Money services businesses often represent a significant portion of an economy: in the United States, for example, transactions handled by MSBs in 2017 amounted to over $1 trillion. Given the levels of criminal risk associated with the conversion of currency and transmission of money, MSBs are required to follow strict compliance regulations pertaining to the anti money laundering and counter terrorist legislation of the territory in which they operate.
With that in mind, employees of financial institutions should aim to understand how MSBs work, and the relevant legislation which may apply when doing business with them.
What does an MSB do?
Money services businesses come in a variety of shapes and sizes – ranging from small, niche-market startups, to large enterprise organizations with international footprints. The commercial currency exchange and transfer landscape is evolving and so businesses which classify as MSBs might include anything from traditional bureau de changes and post offices, to the latest innovative smartphone payment app.
Although the term ‘MSB’ varies between territorial jurisdictions, it is generally used to describe any business which engages in the following financial services:
- Acting as a bureau de change or office of currency exchange
- The transmission of money (or representation of money)
- Cashing cheques payable to customers
- Taking intermediary payments between a payer and a supplier through telecommunication, digital, and IT devices
- Offering payment services for bills – e.g gas and electricity, or tax payments
From a practical perspective, an MSB might provide a customer with a short-term loan, money for a holiday, a cash remittance to family members abroad, or a facility for conducting business with an institution in a foreign location. MSBs may also deal in less-conventional or emerging financial services, like crowdfunding projects, cryptocurrencies, or other types of online payment.
MSB AML Compliance
Operating a money services business involves compliance with a complex legislative environment, and in particular with anti money laundering (AML) regulations.
Financial authorities place such a strong focus on MSBs because the nature of the services they offer puts them at particular risk of being used in a financial crime. Amongst a range of possible criminal enterprises, money exchange services are attractive options for money launderers, online scammers, and terrorist groups who may wish to transmit money to affiliates overseas.
Although the specifics of AML obligations vary by jurisdiction, they generally involve developing and implementing an AML policy which corresponds to an institution’s risk profile – along with reporting obligations to authorities. MSBs are a common feature of financial landscapes in every part of the world – examples of global MSB regulators include:
- The United Kingdom: MSBs must register with either the Financial Conduct Authority or HMRC, depending on the specifics of their business.
- The United States: In the United States, MSBs must register with the Financial Crimes Enforcement Network (FinCen), be reviewed by the Internal Revenue Service (IRS), and comply with any relevant state and federal laws.
- Canada: Broadly similar to the United States in terms of regulations, MSBs in Canada must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
- Hong Kong: In Hong Kong, MSBs are known as money service operators (MSO), and are required to apply for a licence from the Customs and Excise Department in order to conduct business. MSOs in Hong Kong must abide by the Anti-Money and Counter-Terrorist Financing (Financial Institutions) Ordinance.