Kotapay Insights

Connecticut Releases Advisory on Money Transmission

Connecticut Releases Advisory on Money Transmission

August 26, 2022

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.

- Find a bank-sponsored solution. As a division of First International Bank & Trust, Kotapay is exempt from money transmission licensing regulations and is uniquely positioned to facilitate these transactions. Through the correct bank account structure, the payroll processor is removed from having access to impounded funds, thus relieving the money transmitter requirement for you, the processor.

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