Code of Maryland Regulations
Title 09 - MARYLAND DEPARTMENT OF LABOR
Subtitle 03 - COMMISSIONER OF FINANCIAL REGULATION
Chapter 09.03.14 - Money Transmitters
Section 09.03.14.18 - Prudential Standards

Universal Citation: MD Code Reg 09.03.14.18

Current through Register Vol. 51, No. 19, September 20, 2024

A. Financial Responsibility.

In considering the financial responsibility of a licensee, the Commissioner may consider the amount of tangible net worth a licensee maintains in excess of the statutory requirement under Financial Institutions Article, §12-406, Annotated Code of Maryland.

B. Surety Bonds.

A licensee may exceed the maximum required bond amount in Financial Institutions Article, §12-412(d), Annotated Code of Maryland.

C. Maintenance of Permissible Investments.

(1) A licensee shall maintain at all times permissible investments in accordance with Financial Institutions Article, §12-418(a), Annotated Code of Maryland.

(2) Except for permissible investments enumerated in §D(1) of this regulation, the Commissioner, with respect to any licensee, may by order limit the extent to which a specific investment maintained by a licensee within a class of permissible investments may be considered a permissible investment, if the specific investment represents undue risk to customers, not reflected in the market value of investments.

(3) Permissible investments, even if commingled with other assets of the licensee, are held in trust for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations. Permissible investments held in trust for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations are considered held in trust for the benefit of those purchasers and holders on a pro rata and equitable basis in accordance with statutes pursuant to which permissible investments are required to be held in Maryland, and other states, as applicable.

(4) Any trust established under §C(3) of this regulation shall be terminated upon extinguishment of all of the licensee's outstanding money transmission obligations.

(5) The Commissioner may allow other types of investments that the Commissioner determines are of sufficient liquidity and quality to be a permissible investment. The Commissioner may participate in efforts with other state regulators to determine that other types of investments are of sufficient liquidity and quality to be a permissible investment.

D. Types of Permissible Investments.

(1) The following investments meet the definition of permissible investments pursuant to Financial Institutions Article, §12-401(r), Annotated Code of Maryland:
(a) Cash (including demand deposits, savings deposits, and funds in those accounts held for the benefit of the licensee's customers in a federally insured depository financial institution) and cash equivalents including ACH items in transit to the licensee and ACH items or international wires in transit to a payee, cash in transit via armored car, cash in smart safes, cash in licensee-owned locations, debit card or credit card-funded transmission receivables owed by any bank, or money market mutual funds rated "AAA" by S&P, or the equivalent from any eligible rating service;

(b) Certificates of deposit or senior debt obligations other than a capital note of an insured depository institution, as defined in §3 of the Federal Deposit Insurance Act, 12 U.S.C. § 1813, as amended or recodified from time to time, or as defined under the federal Credit Union Act, 12 U.S.C. § 1781, as amended or recodified from time to time;

(c) An obligation of the United States or a commission, agency, or instrumentality of the United States, an obligation that is guaranteed fully as to principal and interest by the United States, or an obligation of a state or a governmental subdivision, agency, or instrumentality of the United States;

(d) The full drawable amount of an irrevocable standby letter of credit for which the stated beneficiary is the Commissioner that stipulates that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds up to the letter of credit amount within 7 days of presentation of the items required by §D(4) of this regulation; and

(e) One hundred percent of the surety bond or deposit that exceeds the amount required under Financial Institutions Article, §12-412, Annotated Code of Maryland.

(2) A letter of credit under §D(1) of this regulation:
(a) Shall be issued by a federally insured depository financial institution, a foreign bank that is authorized under federal law to maintain a federal agency or federal branch office in a state or states, or a foreign bank that is authorized under state law to maintain a branch in a state that:
(i) Bears an eligible rating or whose parent company bears an eligible rating; and

(ii) Is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks, credit unions, and trust companies;

(b) Shall be irrevocable, unconditional and indicate that it is not subject to any condition or qualification outside of the letter of credit;

(c) May not contain reference to any other agreements, documents, or entities, or otherwise provide for any security interest in the licensee; and

(d) Shall contain an issue date and expiration date, and expressly provide for automatic extension, without a written amendment, for an additional period of 1 year from the present or each future expiration date, unless the issuer of the letter of credit notifies the Commissioner in writing by certified or registered mail or courier mail or other receipted means, at least 60 days prior to any expiration date, that the irrevocable letter of credit will not be extended.

(3) If the issuer of a letter of credit under §D(2) of this regulation issues any notice of expiration or nonextension of that letter of credit, the licensee shall be required to demonstrate to the satisfaction of the Commissioner, 15 days prior to expiration, that the licensee maintains and will maintain permissible investments in accordance with Financial Institutions Article, §12-418(a), Annotated Code of Maryland, upon the expiration of the letter of credit. If the licensee is not able to do so, the Commissioner may draw on the letter of credit in an amount up to the amount necessary to meet the licensee's requirements to maintain permissible investments in accordance with Financial Institutions Article, §12-418(a), Annotated Code of Maryland. Any draw shall be offset against the licensee's outstanding money transmission obligations. The drawn funds shall be held in trust by the Commissioner or the Commissioner's designated agent, to the extent authorized by law, as agent for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations.

(4) A letter of credit under §D(1) of this regulation shall provide that the issuer of the letter of credit will honor, at sight, a presentation made by the beneficiary to the issuer of the following documents on or prior to the expiration date of the letter of credit:
(a) The original letter of credit (including any amendments); and

(b) A written statement from the beneficiary stating that any of the following events have occurred:
(i) The filing of a petition by or against the licensee under the United States Bankruptcy Code, 11 U.S.C. § 101 - 110, as amended or recodified from time to time, for bankruptcy or reorganization;

(ii) The filing of a petition by or against the licensee for receivership, or the commencement of any other judicial or administrative proceeding for its dissolution or reorganization;

(iii) The Commissioner has issued an order of restitution pursuant to an enforcement action against the licensee;

(iv) The Commissioner sought the seizure of assets of a licensee pursuant to a judicial or administrative order; or

(v) The beneficiary has received notice of expiration or nonextension of a letter of credit and the licensee failed to demonstrate to the satisfaction of the beneficiary that the licensee will maintain permissible investments in accordance with Financial Institutions Article, §12-418(a), Annotated Code of Maryland, upon the expiration or nonextension of the letter of credit.

(5) The Commissioner may designate an agent to serve on the Commissioner's behalf as beneficiary to a letter of credit under §D(1) of this regulation if the agent and letter of credit meet requirements established by the Commissioner. The Commissioner's agent may serve as agent for multiple licensing authorities for a single irrevocable letter of credit if the proceeds of the drawable amount satisfy the purposes of the letter of credit under §D(1) of this regulation and are assigned to the Commissioner.

(6) The Commissioner may participate in multistate processes designed to facilitate the issuance and administration of letters of credit, including but not limited to services provided by the NMLS and State Regulatory Registry, LLC.

(7) Unless permitted by the Commissioner by rule or by order to exceed the limit as set forth in this regulation, the following investments are permissible pursuant to Financial Institutions Article, §12-401(r), Annotated Code of Maryland, to the extent specified:
(a) Receivables that are payable to a licensee from its authorized delegates in the ordinary course of business that have not been held by an authorized delegate in excess of the time permitted under Financial Institutions Article, §12-418(b), Annotated Code of Maryland, up to 50 percent of the aggregate value of the licensee's total permissible investments.

(b) Of the receivables permissible under §D(7)(a) of this regulation, receivables that are payable to a licensee from a single authorized delegate in the ordinary course of business may not exceed 10 percent of the aggregate value of the licensee's total permissible investments.

(c) The following investments are permissible up to 20 percent per category and combined up to 50 percent of the aggregate value of the licensee's total permissible investments:
(i) A short-term (up to 6 months) investment bearing an eligible rating;

(ii) Commercial paper bearing an eligible rating;

(iii) A bill, note, bond, or debenture bearing an eligible rating;

(iv) U.S. tri-party repurchase agreements collateralized at 100 percent or more with U.S. government or agency securities, municipal bonds, or other securities bearing an eligible rating;

(v) Money market mutual funds rated less than "AAA" and equal to or higher than "A-" by S&P, or the equivalent from any other eligible rating service; and

(vi) A mutual fund or other investment fund composed solely and exclusively of one or more permissible investments listed in §D(7) (a)-(c) of this regulation.

(d) Cash (including demand deposits, savings deposits, and funds in those accounts held for the benefit of the licensee's customers) at foreign depository institutions are permissible up to 10 percent of the aggregate value of the licensee's total permissible investments if the licensee has received a satisfactory rating in its most recent examination and the foreign depository institution:
(i) Has an eligible rating;

(ii) Is registered under the Foreign Account Tax Compliance Act;

(iii) Is not located in any country subject to sanctions from the Office of Foreign Asset Control; and

(iv) Is not located in a high-risk or noncooperative jurisdiction as designated by the Financial Action Task Force.

E. Eligibility Ratings.

(1) Long-term credit ratings are considered eligible if the rating is equal to A- or higher by S&P, or the equivalent from any other eligible rating service.

(2) Short-term credit ratings are considered eligible if the rating is equal to or higher than A-2 or SP-2 by S&P, or the equivalent from any other eligible rating service.

(3) If the ratings differ among eligible rating services, the highest rating shall apply when determining whether a security bears an eligible rating.

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