Kentucky Money Transmitter Bond: A Comprehensive Guide

This guide provides information for insurance agents to help money transmitters obtain Kentucky Money Transmitter Bonds

At a Glance:

• Lowest Cost: $7,500 per year or $750 per month based on the applicant’s credit
• Bond Amount: Minimum of $500,000 (more on this later)
• Who Needs it: All individuals and business entities seeking to obtain a Money Transmitter License in Kentucky
• Purpose: To ensure the public will receive compensation for any damages should the money transmitter fail to comply with licensing law
• Who Regulates Money Transmitters in Kentucky: The Kentucky Department of Financial Institutions

Background

Kentucky statute 11-005 requires all money transmitters operating in the state to obtain a license with the Department of Financial Institutions. The Kentucky legislature enacted the licensing laws and regulations to ensure that money transmitters engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, money transmitters must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Kentucky Money Transmitter Bond?

Kentucky requires money transmitters to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the public will receive compensation for financial harm if the money transmitter fails to comply with the licensing regulations set forth in Kentucky statutes 11-001 to 11-067. Specifically, the bond protects the public in the event the money transmitter engages in any acts of fraud or fails to pay all money owed to consumers. In short, the bond is a type of insurance that protects the public if the money transmitter breaks licensing laws.

How Can an Insurance Agent Obtain a Kentucky Money Transmitter Surety Bond?

BondExchange makes obtaining a Kentucky Money Transmitter Bond easy. Simply login to your account and use our keyword search to find the “money” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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How is the Bond Amount Determined?

Kentucky statute 286.11-013 grants the Commissioner of the Department of Financial Institutions the authority to set the bond limit on a case by case basis. The bond amount must not be less than $500,000 and may not exceed $5 million. The commissioner will examine the applicant’s financial condition when determining the bond amount.

Is a Credit Check Required for the Kentucky Money Transmitter Bond?

Surety companies will run a credit check on the owners of the money transmission company to determine eligibility and pricing for the Kentucky Money Transmitter bond. Owner’s with excellent credit and work experience can expect to receive the best rates. Owners with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the owner’s credit.

How Much Does the Kentucky Money Transmitter Bond Cost?

The Kentucky Money Transmitter surety bond can cost anywhere between 1.5% to 7.5% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on the $500,000 bond requirement.

$500,000 Money Transmitter Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Kentucky Define “Money Transmitter?”

Kentucky statute 26.11-003 defines a money transmitter as any business entity who receives funds for transmission either inside or outside the US by wire, facsimile, or any other means.

BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.

How do Money Transmitters Apply for a License in Kentucky?

Money transmitters in Kentucky must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the NMLS’s application guidelines for details on the process.

License Period – The Kentucky Money Transmitter License expires on September 20 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Money transmitters must purchase and maintain a surety bond with a minimum limit of $500,000

Step 2 – Request a NMLS Account

The Kentucky Money Transmitter License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.

Step 3 – Complete the Application

All Kentucky Money Transmitter License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Account information for the company’s letter of credit, operating, and/or trust primary account(s)
  • Audited company financial statements
  • Company business plan containing the following information:
    • How money will be collected
    • How money will be exchanged
    • Records collection and retention
    • Use of authorized delegates/additional locations (if applicable)
  • Flow of funds structure
  • Certificate of Good Standing obtained from the Kentucky Secretary of State
  • Company’s anti money laundering policy
  • Samples of all documents used in the regular course of business
  • MSB registration number
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Ownership chart detailing the company’s ownership structure
  • Confirmation form indicating the district’s the company is licensed in

Money transmitters must pay the following fees when submitting their license application:

• • $1,100 licensing fee
  • $15 credit report fee (per person)

How Do Kentucky Money Transmitters Renew Their License?

Money Transmitters can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Kentucky Money Transmitter License expires on September 20 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Kentucky Money Transmitter License?

The State of Kentucky does not require money transmitters to obtain any form of liability insurance as a prerequisite to obtaining a business license. Money transmitters must purchase and maintain a surety bond with a minimum limit of $500,000.

How Do Kentucky Money Transmitters File Their Bond?

Money transmitters should submit the completed bond form, including the power of attorney, electronically through the NMLS. The surety bond requires signatures from both the surety company that issues the bond and a representative from the money transmission company. The surety company should include the following information on the bond form:

• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name
• Bond amount
• Date the bond is signed

What Can Kentucky Money Transmitters Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, money transmitters in Kentucky must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage in any acts of fraud
• Properly account for all funds received
• Pay all money owed to consumers
• Pay all required taxes and fees

What Other Insurance Products Can Agents Offer Money Transmitters in Kentucky?

Kentucky does not require money transmitters to purchase any form of liability insurance as a prerequisite to obtaining a license. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Kentucky Money Transmitter Customers?

The NMLS conveniently provides a public database to search for active money transmitters in Kentucky. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.