A money services business (MSB) is a non-bank financial institution, business, or person
MSBs are regulated by the Financial Crimes Enforcement Network (FinCEN), must follow all the regulations set by the Bank Secrecy Act (BSA), and must implement a very strong Anti-money Laundering (AML) compliance policy. To qualify as an MSB, a money transaction must take place with one person in an amount of $1,000 or greater in a single day—whether or not this transaction is done regularly.
Types of Money Services Business
The six types of money services business are defined specifically by FinCEN. Any entity under these categories falls under the regulations set forth by BSA and AML and will be required to register as an MSB.
1. Currency Dealer or Exchanger
When traveling to another country, you may need the services of a currency dealer or exchanger. This type of MSB takes one currency and exchanges it for another of equal value.
A good example would be converting US dollars into Euros. The currency dealer would calculate the exchange rate, add a fee for the exchange, and give you the difference in the other currency. Any additional cash remaining after your trip can be exchanged back to US dollars if desired.
2. Check Cashier
If you don’t have a personal checking account and you receive a paycheck or a personal check, you will need to use a check cashing service to gain access to the funds. When visiting a check-cashing store, you will be required to submit a valid ID along with the check and agree to the check-cashing fee to obtain the cash.
3. Issuer of Traveler’s Checks, Money Orders, or Stored Value
- Travelers checks: While these are not as popular now, some financial institutions still carry them for individuals wishing to travel without taking cash. They come with an insurance guarantee in the event they are lost or stolen so that the traveler can get a reimbursement. When purchasing them, cash is given in exchange for the checks, so this would fall under the category of an MSB.
- Money orders: Many retail stores sell these in exchange for cash. You can purchase them at the US Postal Service, a check cashing center, or a retail store—such as Walmart, CVS, or 7-Eleven. To determine if your local store sells them, look for the MoneyGram or Western Union logo on the store window.
- Stored value: This is any physical item that can be used to house funds. Examples of stored value are a check, store value cards, gift cards, fare cards for public transportation, payroll cards, and money orders. Most retail stores have a kiosk where gift cards are displayed. You can choose the amount you wish to place on the card, and the value will remain until the intended recipient spends the funds.
4. Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value
A seller or redeemer is similar to the issuer of traveler’s checks, money orders, or stored value items. The main difference is that a seller or redeemer is the location where the funds are “cashed in” and redeemed for their face value.
Oftentimes, an issuer is the same entity as the redeemer. A good example would be purchasing a Walmart gift card. Walmart will issue its own gift card and also allow the recipient to bring the card into the store to shop, thus becoming the redeemer.
5. Money Transmitter
Money transmitters can move funds electronically via wire or mobile app from one business or individual to another. This method of transferring money does require a bit more information since you will need instructions on how to deliver the funds to your recipient if they request a deposit to a checking account.
An example of a money transmitter is Western Union. When sending money, you can decide how you want the funds delivered. Some want to pick up the funds in person, while others choose to have the funds routed to an account.
6. US Postal Service
The postal service is also listed in the FinCEN MSB list since it offers money orders and also has gift cards for sale. Since it is not a financial institution or a check cashing center, it is listed separately on the FinCEN roster to show it qualifies as an MSB.
MSBs and Regulations
Every bank, credit union, or MSB must establish an internal AML policy that is strictly followed so that employees will know what to do if they are presented with a suspicious transaction. This policy is known as a BSA/AML compliance program since it combines the Anti-Money Laundering and Bank Secrecy Act into one.
Anti-money Laundering Compliance
The purpose of the AML is to establish rules and regulations to assist financial institutions in detecting crimes involving “dirty money.” Criminals may use this kind of money for terrorist financing or other illegal activities such as embezzlement, drug trafficking, or bribery.
The Bank Secrecy Act
The main function of the BSA is to ensure banks and MSBs keep accurate records regarding cash and suspicious activity.
These institutions must
- document all cash transactions over $10,000 and negotiable instrument purchases
- monitor multiple transactions between $3,000 and $10,000 if they involve the same customer on the same business day
Then, the institutions are required to file
- reports on cash transactions meeting these thresholds
- suspicious activity reports (SARs) on customers attempting to process any kind of suspicious transaction—regardless of the amount
These records and reports can be used by law enforcement, anti-terrorism agencies, and financial regulators in the event a questionable transaction needs to be investigated. These guidelines are in place to help prevent money laundering and put a stop to financial crimes.
How to Register as a Money Services Business
- Step 1: Determine whether you, the owner or controlling person, are subject to MSB guidelines.
- Step 2: Complete the registration through the FinCEN website; note that you will use Form 107 and that registration needs to be done no more than 180 days after establishing that you are an MSB.
- Step 3: Receive instructions on how to file any required reports or suspicious activity.
What to Do to Avoid Processing Criminal Transactions
Since a money services business tends to get high traffic and a large number of cash transactions and transfers, the risk of running across a customer attempting to launder money is increased.
- Install transaction monitoring software to help detect suspicious transactions internally
- Appoint a compliance officer to ensure guidelines are being followed
- Train employees on policies and procedures regarding BSA and AML
- Regularly evaluate your risk program for improvements
- Follow Know Your Customer (KYC) procedures by requiring a valid identification
- Keep up to date on regulatory changes and updated documentation
- File all reports promptly
- Continually refine internal controls to close up any loopholes
How to Transact Cash Without Using an MSB
The best way to move business funds and also avoid paying fees is by opening a business bank account at a bank or credit union. By having a dedicated business account, you can access your funds at any time and gain access to online banking. This will save time since you can do much of your banking electronically instead of visiting an MSB in person to send wires or transmit vendor payments.
If you’re searching for a small business checking account that’s a good fit, you may want to review our roundup of the
best small business checking accounts
, which has options for in-person banking and online-only banking models.
Frequently Asked Questions (FAQs)
An MSB is any business or person other than a bank that engages in money transactions involving transmitting, converting, or exchanging money. Common examples are check cashing centers, foreign currency exchange services, or any business that sells money orders, gift cards, or traveler’s checks.
A money services business can offer a variety of money services such as cashing checks, selling money orders, offering gift cards, and transmitting money in the form of wires, electronic transfers, bill pay, and across the internet.
Yes, PayPal is a digital payment processor. It creates a connection that enables consumers and businesses to make purchases electronically from online vendors and allows users to send and receive money on demand.
Common MSBs are Western Union, MoneyGram, PayPal, Venmo, and the US Postal Service. An MSB can also be a small independently owned check cashing center or a large business such as Walmart that offers a variety of services such as check cashing, gift cards, and reloadable debit cards.
Common MSBs are Western Union, MoneyGram, PayPal, Venmo, and the US Postal Service. An MSB can also be a small independently owned check cashing center or a large business such as Walmart that offers a variety of services such as check cashing, gift cards, and reloadable debit cards.
