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Decreasing the Risk of Derisking: Mitigating Financial Institution Perceived Risk of MSBsState-regulated financial institutions are best positioned to appreciate the amount of regulatory oversight present for a money services business (MSB) and to use this knowledge to mitigate perceived risk. The same state regulators that oversee state MSB licensing also regulate 77 percent of the nation’s banks. Now is the time for MSBs to seize the opportunity of having a shared state regulator and reduce the perceived risk of a financial institution offering a MSB an account.

MSBs successfully process hundreds of thousands of transactions daily on a national and international basis. This volume, along with the risk for money laundering and terrorist financing, have identified MSBs as “high risk” for financial institutions. Many financial institutions have decided that the enhanced oversight and compliance necessary for the MSB industry as a whole outweighs any benefits in maintaining a banking-customer relationship.

What is often overlooked, however, is the fact that while MSBs are potentially high risk they are also heavily regulated, often by the same regulators as the financial institution. The Conference of Bank Supervisors and the Money Transmitter Regulators Association recently released a joint white paper entitled, “The State of State Money Services Businesses Regulation & Supervision.” The white paper shares an overview of state regulation and supervision of MSBs, touches on coordinated supervision among both state regulators and their federal counterparts at the FinCEN, FFIEC, IRS and CFPB, and calls for financial institutions to assess the risk of MSB industry customers on a case-by-case basis.

According to the white paper, “[t]he states are concerned that indiscriminate ‘derisking’ resulting in the elimination of MSB bank accounts will not only weaken access to financial services, but may very well unintentionally increase BSA/AML risks. Banks and customers should know and understand the MSBs with which they are transacting business, including the supervisory structures designed to authorize and regulate the industry, and make decisions based on the individual risk profile of each MSB.” MSBs should use this white paper to strengthen existing or establish new financial institution relationships with state-regulated financial institutions. Consider the following action items:

  • Share the white paper with your current financial institution or a prospective state-regulated financial institution. Be prepared to discuss what sets your company apart from the stereotype.
  • Consider approaching a local state-chartered bank or credit union to discuss a financial relationship. As a state-licensed MSB, you likely share the same state regulator. Use this to your advantage.
  • Educate your loan officer about the type of business you conduct and what processes are in place to minimize risk. Highlight safeguards in place to protect customers.
  • Educate your loan officer about the type of regulatory oversight that already exists. Share the items required for application and license renewal as well as ongoing regulatory oversight and examination.
  • Highlight the role a licensed MSB plays in providing financial services to customers less likely to use traditional banking services. Share the success stories of your customers within the local community.

The white paper offers a segue to a conversation with your local state-regulated financial institution to legitimize your MSB as a valuable part of your community. Don’t miss this opportunity to decrease the perceived risk of your company and push back on the stereotypes that have led to derisking of the MSB industry as a whole.