To start a currency exchange business in the United States, you need to register with the Financial Crimes Enforcement Network, obtain a money transmitter license in every state where you will operate, and have a written anti-money laundering program running within 90 days of opening. Federal law treats any business that exchanges one country’s currency for another above $1,000 per customer per day as a money services business, which pulls even a small storefront into the same regulatory framework that governs major financial institutions.1eCFR. 31 CFR 1010.100 – General Definitions The compliance load is heavier than most new owners expect, and shortcuts carry real criminal exposure.
Register With FinCEN
Federal registration is the first legal step. Every money services business must file FinCEN Form 107 within 180 days of being established and renew the registration every two years by December 31 of the renewal year.2Financial Crimes Enforcement Network. Money Services Business (MSB) Registration The form asks for the business’s legal name, permanent U.S. address, ownership details, employer identification number, and an estimate of annual transaction volume.3Internal Revenue Service. FinCEN Form 107 Registration of Money Services Business
Skipping registration is expensive. The civil penalty is $5,000 per violation, and each day the business operates unregistered counts as a separate violation, so a six-month lapse can accumulate past $900,000 before anyone discusses criminal charges.4Office of the Law Revision Counsel. 31 US Code 5330 – Registration of Money Transmitting Businesses Knowingly operating an unregistered money transmitting business carries up to five years in federal prison.5Financial Crimes Enforcement Network. Enforcement Actions for Failure to Register as a Money Services Business
Registration does not authorize you to operate. It only puts the government on notice that you exist. Permission to serve customers comes from the state.
Get a Money Transmitter License in Every State Where You Operate
Most states classify currency exchange as a form of money transmission and require a money transmitter license. A handful of states offer a narrower currency exchange license instead. The licensing agency varies by state, and may be called the Department of Financial Institutions, the Division of Banking, or something else entirely.
Financial requirements are significant. Minimum tangible net worth requirements run from a few thousand dollars in some states to $1,000,000 in the most demanding jurisdictions. Most states also require a surety bond, with the amount typically tied to projected or actual transaction volume. These guarantees exist to protect consumers if the business fails or mishandles funds.
Once licensed, you’ll face periodic examinations covering transaction records, financial statements, and compliance procedures. Most states require annual renewal with updated financials, renewal fees, and confirmation that your compliance program is current. Falling out of compliance can lead to license revocation, which effectively closes the business in that state.
Build Your Anti-Money Laundering Program First
Federal regulations require every MSB to develop, implement, and maintain a written AML program within 90 days of being established.6eCFR. 31 CFR 1022.210 – Anti-Money Laundering Programs for Money Services Businesses State licensing applications almost universally require a copy, so in practice you need the program written before you apply.
At minimum, your program must include:
- Written internal policies and procedures for detecting suspicious activity
- A designated compliance officer responsible for day-to-day oversight
- A training plan for all employees who handle transactions
- A schedule for independent review of the program’s effectiveness
FinCEN guidance ties the frequency of independent reviews to your risk profile. A small storefront exchanging vacation cash for tourists may need less frequent review than a high-volume operation handling large commercial transactions.7Financial Crimes Enforcement Network. Guidance for Money Services Businesses on Conducting Independent Reviews of Anti-Money Laundering Programs
Assemble the Application Package
Between gathering documentation, developing compliance programs, and securing financial guarantees, most applicants spend several months on preparation before anything gets submitted.
Background Checks and Financial Statements
Every person who owns or controls the business must submit personal financial statements and authorize a comprehensive background check. That reaches owners, directors, senior officers, and anyone with significant decision-making authority. Felony convictions are the most common disqualifier, particularly those involving fraud, money laundering, drug trafficking, or other financial crimes. Most states look back seven to ten years, though some impose permanent bars for certain offenses.
Surety Bond and Business Plan
The surety bond functions as a financial guarantee for customer protection, with amounts set by each state and often tied to transaction volume. The business plan should project transaction volumes for the first three years, identify the specific currencies you plan to trade, describe your target customer base, and explain how funds flow through your operation.
Submitting Through NMLS
Most state applications are filed through the Nationwide Multistate Licensing System, a centralized online portal where you upload your business plan, AML policies, financial statements, and supporting documents. Filing fees vary by state. Control persons typically complete fingerprinting at authorized locations to finalize background checks. Expect clarification requests from examiners asking for more detail on business practices or financial projections. Some states process complete applications in a few weeks; others take several months.
The Compliance Operation You’ll Actually Run
Licensing gets you in the door. Running the business legally means executing several recurring federal obligations every day you’re open.
Customer Identification
You must verify and record customer identity before completing any transaction that triggers a federal reporting requirement. That means recording the specific identifying information from a government-issued ID such as a driver’s license, passport, or alien identification card. A note that says “known customer” is explicitly prohibited as a substitute.8eCFR. 31 CFR 1010.312 – Identification Required
OFAC Screening
Every MSB must screen customers against the sanctions lists maintained by the Treasury Department’s Office of Foreign Assets Control, which identifies individuals, entities, and countries subject to U.S. economic sanctions.9Office of Foreign Assets Control. OFAC Consolidated and Other Sanctions Lists Page Processing a transaction for a sanctioned person or entity carries severe civil and criminal penalties regardless of whether you knew about the sanction. Compliance software can automate matches, but the legal responsibility sits with you either way.
Currency Transaction Reports
File a Currency Transaction Report with FinCEN within 15 days whenever a customer’s cash transactions exceed $10,000 in a single business day. Multiple smaller transactions by the same customer count as one if you know or have reason to believe they are connected.10Financial Crimes Enforcement Network. A Quick Reference Guide for Money Services Businesses
Suspicious Activity Reports
If a transaction of $2,000 or more appears designed to evade reporting, involves funds you suspect come from illegal activity, or has no apparent lawful purpose after you examine the facts, you must file a Suspicious Activity Report within 30 calendar days of detecting the activity. Ongoing schemes that require immediate attention also require a phone call to law enforcement.11eCFR. 31 CFR Part 1022 – Rules for Money Services Businesses You cannot tell the customer a SAR has been filed.
IRS Form 8300
Separately from FinCEN reporting, the IRS requires Form 8300 whenever your business receives more than $10,000 in cash in a single transaction or related transactions. File within 15 days and send a written statement to the customer by January 31 of the following year, unless the report was triggered by suspicious activity, in which case you do not notify the customer.12Internal Revenue Service. Form 8300 and Reporting Cash Payments of Over $10,000
Five-Year Record Retention
All records required under the Bank Secrecy Act, including transaction logs, customer identification records, and copies of CTRs and SARs, must be kept for five years.13eCFR. 31 CFR 1010.430 – Nature of Records and Retention Period Some state regulators impose longer periods. Build recordkeeping systems to this standard from day one, because reconstructing years of transaction records after the fact is practically impossible.
If You’ll Also Send Money Abroad
Over-the-counter currency exchange and international money transmission are different services under federal law. If you plan only to swap banknotes across a counter, the next section does not apply to you. If you plan to send funds to recipients in foreign countries, the Consumer Financial Protection Bureau’s remittance rules add a separate layer of consumer disclosures.
Before collecting payment, you must give the customer a pre-payment disclosure showing the transfer amount, all fees and taxes, the exchange rate (rounded to at least two decimal places), any third-party fees, and the total the recipient will receive. The receipt that follows must repeat that information and add the date funds will be available, your business contact information, and a statement of the customer’s error and cancellation rights, together with contact information for both your state licensing agency and the CFPB.14Consumer Financial Protection Bureau. 12 CFR 1005.31 – Disclosures
Customers can cancel and receive a full refund if they contact you within 30 minutes of paying, provided the recipient has not already picked up or received the funds.15eCFR. 12 CFR 1005.34 – Procedures for Cancellation and Refund of Remittance Transfers Train your staff on that window. Refusing a timely cancellation is a compliance violation.
Build the Physical and Financial Infrastructure
Even with licenses in hand, the business cannot open until the operational pieces are in place.
Banking
Finding a bank willing to open an account for a currency exchange business is often the hardest part of the startup process. Many banks decline MSB clients outright because of perceived money laundering risk and the compliance burden on their side. You will likely need a bank that specializes in serving money services businesses, and those banks charge higher fees and demand more rigorous due diligence than a standard business account. Start early.
Physical Security
A business handling large volumes of cash needs high-grade safes for overnight storage, surveillance cameras with retention that meets your recordkeeping obligations, and secure customer counters. Some state licensing applications specifically ask about security setup, so these costs belong in the business plan.
Compliance and Transaction Software
Specialized software handles real-time exchange rate calculations, transaction logging, automated OFAC screening, CTR and SAR generation, and customer identification storage. The audit trail it produces is what regulators review during examinations. Managing compliance manually at any meaningful transaction volume produces missed filings.
Foreign Exchange Supplier
You need a wholesale supplier of foreign currency to provide the physical banknotes or electronic funds you use to fulfill customer orders. The relationship determines which currencies you can offer and how quickly you can restock. Most operators maintain more than one supplier to avoid supply interruptions.
How the Income Is Taxed
Profit comes from the spread between the rate at which you buy a foreign currency and the rate at which you sell it. Federal tax law treats gains and losses from foreign currency transactions as ordinary income or ordinary loss, not capital gains.16Office of the Law Revision Counsel. 26 US Code 988 – Treatment of Certain Foreign Currency Transactions Exchange profits are taxed at your regular income tax rate, and the lower long-term capital gains rates do not apply.
Rate movements add a second tax layer. If you hold an inventory of euros overnight and the rate shifts, the resulting gain or loss when you eventually sell is also ordinary. Accurate tracking requires software built for foreign currency accounting; getting it wrong creates IRS problems that are expensive to unwind.