Money service business bank accounts are more elusive than ever before. AML regulation and the resulting trend of derisking are putting pressure on banks, which is then transferred to the money service business industry. Even compliant and profitable MSBs are challenged to find a stable MSB bank account to keep their business up and running.
Money service business bank accounts are essential for running any kind of MSB, including check cashing outlets, a currency exchange businesses, and any other nonbank financial services company. A reliable bank account is the foundation for all of the banking services an MSB requires. In addition to an account for depositing checks, MSBs need the ability to wire money and armored cash delivery to efficiently rotate their working capital. Without a bank account, none of this is possible and MSBs are forced to close.
MSB bank accounts are different from other business bank accounts because they require a special compliance program. Banks who serve MSBs must comply with federal and state regulation to manage the risk associated with money service businesses. Thanks to Operation Choke Point, the MSB industry has an undeserved reputation as being unmanageably high risk. While MSBs do present an opportunity for financial crime, this risk can be successfully managed through a robust approach to compliance.
Many big banks are closing money service business bank accounts or shutting down their MSB departments in the act of derisking to avoid managing this risk. This wholesale derisking, in turn, negatively impacts MSBs whose daily operations require a full service MSB bank account.
Derisking ramped up when the United States Department of Justice and the FDIC published a list of “risky businesses” in 2013, an action that has been dubbed Operation Choke Point. The list sought to formally point out businesses that present a higher risk for financial fraud, such as money laundering. A year after publishing the list, the FDIC issued a letter to banks encouraging them to take an individualized approach to risk rather than shutting down services to entire industries.
Even though the list was rescinded in 2014, the negative label it placed on the MSB industry remains. Derisking also disproportionately affects smaller banks, smaller countries, and nonprofits – and other entities whose fees do not far surpass the cost of risk management. American nonprofits working abroad have experienced loss of access to funds as derisking severs ties between US banks and smaller financial services companies abroad. Without access to their operational cash, these nonprofits are forced to delay or cancel projects.
On the home front, MSBs with longstanding and compliant banking relationships are dealing with abrupt account termination and refusal of banking services. NCC client Jagdeep Hans decided to take matters into his own hands before his bank could send him a termination letter. Hans owns and operates Olney Financial Services with 4 MSB locations in the Philadelphia area. At each location, his core offerings are check cashing, bill pay, money orders, state lottery, ATM transactions, and fax/copy services.
Even though Hans had a bank account, he was unsettled by the derisking phenomenon he witnessed among his peers who were losing their bank accounts left and right. Instead of waiting around for his number to be called, Hans reached out to NCC and secured a reliable MSB business bank account. Other MSB clients are not so lucky, instead finding NCC in a mad scramble to stay banked after opening up their bank termination letters.
Beyond derisking, MSBs face tightening regulation, an increased compliance burden, and new competition from an unlikely source. As banks either shed risk or work to manage risk, the compliance burden is passed onto the MSBs themselves. Compliant MSBs now need advanced POS technology in addition to robust compliance programs. AML regulation intended to identify, stop, and prosecute money laundering is having unintended consequences.
These regulations are increasing the compliance responsibility and associated costs for banks and MSBs. To avoid these increases, banks opt to sever ties with MSBs and opt out of AML regulation altogether. Instead of managing their risk, they choose to avoid it entirely. Compliant MSBs are left with a dwindling pool of banking options and increased pressure to keep meticulous records and report suspicious activity – putting the burden of risk management squarely in their court. In many cases, MSBs are over reporting suspicious activity, which is evident in rising SARs filed through FinCEN.
Fintech is also disrupting the MSB banking industry with a new mobile money solution around every corner. American fintech companies are looking to M-PESA’s success in Kenya to model new products for the unbanked and underbanked population. Banks are also working to enter the MSB industry with new check cashing services for non account holders. Both big banks and Fintech companies are realizing that money service businesses fill an ever-growing gap in banking services. MSBs still have an edge over their two new competitors because they are often located in areas without bank branches or Fintech pop-ups.
Amidst these changes, regulators are working to clarify rules around virtual currency. In New Hampshire, a bill that would give Bitcoin an MSB exemption is being debated. As the definition of an MSB is challenged, regulation becomes even more challenging and confusing. This combination of regulatory change, a shifting regulatory burden, derisking, and increased competition make securing an MSB bank account harder than ever before – and more important than ever before.
In 2007, NCC formed in response to derisking and bank discontinuance by big financial institutions. NCC services the MSB industry with reliable bank accounts, compliance-centric financial services, state-of-the-art software technologies, extraordinary AML/BSA compliance, and stellar customer service. NCC works to safeguard both their MSB clients and their network of financial partners through a proactive approach to risk management and above standard compliance requirements.
NCC clients don’t have to worry about derisking because they receive a real bank account from an MSB friendly bank that is backed by NCC’s growing network of banking partners. MSB clients also enjoy extended deposit times, money wiring services, local cash vaulting, and armored cash delivery. These supported MSB services work together to keep cash in play and support business growth.
With NCC as your banking and compliance partner, you can focus on expanding your services, growing your customer base, nurturing relationships through loyalty programs, and training your employees. NCC’s team of MSB industry experts is at your disposal 24/7 to help you manage your risk, stay ahead of changes in regulation, and strengthen your banking relationship. Learn more about NCC’s MSB banking solutions and expanded banking services.