To Bank MSBs or Not to Bank MSBs – That is the Question
To bank MSBs or not to bank MSBs – that is the question the Financial Crimes Enforcement Network (FinCEN) wants financial institutions to start asking themselves again. FinCEN’s November 2014 clarification of expectations regarding financial institutions’ treatment of prospective and existing MSB customers may mean your institution needs to re-open the book and revise the verse.
Money service businesses, known as MSBs, offer their clientele, who often consist of individuals less likely to use traditional banking services, several higher risk services, including foreign currency exchange, money transmissions, check cashing, money orders, travelers checks, and prepaid access devices. While MSBs are required to fulfill several ongoing requirements in order to comply with the Bank Secrecy Act (BSA), financial institutions banking MSBs are also required, under the Act, to perform ongoing monitoring of MSB customers’ activity. The required level of monitoring, referred to as “enhanced due diligence” (EDD), enables FinCEN to monitor not only the MSBs, but also, the activity of individuals, who, for many reasons, choose not to use traditional banking channels. Financial institutions’ monitoring provides transparency to monetary activity which has the potential to be used for money laundering and other criminal purposes.
The EDD that must be applied to MSBs comes at a cost to financial institutions due to the time and resources needed to meet regulatory requirements and, as a result, has made banking MSBs a seemingly unfavorable prospect. In response to the costs associated with banking MSBs, as well as the potential consequences of regulatory violations associated with failure to adequately apply EDD, many financial institutions have instituted strict policies prohibiting accounts across the board for potential MSB customers or, have closed accounts held by existing MSB customers. While financial institutions banned MSBs out of an abundance of caution, the banning has had an effect very opposite to that which was intended by FinCEN’s previous guidance regarding caution when banking MSBs – MSB activity, and that of MSB clientele, has been removed from the regulated banking industry and lowered under the radar of FinCEN, limiting transparency and increasing the risk of funds being used for illicit purposes. FinCEN released a statement in November 2014 to clarify that financial institutions are still required to adhere to BSA requirements for MSBs; however, institutions should apply EDD based on the institution’s risk and the individual risk presented by MSBs on a case-by-case basis, rather than applying the same type or level of enhanced due diligence to all MSBs. FinCEN urges institutions to get to know potential MSB customers as they would any business customer and determine the necessary level of monitoring for each individual customer. Although the institution does need to confirm current FinCEN registration, complete periodic risk reviews, and ensure an adequate understanding of their MSB customer, FinCEN reminds us the mom-and-pop general store selling money orders may not require the same degree of monitoring the convenience store cashing checks and processing money transmissions does.
Has your financial institution recently reviewed your institution’s policy for banking MSBs? If your financial institution’s policy hasn’t been revisited since the November FinCEN guidance, it may be time to pick up the quill and ready the scribes. According to FinCEN, to bank or not to bank MSBs is not a question to be answered a single time, but to be answered on a case-by-case basis. Refer to FinCEN’s statement for further details:
For additional information contact the author Julie J. Mixtacki at firstname.lastname@example.org.