MSB Accounts: "We Used To Have Them, But Not Any More..."

Part of a joint statement from all the regulatory agencies and FinCEN issued the last week of March read, "Money Services Businesses (MSB) are losing access to banking services as a result of concerns about regulatory scrutiny, the risks presented by money services business accounts, and the costs and burdens associated with maintaining such accounts."

Many financial institutions have already closed out their MSB accounts. The MSBs themselves are in many cases unsure of what they need to do in order to keep their banking relationships. And because of the risk involved, if the bank is unwilling to "educate" the MSB and follow through on the requirements, it is simply shutting the account down.

Many bank customers can fall into the definition of a business that is considered to be a Money Service Business. A final rule issued in 1999 by the Secretary of the Treasury revised the regulatory definitions of certain non-bank financial institutions for purposes of the Bank Secrecy Act (BSA) and grouped the definitions into a separate category of financial institutions called "money services businesses" or "MSBs." A business that meets one or more of the definitions of a type of MSB is an MSB and must comply with BSA requirements applicable to it as an MSB, as a financial institution and as a specific type
of MSB.

For example an issuer, seller or redeemer of money orders and/or traveler's checks; a money transmitter; a check casher, a currency exchanger or dealer, and an issuer, seller or redeemer of stored value are all considered to be MSBs if certain other criteria exists. If any transactions are over $1,000, no matter if check cashing is a very small portion of business, the business that cashed the check is a MSB. (See Q & A on Page 7) If over 50% of the revenue of the customer is derived from money service transactions, the business cannot be exempt from filing a Currency Transaction Report. In order to determine whether the business meets the "below 50% requirement" means the financial institution has to monitor the account more closely. Many financial institutions are not willing to do that.

FinCEN et al are concerned that financial institution risk assessments are making it impossible for MSBs to obtain the banking services needed in order to function. Their major concern is the removal of services to individuals who may not have ready access to the formal banking sector. The memo informs us that, "The Bank Secrecy Act does not require, and neither FinCEN nor the Federal Banking Agencies expect, banking institutions to serve as the de facto regulator of the money services business industry." Nonetheless, banks evidently perceive the opposite to be true.Guidance on account relationships has been promised to the financial industry as soon as the end of April. They may go a long way towards restoring the servicing of MSBs. We'll report on the guidance as soon as it is available. Meantime, there is more information on the subject, and an explanation of requirements for the MSB on www.msb.gov.

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 2, 4/05