What is a Money Service Business (MSB)?
MSBs are non-bank financial institutions that provide certain financial
services to their customers. They range in size and complexity, from small,
one-shop businesses to multi-state sophisticated providers. As defined by
the Financial Crimes Enforcement Network (FinCEN), MSBs include five
distinct types of financial services providers and the U.S. Postal Service:
(1) Currency dealers or exchangers;
(2) Check cashers;
(3) Issuers of traveler’s checks, money orders, or stored value;
(4) Sellers or redeemers of traveler’s checks, money orders, or stored value; and
(5) Money transmitters.
There is a threshold requirement for businesses in the first four categories — a business that engages in such transactions will not be considered an MSB if it does not engage in such transactions in an amount greater than $1,000 for any person on any day in one or more transactions (31 CFR 103.11(uu)). FinCEN has issued guidance stating that certain businesses that cash their own checks do not meet the definition of a “check casher.” See FIN-2006-G005 - PDF, Frequently Asked Questions — Businesses Cashing Their Own Checks, March 31, 2006, at www.fincen.gov. The definition is broad enough to include such businesses as grocery stores that provide check cashing services for customers without a fee.
MSBs fill a need in many communities. They provide convenient access to financial services in many neighborhoods with few or no bank branches. Billions of dollars in micropayments pass through MSBs every year.
Who Supervises MSBs?
Many States have regulations and enforcement responsibilities over MSBs.
Federally, the Internal Revenue Service (IRS) has the authority to examine
nonbank financial institutions (NBFI), which include MSBs for compliance
with the Bank Secrecy Act (BSA), and to investigate potential criminal BSA
violations; to collect and store BSA reported data by all financial
institutions. FinCEN in turn, oversees the administration of BSA by numerous
agencies including IRS and the Federal banking agencies.
Registration
Requirements with FinCEN
Persons/entities defined as MSBs are generally required to register with
FinCEN. Registration is required within 180 days after the day that the
person/ entity is established as an MSB. Thereafter, the MSB must renew its
registration every two years by December 31st for as long as the
MSB continues to meet the MSB definition.
The following MSBs are not currently required to register:
- A business that is an MSB solely because it serves as an agent of another MSB;
- A business that is an MSB solely as an issuer, seller, or redeemer of stored value; and The U.S. Postal Service and agencies of the U.S., of any State or of any political subdivision of any State.
- Also, banks and persons registered with, and regulated or examined by, the Securities and Exchange Commission or the Commodity Futures Trading Commission are not defined a MSBs and are therefore not required to register.
Bank Secrecy Act and
MSBs
FinCEN and
the federal banking agencies issued interpretive guidance on April 26, 2005,
to clarify the BSA requirements and supervisory expectations as applied to
accounts opened or maintained for MSBs. With
limited exceptions, many MSBs are subject to the full range of BSA
regulatory requirements, including the anti-money laundering program rule,
suspicious activity and currency transaction reporting rules, and various
other identification and recordkeeping rules.
The Relationship Between
Banks and MSBs
Due to the nature of MSB business activities, they require specific banking
services. These services include the establishment and maintenance of a
bank account, transaction processing and currency processing. MSBs may also
require a variety of credit facilities, such as lines of credit for
liquidity purposes.
The banking relationship is crucial to MSBs. They require access to the payments system that a bank provides in order to clear or process checks or transfer funds. The relatively recent phenomenon of bank discontinuance is of concern to the MSB industry.
Bank
Supervisory Guidance with Respect to MSBs as Bank Customers
The due
diligence for an MSB bank customer differs based on the risk posed. Based
on existing BSA requirements applicable to banks, the minimum due diligence
expectations associated with opening and maintaining accounts for MSBs are:
- Apply the bank’s Customer Identification Program.
- Confirm FinCEN registration, if required. (Note: registration must be renewed every two years.)
- Confirm compliance with state or local licensing requirements, if applicable.
- Confirm agent status, if applicable.
- Conduct a basic BSA/AML risk assessment to determine the level of risk associated with the account and whether further due diligence is necessary.
- If the bank determines that the MSB customer presents a higher level of money laundering or terrorist financing risk, some or all of the following actions may be performed as part of an appropriate enhanced due diligence review:
- Review the MSB’s BSA/AML program.
- Review results of the MSB’s independent testing of its AML program.
- Review written procedures for the operation of the MSB.
- Conduct onsite visits.
- Review list of agents, including locations, within or outside the United States,
that will be receiving services directly or indirectly through the MSB account.- Review written agent management and termination practices for the MSB.
- Review written employee screening practices for the MSB.
FinCEN and the federal banking agencies do not expect banks to uniformly require any or all of the actions identified above for all MSBs.