What is an FBO account?

Accounts with benefits
An FBO account, or a For Benefit Of account, is a type of custodial account that allows a company to manage funds on behalf of, or “for the benefit of,” one or more of their users without assuming legal ownership of that account. Two key potential benefits of an FBO are sub-accounts with FDIC insurance and regulatory cover. If the FBO is in the bank’s EIN, this structure can be helpful for businesses seeking to avoid certain kinds of regulatory categories, for instance, the possibility of the business being directly regulated as a “money transmitter.”
Ownership of an FBO can either be attributed to the bank’s EIN (tax ID) or the name of the company. If the FBO is in the bank’s EIN, this structure can be helpful for businesses seeking to avoid certain kinds of regulatory categories, for instance, the possibility of the business being directly regulated as a “money transmitter.”
Because , many fintechs leverage the FBO account structure where the banks technically have custody of the assets; allowing the fintech to legally provide services across the United States.
Tell me more. Why would my fintech or wallet app need a “FBO” account?
Well, that depends! Could your business be considered a Under federal law, a is defined as someone who receives money from one person and transmits it to another. The definition is purposely circular to give regulators wide latitude to label something money transmission. Typical.
Money transmission can be hard to determine based on a definition alone, so let’s look at examples:
Companies that offer digital wallets are generally money transmitters. They accept customer funds and move those funds to recipients, allowing customers the ability to hold funds in their wallets. Examples of registered money transmitters include and (formerly known as Square).
Cross-border remittance companies like and also hold money transmitter licenses. They accept funds from one party and handle sending them to another, often in a different country.
Money transmitters must register with federal regulators (the , or FinCEN) and then obtain Money Transmitter Licenses (MTLs) for each state in which they operate. This registration and licensure process is costly and time-consuming. Regulatory statutes provides many resources to help a but we recommend consulting legal counsel to review the applicable facts and circumstances.
Money transmitter exceptions
There are some potential paths fintechs should be aware of if they are interested in steering away from money transmission requirements.
First, the definition of “money transmitter” has a few exceptions that have developed over the years, including:
Companies that only provide technology layers that money transmitters use,
Payment processors that facilitate payments for goods and services through a clearance and settlement system,
Companies that only accept and send funds that are integral to the sale of goods or services (for example, a P2P micro-lending platform).
To steer into the technology layer path, fintechs can work with bank partners to set up “for the benefit of” (FBO) accounts. These are custodial accounts that let a company manage funds on behalf of others without technically having legal ownership of the account.
By using a properly constructed FBO account arrangement with a regulated bank, a business can avoid the need to individually register and obtain licenses as a money transmitter. That is because the bank already has the necessary regulatory compliance structure; banks are exempt from the need to separately register and obtain MTLs. A properly constructed FBO under a bank’s EIN removes the business from having dominion or control over the user’s funds. Thus, the business would not be subject to separate regulation as a money transmitter in its own right and would be able to rely on the bank’s regulatory exemption.
Source please!
Banks and persons registered with and functionally regulated or examined by the SEC or the CFTC that engage in transactions denominated in value that substitutes for currency are exempt from MSB status but are subject to BSA regulations according to the applicable section of 31 CFR Chapter X.

31 C.F.R. §§ 1010.100(d) and 1020, respectively, for banks

On-core vs FBO account — What is the difference?
So how are these accounts structured?
oncore fbo.png
What are on-core accounts?
An on-core account is an account that is opened directly in the end user’s name at the bank and works just like a traditional bank account. This can be a great option for your fintech because it allows you to leverage the bank’s expertise, policies and procedures. When the customer applies for an account on the fintech platform, the bank will ask the customer for pre-defined know your customer (KYC) information to verify identity, and the account will sit directly on the bank’s core banking infrastructure.
What does an FBO account look like in practice?
Let’s say a wallet application, Peanut Butter, opens an FBO account at a bank called Jelly. Jelly is holding the money on behalf of Peanut Butter. Think of it as Peanut Butter managing the hotel, while Jelly technically owns the hotel, or the FBO account.
Now, Peanut Butter can provide individual virtual accounts or ledgers to all of their clients and use. Each client has their own unique room and floor number, or virtual accounts complete with individual account and routing numbers. Peanut Butter is able to stay organized and keep track of their clients’ payment operations with a ledger software.
What are the benefits of opening an FBO account?
Deposits held by the customer as a beneficiary to the FBO account are FDIC-insured on a pass-through basis to the same extent as if the deposits were made directly, assuming specific requirements are met.
The fintech has no ownership interest in the FBO account and has no control over the funds. The bank maintains control over the funds at all times.
This is how fintechs can make the case that they’re not engaging in money transmission activity. It's important because money transmission is regulated in all states (except Montana) and the laws require fintechs to obtain licensure to take custody of funds and transmit funds to third parties; a complex and timing consuming undertaking, unless they partner with banks.
When established responsibly, FBO accounts can be extremely valuable
An FBO account offers regulatory coverage, helping companies avoid the cumbersome process of becoming money transmitters. Instead, they can attribute ownership of the account to the bank’s EIN, or their tax ID, to avoid these regulations. Banks are de facto money transmitters, so they don’t have to worry about registering for a Money Transmitter License (MTL).
This saves businesses the trouble of getting a Money Services Business (MSB) license, a time-consuming process that varies from state to state. For startups in particular, an FBO account is a helpful tool for managing payment operations without worrying about compliance overhang. That said, banks evaluate these arrangements based on your unique use case, so it’s up to you (the business owner) to figure out the appropriate setup with your partner bank.
Here’s how ACHQ’s bank partners help customers do it right:
A separate FBO account is opened or enabled by each fintech at a partner bank
Appropriate transaction monitoring tools are integrated top of funnel by ACHQ
Adequate KYC is established for end-users and the fintech itself
With these features, an FBO model is often just as valuable as on-core accounts.
ACHQ employs a comprehensive risk-based approach in its product offering. The nuanced feature set and framework are incredibly important for both fintechs and banks as they seek to empower innovation while mitigating risks.

FIN-2019-G001, “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies,” (May 9, 2019) at .
FIN-2013-G001, “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies,” (March 18, 2013) at (2013 FinCEN Guidance).
FIN-2019-A003, “Advisory on Illicit Activity Involving Convertible Virtual Currency” (May 9, 2019) at
31 C.F.R. § 1010.100(ff).
31 C.F.R. § 1022.380(a)(1).
31 C.F.R. § 1010.100(ff)(5)(i)(A)
31 C.F.R. § 1010.100(ff)(8). In the case of 1010.100(ff)(8)(ii), the exemption applies only if the person itself is registered with, and functionally regulated or examined by the SEC or CFTC; the exemption may not apply if it is, for example, the document instrumenting the offer or sale of an asset (and not the person offering or selling the asset) that which must be registered.
31 C.F.R. §§ 1010.100(d) and 1020, respectively, for banks; for brokers or dealers in securities, 31 C.F.R. §§ 1010.100(h) and 1023, respectively; for futures commission merchants, 31 C.F.R. §§ 1010.100(x) and 1026, respectively; for introducing brokers in commodities, 31 C.F.R. §§ 1010.100(bb) and 1026, respectively; and for mutual funds, 31 C.F.R. §§1010.100(gg) and 1024, respectively.
A person is not a money transmitter if that person only: (A) provides the delivery, communication, or network access services used by a money transmitter to support money transmission services; (B) acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller; (C) operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions; (D) physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any time during the transportation; (E) provides prepaid access, as defined in 31 C.F.R. § 1010.100(ff)(4); or (F) accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds. 31 C.F.R. § 1010.100(ff)(5)(ii)(A)-(F).
31 C.F.R. § 1022.210(a).
31 C.F.R. § 1022.210(b) and (c).
31 C.F.R. § 1022.210(d).
31 C.F.R. § 1022.380.
The 2019 FinCEN Guidance clarifies that, with respect to recordkeeping requirements, transmittal orders involving CVC qualify as transmittals of funds, and thus may fall within the “Funds Travel Rule.” Under the Funds Travel Rule, transmittals of funds of US$3,000 or more (or the equivalent in CVC) may trigger certain recording and recordkeeping requirements on a money transmitter acting as either the financial institution for the transmitter or recipient, or as an intermediary financial institution. 31 C.F.R. § 1010.410(f).
An “exchanger” is a person engaged as a business in the exchange of virtual currency for real currency, funds or other virtual currency. An “administrator” is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (i.e., withdraw from circulation) such virtual currency. A “user” is a person that obtains virtual currency to purchase goods or services on the user’s own behalf. 2013 FinCEN Guidance.

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