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For Discussion Purposes October 24, 2007 Money Service Businesses Roles, Issues & Challenges A New York State Perspective: Licensing, Supervision, and.

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Presentation on theme: "For Discussion Purposes October 24, 2007 Money Service Businesses Roles, Issues & Challenges A New York State Perspective: Licensing, Supervision, and."— Presentation transcript:

1 For Discussion Purposes October 24, 2007 Money Service Businesses Roles, Issues & Challenges A New York State Perspective: Licensing, Supervision, and Examination

2 For Discussion Purposes October 24, 2007 Money Service Businesses (MSBs) Money Transmitters Money Transmitters Licensing & Supervision since 1964Licensing & Supervision since Licensed Money Transmitters operating through over 25,000 agents72 Licensed Money Transmitters operating through over 25,000 agents Employ 63,000 employeesEmploy 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 aloneIn 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 For Discussion Purposes October 24, 2007 Money Service Businesses (MSBs) Check Cashers Check Cashers Licensing & Supervision since 1944Licensing & Supervision since check cashing companies operating through over 900 locations200+ check cashing companies operating through over 900 locations Employing 4,000 peopleEmploying 4,000 people In 2006, cashed more than 32 million checks with an aggregate face value of $17.0 billionIn 2006, cashed more than 32 million checks with an aggregate face value of $17.0 billion

4 For Discussion Purposes October 24, 2007 How the Industry is Configured Banks Banks A money transmitter/check casher must still use a bank to enter the financial systemA money transmitter/check casher must still use a bank to enter the financial system Money Transmitter/Check Casher Money Transmitter/Check Casher LicensedLicensed UnlicensedUnlicensed Agent Agent Agent of Licensed Money TransmitterAgent of Licensed Money Transmitter Agent of Unlicensed Money TransmitterAgent of Unlicensed Money Transmitter Customers Customers Regular remittance of $200-$300 used 8-10 times per yearRegular remittance of $200-$300 used 8-10 times per year To money launder fundsTo money launder funds

5 For Discussion Purposes October 24, 2007 MSB Transaction Flow Chart

6 For Discussion Purposes October 24, 2007 NYS Top Down Approach Licensing & Supervision Standards Licensing & Supervision Standards Licensing standardsLicensing standards Character & Fitness standards Character & Fitness standards Inclusive of a BSA/AML program at time of licensing Inclusive of a BSA/AML program at time of licensing SupervisionSupervision Safety and Soundness Standards via FILM(S) rating, inclusive of raising the bar to give banks confidence in working with Money Transmitters/Check Cashers Safety and Soundness Standards via FILM(S) rating, inclusive of raising the bar to give banks confidence in working with Money Transmitters/Check Cashers

7 For Discussion Purposes October 24, 2007 NYS Top-Down Approach Licensing Requirements (A sample): Licensing Requirements (A sample): Background report prepared by the NYS licensed investigator on every partner, officers, directors and substantial stockholders.Background report prepared by the NYS licensed investigator on every partner, officers, directors and substantial stockholders. Management and supervisory experience in the MSB business.Management and supervisory experience in the MSB business. Financial documentation: both corporate and personal informationFinancial documentation: both corporate and personal information

8 For Discussion Purposes October 24, 2007 NYS Top-Down Approach Licensing Requirements: Licensing Requirements: BSA/AML Policies and Procedures – requires the basic elements of Section 352 of U.S.A. PATRIOT ActBSA/AML Policies and Procedures – requires the basic elements of Section 352 of U.S.A. PATRIOT Act Policies and procedures submitted for review Policies and procedures submitted for review Designated compliance officer (with experience) Designated compliance officer (with experience) Training program identified Training program identified Understanding (via an affidavit) that an independent review will be conducted within one year. Understanding (via an affidavit) that an independent review will be conducted within one year.

9 For Discussion Purposes October 24, 2007 NYS Top-Down Approach Examinations at Licensee LevelExaminations at Licensee Level Financial Condition Financial Condition Safety and Soundness of the conduct of business Safety and Soundness of the conduct of business Policies of Management Policies of Management Compliance with laws – BSA/AML Compliance with laws – BSA/AML Whether Policies and Procedures are sufficient to control activities Whether Policies and Procedures are sufficient to control activities

10 For Discussion Purposes October 24, 2007 NYS Top-Down Approach Examination Procedures Examinations of Licensee Examinations of Licensee Visitation within six months of operations, inclusive of BSA/AML implementationVisitation within six months of operations, inclusive of BSA/AML implementation Examination FrequencyExamination Frequency Money Transmitters annually Money Transmitters annually Check Cashers once every two years Check Cashers once every two years

11 For Discussion Purposes October 24, 2007 Rating System – Components FILMS Financial Condition Financial Condition Internal Controls and Auditing Internal Controls and Auditing Legal and Regulatory Compliance Legal and Regulatory Compliance Management Management (S) Systems and Technology (S) Systems and Technology Component/Composite ratings range from 1-strong to 5 - unsatisfactory

12 For Discussion Purposes October 24, 2007 NYS Top-Down Approach Examination Procedures BSA/AML Examination includes: BSA/AML Examination includes: Four Elements of U.S.A. PATRIOT ACT Section 352Four Elements of U.S.A. PATRIOT ACT Section 352 Transaction TestingTransaction Testing MT: Visitation of sample selection of agentsMT: Visitation of sample selection of agents Geographic concentration Geographic concentration Agents of multiple licensees Agents of multiple licensees MT: Review of agent file documentationMT: Review of agent file documentation Selection Selection Monitoring Monitoring Termination Termination CC: Transaction testingCC: Transaction testing with focus on completeness of recordkeeping and patterns of customer checks with focus on completeness of recordkeeping and patterns of customer checks

13 For Discussion Purposes October 24, 2007 Law Enforcements Bottom-Up Approach Dovetails very well with our Top- Down 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 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 Successful partnership to shut down unlicensed activity

14 For Discussion Purposes October 24, 2007 Participants/Roles Customers Customers Money Service Businesses Money Service Businesses Banks Banks Regulators: Regulators: MSB and Bank regulatorsMSB and Bank regulators State and Federal regulatorsState and Federal regulators Law Enforcement Law Enforcement

15 For Discussion Purposes October 24, 2007 Issues Clarity of the definition of MSB Clarity of the definition of MSB Section (uu): $1,000 single or aggregate transactions in one daySection (uu): $1,000 single or aggregate transactions in one day Knowing MSB regulatory framework Knowing MSB regulatory framework De-Banking of MSBs De-Banking of MSBs Concentration of MSB account servicing within banking industry, inclusive of credit unions Concentration of MSB account servicing within banking industry, inclusive of credit unions Customer Awareness Customer Awareness

16 For Discussion Purposes October 24, 2007 Challenges Evaluation of MSB Definition Evaluation of MSB Definition Convergence of Regulatory Standards via Information-sharing Convergence of Regulatory Standards via Information-sharing Concentrations within Banking Industry Concentrations within Banking Industry Communication and Education of Industries (both Banking and MSB industries), regulators, and law enforcement Communication and Education of Industries (both Banking and MSB industries), regulators, and law enforcement Consumer Education Consumer Education

17 For Discussion Purposes October 24, 2007 Summary Communication on various levels with various partners Communication on various levels with various partners The regulators, industries (banking & MSB), law enforcementThe regulators, industries (banking & MSB), law enforcement Importance of flow of information for clarification of guidance, supervision and examination for consistency of approach Importance of flow of information for clarification of guidance, supervision and examination for consistency of approach

18 For Discussion Purposes October 24, 2007 Summary Most important: Most important: The banking and MSB industries have to continue to communicate with each other and with their respective regulatorsThe banking and MSB industries have to continue to communicate with each other and with their respective regulators We all share common goals: We all share common goals: Ensuring customers have access to financial servicesEnsuring customers have access to financial services Keeping the MSB industry viable and above ground.Keeping the MSB industry viable and above ground.

19 For Discussion Purposes October 24, 2007 Questions ????


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