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What are some of the Legal Responsibilities of being a Money Services Business?

Operating as a money services business (MSB) can be a profitable venture, but it also comes with certain legal responsibilities that must be met in order to obtain and maintain a money transmitter license. Here are a few key points to keep in mind:

  • Compliance with federal laws: MSBs are regulated by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. FinCEN has established regulations that MSBs must comply with, including the Bank Secrecy Act (BSA) and the Money Laundering Control Act. These laws require MSBs to implement and maintain effective anti-money laundering (AML) programs, report suspicious activity, and comply with record-keeping and reporting requirements.
  • Obtaining a money transmitter license: MSBs are also required to obtain a money transmitter license from the state in which they operate. The process for obtaining a license varies by state, but generally includes submitting an application and paying a fee, as well as undergoing a background check and providing financial statements. Some states also require MSBs to post a bond or maintain a certain level of net worth.
  • Meeting state-specific requirements: In addition to complying with federal laws, MSBs must also meet any state-specific requirements for operating in their area. These can include additional reporting and record-keeping requirements, as well as specific licensing and bonding requirements. It’s important to consult with an attorney to understand the specific requirements of the state(s) where the MSB will be operating.
  • AML Program: AML program is a set of policies, procedures and controls that are designed to prevent, detect and report money laundering. These programs must be in place at MSBs, and should be regularly reviewed and updated, to ensure that they are effectively mitigating the risk of money laundering.
  • Protecting customer information: MSBs are also responsible for protecting the personal and financial information of their customers. They are expected to implement and maintain robust security programs to protect against unauthorized access to customer information, including firewalls, intrusion detection systems, and encryption.
  • Financial Stability: MSBs are also required to maintain a certain level of financial stability. This is necessary to ensure that customers’ funds are protected and that the MSB can meet its financial obligations. Depending on the state, MSBs may be required to maintain a certain level of net worth, hold a certain amount of assets, or even post a bond. It’s important to understand the specific financial requirements of the state where the MSB will be operating, and to have a plan in place to maintain financial stability.
  • Risk Assessment: MSBs are expected to conduct regular risk assessments, which allow them to identify, evaluate and prioritize potential risks related to money laundering, terrorist financing and other financial crimes. This should be a constant process and should be reviewed regularly.
  • Reporting: MSBs are required to file regular reports to state and federal authorities. These reports include Currency Transaction Reports (CTRs), Suspicious Activity Reports (SARs), and information returns. MSBs must ensure that the reports are accurate and filed on time.
  • Auditing: MSBs are expected to conduct regular self-audits of their compliance programs, to ensure that they are effectively mitigating risks and complying with laws and regulations. These audits should be conducted by internal or external auditors who are independent of the MSB’s operations and have the appropriate knowledge and experience.
  • Compliance officer: All MSBs are expected to appoint a compliance officer who is responsible for the day-to-day management of the MSB’s compliance program, including developing and implementing policies and procedures, training employees, and conducting audits.

What Happens when you Become Non-Compliant?

If an MSB is non-compliant or only partially compliant with the laws and regulations that govern their operations, it can result in a variety of consequences. Here are a few potential outcomes:

  • Fines and penalties: MSBs that are found to be non-compliant or only partially compliant with federal and state laws and regulations can be subject to fines and penalties. These can include civil monetary penalties, fines, and even criminal charges. The amount of fines and penalties can vary depending on the severity of the non-compliance and the specific laws and regulations that have been violated.
  • Loss of license: An MSB that is non-compliant or only partially compliant may also lose its license to operate. This can occur if the state regulatory agency determines that the MSB is not meeting its legal and regulatory obligations, and therefore poses a risk to the public. Losing a license can be a significant setback for an MSB and can result in the loss of revenue and customers.
  • Reputation damage: Non-compliance or partial compliance can also damage an MSB’s reputation. This can occur if the MSB’s non-compliance is made public, or if the MSB is subject to enforcement action. This can lead to a loss of customer trust, and make it difficult for the MSB to attract new customers or business partners.
  • Legal liability: If an MSB is non-compliant or only partially compliant, it could also be held liable for any financial losses or damages that its customers or other parties suffer as a result. This could lead to costly lawsuits, which could further damage the MSB’s reputation and financial stability.
  • Law enforcement action: MSBs that are non-compliant or only partially compliant can also be subject to law enforcement action. This could include investigation, seizure of assets, or even criminal charges.

It’s important to understand that compliance should be treated as a top priority, and that non-compliance or partial compliance can have serious consequences. It’s much better to invest time and resources into ensuring compliance, rather than facing the potential penalties and fines of non-compliance.

In summary, operating as an MSB can be a profitable venture, but it comes with many legal responsibilities, and compliance with federal and state laws, regulations, and guidelines can’t be overstated. It’s essential for MSBs to consult with legal and regulatory compliance professionals, to ensure that their business complies with all the applicable laws and regulations.

This page was last updated on January 11, 2023.