MSBs are no BS – An Important BSA Topic!
by Amy Kleinschmit
Chief Compliance Officer

Two questions to ponder as you read this article:

1. Does your credit union offer account services to businesses/persons doing business that engage in MSB activity?

2. What is your credit union’s process to identify MSB related activity at account opening and in existing accounts? (This is important even if you DON’T offer accounts to MSBs!)

If you answered “What is an MSB activity?” or “What process?” read on.

“Money Service Businesses (MSBs) range from large international money transmitters to small independent businesses that offer financial services only as a secondary component to their primary business (for example, a grocery store that offers check cashing). As a result of this diversity, some MSBs may be lower risk and some may be higher risk for money laundering. Credit unions that maintain account relationships with MSBs may be exposed to a higher risk for potential money laundering activities due to the risk factors included in the table below.” NCUA Supervisory Letter No. 14-05

MSBs continue to be a hot topic that credit unions need to be aware of. As a refresher, an MSB includes a person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the following capacities: (1) dealers in foreign exchange – currency exchange or currency dealing; (2) check cashers; (3) issuers, sellers or redeemers of traveler’s checks or money orders; (4) providers or sellers of prepaid access; and (5) money transmitters. 

There is a threshold requirement for dealers in foreign exchange, check cashers and issuers or sellers of traveler’s checks or money orders. A business that engages in such transactions is not considered an MSB if it does not engage in such transactions in an amount greater than $1,000 for any person on any day in one or more transactions. An entity that engages in money transmission in any amount is considered an MSB. Thresholds vary for providers and/or sellers of prepaid access depending on the prepaid program.

As noted in FinCEN advisory FIN-2013-G001, which can be found here, an administrator or exchanger of virtual currency is an MSB under FinCEN’s regulations, specifically, a money transmitter. An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency – both of these definitions are expanded on in the FinCEN advisory referenced above. A user of virtual currency is not an MSB under FinCEN’s regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations.

Four of the last five years, the National Credit Union Administration (NCUA) has specifically cited MSB as an item in their supervisory priority letters to credit unions: Letters to Credit Unions 17-CU-01, 16-CU-01, 15-CU-01, and 14-CU-02. The supervisory priorities for 2018 did not specifically identify MSBs, but still focused on customer due diligence, 17-CU-09.

NCUA has stressed:

“In 2016, NCUA field staff will focus on credit unions’ relationships with money services businesses, also known as MSBs. Credit unions can provide services to an MSB while meeting BSA requirements, but should be aware of the unique risk exposure MSBs can present and the corresponding need for commensurate expertise and monitoring systems.  In 2014, NCUA issued guidance to field staff and credit unions on Identifying and Mitigating Risks of Money Service Businesses.  The guidance describes the steps credit unions should take to mitigate any money-laundering risks posed by MSBs.

If your credit union provides services to an MSB, field staff will verify that you meet the following minimum expectations established by NCUA and federal banking agencies:

  • Perform customer identification program procedures;
  • Ensure each MSB is registered with the Financial Crimes Enforcement Network (FinCEN) and is in compliance with state and local licensing requirements; and
  • Conduct a BSA/anti-money laundering risk assessment to document the level of risk associated with each MSB account and determine whether greater due diligence is necessary.”

Per NCUA’s Supervisory letter 14-05, credit unions must meet certain minimum expectations when providing banking services to MSBs. The minimum due diligence expectations associated with opening AND maintaining accounts for MSBs are:

  • Perform the required Customer Identification Program procedures;
  • Confirm that member MSBs register with FinCEN, if applicable;
  • Confirm that member MSBs comply with state or local licensing requirements, if applicable;
  • Confirm the member MSB’s agent status, if applicable; AND
  • Conduct a BSA/AML risk assessment to document the level of risk associated with the account and whether greater due diligence is necessary. As with any business account, in determining how much, if any, further due diligence would be required for any MSB member, the credit union should consider the following basic information:
  • Types of products and services offered by the MSB.
  • Location(s) and market(s) served by the MSB.
  • Anticipated account activity and volume
  • Purpose of the account.

If a credit union determines that a member MSB presents a higher level of money laundering or terrorist-financing risk, enhanced due diligence measures should be conducted in addition to minimum due diligence procedures. Depending on the level of potential risk, as well as the size and sophistication of a particular MSB, a credit union may pursue some or all of the following actions as part of an appropriate enhanced due diligence review:

  • Reviewing an MSB’s BSA/AML program.
  • Reviewing results of an MSB’s independent testing.
  • Reviewing written procedures for the operation of an MSB.
  • Conducting on-site visits of an MSB.
  • Reviewing an MSB’s written employee screening practices.

In addition to the above due diligence requirements, credit unions are required to report MSB account information on the Call Report.

So, back to my second question above: What is your credit union’s process to identify MSB related activity at account opening and/or in existing accounts?

Even if it is your business decision not to offer account services to MSBs, you still need to have something in place to identify which potential new accounts are engaged in MSB activity. Also, you need to have a process in place to identify potential MSB activity in accounts that have already been opened.

At account opening, is staff asking the right questions to identify MSB activity? From there you can have a conversation with the potential new member to determine if they limit transaction so as to stay below the thresholds discussed above (except money transmitter which is any amount).

What about the existing accounts you have, or businesses that have added on new services, one of which could be MSB activity? Possible indicators of MSBs may include, but are not limited to: large cash transactions not commensurate with expected activity of account or business; high volume of third-party checks when not commensurate with expected activity of account or business; and/or high volume of wire transfers not commensurate with expected activity of account or business.

You can find additional resources on this topic here in the FFIEC BSA/AML Examination Manual.


As always, CUAD members may contact Amy Kleinschmit with any compliance related questions. 




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