FinCEN’s record $3.4 billion settlement with Binance, the largest in the history of FinCEN, reflects Binance‘s admission of operating as an unregistered Money Services Business (MSB) in the U.S. The crypto exchange acknowledged its failure to implement an effective KYC/AML program, thereby enabling illicit actors to use its platform. Binance brought MSB obligations back to the center of attention. However, MSB registration is not monitoring and therefore not regulatory authorization. We explain the MSB concept.
What is a Money Services Business?
In the U.S., the financial landscape is complex and varied, with Money Services Businesses (MSBs) playing a crucial role. These entities are involved in money transfers, currency exchange, and other financial services. Understanding the legal framework governing MSBs is essential for compliance and operation within the law.
An MSB is defined by U.S. federal law as any business that provides certain financial services. Key services include currency dealing or exchange, check cashing, issuing traveler’s checks, money orders, and stored value cards, and money transmission services. This broad definition encompasses a wide range of financial activities, making MSBs a significant part of the financial services sector.
Legal Framework for MSBs
The primary legal framework governing MSBs in the U.S. is the Bank Secrecy Act (BSA), administered by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Under the BSA, MSBs must register with FinCEN. This registration must be renewed every two years.
Registration: A Legal Requirement
Registration as an MSB is not merely a formality; it is a legal requirement. Failure to register can result in severe penalties. The registration process involves providing basic information about the business, its owners, and operators. The purpose of this requirement is to aid in the prevention of money laundering and the financing of terrorism by bringing transparency to these financial activities.
Not a Regulatory Supervision
It’s crucial to understand that MSB registration with FinCEN does not imply regulatory supervision or endorsement. The registration serves as a means to inform the government about the existence and operation of the MSB. It does not equate to a regulatory approval, supervision, or a seal of credibility. The responsibility of compliance with all relevant laws and regulations, including the Anti-Money Laundering (AML) regulations, falls entirely on the MSB.
Registered MSBs are subject to various compliance requirements. These include:
- Developing an AML Program: Each MSB must establish and implement an effective AML program tailored to its specific risks. This program should include policies, procedures, and internal controls to prevent money laundering and terrorist financing.
- Reporting and Recordkeeping: MSBs must comply with BSA reporting and recordkeeping requirements. This includes filing reports such as the Currency Transaction Report (CTR) and Suspicious Activity Reports (SARs).
- Training and Auditing: MSBs are required to provide training to their employees about AML procedures and conduct independent audits to assess the effectiveness of their AML programs.
Challenges and Considerations
MSBs face various challenges, including maintaining compliance with evolving regulations and dealing with the risk of financial crimes. They also have to manage the costs associated with compliance and the potential impact on business operations.
The role of MSBs in the U.S. financial system is significant, and so is their responsibility to operate within the legal framework. Registration with FinCEN is a critical compliance requirement but does not replace the need for a robust AML program and adherence to all applicable laws and regulations. MSBs must navigate these requirements carefully to ensure both legal compliance and operational success.