FBO Account: Compliance Risks and Benefits for Banks and Ohanae
Published on May 06, 2023
Author : Greg Hauw, Founder & CEO, Ohanae, Inc

Ohanae, Inc., ("Ohanae") a fintech company needs to ensure Ohanae Coin ("OUSD") comply with federal and state money transmission laws. Ohanae facilitates atomic settlement* for Capital Markets can trigger money transmission risks. To mitigate these risks, Ohanae intends to partner with banks to offer custodial accounts opened for the benefit of (FBO) their customers. Funds flow through an account owned and controlled by the bank and not Ohanae. Since banks are exempt from money transmission licensing requirements, Ohanae uses FBO accounts to provide banking-like services without incurring regulatory compliance and licensing.

However, Ohanae must structure their relationships and services to fit within the contours of the bank's FBO offering. The FBO model remains largely untested among regulators. Not all banks offer FBO accounts, and those that do may impose heavy compliance requirements or hefty fees.

Money transmission is highly regulated and subject to licensing requirements to protect investors and capital seekers that send and receive payments. Federal and state regulators have interpreted the definition of money transmission to apply to such activities as payment processing and other, similar activities.

While obtaining money transmission licenses on a nationwide basis may provide significant competitive advantages for Ohanae, obtaining such licenses takes time and financial resources. Accordingly, Ohanae is seeking ways to launch products and services without triggering federal or state money transmission requirements.

The FBO model has become a popular way to mitigate potential money transmission risk on a nationwide basis. Under such a relationship, Ohanae issues payment instructions to the bank to pull funds from a bank-owned settlement account or instructs its customer to deposit funds into the FBO account. The FBO model requires strong ledgering and reconciliation on the fintech's part, and small errors may result in significant losses.

*Atomic settlement: Simultaneous settlement of assets, whereby assets are linked to ensure the transfer of an asset only occurs if the others are simultaneously transferred (e.g., to achieve delivery versus payment in a securities transaction).


An offering statement regarding this offering has been filed with the SEC.  The SEC has qualified that offering statement, which only means that the company may make sales of the securities described by the offering statement.  It does not mean that the SEC has approved, passed upon the merits or passed upon the accuracy or completeness of the information in the offering statement.  The offering circular that is part of that offering statement is at https://vdr.ohanae.com/projects/ohanae.  You should read the offering circular before making any investment.

Ohanae Securities LLC is a subsidiary of Ohanae, Inc. and member of FINRA/SIPC. Additional information about Ohanae Securities LLC can be found on BrokerCheck. Ohanae Securities LLC is in discussions with FINRA about exploring the expansion of business lines for the broker/dealer.  Any statements regarding abilities of Ohanae Securities LLC are subject to FINRA approval and there are no guarantees FINRA will approve the broker/dealer’s expansion.

Ohanae Securities is seeking approval to be a special purpose broker-dealer that is performing the full set of broker-dealer functions with respect to digital asset securities – including maintaining custody of these assets – in a manner that addresses the unique attributes of digital asset securities and minimizes risk to investors and other market participants. Ohanae Securities will limit its business to digital asset securities to isolate risk and having policies and procedures to, among other things, assess a given digital asset security’s distributed ledger technology and protect the private keys necessary to transfer the digital asset security.