comment letter MSB Definitions and RFC for SV
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comment letter MSB Definitions and RFC for SV

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4 Pages
English

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September 9, 2009 Financial Crimes Enforcement Network P.O. Box 39 Vienna, VA 22183 Re: RIN 1506-AA97 Definitions and Other Regulations Relating to Money Services Businesses Dear Sir or Madam: 1The Independent Community Bankers of America (ICBA) welcomes the opportunity to comment on the notice of proposed rulemaking to clarify which entities are covered by the definitions regarding money services businesses (MSBs). ICBA also appreciates the opportunity to provide feedback and input to FinCEN on the stored value industry as it applies to the Bank Secrecy Act (BSA) regulations to assist in the upcoming proposed rulemaking. Background The Financial Crimes Enforcement Network (FinCEN) is proposing amendments to the MSB definitions so that determining which entities are obligated to comply with the BSA regulations regarding MSBs will be more straightforward. The definition of MSB is based on six distinct categories of financial service providers, including check cashers, money transmitters and issuers and sellers of stored value products. While each category is separately defined, advances in technology, services and products obfuscate the application of the regulations to particular businesses. As a result, FinCEN has issued guidance and administrative rulings over the last decade to assist the industry on how to interpret and apply the regulations. 1 The ...

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September 9, 2009 Financial Crimes Enforcement Network P.O. Box 39 Vienna, VA 22183 Re: RIN 1506-AA97 Definitions and Other Regulations Relating to Money Services Businesses Dear Sir or Madam: 1The Independent Community Bankers of America (ICBA) welcomes the opportunity to comment on the notice of proposed rulemaking to clarify which entities are covered by the definitions regarding money services businesses (MSBs). ICBA also appreciates the opportunity to provide feedback and input to FinCEN on the stored value industry as it applies to the Bank Secrecy Act (BSA) regulations to assist in the upcoming proposed rulemaking. Background The Financial Crimes Enforcement Network (FinCEN) is proposing amendments to the MSB definitions so that determining which entities are obligated to comply with the BSA regulations regarding MSBs will be more straightforward. The definition of MSB is based on six distinct categories of financial service providers, including check cashers, money transmitters and issuers and sellers of stored value products. While each category is separately defined, advances in technology, services and products obfuscate the application of the regulations to particular businesses. As a result, FinCEN has issued guidance and administrative rulings over the last decade to assist the industry on how to interpret and apply the regulations. 1 The Independent Community Bankers of America represents nearly 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. ICBA aggregates the power of its members to provide a voice for community banking interests in Washington, resources to enhance community bank education and marketability, and profitability options to help community banks compete in an everchanging marketplace. With nearly 5,000 members, representing more than 20,000 locations nationwide and employing nearly 300,000 Americans, ICBA members hold $1 trillion in assets, $800 billion in deposits, and $700 billion in loans to consumers, small businesses and the agricultural community. For more information, visit ICBA’s website at www.icba.org. 2 FinCEN is now seeking comment on its proposal to update the MSB regulations and incorporate these interpretations into the rules. ICBA Position The current definition of an MSB includes entities “doing business” in one or more of six specified activities enumerated in the BSA regulations. While the term “doing business” is used in the MSB definition, FinCEN has not relied on whether a person is engaged in a “business” in any formal sense to determine whether it is subject to the MSB definition. Rather, the facts, circumstances and context of the activity in which a person engages determine its MSB status. Therefore, FinCEN is proposing to replace in the definition of MSB, the term, “doing business” with “engaged in activities” to clarify that the activity in which an entity is engaged, rather than its status as a formal business, determines whether it is subject to the MSB definitions. We support this change as it is consistent with FinCEN’s long standing application of MSB definitions and will avoid confusing entities regarding the type of business it is in with the functions it performs. The regulations also include an activity threshold of $1,000.00 for any person in any one day. Although FinCEN is not proposing amendments to this, it is seeking comment on whether the threshold should be revised. In our view, the threshold is currently sufficient to balance the amount of information gathered for law enforcement with the costs associated with compliance. However, the threshold has not been amended for over a decade or adjusted for inflation. FinCEN should consider routinely adjusting the threshold for inflation. Check Casher A “check casher” is one of the specified distinct categories of financial service providers included in an MSB definition. It is currently defined as “a person engaged in the business of a check casher,” and includes a threshold of $1,000.00 for any person on any day. FinCEN is proposing to clarify the meaning of the term “check cashing” by having two subsections – one defining check cashing activity and one excluding certain activity from that definition. The definition would be revised to state, in part, a person who accepts checks or monetary instruments in return for currency or a combination of currency and other monetary instruments. The proposed definition would include the redeeming of monetary instruments, such as traveler’s checks and money orders, and would require currency to be exchanged. ICBA agrees with the proposed definition. Cashing monetary instruments provides similar risks to cashing checks and combining these into the check cashing definition simplifies the regulations. Additionally, including the requirement that currency be exchanged omits the activity of simply exchanging one monetary instrument for another, which is not a check cashing activity. Furthermore, this revision would more accurately describe the activities that would subject an entity to the check cashing definition and enable it to more easily decipher its activities. 3 ICBA also suggests that FinCEN exempt from its definition of check cashing low- risk checks, such as government issued checks and payroll checks. Often times, small, local businesses will cash low-risk checks incidental to their primary business as a courtesy to their regular customers and inadvertently be subject to the check casher definition. Government and payroll checks have little money laundering risk yet enable local businesses to reach out to unbanked individuals. Check cashers should, however, be subject to suspicious activity reporting (SAR) requirements as is currently required for redeemers of traveler’s checks and money orders. Check cashers are in the forefront of conducting transactions for customers and would be better able to detect unusual activity that may reveal a known or suspected violation of a law or regulation. ICBA also expects that while many check cashers may have fraud detection mechanisms in place that help detect instances of fraud or suspicious activity, it would be very helpful if FinCEN provided guidance about the kinds of activities or transactions that would indicate a suspicious activity report should be filed. Stored Value At this time, FinCEN is not proposing new rulemaking regarding issuers, sellers or redeemers of stored value, but is reviewing the current regulatory regime and is seeking comment in this area. FinCEN is seeking comment on whether issuers, sellers and redeemers should be similarly regulated and whether a threshold should be set for triggering these definitions. The stored value industry consists of a wide variety and broad range of products that include an equally broad range of money laundering risks. For example, certain stored value card programs offer an effective and convenient way for customers to purchase goods and services in limited and contained environments, posing minimal risk. Other programs enable an anonymous bearer to load monetary value on a card using currency, physically transport the card to a third person who remains undetected and can redeem the card for cash, which can be used as conduits for financial crimes. ICBA agrees that maintaining certain records to constitute a financial trail and reporting certain transactions are useful in criminal or regulatory investigations. However, FinCEN should be mindful to balance the benefits of applying across- the-board BSA requirements to issuers and redeemers with the unintended consequences of thwarting technological developments and advances in this growing industry. Similar to other financial products and services, FinCEN should apply a risk-based approach to regulating issuers and redeemers of stored value products, applying appropriate regulations to higher risk products and transactions. For example, stored value products that do not store personal information (anonymous cards) and are able to be redeemed for cash provide an effective method of transferring funds without detection. The customer purchasing the device from the issuer may not be the same person redeeming 4 funds, and in this limited situation, BSA regulations should apply throughout the transaction process from issuer to redeemer to document the financial trail. The threshold for stored value players also should be consistent with the requirements that apply to other MSBs, which is $1,000.00 for any person in any day. Uniform threshold requirements would help facilitate compliance and reduce potential confusion between MSB activities. FinCEN is proposing to revise the definition of a money transmitter to include a provision exempting from its definition a closed loop stored value provider. A closed loop system refers to a stored value card that is limited to a defined merchant or a set of locations. ICBA agrees that a closed loop stored value provider should be exempt from the definition of a money transmitter. Typically, a closed loop card is offered by a retailer or group of retailers and cannot be reloaded or redeemed for cash, which makes the transmission of money improbable. This type of system poses minimal risk of money laundering and terrorist financing and should be regulated accordingly. Thank you for the opportunity to comment. If you have any questions or need additional information, please feel free to contact me by telephone at 202-659- 8111 or by e-mail at lilly.thomas@icba.org. Sincerely, /s/ Lilly Thomas Regulatory Counsel