Money Service Business (MSB)

In 2016, the FATF revised the risk assessment of money service and remittance businesses and brought it within the purview of regulatory compliance. Any financial service that accepts cash or other monetary instruments and makes payment in cash or another form to a beneficiary is deemed a money transfer business. The remittance may be a digital communication or transfer through a clearing network. With this, FATF acknowledges that the business of transferring money may well be a digital platform or involve various non-traditional forms of money transfer.

What is a Money Service Business?

Also known as Remittance Service Provider (RSP), Money Transfer Dealer (MTD), Money/Value Transfer Services (MVTS); the term “money service business” refers to a business or app offering any or some of the following services:

– Remits or transfers money.
– Accepts cash for onward remittance or currency exchange.
– Offers global remittance services.
– Cash cheques, money orders or stored value cards; or sells any of these.
– Offers payment services like utility payments, tax payments, and insurance premium.
– Offers add-on business services like micro loans, car loans, crowdfunding, online marketplace, investment services.
– Offers Alternate Financial Service (AFS) like payday lending, overdrafts.
– Performs intermediary payments between a payer and a supplier using apps.
– Acts as an agency or dealer of currency exchange.
– Functions as a New Payment Method (NPM), like P2P lending platforms.

Such money transfer businesses may be individuals, FinTech players, small firms or major companies. Although different jurisdictions use different terms (MSBs, MRS, MTD, MTVS) “money service business” or “MSB” is the umbrella term used to describe financial services listed above.

Why MSBs are considered a high-risk

Money Service Businesses are one of the high-risk entities, as the nature of transactions;

– involve cash or different formats of money,
– may involve third-parties, intermediaries or ultimate beneficial owners,
– may be through digital platforms that facilitate instant transfers and user anonymity,
– do not reveal either the source of funds or purpose of the transaction.

This allows the proceeds of crime, financial fraud, bribe, illegal and unlawful activities like drug or human trafficking; to be laundered through MSBs. Funds of dubious non-profits and terror organisations are also likely to be laundered through MSBs for purchase of guns or to fund riots and other terror activities. This exposes MSBs to risks of money laundering and terror financing.

Money Service Business

Taxonomies

Various factors are considered for the risk assessment of MSBs;

– Acceptance of cash
– Country of registration and operation
– Size of transactions
– Involvement with Agents
– Links with traditional business models.

Compliance requirements in various jurisdictions

Each country or jurisdiction has been implementing a dedicated AML policy and reporting obligations for businesses engaged in money transfer or remittance.

Australia

The updated (September 2019) AUSTRAC guidelines are simple. If you accept instructions from customers to transfer money or property to a recipient, you are a Remittance Service Provider (RSP) or MSB and are required to register. Compliance and reporting obligations may differ based on taxonomies.

Canada

FINTRAC lays down very comprehensive guidelines for MSBs. Recent amendments include businesses dealing in virtual currencies, scheduled to come into force on June 1, 2020.

Singapore

The MAS regulates the payment systems and payment service providers. It requires seven types of payment services to be licensed and be compliant. The recent list now includes digital payment token services.

U.K.

As a MSB, you must check to see if you need to register and conform to the compliance and reporting obligations.

U.S.A.

MSBs, as defined by FinCEN, must register with the Federal Govt, and comply as laid down by the IRS.