On November 10, 2014, FinCEN issued a Statement on Providing Banking Services to Money Services Businesses.
Due to regulatory scrutiny, the perceived risks associated with Money Service Businesses (MSB), and the costs and burdens of maintaining such accounts, many financial institutions are closing or refusing to open accounts for ANY MSB’s, eliminating that entire category of customer. As a result, many legitimate, well-run MSBs have become victims of this approach.
FinCEN feels this approach runs counter to the expectation that financial institutions assess the risks of customers on a case-by-case basis. “Refusing financial services to an entire segment of the industry can lead to an overall reduction in the financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors.”
In other words, MSBs play an important role in providing remittance services to the unbanked and those who live outside their native country. Cutting off funding to MSBs will force such persons to use more expensive, unreliable and informal channels; maybe even the Black Market. Money will end up being stuffed in suitcases, smuggled across borders and is more likely to end up in the hands of criminals.
FinCEN reiterated that financial institutions CAN serve the MSB industry while meeting their Bank Secrecy Act obligations. Financial institutions should assess the risks associated with each particular MSB customer, determine whether those risks can be manage appropriately and if levels of controls commensurate with the risks presented can be maintained.
You can also refer to the FFIEC BSA/AML Examination Manual which provides guidelines on how to conduct enhanced due diligence on MSBs.