TEXAS DEPARTMENT OF BANKING FDIC BSA Seminar San Antonio, Texas May 24, 2005

1. TEXAS DEPARTMENT OF BANKINGFDIC BSA SeminarSan Antonio, TexasMay 24, 2005

2. Lynda Drake Director of Corporate Activities Russell Reese Director of Special Audits Division Presenters

3. Topics of Discussion • Overview of Department’s Licensing Requirements of Money Service Businesses (MSBs) • Overview of Department’s MSBs Examination Program • Recommended File Documentation for MSB Accounts

4. What is a MSB? • Currency Dealers or Exchangers • Check Cashers • Issuers of Traveler’s Checks, Money Orders or Stored Value Cards • Sellers or redeemers of Travelers Checks, Money Orders or Stored Value Cards; and, • Money Transmitters or Transporters

5. Which Activities Do We License? • Money Transmissions • Includes “face to face” transactions and “internet” transactions • Money Orders • Travelers Checks

6. Which Activities Do We License? • Currency Exchangers/Dealers • Currency Transporters • Stored Value Products – not issued by insured financial institutions

7. Which Activities Do We NOT License? • Check Cashers • Stored Value Products – issued by insured financial institutions or in a “closed” system • Agents of Check Sellers

8. Which Statutes Apply? • Chapter 152 – Check Sellers • Money Orders, Travelers Checks, Drafts • Electronic Transfers, ACH Transfers, Stored Value Products

9. Which Statutes Apply? • Chapter 153 – Currency Exchange, Transportation, or Transmission • Currency Exchangers/Dealers, Casa de Cambios • Currency Transporters • Currency Transmitters

10. Pending Legislation • HB 2218 • Combines both Chapters 152 and 153 of the Texas Finance Code • Will be Chapter 151

11. How Do I Know that My Customer is Appropriately Licensed? • Check the MSB website - http://www.msb.gov/guidance/msbstateselector.php • Check the DOB website - http://www.banking.state.tx.us/

16. What about Agents of Licensed Entities? • If Chapter 152, Agents are not Licensed • If Chapter 153, location should be Licensed • If Chapters 152 or 153 • Issuer Must be Licensed • Written Contract between the Agent and the Issuer

17. What are the Requirements for a License? • Qualifications & Eligibility • Minimum Net Worth • Sound Financial Condition and Practices • Current Status for Payment of Taxes and Fees • Principals must “Pass Muster” • Bonded/Secured • Registered with IRS as MSB or committed to Register

18. What Checks are Made on an Applicant? • Filed Corporate Documents • Credit Report • OFAC List • Check with Comptroller of Public Accounts • Review Financial Statements • Check with IRS (153 only) • Clearing Bank Account Officer

19. What Checks are Made on an Applicant? (cont.) • Clearing Bank BSA/AML Officer • Check other State Regulators • DHS Check, if necessary • Check with other Texas State Agencies, if warranted • Conduct on-site Investigation, if warranted

20. What Checks are Run on a Principal? • DPS criminal check • DOB examiners • OFAC lists • Credit report • IRS (153 only) • FBI fingerprint check (153 only)

21. What Checks are Run on a Principal? (cont.) • DHS • Internet Search Firm • Other State or Federal Agencies • Personal Financial Statements

22. What Documents Do We Review? • Business Plan • AML Policy • Receipt • Contracts, if warranted

23. How the DOB can help You • Check our website –http://www.banking.state.tx.us • Watch your mail • Make an open records request • Talk to the examiners and check periodicals • Call us 512 475-1322

27. Overview of Examination Program • History • Purpose • Examination Procedures • Compliance with State Statutes • Compliance with Federal Statutes • Assess Safety & Soundness • Issue Exam Report of Findings • On-going Monitoring

28. History • Department has been performing exams on MSBs since the late 1980’s • MSB license holders range in size from sole proprietors to large publicly traded companies • To date, we have 142 MSB license holders • Includes international companies (India) • Majority of Chapter 152 license holders headquarters are located outside of Texas

29. Examination Purpose • Assess compliance with State and Federal Statutes: • Focus is on Compliance Issues; and, • Safety and Soundness

30. Examination Procedures • Verify Compliance with State Laws: • Reporting Requirements • Quarterly Report Filings • Transaction Volume • Permissible Investments

31. Examination Procedures • Recordkeeping Requirements for Threshold Transactions • Same as Federal Requirements • Transaction Receipt Disclosures • Consumer Complaint Notice Posting

32. Examination Procedures • Verify Compliance with Federal Laws: • Recordkeeping Requirements for Threshold Transactions • $1,000 for “exchanges” or $3,000 for “transmissions” • Reference: 31 CFR 103.37(b)(3) and 103.33(f) • Anti-Money Laundering Program • Reference: 31 CFR 103.125

33. Examination Procedures • Verify Compliance with Federal Laws (cont.) • Suspicious Activity Reports (SARs) • Reference: 31 CFR 103.20 (Form: TDF 90-22.56) • Currency Transaction Reports (CTRs) • Reference: 31 CFR 103.22 (Form: FinCEN 104)

34. Examination Procedures • Verify Compliance with Federal Laws (cont.) • Office of Foreign Assets Control Requirements • Reference: 31 CFR PART 500 • MSB Registration Requirement • Reference: 31 CFR 103.41(a c), (Form: TDF 90-22.55)

35. Examination Procedures • Assess Safety & Soundness: • Minimum Net Worth Requirements • Minimum Bonding Requirements • Management Supervision

36. Examination Procedures • Exit Meeting held with Management to Discuss Exam Findings • License Holder is Issued an Overall Rating Based on Exam Findings

37. Examination Procedures • License Holder is Issued Report of Examination • Joint/Coordinated Exams Performed with Other MSB State Regulators • To date for FY 2005 We Have Completed Eight Joint Exams

38. On-going Monitoring • Quarterly Reporting: • Required to file Financial Statements • Required to file Transaction Volume

39. On-going Monitoring • License Renewal: • Required to Pay Annual Renewal and Assessment Fees • Required to file Annual Renewal Application • Must be able to Demonstrate Compliance with All Licensing Requirements • Chapter 152 License Holders Must File Audited Financial Statements

40. Questions to ask a MSB Accountholder? • What “type” of MSB Activity is this Account Used For? • The answer will assist you with determining the proper documentation that you should request from the MSB

41. Questions to ask a MSB Accountholder? (cont.) • Is this Account only Used For Your MSB Activity; or, Do You Plan on Using this Account for “non” MSB Activity? • The answer will assist you in determining what is a “reasonable” amount of account activity

42. Documentation to Request if MSB Licensed with Department • Copy of Current License Issued by the Department • Copy of MSB registration form • Copy of most recent Department exam report • MSB must receive approval from the Commissioner to release exam report • Copy of AML Program • Copy of Independent Review of AML Program

43. Documentation to Request if Conducting MSB Activity as an “Agent” • Verification of the Principal’s License from the Department • Copy of Agent Agreement • Copy of AML Program • Copy of Independent Review of AML Program

44. Documentation to Request if Conducting MSB Activity as an “Agent” (cont.) • Copy of MSB Registration Form • If “Agent” does not conduct any other MSB services outside of Agent Agreement; then, Registration is NOT Required

45. Questions?