Money Service Business: Money Transmitters Check Cashers And the Banking Relationship

1
Money Service Business Money TransmittersCheck
CashersAnd theBanking Relationship

• New York State Banking Department Integrated
  ApproachLicensing, Examination and Supervision

2
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

3
Money Service Businesses(MSBs)

• Check Cashers
• Licensing Supervision since 1944
• 200 check cashing companies operating through
  over 900 locations
• Employing 4,000 people
• In 2005, cashed more than 34 million checks with
  an aggregate face value of more than 15 billion

4
MSB Transaction Flow Chart
5
Spectrum of Money Service Businesses

• National Companies publicly traded
• Western Union
• Money Gram
• ACE Express
• Regional Companies
• Envios R.D.
• La Nacional
• Quisqueyana
• Small Business
• Start-ups and Mom Pop shops

6
NYS Top-Down Approach

• Licensing Requirements (A sample)
• Background report prepared by the NYS licensed
  investigator on every partner, officers,
  directors and substantial stockholders, inclusive
  of fingerprinting.
• Management and supervisory experience in the MSB
  business.
• Financial documentation both corporate and
  personal information

7
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.

8
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 the activities of its authorized agents

9
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

10
Rating System ComponentsFILMS

• Financial Condition
• Internal Controls and Auditing
• Legal and Regulatory Compliance
• Management
• (S) Systems and Technology

11
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/correspondent file
  documentation
• Selection
• Monitoring
• Termination
• CC Transaction testing
• with focus on completeness of recordkeeping and
  patterns of customer checks

12
BSA/AML Examinations

• BSA Specialist for all Money Transmitters and
  large check cashers
• Pre-examination planning
• Access CTRs and SAR filings
• Transaction Testing
• Work Product Template

13
Component/Composite Ratings

• Ratings range from 1- 5
• 1 Strong
• 2 Satisfactory
• 3 Fair
• 4 Marginal
• 5 Unsatisfactory
• Any composite rating below satisfactory raises
  supervisory concern and can subject the licensee
  to supervisory action.

14
Successful BSA/AML compliance program
implementation

• Three Elements
• Management
• Internal Control Environment
• BSA/AML Program

15
What the Banks Can Ask

• Questions
• What is the regulatory environment?
• Is the MSB licensed?
• Does the MSB have the four pillars of BSA/AML?
• Any geographic concentrations?
• What are the high performing locations?
• What about external, internal and operational
  audits?

16
Things the Banks Can Do

• Procedures
• Ask about and obtain the information on the four
  pillars of BSA/AML
• Know the community the MSB operates in
• Do a customer visitation

17
Law EnforcementsBottom-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

18
Communication

• Coordination with Law Enforcement
• Supervisory regulatory powers can be helpful to
  law enforcement
• Identify effective and ineffective BSA/AML
  compliance programs
• Regulators oversee to ensure the correction of
  and penalty for violations
• Law enforcement prosecutes for criminal behavior

19
Questions ????