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TEXAS DEPARTMENT OF BANKING BSA, USA Patriot Act and Terrorist Financing Training Lubbock, Texas October 13, 2005 Stephanie Newberg, Deputy Commissioner Russell Reese, Director of Special Audits. Topics of Discussion. Overview of Department’s Licensing

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TEXAS DEPARTMENT OF BANKINGBSA, USA Patriot Act and Terrorist Financing TrainingLubbock, TexasOctober 13, 2005Stephanie Newberg, Deputy CommissionerRussell Reese, Director of Special Audits

topics of discussion
Topics of Discussion
  • Overview of Department’s Licensing

Requirements of Money Service

Businesses (MSBs)

  • Overview of Department’s MSBs

Examination Program

  • New Texas MSB Act
  • Recommended File Documentation for

MSB Accounts

which activities do we license
Which activities do we license?
  • Money Transmissions
  • Money Orders
  • Travelers Checks
  • Currency Exchangers/Dealers
  • Currency Transporters
  • Third Party Bill Payers
  • Gift Cards (in open systems)
  • Stored Value Products – not issued by insured

financial institutions

what activities are not licensed
What activities are not licensed?
  • Check cashing
  • Stored value products – issued by

an insured financial institution

  • Agents of MSBs
  • Gift Cards in closed systems
which statute applies
Which Statute Applies?
  • Chapter 151 – Money Services Businesses – Two

types of Licenses:

Currency Exchange License - Exchangers/Dealers,

Casa de Cambios

Must be:

      • Solvent
      • Reduced bonding requirement - $2,500
      • No separate license for each location
which statute applies continued
Which Statute Applies? (continued)
  • Transmission License – More stringent

requirements. Most licensees have this

license

    • Money Orders, Travelers Checks. Drafts, Electronic Transfers, ACH products, Stored Value Products, Gift Cards, Third Party Bill Payers
    • Transporters
what are the requirements for a transmission license
What are the requirements for a transmission license?
  • Minimum net worth
    • $100,000 for four or fewer locations
    • $500,000 for five or more locations
    • Commissioner can increase to $1 million if warranted
  • Sound financial condition and practices
  • Current status for payment of taxes and fees
what are the requirements for a transmission license continued
What are the requirements for a transmission license? (continued)
  • Principals must “pass muster” – background

checks

  • Bonded/Letter of Credit/Deposit in Lieu of

Bond

    • $300,000 or 1% of annual transaction volume

not to exceed $2 million

  • Registered with IRS as MSB
what checks are made on an applicant
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
  • Clearing bank account officer
  • Clearing bank BSA/AML officer
what checks are made on an applicant continued
What checks are made on an applicant?(continued)
  • Check other state regulators
  • Department of Homeland Security check,

is necessary

  • Check with other Texas state agencies, if

warranted

  • Conduct on-site investigation, if warranted
  • May require independent search firm

report

what checks are run on a principal control shareholder or responsible individual
What checks are run on a principal, control shareholder, or responsible individual?
  • DPS criminal check
  • DOB examiners
  • OFAC lists
  • Credit report
  • IRS/FBI fingerprint check
  • Check personal history
  • May require search firm report
what checks are run on a principal
What checks are run on a principal?
  • Department of Homeland Security
  • Internet search firm
  • Other state or federal agencies
  • Personal financial statements
what other documents do we review
What other documents do we review?
  • AML policy
  • Receipt – for required disclosures
  • Business plan
what other documents do we review continued
What other documents do we review? (continued)
  • Contract, if utilizing authorized

delegates:

    • Authorized delegate or agent must

certify that they are familiar with and

understand MSB statutes

    • Outline records to be maintained
    • Acknowledge receipt of procedures
    • Note the agent is subject to

examination by the DOB

what about authorized delegates of licensed entities
What about authorized delegates of licensed entities?
  • Authorized delegate – is a person that a license holder

appoints to conduct money transmission business on

behalf of the license holder (Sec 151.001 (b)(2))

  • Individual authorized delegates or agents are not

licensed

  • However:
    • Issuer must be licensed and is responsible for actions of agents
    • Must have written polices and procedures for agent to follow
    • Must conduct risk based background check on agent
    • Written contract between the agent and the issuer
    • The contract must meet the requirements of 151.402(c)
how do i know that my customer is appropriately licensed
How do I know that my customer is appropriately licensed?
  • Check the MSB website –

www.msb.gov/guidance/msbstateselector.php

  • Check the DOB website -

www.banking.state.tx.us/

overview of examination program
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
history
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 135 MSB license holders:
    • Includes international companies

(India & Canada)

examination purpose
Examination Purpose
  • Assess compliance with State

and Federal Statutes:

    • Focus is on Compliance Issues;

and,

    • Safety and Soundness
examination procedures
Examination Procedures
  • Verify Compliance with State Laws:
    • Reporting Requirements
      • Quarterly Report Filings
      • Transaction Volume
      • Permissible Investments
examination procedures continued
ExaminationProcedures(continued)
  • Recordkeeping Requirements for

Threshold Transactions

    • Same as Federal Requirements
  • Transaction Receipt Disclosures
  • Consumer Complaint Notice

Posting

examination procedures continued24
Examination Procedures(continued)
  • 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
examination procedures continued25
Examination Procedures(continued)
  • Verify Compliance with Federal Laws:

(continued)

    • 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)

examination procedures continued26
Examination Procedures(continued)
  • Verify Compliance with Federal Laws:

(continued)

    • 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)

examination procedures continued27
Examination Procedures(continued)
  • Assess Safety & Soundness:
    • Minimum Net Worth

Requirements

    • Minimum Bonding

Requirements

    • Management Supervision
examination procedures continued28
Examination Procedures(continued)
  • Exit Meeting held with

Management to Discuss

Exam Findings

  • License Holder is Issued

an Overall Rating Based

on Exam Findings

examination procedures continued29
Examination Procedures(continued)
  • License Holder is Issued Report of

Examination

  • Joint/Coordinated Exams Performed

with Other MSB State Regulators

    • For FY 2005 We Completed

Eight Joint Exams

on going monitoring
On-going Monitoring
  • Quarterly Reporting:
    • Required to file

Financial Statements

    • Required to file

Transaction Volume

on going monitoring continued
On-going Monitoring(continued)
  • 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

texas new money services act

Texas New Money Services Act

Effective date: September 1, 2005

texas new money services act33
Texas New Money Services Act
  • Major Changes:
    • Combines Chapters 152 & 153 of the

Texas Finance Code into New Chapter

151

    • Expands the Department’s authority to

“drill down” to the Authorized

Delegate (Agent) level

texas new money services act continued
Texas New Money Services Act(continued)
  • Person - an individual or a legal

entity [Sec.151.001(b)(17)]

  • The Department will take a risk based

approached to examining authorized

delegates, but ultimate responsibility

for authorized delegates compliance

remains with the license holder.

questions to ask a msb accountholder36
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

questions to ask a msb accountholder continued
Questions to ask a MSB Accountholder? (continued)
  • 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

documentation to request if msb licensed with department
Documentation to Request if MSB Licensed with Department
  • Copy of Current License Issued by the

Department

  • Copy of MSB registration form
  • Copy of AML Program
  • Copy of Independent Review of AML

Program

documentation to request if conducting msb activity as an authorized delegate
Documentation to Request if Conducting MSB Activity as an “Authorized Delegate”
  • Verification of the Principal’s License

from the Department

  • Copy of Delegate Agreement
  • Copy of AML Program
  • Copy of Independent Review of AML

Program

documentation to request if conducting msb activity as an authorized delegate continued
Documentation to Request if Conducting MSB Activity as an “Authorized Delegate”(continued)
  • Copy of MSB Registration Form
    • If “Delegate” does not conduct

any other MSB services outside

of Delegate Agreement; then,

Registration is NOT Required

how the dob can help you
How the DOB can help you?
  • Check our website at www.banking.state.tx.us
  • Make an open records request
  • Talk to the examiners and check periodicals
  • Call us (512) 475 -1322