Dealer in Foreign Exchange
A dealer in foreign exchange is a FinCEN money services business category: a person who exchanges the currency of one country for that of another in an amount greater than $1,000 for any other person on any day. Exchanging currency and transmitting money are different activities with different consequences.
Also called: currency dealer or exchanger
31 CFR 1010.100(ff)(1) defines the category as a person who accepts the currency, or other monetary instruments, funds or other instruments denominated in the currency of one or more countries in exchange for the currency or equivalent instruments of one or more other countries, in an amount greater than $1,000 for any other person on any day in one or more transactions. As with the other MSB categories the threshold is per person per day and aggregates across transactions.
Above it, the business is an MSB: it must register with FinCEN, maintain an AML programme, keep the prescribed records and file the prescribed reports. State law is separate again; several states licence currency exchange specifically, and several fold it into their money transmission regime, which is one of the reasons the two activities are so often confused.
The distinction to hold onto is functional. A dealer in foreign exchange completes an exchange — a customer hands over one currency and receives another, and the transaction ends there. A money transmitter accepts value from one person and sends it to another person or another location. A remittance business that quotes a rate is doing both, and needs to be assessed for both.
In practice
Currency exchange is not money transmission and registering for one does not cover the other. Equally, a business that converts currency as part of sending it abroad is not "only" a dealer in foreign exchange: the transmission leg is assessed on its own terms, federally and in every state where the sender sits.
Example
A bureau de change swaps dollars for euros over a counter and hands the euros back across it. That is currency exchange. The moment the same business agrees to send those euros to a beneficiary in another country, a second activity has begun and a second set of permissions is in question.
Commonly confused with
| Term | How it differs |
|---|---|
| Money Transmitter License | Transmission moves value from one person or place to another. Exchange converts one currency into another for the same person, in the same place. |
| Check Casher | Another MSB category with the same $1,000 per person per day threshold, covering the exchange of checks for currency rather than one currency for another. |
| FX Markup | A pricing concept — the margin over a reference rate. Dealer in foreign exchange is a regulatory status, and a business can have the status whatever its margin. |
See also
- Money Services BusinessA money services business is a category in US federal law under the Bank Secrecy Act, covering seven capacities: dealer in foreign exchange, check casher, issuer or seller of money orders or traveler’s checks, provider of prepaid access, seller of prepaid access, money transmitter, and the US Postal Service.
- Money Transmitter LicenseA money transmitter license is permission granted by a US state for a company to receive money from the public in that state and pay it, or its value, to someone else. Each state licenses separately.
- Check CasherA check casher is a FinCEN money services business category: a person who cashes checks for more than $1,000 for any one person on any day. Federal registration as an MSB and a state check-cashing licence are separate requirements, and neither covers money transmission.
- FinCEN RegistrationThe federal filing a money services business makes with FinCEN, on Form 107, to put itself on the Treasury’s MSB register. It must be renewed every two years. It is a notification that the business exists, not an approval of it.
- FX MarkupAn FX markup is the difference between a reference rate — normally the mid-market rate — and the rate actually offered to the customer. It is the provider’s price for the conversion, and on a cross-border transfer it is usually the largest part of the cost.
- Mid-Market RateThe mid-market rate is the midpoint between the price at which a currency pair is being bought and the price at which it is being sold — the rate with no margin added. It is a reference point for pricing, not a rate a customer transacts at.