What regulatory changes have limited PreCash Inc’s ability to partner with MSBs after TransferWise?

Anna Tong very thoroughly covers this.

I will just add to it: PreCash's Authorized Delegate contracts essentially came under scrutiny where it was determined by the Texas Department of Banking that PreCash was essentially renting its licenses (something forbidden by the State Regulators).

Back in summer of 2014, PreCash's existing agent contracts were scrutinized by the Department of Banking (Texas) and the three (critical) see below were not being fulfilled:

1. The Agent on-boards the client on behalf of the principal licensee, i.e.Principal License Holder.
2. The monetary transaction flow has to be as such, so that all flow of funds have to be through the principal licensee’s bank account(s) and...
3. The product &/or service that the Agent is marketing or extending out, has to tie-in to the core product &/or service of the principal licensee.

It is point # 3 that is of most importance to the Principal License Holder, as this is what the regulators would be looking for, to establish that if your company (if and when it becomes an agent) is extending the core product/services of Principal License Holder.

Via Supervisory Memorandum 1038, the Department of Banking then made a case that all Authorized Delegate contracts must basically adhere to these rules. This memorandum is essentially at the core of PreCash not onboarding new agents.



The Memorandum can be read here: Page on texas.gov

In reviewing PreCash's various Authorized Delegate contracts, most of them were found to be essentially renting of the money transmitter license. As DOB Texas only has jurisdiction on their own issued license, and not on others, they gave PreCash a notice to align/correct themselves.

In February 2015 PreCash made a decision to exit out of most (all?) Authorized Delegate contracts rather than risk their license being suspended. In doing so, PreCash also made a decision of not to onboard any more new clients.

This action by DOB Texas also did not go unnoticed with the other regulators (as they communicate & share such information amongst themselves), and hence, the snowball effect started.

Many MSBs who hold money transmitter licenses have reexamined their Authorized Delegate contracts. Some of the MSBs have even served notices to their Agents and exited their relations so as not to jeopardize their licenses getting suspended.

Just FYI, TransferWise has also been given a notice to end their Authorized Delegate status, the date of which is not too far away.