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What Is a Money Services Business? Types, Regulations & More

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A Comprehensive Guide to Money Services Businesses (MSBs)

A money services business (MSB) is a non-bank financial institution, business, or person engaging in money transmission, money conversion, or money exchange. These activities include selling money orders, cashing checks, and exchanging foreign currency. MSBs are regulated by the Financial Crimes Enforcement Network (FinCEN), and they must adhere to the regulations set by the Bank Secrecy Act (BSA) and implement a robust Anti-money Laundering (AML) compliance policy. To qualify as an MSB, a money transaction must involve one person in an amount of $1,000 or more in a single day, whether it is a one-time transaction or done regularly.

Types of Money Services Business

There are six types of money services business defined by FinCEN, and entities falling under these categories must register as MSBs and comply with BSA and AML regulations:

1. Currency Dealer or Exchanger

A currency dealer or exchanger facilitates the exchange of one currency for another, such as converting US dollars into Euros. Currency dealers calculate exchange rates, add fees, and provide the equivalent amount in the desired currency.

2. Check Cashier

Check cashiers provide services for individuals without personal checking accounts to cash paychecks or personal checks in exchange for a fee.

3. Issuer of Traveler’s Checks, Money Orders, or Stored Value

This category includes entities selling travelers checks, money orders, or stored value items like gift cards. These items can be purchased for cash and used for various transactions.

4. Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value

Similar to issuers, sellers or redeemers provide locations where these financial instruments can be cashed in or redeemed for their face value.

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5. Money Transmitter

Money transmitters facilitate electronic fund transfers between businesses or individuals, such as Western Union, allowing recipients to pick up funds or receive them in their accounts.

6. US Postal Service

The US Postal Service offers money orders and gift cards, qualifying it as an MSB under FinCEN guidelines.

MSBs and Regulations

Every bank, credit union, or MSB must establish an internal AML policy and comply with BSA regulations to detect and prevent financial crimes involving ‘dirty money’ like money laundering or terrorist financing. The BSA mandates accurate record-keeping for cash transactions and suspicious activities, including filing reports and monitoring transactions within specified thresholds.

How to Register as a Money Services Business

  • Step 1: Determine if you are subject to MSB guidelines.
  • Step 2: Complete registration on the FinCEN website using Form 107 within 180 days of establishing MSB status.
  • Step 3: Follow instructions for filing required reports and suspicious activity.

What to Do to Avoid Processing Criminal Transactions

High traffic and cash transactions in MSBs increase the risk of encountering customers attempting to launder money. To prevent this, MSBs should:

  • Use transaction monitoring software
  • Appoint a compliance officer
  • Train employees on BSA and AML policies
  • Evaluate risk programs regularly
  • Follow Know Your Customer (KYC) procedures
  • Stay updated on regulatory changes
  • File reports promptly
  • Refine internal controls continuously

How to Transact Cash Without Using an MSB

Businesses can avoid MSB fees by opening a dedicated bank account for transactions, enabling access to funds and online banking services for efficient money management.

For small business checking account recommendations, explore our guide on the best options tailored to in-person or online banking preferences.

Frequently Asked Questions (FAQs)

What is considered a money service business?

An MSB is any business or person other than a bank engaged in money transactions like transmitting, converting, or exchanging money, including check cashing centers and currency exchange services.

What does a money services business do?

An MSB offers various money services, such as cashing checks, selling money orders, providing gift cards, and facilitating money transfers electronically.

Is PayPal a money services business?

Yes, PayPal functions as a digital payment processor, allowing users to make electronic purchases and send/receive money efficiently.

What is an example of an MSB?

Common examples of MSBs include Western Union, MoneyGram, PayPal, Venmo, and even small independent check cashing centers or large retailers like Walmart offering financial services.

Is a bank an MSB?

Banks are not classified as MSBs. MSBs are non-bank entities engaged in specific money services outlined by FinCEN.

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