Money Service BusinessesRoles, 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

NYS Top Down Approach
        - 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 ApproachExamination 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

Rating System – ComponentsFILMS
        - 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

For Discussion Purposes October 24, 2007

NYS Top-Down ApproachExamination 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’sBottom-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