The rapid growth of the cryptocurrency market has made the US MSB license a common feature in the industry. Major exchanges like Binance and FTX, as well as many smaller platforms, often claim to hold this financial license.
But how meaningful is the MSB license? Does it offer any protection to non-US investors? And how can you verify if a crypto exchange truly holds this license?
This article will help you understand the role of US and Japanese cryptocurrency licenses, deepen your knowledge of digital currency investing, and avoid being misled by unethical trading platforms.
Understanding the US MSB License
The US MSB (Money Services Business) license is issued by the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury. It is valid across all states and regulates businesses involved in money services.
Permitted activities under an MSB license include international remittances, foreign exchange, currency trading/transfer (including cryptocurrencies/virtual assets), ICO issuance, providing prepaid programs, and issuing traveler's checks.
Does an MSB License Mean Full Compliance?
Many crypto exchanges and projects promote their MSB license to appear legitimate and trustworthy. However, holding an MSB license is only one part of compliance. To operate fully within the US, exchanges must also obtain state-specific MTL (Money Transmitter License) licenses.
Many platforms do not hold these state licenses and therefore cannot legally operate across the US. For example, despite having an MSB license, Huobi had to exit the US market due to lack of broader compliance.
MSB vs. MTL Licenses: Key Differences
Simply put, an MSB license is a federal registration, while MTL licenses are state-level approvals required for full legal operation.
Scope of Business
- MSB: A federal-level registration that allows companies to engage in money services, including crypto-related activities. It primarily focuses on anti-money laundering (AML) and countering terrorism financing (CFT). It does not cover broader consumer protection or financial oversight.
- MTL: Required for conducting crypto transactions, including crypto-to-crypto and fiat-to-crypto trades, within individual states. Without MTL licenses, exchanges cannot legally serve customers in those states.
Application Process
- MSB: Relatively easy and inexpensive to obtain—often costing just a few thousand dollars. It requires registering a US company and applying for a tax ID.
- MTL: Involves a more rigorous process, including substantial surety bonds (ranging from $1,000 to $500,000 depending on the state) and meeting net capital requirements.
Regulatory Recognition
It's important to note that MSB registration does not imply government endorsement. FinCEN explicitly states that it does not verify the information submitted by MSBs, meaning the license offers no guarantees to investors.
Current Market Players
Exchanges like Coinbase, Binance.US, and FTX.US have successfully obtained both MSB and multiple state MTL licenses. For instance, Binance.US holds licenses in 46 states, allowing it to operate widely across the US.
Why Do Crypto Exchanges Seek MSB Licenses?
Exchanges pursue MSB licenses for several reasons:
- Compliance Alignment: As global crypto regulation tightens, exchanges seek licenses to operate legally in key markets.
- Enhanced Reputation: Holding a US license—even a basic one—can boost credibility and attract users.
- Investor Confidence: Users often prefer platforms that demonstrate a commitment to regulatory standards.
However, many exchanges obtain MSB licenses primarily for marketing purposes, with no real intention of serving US customers. In such cases, the license offers no protection to non-US users.
More Meaningful Licenses for Crypto Exchanges
Beyond the MSB, other licenses indicate a stronger commitment to compliance and operational maturity.
State MTL Licenses
Exchanges that hold multiple state MTL licenses demonstrate a capacity to meet diverse regulatory requirements and often have a tangible presence in the US market. For example, Binance.US and FTX.US rank among the top exchanges in the US by trading volume.
Japan’s Crypto Asset Exchange License
Japan’s Financial Services Agency (FSA) is known for its strict licensing process. The country has issued only a few dozen crypto exchange licenses, making them highly valued.
Licensed exchanges in Japan must maintain local offices, submit annual financial reports, and adhere to rigorous token listing standards. While this limits the number of available cryptocurrencies, it ensures a high level of investor protection.
Major international exchanges like Huobi and OKCoin have obtained Japanese licenses, though they face strong competition from local platforms like Bitflyer and Coincheck.
How to Verify an MSB License
You can check whether a company holds an MSB license via the FinCEN website. Here’s how:
- Visit www.fincen.gov.
- Use the search function and enter the business name under "DBA NAME" (Doing Business As).
- Review the results to confirm registration and check listed states for MTL approvals.
Note: Platforms without state MTL licenses may not appear in detailed searches, and their claims should be treated with caution.
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Frequently Asked Questions
What is an MSB license used for?
An MSB license allows businesses to offer money services, including crypto transactions, remittances, and currency exchange, at a federal level in the US. It mainly focuses on anti-money laundering compliance.
Is an MSB license enough to trust a crypto exchange?
Not necessarily. An MSB license is a basic registration and does not cover state-level legal operation or provide consumer protection. Always check for additional state MTL licenses.
Can non-US investors rely on an MSB license?
No. The MSB license offers no protection outside the United States. It is primarily a US regulatory requirement.
Which licenses are more important than MSB?
State-level MTL licenses in the US and licenses from strict regulators like Japan’s FSA are more significant. They require higher levels of compliance and offer greater investor protections.
How long does it take to get an MSB license?
The process usually takes a few weeks to a few months, depending on the application’s completeness and FinCEN’s processing time.
Are all crypto exchanges with MSB licenses safe?
No. While having an MSB license is a positive sign, it is not a guarantee of security or reliability. Always conduct thorough due diligence.
Key Takeaways: Look Beyond the MSB License
The US MSB license is an introductory regulatory step—not a comprehensive seal of approval. While it indicates some level of compliance, it does not permit full operation in the US without state MTL licenses.
Many smaller exchanges use the MSB license for marketing, often without substantive regulatory adherence or US market presence. As an investor, prioritize platforms that hold relevant licenses in their operating regions and have a proven track record of compliance and security.
Stay informed, verify claims independently, and choose exchanges that transparently meet regulatory standards in the jurisdictions they serve.