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Is your credit union serving a money services business?

First in a three-part series covering hot button, risk-related issues facing credit unions

By: Jennifer Morrison, VP, Senior Risk Manager

Examples of MSBs:

1. A dealer in foreign exchange accepts the currency or other monetary instruments dominated in the currency of one or more countries and exchanges these in the currency of one or more other countries in an amount greater than $1,000 for any person on any day in one or more transactions.

2. A check casher2 accepts checks or other monetary instruments in return for currency or other monetary instruments in an amount greater than $1,000 for any person on any day in one or more transactions.

3. An issuer or seller of traveler’s checks or money orders issues or sells such monetary instruments in amounts greater than $1,000 per person, per day, in one or more transactions.

4. A money transmitter provides money transmission services. This means the acceptance of currency, funds, or other value from one person and the transmission to another person or location. Excluded from this definition is someone that acts as an agent of one of the money transfer firms, e.g.,Western Union.

5. Prepaid access refers to gift cards and pre-paid cards. Providers of prepaid access participate within a program and agree to serve as the principal conduit for access to information from its fellow program participants.

6. A seller of prepaid access receives funds or the value of funds in exchange for the loading of prepaid access, if that person sells prepaid access offered under a prepaid program that can be used before verification of customer identification or sells prepaid access to funds that exceed $10,000 per person, during any one day and has not implemented policies and procedures to prevent such a sale.

7. The U.S. Postal Service (except with respect to the sale of postage or philatelic products)

For complete definitions, visit the MSB Home Page at www.fincen.gov/financial_institutions/msb/.

Jennifer MorrisonAugust 26,2014 -- Keeping members informed of industry practices that can put your credit union at risk is important to us at Corporate One. For that reason, we are introducing a three-part risk series in Solutions covering BSA/AML hot button issues such as money services businesses (MSBs), cross-border activity and third-party payment processors. This month we’re exploring MSBs, what they are and the risks they present to your credit union. 

MSBs are establishments other than a financial institution that transmits money or representatives of money, provides foreign currency exchange, or cashes checks and/or other money-related instruments. Think of the corner grocery store that cashes checks, or check-cashing, wire transfer and money order outlets, and those businesses that carry gift cards and other types of prepaid cards. In 1999, FinCEN1 revised the definition of certain non-bank financial institutions and designated them as MSBs. These regulations were made clearer in a 2011 update.

The biggest challenge serving an MSB is that they require additional scrutiny from financial institutions and come with added risk. Banking institutions continue to exit the business of banking to MSBs due to the regulatory risks involved with these accounts. So, MSBs are turning up at credit unions and community banks. As a result, it’s important to know if any of your members are MSBs and to be reminded of the added due diligence required when serving an MSB.

MSBs fill a niche in the financial services arena, supplying banking-like services to the under-banked. Many of MSBs’ customers are occasional users of their services, so they may not “know their customers” well. This creates risk of MSBs being used to launder money, fund terrorism, and other illegal activities worldwide. MSBs must be compliant with the Bank Secrecy Act, and have anti-money laundering programs in place. MSBs must establish procedures to verify the identity of a person, maintain transactional records generated during the normal course of business, and file Currency Transaction Reports (CTRs), just like credit unions.

Examiners require that credit unions incorporate into their member identification program an assessment of their business entities to identify any MSBs. To truly know whether your credit union is serving an MSB, you will need to do expanded due diligence on your business members.

  • Add questions to your new membership checklist such as, will you be providing check cashing or money transfer services to customers? Will you be making wire transfers? If so, to whom will you be sending wires and in what dollar amounts?
  • Look at the composition of your business members’ deposits. Do they have a large number of third-party checks? You may want to review the image archive of your business members on a periodic basis.
  • Are your business members consuming a lot of your branch cash? Are they exchanging large bills for smaller ones?
  • Look at the monthly statements of your business members. Do you see debits and credits from American Express (traveler’s checks), Western Union, retailers (gift cards) or gift card re-sellers?
  • Does your business member send wires to major funds transfer, money order, or stored value providers?
  • Finally, send your staff out into the community to shop or visit your business members. Your staff should shop these members with eyes open to various telltale signs: racks of gift cards for sale and customers asking if they can write a check for over the amount of the sale and receive cash back. Have your employees ask about limits on cashed checks and gift card sales.

If you determine that you may be serving an MSB, there are several steps that must be completed and considered. First, an MSB must be registered with FinCEN and potentially with state or local agencies. If an MSB is not registered, you must file a Suspicious Activity Report (SAR) and continue to file the SAR every 90 days until they register.

Second, you must conduct expanded due diligence on the MSB (or suspected MSB). This includes a risk assessment of the member, including the products and services you provide the member, the member’s location and customers served, anticipated account activity, and purpose of the account(s). If you have a “lower risk” MSB – perhaps one that serves the local residents, cashes payroll checks only for local employers, or transmits funds domestically – if the MSB is registered, you will still want to make the member a “high risk” member, monitor the account(s), and file SARs when necessary.

If you have a “higher risk” MSB, FinCEN and interagency guidance will require that you not only ascertain if the MSB is registered (and file SARs if they are not), you must also:

  • Review the MSB’s BSA/AML program
  • Review results of the MSB’s independent audits
  • Conduct on-site visits
  • Review the list of agents that will be receiving services directly or indirectly through the MSB’s account(s)
  • Review the MSB’s written procedures
  • Review the agent management and termination practices for the MSB
  • Review the writing employee screening practices for the MSB

These tasks must be conducted annually. Because serving MSBs requires extra due diligence, you need to determine if your credit union can effectively take on the business. Do you have sufficient staff for the level of scrutiny needed for an MSB member? Can your staff still meet all of their other compliance duties? Is the member profitable after you consider the depth and expense of the scrutiny required?

For additional information regarding MSBs and the due diligence they require, feel free to contact me or the Member Experience team at 866/MyCorp1.

Jennifer Morrison can be reached at jmorrison@corporateone.coop or at 614/825-9333.

1Financial Crimes Enforcement Network, www.fincen.gov.

2Check cashers do not need to file SARs. The filing of SARs by MSBs is at a minimum of $2,000 (in some cases $5,000). This is under review and may change.