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Money Service Businesses Roles, Issues & Challenges. A New York State Perspective: Licensing, Supervision, and Examination. Money Service Businesses (MSBs). Money Transmitters Licensing & Supervision since 1964 72 Licensed Money Transmitters operating through over 25,000 agents

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Money Service Businesses Roles, Issues & Challenges

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Money Service BusinessesRoles, Issues & Challenges

A New York State Perspective:

Licensing, Supervision, and Examination

For Discussion Purposes October 24, 2007


Money Service Businesses(MSBs)

  • Money Transmitters

    • Licensing & Supervision since 1964

    • 72 Licensed Money Transmitters operating through over 25,000 agents

    • Employ 63,000 employees

    • In 2006, processed more that 90 million travelers checks, money orders, official checks and remittances with an aggregate face value of $104 billion in NYS alone

For Discussion Purposes October 24, 2007


Money Service Businesses(MSBs)

  • Check Cashers

    • Licensing & Supervision since 1944

    • 200+ check cashing companies operating through over 900 locations

    • Employing 4,000 people

    • In 2006, cashed more than 32 million checks with an aggregate face value of $17.0 billion

For Discussion Purposes October 24, 2007


How the Industry is Configured

  • Banks

    • A money transmitter/check casher must still use a bank to enter the financial system

  • Money Transmitter/Check Casher

    • Licensed

    • Unlicensed

  • Agent

    • Agent of Licensed Money Transmitter

    • Agent of Unlicensed Money Transmitter

  • Customers

    • Regular remittance of $200-$300 used 8-10 times per year

    • To money launder funds

For Discussion Purposes October 24, 2007


MSB Transaction Flow Chart

For Discussion Purposes October 24, 2007


NYS Top Down Approach

  • Licensing & Supervision Standards

    • Licensing standards

      • Character & Fitness standards

      • Inclusive of a BSA/AML program at time of licensing

    • Supervision

      • Safety and Soundness Standards via FILM(S) rating, inclusive of “raising the bar” to give banks confidence in working with Money Transmitters/Check Cashers

For Discussion Purposes October 24, 2007


NYS Top-Down Approach

  • Licensing Requirements (A sample):

    • Background report prepared by the NYS licensed investigator on every partner, officers, directors and substantial stockholders.

    • Management and supervisory experience in the MSB business.

    • Financial documentation: both corporate and personal information

For Discussion Purposes October 24, 2007


NYS Top-Down Approach

  • Licensing Requirements:

    • BSA/AML Policies and Procedures – requires the basic elements of Section 352 of U.S.A. PATRIOT Act

      • Policies and procedures submitted for review

      • Designated compliance officer (with experience)

      • Training program identified

      • Understanding (via an affidavit) that an independent review will be conducted within one year.

For Discussion Purposes October 24, 2007


NYS Top-Down Approach

  • Examinations at Licensee Level

    • Financial Condition

    • Safety and Soundness of the conduct of business

    • Policies of Management

    • Compliance with laws – BSA/AML

    • Whether Policies and Procedures are sufficient to control activities

For Discussion Purposes October 24, 2007


NYS Top-Down ApproachExamination Procedures

  • Examinations of Licensee

    • Visitation within six months of operations, inclusive of BSA/AML implementation

    • Examination Frequency

      • Money Transmitters annually

      • Check Cashers once every two years

For Discussion Purposes October 24, 2007


Rating System – ComponentsFILMS

  • Financial Condition

  • Internal Controls and Auditing

  • Legal and Regulatory Compliance

  • Management

  • (S) Systems and Technology

    Component/Composite ratings range from “1”-strong to “5” - unsatisfactory

For Discussion Purposes October 24, 2007


NYS Top-Down ApproachExamination Procedures

  • BSA/AML Examination includes:

    • Four Elements of U.S.A. PATRIOT ACT Section 352

    • Transaction Testing

    • MT: Visitation of sample selection of agents

      • Geographic concentration

      • Agents of multiple licensees

    • MT: Review of agent file documentation

      • Selection

      • Monitoring

      • Termination

    • CC: Transaction testing

      • with focus on completeness of recordkeeping and patterns of customer checks

For Discussion Purposes October 24, 2007


Law Enforcement’sBottom-Up Approach

  • Dovetails very well with our Top-Down Approach

  • Identify patterns of activity at the “street level” that may be flowing through both licensed and unlicensed entities

  • Successful partnership to shut down unlicensed activity

For Discussion Purposes October 24, 2007


Participants/Roles

  • Customers

  • Money Service Businesses

  • Banks

  • Regulators:

    • MSB and Bank regulators

    • State and Federal regulators

  • Law Enforcement

For Discussion Purposes October 24, 2007


Issues

  • Clarity of the definition of MSB

    • Section 103.11 (uu): $1,000 single or aggregate transactions in one day

  • Knowing MSB regulatory framework

  • De-Banking of MSBs

  • Concentration of MSB account servicing within banking industry, inclusive of credit unions

  • Customer Awareness

For Discussion Purposes October 24, 2007


Challenges

  • Evaluation of MSB Definition

  • Convergence of Regulatory Standards via Information-sharing

  • Concentrations within Banking Industry

  • Communication and Education of Industries (both Banking and MSB industries), regulators, and law enforcement

  • Consumer Education

For Discussion Purposes October 24, 2007


Summary

  • Communication on various levels with various partners

    • The regulators, industries (banking & MSB), law enforcement

  • Importance of flow of information for clarification of guidance, supervision and examination for consistency of approach

For Discussion Purposes October 24, 2007


Summary

  • Most important:

    • The banking and MSB industries have to continue to communicate with each other and with their respective regulators

  • We all share common goals:

    • Ensuring customers have access to financial services

    • Keeping the MSB industry viable and above ground.

For Discussion Purposes October 24, 2007


Questions ????

For Discussion Purposes October 24, 2007


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