Identify and Monitor High- Risk and Money Service Businesses Accounts Presented by Lynn English Lafayette Federal Credit Union
Key Takeaways • After this webinar, participants should have an understanding of Money Service Businesses and the requirements for banking such high risk entities. • Guidance on identifying high risk accounts at your institution and how to monitor them. • Understand Examiner Expectations for providing banking services to Money Services Businesses and other high risk accounts.
Agenda • What is an MSB (Money Service Business)? • FinCEN MSB Requirements • To Bank or Not to Bank aka “ De- Risking” • How to determine if a business may be an MSB. • Is my institution equipped to handle the risk? • What other accounts are considered High Risk ? • How to identify High Risk accounts. • How to monitor high risk accounts. • Programming your Monitoring System to help you identify undisclosed MSB’s • Examiner Expectations
What is a Money Service Business and What’s the Big Deal? • Money Service Business (MSB) as defined by FinCEN [Title 31, Subtitle B, Chapter X Part, Subpart A, §1010.100 (ff)] : • A person doing business as an organized or licensed business concern, wholly or in substantial part within the US, in one or more of the following capacities: • Dealer in Foreign Exchange • Check Casher (amounts greater than $1000 for any person on any day) • Issuer or Seller of Traveler’s checks or Money Orders • Provider of Prepaid Access • Money Transmitter • U.S Postal Service • Seller of Prepaid Access
FinCEN Requirements for MSB’s • The Financial Crime Enforcement Network, also known as FinCEN has a section of the Code of Federal Regulations dedicated to Money Service Businesses and their responsibilities under the Bank Secrecy Act. Those requirements are codified here: Title 31, Subtitle B, Chapter X, Part 1022-Rules for Money Service Businesses • Surprisingly, the responsibilities of a MSB are very similar to a bank or credit union. • Identification Program • Written Compliance Policies • Compliance Officer • Reporting • Independent Reviews • Record Keeping • Registration with FinCEN, okay this one is different
What is a Money Service Business and What’s the Big Deal? • You may say, there’s nothing wrong with providing those services…and there isn’t. • There are plenty of people who can’t use the standard banking system for one reason or another and MSB’s provide necessary services and are very beneficial to them… • There are also plenty of people who try to avoid the legitimate banking system by using MSBs…and therein lies the problem. • So, what do we do?
To Bank or Not to Bank? AKA De- Risking • If a MSB has obligations under BSA just like a bank or credit union, what’s the risk in offering accounts to them? Well… • The movement of funds through an MSB are not the same as funds that move directly through your institution. You can only see part of the picture. • Depending on the MSB, they may have Agents at other locations. • Is there a way for you to know your customer’s (the MSB) customer for the purposes of CIP? • You have no real control over the MSB’s compliance with the BSA rules. • Requires Monitoring • Inspections?? • Cash needs?? • Location, location, location…
Poll Question?? • Does your credit union provide accounts to Money Service Businesses (MSB’s)? • YES • NO
How do you know if a business is a MSB? • If a business owner doesn’t walk into your institution and declare that they are a Money Service Business, how would you know? • Site Visits • Transactions (after account opening) • Cash Requests • Deposit Activity • Internet Searches • You can also ask at account opening (recommended) • Use a survey or risk matrix when a business account is opened to determine what kind of services the business offers. • Check Cashing-(Average daily, weekly volumes) • Funds Transfers (Wire Services, Western Union, MoneyGram)- Anticipated Volumes • Gambling Services (Reg. GG)- Licensed? Internet Based? Lottery? • Phone, Gift, Prepaid reloadable cards
What if they are a Money Service Business? If your new member is a MSB or you discover subsequent to account opening that your member is a MSB, there are steps you must take: • You must verify that the business has registered with FinCEN under the MSB Registry found here: https://www.fincen.gov/msb-state-selector • You need to obtain a copy of the MSB’s Compliance Policy • Obtain the name of the Compliance Officer or Responsible Person • Perform a site visit to verify all services offered • Perform a risk assessment for the MSB (not a specific requirement, but highly recommended): • Services offered • Volumes • Number of offices • Number of Agents • Geographic locations • Client Base • Designate the account as High Risk • Monitor Monthly or more frequently based on risk assessment
What if they are a Money Service Business? • Does your credit union offer services to Money Service Businesses?? • If not, what will you do at account opening if it is disclosed? • What happens if you discover it after the account has been opened and the member did not disclose to you their true business? • What happens if a sudden change in activity leads you to believe your existing member is now operating as an MSB? Are these questions addressed in your policy? If not, they should be…
Is My Institution Equipped to Handle the Risk? • Did your Board of Directors approve banking services for MSB’s? • Did you perform a risk assessment? • Do you have a MSB Policy? • Do you have the means to identify a MSB (especially if it hasn’t been disclosed at account opening)? • Do you have the resources to visit your identified MSB members on a regular basis? • Does your staff have the expertise or experience to successfully monitor the activity of your MSB members? Do you have enough staff members to do so?
What about the other types of high risk accounts? • Motor Vehicle Sales(Car, • Convenience Store Plane, Motor Homes • Grocery Store • Lawyers • Investment Broker • Real Estate Brokers • Pawn Shop • Precious Metals & Gems Dealer • Charter Services (Bus, Plane, • Insurance Broker Boat) • Accountant • Account subject to previous BSA • Gaming reporting…SAR, CTR • Auctioneer • Any account identified by your transaction monitoring system as • Medical Providers high risk • Liquor Store • Any account identified by your credit union as high risk
How do you identify a high risk account? • At Account Opening • By industry (NAICS Codes) • By declaration (remember that survey we mentioned…?) • Internal/External Notification • Internal communication of unusual or suspicious activity • Back Office CIP Review • Subpoena • Negative News • Account Activity • Manual Report Reviews • Transaction Monitoring System Reports
How do you identify high risk accounts? If you are using a transaction monitoring system, identification of high risk accounts can be achieved at a more granular level. A good system will allow you to look at multiple aspects to determine risk levels such as: • Geography • Related households • Physical location of • Peer Comparisons member or business • Anomalous Behaviors • Transaction locations • Account Classification across all delivery channels • System • Volumes and Velocity of • Manual Funds • Daily Aggregation • BSA Reporting
Poll Question? • Does your Credit Union use an automated BSA solution to risk rate your members? • YES • NO
How do you monitor high risk accounts? The same tools that help you to identify a high risk account, will also help you to monitor the high risk accounts that you have identified. • But what are you looking for when you monitor? • Changes to frequency of deposits or withdrawals • Changes to average dollar amounts of deposits or withdrawals • Transactions that don’t match the stated business • Cash intensity • Accounts with the same addresses but different ownership • Geographical changes in the movement of money • Domestic vs International Wire Activity • Funnel Account Activity-Deposits in one location and withdrawals in another • Debit Card Activity (high risk locations)
Programming your Monitoring System to help you identify an undisclosed MSB. If you are seeing this activity, you may have identified an MSB. • It is especially important to be familiar with the expected transaction activity for a certain type of business. NAICS codes help identify the industry. • One of the more obvious clues that you may be banking an MSB is the volume and frequency of cash requested by the entity in comparison to what was stated at account opening. • Volume of check deposits • Ensuring that you have a way to review ACH activity within an account will help you to monitor electronic flows • Debits from Western Union, Money Gram, Amex or other money transfer services • Be careful if you offer Remote Deposit Capture for your members/business accounts. You have to monitor them more closely since a staff member isn’t processing the check deposits in the conventional way.
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