Creditors are sometimes surprised—actually shocked—to find out that some of their business activities result in their becoming money services businesses (“MSBs”) requiring registration as such with the Financial Crimes Enforcement Network (“FinCEN”).  This is a rather unwelcomed development.

A business that provides one or more of the following products or services is an MSB and must register:

• Sale of money orders, traveler’s checks or stored value cards, or redeeming such, other than purely as an agent for another
• Transmitting money via ACH or other electronic networks
• Cashing checks for customers in an amount greater than $1000 for any one person on any one day in one or more transactions
• Dealing or exchanging currency

Click here to go to the Code of Federal Regulations, for those who don’t believe me.

Of course, the U.S. Postal Service and agencies of the USA are exempt from this registration. 

To meet the definition of an MSB, a person must conduct more than $1000 in business with one person in one or more transactions in one of the activities listed above in one day—except, there is no threshold applicable to money transmitters.  So, your actual business practices ultimately determine whether you are an MSB.

So what?  What if you are engaged in activity that makes you an MSB? 

Well, as said above, you do need to register with FinCEN.  Click here to register.  Then, you must maintain records of each transaction exceeding $10,000, which record must contain the name and address of the party, the date, amount, nature and purpose of the transaction, and a record of each request or instruction regarding a funds transfer of more than $10,000.  This may not happen very frequently in your business.

But, if indeed you are an MSB, you are responsible for compliance with the Know Your Customer regulations under the guidance of the Financial Industry Regulatory Authority and with the Anti-Money Laundering Program of the USA Patriot Act (requiring a rather specific policy). You are also responsible for Suspicious Activity reporting and Currency Transaction reporting under the Bank Secrecy Act.   And, we all know that we need another set of regulators reviewing our business for regulatory compliance—like we need another hole in our heads!

Finally, and perhaps the biggest problem that comes along with being ID’d as an MSB, is that our bankers don’t particularly like their customers to be designated as an MSB.  It seems that the bank prudential regulators look with some disfavor on their charges opening bank accounts for MSBs.

Practice Pointer:  Evaluate your business model to determine if you are a money service business, and if so make certain that you are complying with the various requirements of law and regulation.

Please Note: This is the seventeenth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.