CUNA Regulatory Comment Call


August 10, 2009

FinCEN’s Notice of Proposed Rulemaking – Amendment of Bank Secrecy Act Regulation Definitions and Other Regulations Relating to Money Services Businesses

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Federal Compliance Counsel Nichole Seabron at nseabron@cuna.com; or mail them to Mary or Nichole in c/o CUNA’s Regulatory Affairs Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us for a copy of the regulation or access them on the Internet here.

DISCUSSION

The Bank Secrecy Act (BSA) authorizes the Secretary of Treasury to issue regulations requiring financial institutions to keep records and file reports designated as having a high degree of usefulness in criminal, tax, or regulatory investigations, proceedings or in intelligence or counterintelligence matters. Utilizing this authority, FinCEN proposes to update the Money Services Business provisions of the BSA regulation to incorporate past guidance and rulings and clearly delineate the type of businesses and activities regulated under the BSA.

Money Services Businesses Regulation

Under the current regulation, the term “Money Services Businesses” refers to the following categories of financial service providers: (i) currency dealer or exchanger, (ii) check casher, (iii) issuers, sellers or redeemer’s of traveler’s checks, money orders or stored value, (iv) money transmitters, and (v) The United States Postal Service. The proposed rule seeks to revise the current definition of MSB as follows:

“Doing Business”

The proposed rule replaces the term “doing business” with “engaged in activities” in the regulation to minimize confusion. FinCEN clarifies that the term “doing business” should be interpreted to mean the activity in which the person is engaged, rather than describing an entity’s status, such as a licensed business. The proposed rule clarifies “to the extent that a person engages in one ore more of the enumerated activities listed in the definition, it is an MSB; to the extent thta a person does not engage in such activities, it is not.” FinCEN adds that whether or not a person is a business in any formal sense is not determinative of whether or not it falls under MSB definitions and, thus, subject to MSB regulation.

“Dollar Threshold”

Under the current regulation, certain categories of financial service providers must meet an activity threshold of $1000 per person, per day in order to be classified as MSBs. This threshold applies to all MSB categories except money transmitters, which do not have an activity threshold. FinCEN is not currently amending the threshold under this proposed rule, but it is considering the need to issue a separate rulemaking to make possible adjustments to the activity threshold and is seeking comments on the potential impact of increasing or lowering the dollar threshold.

“Foreign-located MSBs”

FinCEN has authority, under the BSA, to define a financial institution as “domestic” without regard to whether or not it is physically located in the United States (U.S.). FinCEN’s proposed rule makes clear that “a foreign-located business that meets the definition of a financial institution and that is conducting business in the U.S. in such capacity is a domestic financial institution. The rule notes that an MSB is defined based on the activity (e.g. acting in one of the defined MSB categories) it conducts in the U.S. and not exclusively by the physical presence of its agents, agencies, branches or offices within the U.S. Additionally, the proposed rule includes within the MSB regulations those entities that have a presence in the U.S. based on the Internet or that have accounts with U.S. financial institutions and are transmitting money through those accounts with U. S. customers or recipients. The determination of whether a particular foreign-located business falls under the purview of the MSB regulation would depend on the facts and circumstances and whether U.S. customers or recipients are involved in the activities.

“Dealer in Foreign Exchange”

The proposed rule replaces the term “Currency Dealer or Exchanger” with the term “Dealer in Foreign Exchange.” Under the proposed rule, the new term is defined as “a person who accepts the currency, or other monetary instruments, funds or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, fund or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in an amount greater than $1000 for any other person on any day in one or more transactions, whether or not for same-day delivery.”

The new term is intended to encompass all persons (dealers and brokers) who engage in transactions involving the purchase or disposal of funds denominated in a particular currency by exchanging them for funds denominated in another currency. By removing the term “currency,” activity outside of currency exchanges would be subject to this rule also. For example, exchanges involving monetary instruments, funds or other instruments (such as payment instruments that fall outside of the other categories) would also fall within this definition. The proposed change is intended to capture any exchanges that occur within the U.S., even in those instances in where U.S. dollars are not involved. Foreign exchange activities are not limited to only those instances in which there is a physical exchange of currency from one country for currency of another country.

“Check Casher”

The proposed rule attempts to clarify the term “check casher” by dividing the definition into two subsections: one that specifies what is considered to be check-chasing activity and another that identifies activities that are excluded from the definition (such as selling closed-loop stored value products). The rule also asks for comments as to whether a future rulemaking should apply Suspicious Activity Reporting (SAR) requirements to check cashers.

“Issuer or Seller of Traveler’s Checks or Money Orders”

Under the current regulation, there are separate definitions for issuers, sellers and redeemers of traveler’s checks or money orders. The proposed rule provides a combined definition for issuers and sellers of traveler’s checks or money orders (“monetary instruments”) that capture a person who issues or sells traveler’s checks or money orders in an amount greater than $1000 per person, per day in one or more transactions. The proposed rule does away with the “redeemer” language in the current rule. FinCEN notes that, typically, monetary instruments are “redeemed” by their issuers making a separate redemption category redundant. Additionally, in those instances where these monetary instruments were redeemed by non-issuers, the activity would be close enough to check cashing activity to be captured under that definition. Finally, the rule would determine whether or not a person is considered an “issuer” based on the total amount at which a monetary instrument is sold. For example, the rule takes into account not only the face value of the monetary instrument but also any applicable fees.

“Stored Value”

There are no substantive changes to the definition. Under the current rule, stored value and monetary instruments are divided into two groups, those handled by issuers and those handled by sellers or redeemers. The proposed rule groups issuers, sellers and redeemers of stored value products together and updates the definition to reflect this change. The proposed rule notes that FinCEN is reviewing the current status of stored value regulations, taking into consideration the risks of this emerging industry, and will determine if a future rulemaking is appropriate.

“Money Transmitter”

Under the proposed rule, a money transmitter is defined as “a person who provides money transmission services such as the acceptance of currency, funds, or value that substitutes for currency from one person and the transmits such currency, funds, or value to another location by any means.” Generally, the transmission of currency uses typical banking means such as financial agencies, institutions, Federal Reserve Bank System, electronic funds transfer networks, etc. The proposed rule attempts to define the term “money transmitter” broad enough to include both formal and informal value transfer systems in an effort to capture such providers within the regulations.

Similar to the current regulation, the proposed rule contains a facts and circumstances limitation that excludes certain persons that engage in money transmission activities as a necessary part of executing and settling transactions. For example, entities that would not be able to do business without engaging in the transmission of funds would be excluded. FinCEN also attempts to provide additional clarity in the rule as to which potential money transmitters would qualify for this exemption and enumerates examples of individuals who would be excluded from the term “money transmitters.” For example, a person that engages in the following activities is generally excluded from the definition:

Related Regulation – Service of Process

The proposed rule incorporates a new provision that requires foreign-located MSBs to designate an agent to accept service of legal process in the U.S. The provision would require foreign-located MSBs to provide the name and address of a person who resides in the U.S. and is authorized (and has agreed to) to be an agent and accept service of process on behalf of the MSB.

QUESTIONS REGARDING THE PROPOSED RULEMAKING

FinCEN invites comments on all aspects of the proposal to revise the MSB definition and related regulations. However, they are soliciting comments on the following questions:

GENERAL

STORED VALUE

FinCEN intends to issue a separate rulemaking proposing a revised definition of stored value products and related regulations. However, FinCEN seeks your input on the following:

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 • lmartone@cuna.com