Money Service Business

The Money Service Business (MSB) licence is essential for businesses involved in money transmission, payment services, currency exchange, or the issuance of money orders and traveller’s cheques. Obtaining an MSB licence ensures compliance with federal and state regulations, including the Financial Crimes Enforcement Network (FinCEN) registration and Anti-Money Laundering (AML) standards. This licence enables businesses to operate legally while safeguarding financial transactions, protecting customers, and maintaining the integrity of the financial system

Overview

Services Provided

  • Payment services

  • Money orders

  • Traveler's checks

  • Check cashing

  • Currency dealing or exchange

Capital Requirements

  • MSBs applying for a licence in the USA must meet specific capital requirements, which vary by state. Certain states mandate that MSBs maintain a minimum net worth or capital threshold to demonstrate their financial stability and ability to meet obligations. This ensures that MSBs can operate effectively and safeguard against financial risks.

Transaction Limitations

  • Money Services Businesses (MSBs) must conduct over $1,000 in business with a single individual in one or more transactions within a single day in any one qualifying activity. Each activity exceeding this threshold qualifies the entity as an MSB. However, for money transmission services, no transaction threshold applies. Businesses engaging in fund transfers are considered money transmitters and MSBs, regardless of transaction volume.

Safeguarding Requirements

  • MSBs must implement stringent measures to ensure client protection and compliance. Robust Anti-Money Laundering (AML) programs are required, including customer due diligence (CDD), transaction monitoring, and the reporting of suspicious activities to prevent illicit transactions. To mitigate risks of fraud and money laundering, MSBs must also follow Know Your Customer (KYC) procedures to verify client identities. Additionally, MSBs are required to segregate client funds from their operational accounts, ensuring these funds remain secure and protected from insolvency or operational risks.

Jurisdictional Limitations

  • MSBs in the US are subject to geographical limitations, as licensing is required on a state-by-state basis. Each state has its own regulatory framework, meaning MSBs must comply with the specific laws and requirements of every jurisdiction where they operate. MSBs are not authorised to provide services outside licensed states unless they obtain the necessary permissions or comply with local regulations in those regions.

Legal & Regulatory Framework

  • The Bank Secrecy Act (BSA)

  • The Money Laundering Control Act of 1986

  • The Anti-Drug Abuse Act of 1988

  • The Annunzio–Wylie Act of 1992

  • The Money Laundering Suppression Act of 1994

  • The Money Laundering and Financial Crimes Strategy Act of 1998

  • The USA Patriot Act of 2001

  • Anti-Money Laundering Examination Manual for Money Services Businesses

Key Restrictions

  • MSBs in the US operate under strict regulations, including limits on transaction amounts and mandatory reporting of large transactions to FinCEN. Certain high-risk activities, (i.e. cryptocurrency and gambling) transactions, are often restricted. Licensing also defines the scope of services an MSB can offer, with additional scrutiny for international transfers and dealings with high-risk jurisdictions.

Regulatory authorisation process

  • The authorisation process to obtain a Money Services Business (MSB) licence in the USA requires federal registration with FinCEN. This can typically be completed within a few weeks. However firms must also apply for a state licence, which can take from 30 days up to two years depending on specific requirements in the jurisdiction.

  • The cost of obtaining an MSB licence in the USA varies by state, with application fees ranging from $100 to $5,000. Background checks typically cost $50 to $200 per person, and most states require a surety bond, which can range from $10,000 to over $500,000 depending on transaction volume. Renewal fees are also required annually and can range from $100 to several thousand dollars. Exact costs depend on the state’s regulations and the services provided.

Exemptions & exclusions

  • Exempt bodies

    U.S. Postal Service

    Government Agencies

    Agencies of the United States, of any State, or of any political subdivision of any State

    Solely an agent: A person who is an MSB acting solely as an agent for another MSB is exempt from registration. However, if the individual conducts their own activities in addition to acting as an agent, it must register.

  • Excluded activities

    Money Services Businesses (MSBs) may have activities excluded from their normal operations, depending on state-specific regulations. State regulators may grant exemptions for certain persons or transactions if regulation is deemed unnecessary or not in the public interest.

    These exclusions vary significantly between states, so it is essential to consult the specific laws and regulations in the jurisdiction where the MSB operates.

Regulatory Updates

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Deep dive into Money Service Business

Introduction

  • Expand your financial services by becoming a Money Services Business (MSB) in the US, registered with the Financial Crimes Enforcement Network (FinCEN). MSBs provide essential services such as money transmission, currency exchange, and the issuance or sale of money orders and prepaid products. This designation is ideal for businesses aiming to facilitate seamless financial transactions.

Definition

  • Money Services Businesses (MSB) provide financial services such as money transmission, check cashing, currency exchange, and the issuance or sale of money orders, traveller’s checks, or prepaid access products. MSBs in the US must comply with Financial Crimes Enforcement Network (FinCEN) registration requirements and implement anti-money laundering (AML) programs to ensure regulatory compliance.

Additional Information (Services)

  • Payment Services: A financial activity provided by MSBs that involves facilitating payments on behalf of individuals or businesses. This includes processing transactions securely and efficiently, enabling domestic and international payments.

  • Money Order: A monetary instrument issued by a financial institution or other authorised entity, allowing the payee to receive a specified sum of money upon presentation.

  • Traveler’s Check: A pre-printed, fixed-amount check designed for travellers, which can be used as a secure form of payment or easily converted into cash.

  • Check Cashing: The service of providing cash in exchange for checks, including personal, payroll, or government checks, typically offered by financial institutions or specialised businesses.

  • Currency Dealing or Exchange: The business activity of buying and selling foreign currencies, enabling customers to convert one currency into another for purposes such as travel, trade, or investment.

Additional Information (Legal & Regulatory Framework)

  • Bank Secrecy Act (BSA): The BSA is foundational for MSBs, requiring them to implement robust Anti-Money Laundering (AML) programs. It mandates reporting and recordkeeping standards to detect and prevent financial crimes, ensuring MSBs contribute to the transparency and integrity of the financial system.

  • Money Laundering Control Act of 1986: This act criminalised money laundering in the US, making it illegal to knowingly engage in financial transactions involving proceeds from criminal activities. For MSBs, compliance is critical to avoiding penalties and maintaining operational legitimacy.

  • Anti-Drug Abuse Act of 1988: This act expanded the scope of anti-money laundering laws to combat drug trafficking. It emphasises MSBs’ role in monitoring and reporting transactions that could facilitate illegal drug operations.

  • Annunzio–Wylie Act of 1992: This act enhanced AML enforcement by mandating Suspicious Activity Reports (SARs) and requiring financial institutions, including MSBs, to report suspicious transactions, thereby strengthening the fight against financial crime.

  • Money Laundering Suppression Act of 1994: This legislation imposed stricter registration and compliance requirements on MSBs. It also required MSBs to develop AML programs, making it a pivotal regulation for maintaining operational compliance.

  • Money Laundering and Financial Crimes Strategy Act of 1998: This act aimed to strengthen collaboration between law enforcement and financial institutions. It requires MSBs to support strategies that prevent financial crimes, reinforcing their role as gatekeepers of financial integrity.

  • USA Patriot Act of 2001: This act imposed stricter AML and CTF obligations on MSBs, including enhanced due diligence, customer identification programs, and information sharing requirements. It underscores MSBs' responsibility in combating terrorism financing and safeguarding the financial system.

  • Anti-Money Laundering Examination Manual for Money Services Businesses: This manual provides detailed guidance for MSBs to comply with AML and Counter-Terrorism Financing (CTF) regulations. It ensures MSBs establish strong internal controls, conduct risk assessments, and implement effective monitoring to identify suspicious activity.

Links

Additional Information (Key Restrictions)

  • MSBs in the US face various restrictions to ensure compliance with regulatory standards and to mitigate risks of fraud, money laundering, and consumer exploitation. Transaction limits are often imposed, with many states capping the maximum amount transferable per transaction or within a specific timeframe. Transactions exceeding $10,000 must be reported to FinCEN through Currency Transaction Reports (CTRs) to monitor for suspicious activity.

    Certain types of transactions, such as those involving gambling, virtual currencies, or high-risk jurisdictions, may be prohibited or subject to heightened scrutiny. Additionally, MSBs may have limitations on their services, such as restrictions on offering foreign exchange or other financial services without explicit authorisation.

    Cross-border transactions are closely regulated, with enhanced requirements for transfers involving jurisdictions known for weak anti-money laundering controls. MSBs must also comply with consumer protection laws, which govern practices like fee transparency and fair treatment of customers. Failure to adhere to these restrictions can result in penalties or loss of licensure.

Convertible Virtual Currency (CVC)

  • MSBs can process CVCs, however these firms must be register with FinCEN as money transmitters and comply with federal and state regulations. This includes implementing robust Anti-Money Laundering (AML) programs with strict customer verification and monitoring procedures to prevent financial crime. They are required to file Suspicious Activity Reports (SARs), maintain detailed transaction records, and adhere to reporting obligations under the Bank Secrecy Act (BSA). Additionally, processors must secure state-specific licenses for each jurisdiction where they operate, meeting varying local requirements. Non-compliance can result in penalties, fines, or loss of authorisation to operate.

Nationwide Multistate Licensing System and Registry (NMLS)

  • The Nationwide Multistate Licensing System and Registry (NMLS) is a central platform used for the licensing and registration of Money Services Businesses (MSBs) in the United States. It streamlines the application process, allowing MSBs to submit and manage their licences electronically, saving time and ensuring a standardised approach across states.

    The NMLS plays a vital role in maintaining compliance and regulatory oversight. By providing a central repository of information, it enables state regulators to monitor MSB activities and ensure compliance with both state and federal laws. MSBs are required to submit regular reports through the NMLS. Failing to meet these reporting deadlines can result in penalties, including late fees and potential risks to their licensed status.

    For MSBs, the NMLS is not just a tool for obtaining a licence but also a platform for demonstrating ongoing compliance.