Last updated on January 2nd, 2018 at 12:00 am
The Financial Crimes Enforcement Network issued a statement this morning about money service businesses.
Money services businesses including money transmitters important to the global flow of remittances, are losing access to banking services, which may in part be a result of concerns about regulatory scrutiny, the perceived risks presented by money services business accounts, and the costs and burdens associated with maintaining such accounts.
Many banking institutions have been immediately closing the financial accounts of money service businesses. FinCEN believes it is important to reiterate that banking organizations can serve the money service industry while meeting their Bank Secrecy Act obligations.
Currently, there is concern inside FinCen that banks are indiscriminately terminating the accounts of all MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a class of customers. Such a wholesale approach runs counter to the expectation that financial institutions can and should assess the risks of customers on a case-by-case basis.
The statement from FinCen reiterates that it is not asking banking institutions to close MSB accounts simply because they are money service businesses stating,
FinCEN does not support the wholesale termination of MSB accounts without regard to the risks presented or the bank’s ability to manage the risk. As noted, MSBs present varying degrees of risk, and not all money services businesses are high-risk. Therefore, when deciding whether to provide services to an MSB customer, financial institutions should assess the risks associated with that particular MSB customer. A financial institution’s risk assessment should include considering whether customer risks can be managed appropriately and the financial institution should maintain levels of controls commensurate with the customer risks presented. Banks that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to MSB customers, regardless of any MSB’s specific business model.
FinCEN also wanted to reiterate several key factors of the Bank Secrecy Act and how it relates to the money service business with a statement reminding financial institutions of several key items,
A bank needs to know and understand its MSB customer. To do so, it should understand the MSB’s business model and the general nature of the MSB’s own customer base, but it does not need to know the MSB’s individual customers to comply with the Bank Secrecy Act. This is no different from requirements applicable to any other business customer.
Banking organizations are expected to manage the risk associated with all accounts, including MSB accounts. However, the Bank Secrecy Act does not require, and neither does FinCEN expect, banking institutions to serve as the de facto regulator of the money services business industry any more than of any other industry. FinCEN recognizes that, as a practical matter, it is not possible for a bank to detect and report all potentially illicit transactions that flow through an institution. But where an institution follows existing guidance and establishes and maintains an appropriate risk-based program, the institution will be well-positioned to appropriately manage such accounts, while generally detecting and deterring illicit transactions.
FinCEN is attempting to make it clear with the statement this morning that it does not wish to see the destruction of an entire financial services industry and that it is reminding banks that they are not barred from allowing money service businesses from having accounts purely based on the fact they are an MSB.
FinCEN does require that bitcoin and cryptocurrency exchanges become registered MSBs to conduct business legally but many regulated MSBs are still unable to open or keep up bank accounts with many banks stating they are closing the account due to concerns with FinCEN and the Bank Secrecy Act but with this statement it now appears banks looking to close bitcoin MSBs will need to use another reason (such as “other risks”).
Hat tip to David R. Allen about the statement from FinCEN. Image courtesy of Tim Evanson.
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