Global Payments: Understanding the Basics of Anti-Money Laundering and State Licensing

Global Payments – the topic is everywhere and for good reason. Statistics published by the Conference of State Banking Supervisors (CSBS) state that licensed Money Service Businesses (MSBs) conduct more than $1.8 trillion in transactions annually[1] and are an essential part of the financial services industry for banks, commercial customers, and consumers. These licensed companies are the backbone of the cross-border payments industry.

Given the size of the market and the explosion of new technologies, everyone is interested in being part of this industry. Many of these global payment products fall under the category of Money Service Businesses (MSBs). Here in the United States, there are a myriad of regulations that affect these cross-border payments, but I will focus on exciting updates in two critical areas: Financial Crimes Network(“FinCEN”) and the State Money Transmission Regulations. Understanding the basic regulatory requirements for  your  company when it comes to cross-border payments is crucial to stay on the right side of regulators. A misstep can bring a supervisory action resulting in  fines or even a shut-down of your business.

First up is “FinCEN.” Its goal is to ensure that the financial system is safeguarded, so developing and instilling an effective Anti-Money Laundering and Counter-Financing of Terrorism Compliance(AML/CFT) Program is essential.

Earlier this year, Electronic Transactions Association(ETA), INFiN (a Financial Services Alliance),Money Services Business Association (MSBA),and The Money Services RoundTable (TMSRT) released a comprehensive template for companies that represent the full-range of MSBs. This extensive cross-sector effort produced a template for existing companies to evaluate its programs, and to guide new company entrants. It took several years to develop this template of best practices and the creators will continue to update it annually to keep abreast of the evolving payments industry.

The MSB Best Practices reflect the MSB industry’s commitment to ensuring a safe and compliant environment. The document reflects two important goals:

  1. To refine MSB AML/CFT compliance standards to safeguard the financial system
  2. To address the challenge of forced de-risking (the cancellation of banking services to entire business lines, rather than on a case-by-case basis).

Considering the fast advancement of financial innovation, the MSB Best Practices address how the payments industry protects the US financial system and consumers from money launderers, sanction evaders, human traffickers, and fraudsters. These best practices serve as a blueprint for established firms and new market entrants in managing risks so that payments can be securely and safely sent and received. The best practices recommend using a risk-based approach to guide any MSB involved in any activity. Specifically, an MSB should incorporate the four pillars listed below which reinforce and build upon one another:

Designate a qualified BSA/AML officer: This person is empowered with the appropriate authority to coordinate, manage, and oversee day-to-day compliance with the BSA and its implemented regulations.

Establish policies, procedures, and internal controls: A system must be in place at each MSB that is based on an ongoing risk assessment to create the framework for an effective compliance program.

Training: Ensure all appropriate employees are trained to understand and adhere to these processes and requirements.

Independent testing/review for compliance adequacy: MSBs should consider hiring a third party to conduct the independent testing, or identify a separate department such as Internal Audit to conduct the review.

The program must be supported by the Board and Senior Management and a culture of compliance must be present at the organization.

The second over-arching change for the industry is the collaboration of state regulators and payment industry experts to create the Money Transmission Modernization Act (MTMA). This collaboration will bring modernization to an antiquated and inconsistent regulatory regime that burdens companies as well as regulators and stifles innovation. Individual state requirements have been a long-lasting challenge for companies wishing to expand or innovate here in the United States. The Money Transmission Model Act is in its infancy stage, but with support from the industry and Regulators, we are working together to provide a more business-friendly environment and maintain protection for consumers and businesses. Regulation will be modernized for today’s companies that may rely on either traditional cross-border cash payments from Branch or Agent retail locations, digital money transfers or the payments of tomorrow! This Act will provide a set of clear standards that can be implemented by state regulators in a consistent and coordinated manner, which will benefit all.

The value of the MSB Best Practices and the Money Transmission Modernization Act to the industry is significant.  If you are a recent entrant into the Payments Industry, ensure that you have checked the box and know your responsibilities about these Federal and State Regulations. Registering as an MSB with FinCEN does not mean that you are free from your state licensing obligations, so please do not get confused. Of course, there are other regulatory requirements that you need to review, however begin with FinCEN and the state licensing regulations and requirements to start off on the right foot.

[1] See “2020 NMLS Money Services Businesses Report” (2020).





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