# Presentation: 712199

## Money Service BusinessesRoles, 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

## 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

- 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 ApproachExamination 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

## 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

**F**inancial Condition
**I**nternal Controls and Auditing
**L**egal and Regulatory Compliance
**M**anagement
- (S) Systems and Technology
- Component/Composite ratings range from “1”-strong to “5” - unsatisfactory

- For Discussion Purposes October 24, 2007

## NYS Top-Down ApproachExamination 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’sBottom-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