 1, 2005. The Money Services Act (MSA), codified as Finance Code, Title 3, Subtitle E, Chapter 151, consolidates the regulation of persons engaged in the money transmission and currency exchange businesses in Texas into one statute and repeals the Sale of Checks and Currency Exchange Acts.

Chapter 4 consists of the administrative rules the commission previously adopted to implement the repealed Currency Exchange Act. The commission is adopting new regulations under the MSA, which are located in Texas Administrative Code, Title 7, Chapter 33 (Money Services Businesses). As the commission adopts new Chapter 33 sections, the commission is repealing existing sections of Chapter 4. Ultimately, all Chapter 4 sections will be repealed.

The commission is repealing §§4.3, 4.4, 4.6, 4.10, and 4.11 because the sections are obsolete. As explained in this preamble, the substance of these sections is incorporated into or rendered unnecessary by the MSA or is included in new sections of Chapter 33 that the commission is simultaneously adopting in this issue of the Texas Register .

Section 4.3 establishes reporting and recordkeeping requirements under the repealed Currency Exchange Act. The reporting and recordkeeping requirements that apply under the MSA are set out in Finance Code, §§151.602-151.604, and adopted new 7 TAC §§33.31, 33.33, 33.35, and 33.37.

Section 4.4 requires a license holder to notify the department before changing its business location. The department no longer requires that a location change receive prior approval. Further, a license holder provides the department with a list of locations in its annual renewal report. The department considers this reporting to be sufficient for purposes of documenting the locations at which a license holder does business.

Section 4.6 concerns exemptions from licensing under the repealed Currency Exchange Act. The exclusions and exemptions from the licensing requirements of the MSA are set out in the Finance Code, §§151.003, 151.302(c), and 151.501(d), and adopted new 7 TAC §33.7.

Section 4.10 requires a license holder to obtain a separate license from each location served by a mobile currency unit. The MSA allows a license holder to conduct business at multiple locations and does not require a separate license for each location.

Section 4.11 establishes the fees a person must pay to obtain and maintain a license under the repealed Currency Exchange Act. Fees, assessments and reimbursements imposed under the MSA are set out in adopted new 7 TAC §33.27.

The commission received no comments regarding the proposed repeal of these sections.

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), adopts new §33.7, concerning a currency exchange exemption for persons that engage in currency exchange in connection with retail, wholesale or service transactions, §33.27, concerning fees, assessments and reimbursements, §33.31, concerning currency exchange recordkeeping, §33.33, concerning currency exchange receipts, §33.35, concerning money transmission recordkeeping, and §33.37, concerning money transmission receipts.

The commission adopts new §33.7 and §33.27 without changes to the proposed text as published in the June 23, 2006, issue of the Texas Register (31 TexReg 4982). New §§33.31, 33.33, 33.35, and 33.37 are adopted with minor nonsubstantive changes to the proposed text as published in the May 12, 2006, issue of the Texas Register (31 TexReg 3769). The text of adopted new §§33.31, 33.33, 33.35, and 33.37 will be republished.

The new sections are adopted under the recently enacted Money Services Act (Act of May 26, 2005, 79th Leg., R.S., H.B. 2218, §1) (MSA), which took effect September 1, 2005, and is codified as Finance Code, Title 3, Subtitle E, Chapter 151. The MSA regulates persons that engage in money services businesses in Texas, specifically the money transmission and the currency exchange businesses. Prior to the enactment of the MSA, Texas law regulated money services businesses under Finance Code, Chapter 152 (Sale of Checks Act), and Chapter 153 (Currency Exchange Act). The MSA consolidates the regulation of these businesses into one statute and repeals the Sale of Checks and Currency Exchange Acts.

The adopted new sections implement and clarify the MSA. As explained in this preamble, the adopted new sections replace 7 TAC §§29.2, 29.11, 4.3, 4.6, and 4.11, regulations that the commission previously adopted under the repealed Sale of Checks and Currency Exchange Acts and is simultaneously repealing in this issue of the Texas Register . The adopted new sections retain much of the substance of the repealed sections but reflect and conform to the provisions of the MSA.

Adopted new §33.7 relates to the exemption from currency exchange licensing provided for in §151.502(d) of the MSA, which authorizes the Banking Commissioner (commissioner) to exempt a person that exchanges currency in connection with a retail, wholesale or service provider transaction if the person satisfies certain eligibility requirements. The new section clarifies the scope and requirements of the statutory exemption and replaces repealed 7 TAC §4.6.

Adopted new §33.27 establishes fees, assessments and reimbursements (fees). The new section implements §151.102(a)(5) of the MSA, which authorizes the commission to establish fees and costs that are equitable and provide for recovery of the department's costs related to the regulation of money services businesses. The new section also implements specific sections of the MSA that authorize the commission to adopt fees and costs related to certain filings and processes. The new section replaces repealed 7 TAC §4.11 and §29.2.

The commission has successfully avoided fee increases for a number of years. Despite inflation and rising program costs, the amount of annual assessments charged license holders under the repealed Sale of Checks Act has not increased since 1996, and the amount charged license holders under the repealed Currency Exchange Act since 2002. However, the department has determined that the fees the commission previously established in repealed 7 TAC §4.11 and §29.2 are insufficient to pay for the department's MSA regulatory costs and must be increased to satisfy the statutory mandate that the MSA be self-funding. Therefore, as a general matter, license holders and license applicants will pay more in fees under adopted new §33.27 than they have paid under the repealed sections.

The increase in fees is necessitated by several factors. The primary factor is the loss, effective September 1, 2005, of federal grant money the department has received for the past ten years. Additionally, the department has been required to expand its examination staff. Examinations are more complex and require additional time to complete. Department examiners must verify compliance with a number of state and federal laws and regulations applicable to money services businesses. More examiners are needed to complete examinations within the time parameters established by the department's statutorily mandated performance measures.

Based upon the department's experience in processing and acting upon applications, renewals and other approvals required in connection with the regulation of money services businesses, and the number of license holders and the department's experience in regulating them, the commission believes that the fees established under adopted new §33.27 provide the funding required to administer and enforce the MSA and do so in a manner that is fair and equitable to all license holders. Because the MSA does not allow the department to retain fee revenue in excess of that required for regulatory purposes, the adopted new section authorizes the commissioner to reduce a fee if the commissioner determines that a lesser amount is sufficient.

Adopted new §33.27(a), (b), and (c) identify to whom the new section applies, define terms, and reference the MSA provisions that authorize the adopted fees.

Adopted new §33.27(d) establishes the fee an applicant for a new money transmission or currency exchange license must pay and provides that the applicant may also be required to pay certain additional fees and investigative costs. Subsection (d) also sets the fee an applicant for a temporary money transmission license must pay in addition to the new license application fees.

Adopted new §33.27(e) establishes the fees a license holder must pay to renew its money transmission or currency exchange license.

Adopted new §33.27(f) establishes the fees a license holder must pay in connection with a proposed change of control of the license holder's business or to obtain the department's prior determination regarding a possible "person in control" or whether a change of control application is required.

Adopted new §33.27(g) establishes the fees a person must pay related to an investigation of the person the commissioner considers necessary or appropriate to administer and enforce the MSA.

Adopted new §33.27(h) establishes the annually assessed examination fee (annual assessment) a license holder must pay. The amount of the annual assessment is based on the total annual dollar amount of the license holder's money transmission or currency exchange transactions in Texas, the basis that was used for calculating assessments under repealed 7 TAC §4.11 and §29.2. The adopted new subsection retains the former assessment structure by establishing "ranges" of dollar amounts and a corresponding assessment for each, but provides for more "ranges" to better and more closely tie the assessment to the license holder's dollar volume of business. Finally, the new subsection caps the annual assessment a license holder may be required to pay at $15,000.

Adopted new §33.27(h) also carries over the substance of repealed 7 TAC §4.11 and §29.2 with respect to costs related to additional examinations and examination travel. The annual assessment provided for under the subsection includes the cost of one examination and the associated travel expenses for an on-site examination conducted in Texas. The new subsection establishes the per day fee a license holder must pay if an additional examination is required during a one year period because of the license holder's failure to comply with the MSA, commission rules, or a department directive and requires payment of associated travel costs. Under the adopted new subsection, the per day fee and travel expense payment also applies to new license holders that have not yet filed an annual report and for whom the information necessary to calculate the first annual assessment is unavailable, as well as to the on-site examination of a license holder's authorized delegate. Finally, the new subsection requires a license holder to pay the department's travel expenses related to out-of-state examinations.

Adopted new §33.27(i) establishes the time and method of payment for the fees and requires license holders to pay annual assessments and renewal fees by ACH debit.

Adopted new §33.27(j) authorizes the commissioner to temporarily reduce a currency exchange license holder's annual assessment if the license holder is experiencing financial difficulties and certain requirements are met. The new subsection also establishes procedures for requesting the temporary reduction.

Adopted new §§33.31, 33.33, 33.35, and 33.37 establish recordkeeping and receipt requirements for currency exchange and money transmission transactions conducted by license holders and their authorized delegates, as applicable (collectively license holders). The new sections replace repealed 7 TAC §29.11 and §4.3.

Under federal law, money services businesses must comply with 31 CFR Part 103, the regulations adopted by the United States Department of Treasury's Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy Act (collectively BSA) to combat money laundering and other financial crimes. These federal regulations specify the customer and transaction information that must be obtained and recorded in connection with certain types of transactions.

Repealed 7 TAC §29.11 and §4.3 required Texas sale of checks and currency exchange license holders to obtain and maintain certain information that is not required to be recorded under the BSA (additional information). In developing new MSA recordkeeping and receipt requirements, the commission carefully considered whether to continue to require license holders to obtain and record this additional information. The commission received input from and worked closely with the money services industry, the Texas Attorney General's Office, and FinCEN regarding this issue.

The commission recognizes the need to balance the respective interests of law enforcement and the money services industry in a manner that is reasonable and appropriate and believes that the adopted new sections achieve that objective. The new sections require license holders to obtain and record certain additional information that the commission has determined is necessary for regulatory and law enforcement purposes. However, the new sections eliminate unnecessary requirements, provide greater flexibility regarding record retention and allow license holders to maintain the information in a manner consistent with their business practices. The new sections clarify requirements and conform them to the reporting and recordkeeping requirements in §§151.602 - 151.604 of the MSA and the department's actual practice.

As detailed in this preamble, the currency exchange and money transmission recordkeeping and receipt requirements are set out in four separate sections. The recordkeeping requirements are categorized and organized in a manner that is consistent with and reflects the organization of the BSA. The adopted new sections identify the requirements that apply to specific types and amounts of transactions, and also make clear the extent to and manner in which recordkeeping requirements under the Money Services Act differ from BSA requirements.

Adopted new §33.31, related to currency exchange recordkeeping, specifies the information and records a license holder must obtain and record related to currency exchange transactions. Subsection (a) clarifies to whom the section applies. Subsection (b) sets out general recordkeeping requirements and permits the records to be retained in a log or by any other means that allows the information to be readily retrieved. Subsection (c) identifies specific records that must be kept for currency exchange transactions depending upon the amount of the exchange. Subsection (d) authorizes the banking commissioner to waive a requirement of §33.31 in appropriate circumstances.

Adopted new §33.33, related to currency exchange receipts, requires a license holder to issue or obtain a receipt in connection with certain currency exchange transactions. Subsection (a) clarifies to whom the section applies. Subsection (b) sets out specific requirements related to receipts for currency exchange transactions in an amount over $1,000. The subsection identifies the information the receipt must include and also requires that the receipt be linked to the exchange transaction records required under adopted new §33.31. Finally, the subsection establishes the receipt requirements applicable to exchange transactions conducted with other financial institutions.

Adopted new §33.35, related to money transmission recordkeeping, specifies the information and records a license holder must obtain and record related to money transmission transactions. Subsection (a) clarifies to whom the proposed new section applies and subsection (b) sets out general recordkeeping requirements, including a provision that permits the records to be retained in a log or by any other means that allows the information to be readily retrieved. Subsections (c), (d), (e) and (f) identify specific types of money transmission transactions that are subject to the MSA and the recordkeeping requirements that apply to each type of transaction, and subsection (g) authorizes the banking commissioner to waive a recordkeeping requirement in appropriate circumstances.

With respect to specific types of money transmission transactions, adopted new §33.35(c) sets out the requirements that apply to transactions involving the issuance or sale of travelers checks, money orders, or similar payment instruments to one purchaser for $3,000 or more in currency.

Adopted new §33.35(d) establishes recordkeeping requirements related to transactions for the issuance or sale of stored value cards, devices, or services for currency or an instrument payable in currency. The subsection notes that FinCEN has not yet adopted specific stored value recordkeeping requirements under the BSA, but that MSA license holders will be required to comply with applicable federal requirements as and when such requirements are adopted.

Adopted new §33.35(e) sets out the recordkeeping requirements that apply to transmission of funds transactions. Paragraph (1) explains the transactions to which the subsection's requirements generally apply and excludes transmission of funds transactions that are not subject to the BSA regulations. Paragraphs (2), (3), and (4) provide additional clarification.

Paragraph (5) of §33.35(e) specifies the information that a license holder must obtain and the records a license holder must keep with respect to transmission of funds transactions of $3,000 or more. Paragraph (5) follows the organization and format of the BSA and groups the requirements into subparagraphs according to whether a license holder's customer is the sender who orders the transmission or the recipient who receives payment of the transmitted funds, and, further, whether the transaction is an in-person transaction. Each subparagraph identifies the specific BSA section that must be satisfied, clarifies the department's customer identification and verification documentation requirements to the extent the requirements differ from the BSA, and lists the additional, non-BSA information that must be recorded.

Paragraph (6) of §33.35(e) sets out the records required for transmission of funds transactions less than $3,000.

Adopted new §33.35(f) sets out the recordkeeping requirements for transactions involving the transportation of currency or instruments payable in currency. The subsection clarifies to whom it applies, sets out general requirements, and also establishes specific recordkeeping requirements based upon the amount transported and whether a license holder's customer sends or receives the transported currency or instrument(s).

Adopted new §33.37, related to money transmission receipts, requires a license holder to issue a receipt for each transmission of funds transaction and currency transportation transaction subject to the recordkeeping requirements of adopted new §33.35(e) or (f) regardless of the amount of the transaction. Subsection (a) clarifies to whom the section applies. Subsection (b), which explains and establishes the specific receipt requirements, defines "receipt" in a manner that applies to electronic or online transactions, in addition to in person transactions. The subsection identifies the information the receipt must include and also requires that the receipt be linked to the exchange transaction records required under adopted new §33.33(e) and (f). Finally, subsection (b) provides that a license holder may use one receipt to satisfy the requirements of both new §33.37 and Finance Code, Chapter 278.

The commission received no comments in response to the published notice regarding proposed §§33.7, 33.27, 33.31, 33.33, and 33.37.

The commission received comments regarding proposed §33.35, relating to money transmission recordkeeping, from an authorized delegate of a money transmission license holder. As a general matter, the commenter asked for clarification with respect to several §33.35 provisions. The commission believes that, with one exception, the requested clarifications are unnecessary.

The commenter first asked for clarification regarding where information required under §33.35(b)(1)(A) and (2)(A) must be maintained. The department notes that the location at which information related to a transaction conducted by a license holder's authorized delegate must be maintained depends upon the requirements of the BSA and the agreement between the license holder and the authorized delegate. The department's primary concern regarding the location of information is that the information be readily available to the department for examination and other regulatory purposes, which is addressed in §33.35(b)(3). Further clarification is unneccessary.

The commenter next asked whether an electronic record is sufficient for purposes of §33.35(b)(2), which allows information to be retained in a log or "by another means of retention that allows the information to be readily retrieved." The commission believes that clarification is unnecessary because §151.602(b) of the MSA specifically authorizes records to be maintained in electronic form.

The commenter also asked for clarification regarding the §33.35(b)(2)(B) requirement that records be made available to the department "within a reasonable period of time", specifically the meaning of "reasonable". Absent unusual circumstances, the department's practice is to provide at least thirty days notice of a records request. However, the meaning of the word "reasonable", a consistently used regulatory term, depends upon and may vary with the circumstances, for example, the size of the business, the type and volume of records requested, and the reason for a particular request. The commission therefore declines to revise the provision to provide a specific time period and does not believe that further clarification of the term is necessary.

The commenter next asked whether a vendor's bill pay system qualifies as a point-of-sale system for purposes of §33.35(e)(1), which excludes a funds transfer made through a point-of-sale system from the section's recordkeeping requirements. The point-of-sale exclusion under §33.35(e)(1) is intended to exclude the same type of transaction excluded from the recordkeeping requirements of the BSA by the definition of "transmittal of funds" in 31 CFR 103.11(j). Therefore, if a vendor's bill pay system qualifies as a point of sale system under 31 CFR 103.11(j), the bill pay system also qualifies under §33.35(e)(1). The commission has revised §33.35(e)(1) to specifically reference 31 CFR 103.11(j) and thereby clarify the scope of the exclusions.

The commenter next asked whether a state driver's license constitutes acceptable identification under §33.35(e)(4). Paragraph (4) specifies the "identifying number" documentation that is acceptable for purposes of establishing foreign nationality or residence when a customer has no social security or employee identification number or passport number and is an alien. Clearly, a state driver's license does not evidence a person's foreign nationality or residence, and thus does not constitute acceptable documentation as an "identifying number". The commission does not believe that further clarification is necessary.

The commenter's final request for clarification asked whether §33.35(e)(6), which specifies the records that must be maintained for transmission transactions in an amount less than $3,000, applies to money orders. Section 33.35(c), (d), (e) and (f) identifies specific types of money transmission transactions that are subject to the MSA and the recordkeeping requirements that apply to each type of transaction. Subsection (c) sets out the requirements that apply to transactions involving the issuance or sale of travelers checks, money orders, or similar payment instruments. Subsection (e) applies to transmission of funds transactions. Money orders are clearly subject to subsection (c) and not subsection (e), and the commission does not believe that clarification is necessary.

In addition to requesting that the commission clarify certain provisions, the commenter objected to the requirement in §33.35(e)(3) that a license holder or authorized delegate ask a customer if the customer is conducting the transaction on behalf of another person. The commenter stated that the requirement is overly burdensome and may have an adverse business impact. The commission notes that the BSA and repealed 7 TAC §29.11 and §4.3 require that certain information be recorded in connection with an "on behalf of" transaction, a transmission that a customer conducts on behalf of another. The duty to ask, although not expressly stated in the regulations, has thus always existed. The commission believes the provision is necessary to insure compliance with the "on behalf of" recordkeeping requirement.

Finally, the commenter asks for an exemption from the recordkeeping requirements of §33.35 because the commenter is an agent and does not directly provide the services covered by the rule. The commission does not believe that a proposed rule comment is an appropriate vehicle for requesting an exemption and suggests that the commenter write the department and explain why a waiver under §33.35(g) should be granted. However, the commission notes that the BSA and §33.35 apply to license holders and persons conducting business on their behalf as authorized delegates or agents. As a general matter, it is necessary for license holders and their authorized delegates to be subject to and comply with the recordkeeping requirements to achieve the purposes of the BSA and the Money Services Act.

In addition to the clarification made to §33.35(e)(1) to specifically reference 31 CFR 103.11(j), certain minor, nonsubstantive changes have been made to the text of adopted new §§33.31, 33.33, 33.35, and 33.37 to achieve internal consistency and consistency with the Chapter 33 sections the commission has previously adopted. Specifically, the word "the" is deleted from citations to the Finance Code, the adopted sections cite to "Finance Code, Chapter 151" rather than to the "Money Services Act", and lower case "d" is substituted for capital "D" in references to the department. Additionally, several typographical errors are corrected.

The fees provided in adopted new §33.27 are established by the commission and not mandated by the Legislature.