Colorado Money Transmitter Bond: A Comprehensive Guide

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

At a Glance:

• Lowest Cost: 1.5% of the bond amount per year based on the money transmitter’s credit
• Bond Amount: Anywhere between $250,000 to $2 million (more on this topic later)
• Who Needs It: All money transmitters seeking to obtain a license in the State of Colorado
• 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 Colorado: The Colorado Division of Banking

Background

Colorado Statute 11-10-105 requires all money transmitters operating in the state to obtain a license with the Colorado Division of Banking. The Colorado 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 Colorado Money Transmitter Bond?

Colorado 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. 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 Colorado Money Transmitter Surety Bond?

BondExchange makes obtaining a Colorado 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?

Colorado Statute 11-10-108 states that the Department of Banking will examine the financial solvency of each individual license applicant to determine the required bond amount. The Department of Banking will examine factors such the money transmitter’s financial statements and company net worth when making their decision. Highly solvent money transmitters will have a lower bond amount, while companies with poor financial statements will need to obtain a larger bond. The bond limit can range from $250,000 to $2 million and must cover the daily amount of outstanding payment instruments or unsettled transmissions.

Is a Credit Check Required for the Colorado 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 Colorado Money Transmitter bond. Owners 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 Colorado Money Transmitter Bond Cost?

The Colorado 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 a $500,000 bond requirement.

$500,000 Colorado 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 Colorado Define “Money Transmitter?”

To paraphrase Colorado Statute 11-10-103, a money transmitter is any business who receives money and transmits it through means such as payment instruments, wires, facsimile, or electronic transfers.

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 Colorado?

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

License Period – The Colorado Money Transmitter License expires on January 1 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the Colorado Money Transmitter License must first amass a company net worth (assets – liabilities) of at least $50,000 plus an additional $25,000 per branch location up to $300,000. Businesses must submit audited financial statements verifying their net worth when submitting their license application.

Step 2 – Request NMLS Account

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

• • Company financial statements
  • A list of authorized agents who conduct money transmission services on behalf of the money transmitter
  • The company’s FinCen registration confirmation number and filing date
  • FBI background check authorization 
  • The company’s independently reviewed AML/BSA policy
  • A company business plan containing the following information:
    • Marketing strategies
    • Products
    • Target markets
    • Fee schedule
    • Operating structure the licensee intends to employ
    • Flow chart of funds from customer, to receiving agent, through the payment system(s) of Applicant, to the paying agent, and final beneficiary or recipient.
    •  A history of operations, including a description of the activities conducted by the Applicant. If the business activities in which the Applicant seeks to be engaged in Colorado will be different or limited, please so indicate.
    • A detailed response citing the Applicant’s experience in the business of selling or issuing exchange
  • Certificate of Good Standing issued by the Colorado Secretary of State
  • Sample documents (if applicable)
    • Agent contract
    • Payment instrument
  • Company formation documents
  • A management chart detailing the leadership hierarchy of the company
  • An ownership chart detailing the amount ownership structure of the company
  • A detailed resume of the company’s chief compliance officer

Money Transmitters will need to pay the following fees when submitting their license application:

• • $7,500 licensing fee if applying between January 1 – June 30
  • $3,750 licensing fee if applying between July 1 – December 31
  • Background check fee of $36.25 (per person)
  • $0.25 fee for every authorized agent (max of $25,000)

Step 4 – Purchase a Surety Bond

Money transmitters must purchase and maintain a money transmitter surety bond with a custom limit determined by the Colorado Division of Banking

How Do Colorado 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 Colorado Money Transmitter License expires on January 1 of each year and must be renewed before the expiration date.

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

The State of Colorado does not require money transmitters to obtain any form of liability insurance as a prerequisite to obtaining a Money Transmitter License. Transmitters must purchase and maintain a money transmitter surety bond.

How Do Colorado Money Transmitters File Their Bond?

Money Transmitters should submit the completed bond form, including the power of attorney, electronically through the NMLS. The money transmitter surety bond requires signatures from both the surety company that issues the bond and the money transmitter. 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 and state of incorporation
• Bond amount
• Date the bond goes into effect

What Can Businesses Do to Avoid Claims Against the Colorado Money Transmitter Bond?

To avoid claims on the Money Transmitter Bond, businesses must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Ensure the full payment of all funds to users of your service
• Pay all required taxes and fees

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

Colorado does not require money transmitters to obtain any form of liability insurance. 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 Colorado Money Transmitter Customers?

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