Learn about Money Service Businesses (MSBs)—also called Money or Value Transfer Services (MVTS)—and how these firms can avoid money laundering, fraud, and huge fines from regulators.
MSBs are a convenient tool for transferring and exchanging small amounts of cash quickly and anonymously. However, these firms are vulnerable to money laundering (ML) and the watchful eye of regulators. Just a few years ago, Western Union, the world’s largest MSB, agreed to pay a $586 million fine and admitted ignoring the fact that criminals used it for money laundering and fraud.
This article details how MSBs businesses can prevent fraud and huge fines in different countries.
A money service business (MSB) is a non-bank financial institution which transmits, converts or exchanges currency. Depending on the jurisdiction, these can also be known as a money transfer business, money transfer dealer or remittance service provider.
MSBs can be companies (Western Union, MoneyGram, OFX, etc.), or individuals providing the following services:
MSBs are considered to be vulnerable to money laundering since they may involve:
Criminals may use MSBs to move illicit cash into the financial system by:
MSBs attract special attention from regulators. In 2016, the FATF brought MSBs under the spotlight of global regulators, with most jurisdictions now requiring these firms to conduct a risk-based approach for Know Your Customer and transaction monitoring procedures.
In the US, MSBs have to comply with the Bank Secrecy Act which is administered by the Financial Crimes Enforcement Network, or FinCEN. Accordingly, they must register with FinCEN and follow certain requirements (including developing an AML program, reporting cash transactions, etc. The full list can be found here).
FinCEN Form 107, “Registration of Money Services Businesses,” should “be completed and signed by the owner or controlling person of an MSB and filed within 180 days after the date on which the MSB is established.”
Failing to comply with MSB registration requirements may result in civil penalties of up to $5,000 for each violation, and $5,000 for each day a registration violation continues, according to 31 U.S.C. 5330 and 31 C.F.R. § 103.41(e)]. MSBs must renew registration every two years.
Read this article to learn about AML regulations in the USA and penalties for non-compliance: AML/KYC Guide to the USA—How Businesses Can Stay Compliant
Non-compliance may be punishable by huge fines. In 2021, MT Global, a UK-based MSB, was slapped with a $32.4 million fine from the HMRC for breaches of anti-money laundering regulations.
Suggested read: Breaking Down KYC/AML Regulations in the UK: Easy-to-read Guide
MSBs must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). On this website, companies can check if they must register with FINTRAC.
Failure to register with FINTRAC may result in fines of up to 2 million CAD ($1.5 million) and/or up to five years imprisonment.
Any individual or business that intends to conduct money services must apply for a Money Services Operator license from the Customs and Excise Department under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).
MSBs are regulated by the Monetary Authority of Singapore (MAS). The following businesses fall under this regulatory scope:
To provide any kind of payment service, a formal application must be submitted to the MAS, which can grant one of the following licenses: a money‑changing license; a standard payment institution license; a major payment institution license (under the Section 6 of Singaporean Payment Services Act 2019).
If a business accepts instructions from clients to transfer money or property to a recipient, then it is a Remittance Service Provider (RSP), or MSB, and needs to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Non-compliance with AML regulations may result in multi-million dollar fines.
To comply with local AML regulations, MSBs have to develop and maintain a robust AML compliance program, which includes risk assessment, employee training, and more.
MSBs should perform the KYC (Know Your Customer) process as part of Customer Due Diligence, which is required by AML regulations, as well as implement transaction monitoring and a risk-based approach.
Read this article to learn everything you need to know about effective AML compliance programs:
A money service business is a non-bank financial institution which transmits, converts, or exchanges currency. The most famous examples of MSBs are Western Union and MoneyGram.
It depends on the jurisdiction. However, this most often includes currency dealers and exchangers, check cashers, as well as money transmitters.
A money service business in crypto stands for a business that deals with virtual assets (VA) and enables trading, exchanging, or transferring of cryptocurrencies.
The regulating institution depends on the country. In the United States, for example, the regulating body is FinCEN, while in Hong Kong it is the Customs and Excise Department.
MSBs need to apply to their respective authority to be granted a license to legally operate in a given country.
Yes. MSBs are considered high-risk because of the nature of their transactions, which are often difficult to trace.