On May 24, the Conference of State Bank Supervisors (CSBS) and the Money Transmitter Regulators Association (MTRA) published a report titled “The State of State Money Services Businesses Regulation and Supervision.” According to the report, money services businesses (MSBs) are losing access to traditional banking services, with many banks “indiscriminately terminating the accounts of MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers.” Evidence suggests that banks are terminating or refusing to open MSB accounts partially because of the regulatory scrutiny surrounding the industry and the concern of BSA/AML risks. However, the report recognizes that MSBs are an important part of the financial system at large: “[MSBs], and specifically money transmitters, play a vital role in providing financial services to consumers and small businesses across the country. Countless Americans use MSBs every day to pay bills, purchase items online or send funds to family members and friends domestically and abroad.” Acknowledging the significant role MSBs play in providing financial services to U.S. households, the CSBS’ and MTRA’s report is intended to provide an outline of the states’ system of supervision of MSBs, highlighting that “state regulatory requirements are focused on consumer protection, safety and soundness and adherence to BSA/AML requirements and enforcement through state supervisory programs.”
On June 2, the South Carolina Legislature unanimously passed House Bill 4554, the South Carolina Anti-Money Laundering Act. The Act is intended to “provide regulation and oversight of the money transmission services business most commonly used by organized criminal enterprise to launder the monetary proceeds of illegal activities, and to provide definitions, exclusions, procedures, and penalties.” Among other things, the Act outlines licensure requirements for persons engaging in the business of money transmission and/or currency exchange. Pursuant to the Act, the South Carolina AG (or Commissioner) “may conduct an annual examination of a licensee or of any of the licensee’s authorized delegates [(as defined by the Act)] on a forty-five day notice in a record to the licensee.” In addition, the Act delegates to the Commissioner the authority to suspend or review a license or order a licensee to revoke the designation of an authorized delegate. The Act will take effect either one year after it is signed by the Governor or upon publication in the State Register of final regulations implementing the Act, whichever occurs later.
On April 26, Georgia Governor Nathan Deal signed into law HB 811, an Act to amend Title 7 of the Official Code of Georgia Annotated, which includes banking and finance provisions. Notably, the Act authorizes the Georgia Department of Banking and Finance to enact rules and regulations to apply to persons engaged in money transmission or the sale of payment instruments involving virtual currency, as it finds necessary to, among other things, ensure the continued solvency, safety, soundness, and prudent conduct of persons engaged in those businesses, protect customers, encourage high standards of honesty, transparency, fair business practices and public responsibility, and provide customers with timely and understandable information about virtual currency products and services. The Act is effective July 1, 2016.
On April 8, the Massachusetts Division of Banks issued a letter to CEOs of licensed money transmitters regarding an increase in consumer scams related to the use of money transfer systems. The Division noted that “it is important that your employees and agents, as well as your customers, become familiar with warning signs of a scam and take appropriate action to avoid them.” To this end, the Division encouraged money transmitters to review existing programs regarding agent monitoring and anti-fraud to ensure, among other things, that (i) staff and agents are appropriately trained to monitor transactions and identify red flags; (ii) staff is authorized to terminate or place a hold on transfers which raise red flags for suspected fraud; and (iii) comprehensive policies, procedures, and training requirements for compliance with the BSA are in place.
On March 24, FinCEN issued FIN-2016-G002 to supplement guidance issued in 2011 regarding aspects of its Prepaid Access Final Rule. FIN-2016-G002 provides answers to a list of frequently asked questions related to the following areas: (i) the relationship between de minimis cash refund requirements under state law and the exemption in FinCEN’s regulations for closed loop prepaid access products; (ii) conditions under which the use of quick response codes and other technology would fall within the definition of closed loop prepaid access; (iii) whether the term “defined merchant” in the context of closed loop prepaid access is limited to a single merchant; (iv) policies and procedures reasonably adapted to avoid the threshold for being designated as a “seller” of prepaid access; and (v) listing sellers of prepaid access on the provider’s money services business (MSB) agent list.