Permissible investments for a money transmitter: what counts, and where a stablecoin balance sits

Permissible investments are the assets a licensed money transmitter must hold against the money it owes its customers. The test is easy to state. At any moment, the assets have to cover the obligations. This is a state requirement, and it sits apart from the surety bond and the net worth test. For a firm that settles cross border payments in stablecoins, it raises a question most statutes never answered. Does a stablecoin balance count.

What are permissible investments, and what do they have to cover?

They are the assets a state lets a licensee count against its outstanding money transmission obligations.

The obligation side is money you have taken in and not yet paid out. A customer balance sitting with you overnight. A payment instructed but not delivered. Stored value you issued and nobody has spent.

The asset side is a list the statute sets out. The Conference of State Bank Supervisors published the Money Transmission Modernization Act in 2021 as a model law, and most recent state amendments follow it. Its rule is a coverage test. A licensee must hold permissible investments with a market value no less than the aggregate amount of its outstanding money transmission obligations.

Two features matter more than the list itself. The assets must be unencumbered, so a pledged balance does not count. And the test runs continuously. You can fail it on a Tuesday afternoon and pass it at month end.

Does FinCEN registration cover the permissible investments rule?

No, and new entrants get this wrong often.

Federal registration is an anti money laundering duty. Section 1022.380 of title 31 of the Code of Federal Regulations requires a money services business to register with FinCEN. The Bank Secrecy Act rules then ask for a programme, reporting and records. None of that asks what assets you hold.

Prudential supervision belongs to the states. A money transmitter licence brings three separate tests with it: tangible net worth, a surety bond, and permissible investments. Examiners look at all three in the same visit.

Other jurisdictions reach the same place under another name. Article 10 of Directive (EU) 2015/2366, the second Payment Services Directive, requires a payment institution to safeguard funds it receives for payment transactions. The United Kingdom's Payment Services Regulations 2017 do the same. Canada's Retail Payment Activities Act requires a registered payment service provider to hold end user funds in trust, or to cover them with insurance or a guarantee. The vocabulary differs. The idea does not.

Which assets count as permissible investments for a money transmitter?

Cash is the anchor. Past cash, the lists are narrower than most treasurers expect.

A typical statute allows cash and cash equivalents, deposits at an insured depository institution, certificates of deposit, and obligations of the United States government or its agencies. State and municipal obligations usually qualify. Investment grade commercial paper and short dated corporate debt often qualify, subject to limits.

Then there is a second tier, and it is the one that trips people. Receivables from an authorised delegate, meaning an agent that has collected customer money and not yet sent it on, are commonly allowed while current. The allowance comes with a cap, and with a limit on how far past due a receivable may be before it stops counting. Read your own statute for both, because the numbers vary by state.

Anything outside the list needs the regulator to agree. Most statutes let the supervisor approve another asset class, or disallow one already on the list. That discretion is the hook a novel asset has to hang on.

Does a stablecoin balance count as a permissible investment?

Sometimes. The answer turns on what the obligation is denominated in, and on what your state has said.

Start with the matching problem, because that is the real issue. Say you owe a customer dollars and you hold a stablecoin. You now hold an asset whose value rests on an issuer and a reserve you do not control. That is a credit exposure, not cash. If instead you owe the customer the token itself, matching it with the same token is a much easier argument to make.

The model law takes that second route. The Money Transmission Modernization Act, published by the Conference of State Bank Supervisors in 2021, provides that where a licensee's outstanding obligations are denominated in virtual currency, the licensee holds like kind virtual currency of the same volume. The principle is matching. It is not a view on whether the asset is any good.

New York arrived earlier and is stricter. The virtual currency regulation of the New York State Department of Financial Services, 23 NYCRR Part 200, in force since 2015, requires a licensee that stores virtual currency for a customer to hold the same type and amount, and not to sell, lend or pledge it.

Three practical rules follow. Match the denomination of the asset to the denomination of the obligation. Never assume a dollar obligation is covered by a dollar stablecoin without asking your regulator in writing. And keep the questions apart: whether an issuer's reserves are sound is a different test from whether your holding counts.

How do you compute and evidence the position, step by step?

Daily, from the systems of record, with the working kept.

• Define the obligation precisely. Count every balance you owe a customer, payments instructed but not delivered, agent float not yet sent on, and stored value outstanding.
• Timestamp both sides in one time zone. A settlement leg on a public blockchain does not stop at five o'clock, so a position struck at a local cut off is already stale.
• Value the assets under generally accepted accounting principles, then strip out anything pledged, encumbered or held as collateral.
• Treat a pending inbound transfer by policy rather than by hope. Write down when it becomes an asset you may count, and tie that to a confirmation depth.
• Compute the coverage ratio every day. Set an internal floor above full cover, give it a named owner, and write the action for a breach before you need it.
• Reconcile the ledger to the instruction by transaction hash and by UETR, so each asset you count ties to the obligation it covers.
• Keep the daily computation, the asset statements, the custody evidence and the exceptions, then report as each state requires.

Then keep the file. An examiner asks for the computation on a date they choose, not a date you choose.

What goes wrong in practice?

A coverage test you pass only at month end is not a coverage test. It is a report. The obligation to customers does not pause between snapshots, and neither does the exposure.

The findings repeat across examinations.

Counting an encumbered asset is the most common. A deposit pledged against a credit line or a card programme cannot be used to pay customers, so it does not count, however real it looks on the balance sheet.

Counting stale agent receivables is next. The money is real and the receivable is old. The statute stops counting it before the finance team does.

Striking the position once a day on a rail that never closes is the third. If a settlement leg clears in minutes at any hour, the exposure moves well after the snapshot.

The fourth is treating a stablecoin holding as cash in the management accounts, then learning at examination that the state does not agree. That conversation is far cheaper before you open the corridor than after.

The fifth is the quiet one. Each state keeps its own list, its own caps and its own reporting, so a licensee in a dozen states runs a dozen variants of one calculation. The Conference of State Bank Supervisors collects the numbers through a quarterly money services business call report in the Nationwide Multistate Licensing System, which makes any inconsistency visible to every state at once.

Where StableNet fits

StableNet, built by SpendTheBits, is a cross border B2B payment and settlement platform for banks, credit unions, licensed money service businesses, exchange houses and remittance fintechs. Settlement runs in regulated stablecoins on public blockchains and completes in minutes, with on chain auditability, which shortens the window in which customer money sits as an obligation at all. It is ISO 20022 native, producing pacs.008 customer credit transfers, pacs.009 interbank legs, pacs.002 status reports and pacs.004 returns under a head.001 envelope, tracked end to end by UETR, so the asset on the ledger can be tied to the instruction it settles. Compliance is built in: KYB and KYC onboarding, KYT, sanctions and PEP screening, FATF Travel Rule data in IVMS101, a compliance workbench and a tamper evident audit trail, which is the evidence set an examiner samples. Universal Compliance Control, the SpendTheBits submission named a finalist in the Swift Hackathon 2026 Technical Challenge, applies the same discipline to settlement itself: an off chain compliance oracle issues one signed attestation and on chain gates enforce it identically across chains, so no valid attestation means no settlement. SpendTheBits is a Bank of Canada registered payment service provider.