KEYTAKEAWAYS
Crypto payment projects often register for a U.S. MSB in their early stages, but as operations scale, they must confront a core compliance truth: MSB is a federal AML registration (regulating fund compliance), while State MTL is a state-level money transmitter license (regulating the legal qualification to handle funds); the two are not an upgrade relationship. This article analyzes MTL trigger conditions, unavoidable scenarios, and cost constraints, providing a compliant path of "starting with MSB + phased MTL application" to help projects avoid the risk of operating without a license.
- KEY TAKEAWAYS
- Introduction
- First, let’s clarify a common misconception: MSB and State MTL are not an “upgrade relationship.”
- Why Many Projects “Run on MSB Alone” in the Early Stages
- The Real Core Question: What Exactly Triggers a State MTL?
- Which Crypto Payment Scenarios Practically Cannot Avoid a State MTL?
- Why Many Projects Delay Applying for MTL Despite Knowing the Risks
- A Very Useful Self-Check Question in Practice
- A More Realistic Compliance Path: Not an Either/Or, but Phased Design
- Conclusion
- DISCLAIMER
- WRITER’S INTRO
CONTENT
Introduction
First, let’s clarify a common misconception: MSB and State MTL are not an “upgrade relationship.”
Many projects view MSB and State MTL as “basic” and “premium” versions, but this is a classic misunderstanding.
MSB (Money Services Business) is a federal-level anti-money laundering (AML) registration system overseen by FinCEN. Its core focus is:
- Whether you fulfill KYC/AML/sanctions screening obligations
- Whether you pose money laundering or terrorist financing risks
- Are you qualified to engage in “money transmission” within the state?
- Are you legally permitted to access, control, or transfer other people’s funds?
To summarize the difference in one sentence:
MSB checks if the money is clean; MTL checks if you are allowed to touch the money.
They operate on different regulatory dimensions, and there is no legal logic that allows an MSB to “cover” an MTL.
Why Many Projects “Run on MSB Alone” in the Early Stages
- Not directly serving U.S. natural persons
- Not offering fiat on/off-ramps, only processing crypto assets
- Not allowing fiat balances to accumulate within the platform
- Not directly holding or controlling customer funds
- Funds always flowing through licensed third-party channels or custodians
The Real Core Question: What Exactly Triggers a State MTL?
From a legal practice perspective, determining whether a State MTL is required never depends on whether you call yourself a “payment platform,” but on your legal position in the fund flow chain. A highly operational test is:
Do you “transmit, control, or possess other people’s fiat or its equivalent” in your business?
- Directly providing fiat payment/receipt services to U.S. users
- Allowing disposable fiat balances to form in user accounts
- Treating stablecoins as “currency or currency substitutes”
- Funds first entering your account before being transferred per your instructions
- The platform having discretion over the path, timing, or recipient of funds
Which Crypto Payment Scenarios Practically Cannot Avoid a State MTL?
- Crypto payment or exchange services targeting U.S. retail users
- Integrated fiat ↔ stablecoin platforms
- U.S.-issued or U.S.-used “U-Cards” or crypto cards
- Customer funds “passing through” or staying within the platform’s system
- Integrated structures combining payment + wallet + account systems
The logic is straightforward:
The more you look like a “bank-like” or “payment institution,” the less likely state regulators will treat you as a mere technical intermediary.
Why Many Projects Delay Applying for MTL Despite Knowing the Risks
- Needing to apply in multiple states (no “one license for the whole country”)
- High surety bond requirements
- Ongoing capital and liquidity requirements
- Local compliance officers, audits, annual filings
- Potential state regulatory examinations at any time
Therefore, many projects adopt a phased strategy:
By designing the business structure to delay triggering state laws, outsourcing “money-touching” functions to licensed institutions, and treating MTL as a mid-to-late-stage capability-building goal.
However, it is important to be clear:
Regulatory attention often comes before you are “ready.”
A Very Useful Self-Check Question in Practice
When conducting risk assessments for projects, I often ask:
If a state regulator sent you a letter today, could you clearly state: “We do not access, control, or transmit customer funds”?
A More Realistic Compliance Path: Not an Either/Or, but Phased Design
A mature U.S. compliance path is usually not:
“Get an MSB and immediately apply for full MTL coverage.”
- Starting with an MSB
- Designing the business model to avoid falling under state regulation initially
- Gradually building internal controls, risk management, and compliance capabilities
- Identifying which business lines constitute money transmission
- Applying for MTLs state by state, business by business, and in a phased manner
From a legal perspective:
State MTL is not a “startup barrier,” but a reflection of business maturity.
Conclusion
I do not recommend that all crypto payment projects rush into State MTL at the very beginning—it is neither realistic nor necessarily required.
But I also do not advise assuming: “We will never need more than an MSB.”
MSB is the compliance foundation; MTL is the load-bearing structure.
When you need it is not a matter of subjective choice, but whether your business has stepped into the scope of state regulation.
If you are already seriously grappling with this question, it usually means your project is no longer in the “early hobby phase.”
