Do money transmitters, check cashers, forex dealers, prepaid card sellers, and dealers in virtual currency present special challenges when it comes to BSA compliance? Yes. Do MSBs present special BSA compliance challenges to bankers? Yep.

Do MSBs serve a valuable purpose in the national and global economy, do they serve traditionally under-banked customers, is it possible for an MSB to serve its customers while maintaining a robust, complaint BSA framework, and can a bank earn fair but good fee income from a high-volume MSB? Yes, yes, yes, and yes.

FinCEN confirms that MSBs serve an important purpose in today’s global economy. MSBs serve traditionally under-banked costumers. MSBs keep in the “transparent economy” many transactions that would otherwise be accomplished in the uncontrolled, unregulated, decidedly consumer-unfriendly black market. Some commentators criticize some MSB fees, but few make the argument that the cost of these services would decrease when consumers are forced by de-risking to unlicensed, unregulated, unaccountable alternatives.

It is absolutely true that risk management tools and technology available to the MSB and banking industries have lagged both industries’ need for regulatory compliance and real risk management. Some years ago, the Philadelphia Federal Reserve Bank sounded a warning in a definitive work on requirements for BSA Risk Assessments: “Many institutions…simply do not know where to begin when attempting to develop a BSA/AML risk assessment.” The Fed was addressing bank risk assessments, but the principles behind MSB risk assessments are the same. The Conference of State Banking Supervisors (CSBS), operator of the National Multi State Licensing System (NMLS), which licenses many MSBs, recently introduced a job aid intended to standardize understanding of, and the process behind, a compliant bank BSA risk assessment. In recognizing the value of such a tool, CSBS said, “The internal communication this tool encourages should lead to a more informed board and staff, reducing uncertainty and improving the institution’s risk posture.”

If BSA is such a critical issue in MSB compliance, one might ask whether there is a standardized, efficient, complaint technology solution for a BSA Risk Assessment? To be sure, the process of standardizing a best practices risk assessment across institutions taking into account layers of regulatory requirements is a significant challenge. Referring to the aforementioned Philly Fed definition of an “adequate risk assessment” and CSBS’s recent efforts leads to a fairly clear set of requirements that the BSA risk assessment must analyze every location, product, service, and customer profile (“Items”) by:

  • - Understanding and recording the inherent risk posed by the Item;
  • - Applying controls tailored mitigate the specific risk of each Item;
  • - Documenting the controls in policies, procedures, and processes; and
  • - Understanding and explaining to regulators and management the BSA risk posed by each Item after the application of mitigating controls (“residual risk”).

If you set out to develop a great BSA risk assessment technology for MSBs (and we did) it would:

  • - Collect information via intuitive wizards that make data collection simple and consistent.
  • - Contain inherent risk ratings for virtually every location, product, service, and customer profile a typical MSB would offer or serve.
  • - Provide mitigating controls customized to the specific products, services, and customer profiles.
  • - Rate risk on a categorical and institutional basis using a proprietary algorithm.
  • - Provide real time, plain language reports that give managers and executives the information they need to make informed decisions.
  • - Contain detailed documentation ready to provide regulators with a granular as well as institutional view of BSA compliance.
  • - Be continually updated for regulatory changes and best practices.

Technologies Used

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