TEXAS DEPARTMENT OF BANKING BSA, USA Patriot Act and Terrorist Financing Training Lubbock, Texas October 13, 2005 St

1. TEXAS DEPARTMENT OF BANKINGBSA, USA Patriot Act and Terrorist Financing TrainingLubbock, TexasOctober 13, 2005Stephanie Newberg, Deputy CommissionerRussell Reese, Director of Special Audits 

2. Topics of Discussion Overview of Department�s Licensing Requirements of Money Service Businesses (MSBs) Overview of Department�s MSBs Examination Program New Texas MSB Act Recommended File Documentation for MSB Accounts

3. Licensing and Supervision of MSBs

4. Which activities do we license? Money Transmissions Money Orders Travelers Checks Currency Exchangers/Dealers Currency Transporters Third Party Bill Payers Gift Cards (in open systems) Stored Value Products � not issued by insured financial institutions

5. What activities are not licensed? Check cashing Stored value products � issued by an insured financial institution Agents of MSBs Gift Cards in closed systems

6. Which Statute Applies? Chapter 151 � Money Services Businesses � Two types of Licenses: Currency Exchange License - Exchangers/Dealers, Casa de Cambios Must be: Solvent Reduced bonding requirement - $2,500 No separate license for each location

7. Which Statute Applies? (continued) Transmission License � More stringent requirements. Most licensees have this license Money Orders, Travelers Checks. Drafts, Electronic Transfers, ACH products, Stored Value Products, Gift Cards, Third Party Bill Payers Transporters

8. What are the requirements for a transmission license? Minimum net worth $100,000 for four or fewer locations $500,000 for five or more locations Commissioner can increase to $1 million if warranted Sound financial condition and practices Current status for payment of taxes and fees

9. What are the requirements for a transmission license? (continued) Principals must �pass muster� � background checks Bonded/Letter of Credit/Deposit in Lieu of Bond $300,000 or 1% of annual transaction volume not to exceed $2 million Registered with IRS as MSB

10. What checks are made on an applicant? Filed corporate documents Credit report OFAC list Check with Comptroller of Public Accounts Review financial statements Check with IRS Clearing bank account officer Clearing bank BSA/AML officer

11. What checks are made on an applicant? (continued) Check other state regulators Department of Homeland Security check, is necessary Check with other Texas state agencies, if warranted Conduct on-site investigation, if warranted May require independent search firm report

12. What checks are run on a principal, control shareholder, or responsible individual? DPS criminal check DOB examiners OFAC lists Credit report IRS/FBI fingerprint check Check personal history May require search firm report

13. What checks are run on a principal? Department of Homeland Security Internet search firm Other state or federal agencies Personal financial statements

14. What other documents do we review? AML policy Receipt � for required disclosures Business plan

15. What other documents do we review? (continued) Contract, if utilizing authorized delegates: Authorized delegate or agent must certify that they are familiar with and understand MSB statutes Outline records to be maintained Acknowledge receipt of procedures Note the agent is subject to examination by the DOB

16. What about authorized delegates of licensed entities? Authorized delegate � is a person that a license holder appoints to conduct money transmission business on behalf of the license holder (Sec 151.001 (b)(2)) Individual authorized delegates or agents are not licensed However: Issuer must be licensed and is responsible for actions of agents Must have written polices and procedures for agent to follow Must conduct risk based background check on agent Written contract between the agent and the issuer The contract must meet the requirements of 151.402(c)

17. How do I know that my customer is appropriately licensed? Check the MSB website � www.msb.gov/guidance/msbstateselector.php Check the DOB website - www.banking.state.tx.us/

18. Texas MSB Examination Program

19. Overview of Examination Program History Purpose Examination Procedures Compliance with State Statutes Compliance with Federal Statutes Assess Safety & Soundness Issue Exam Report of Findings On-going Monitoring

20. History Department has been performing exams on MSBs since the late 1980�s MSB license holders range in size from sole proprietors to large publicly traded companies To date, we have 135 MSB license holders: Includes international companies (India & Canada)

21. Examination Purpose Assess compliance with State and Federal Statutes: Focus is on Compliance Issues; and, Safety and Soundness

22. Examination Procedures Verify Compliance with State Laws: Reporting Requirements Quarterly Report Filings Transaction Volume Permissible Investments

23. Examination Procedures(continued) Recordkeeping Requirements for Threshold Transactions Same as Federal Requirements Transaction Receipt Disclosures Consumer Complaint Notice Posting

24. Examination Procedures(continued) Verify Compliance with Federal Laws: Recordkeeping Requirements for Threshold Transactions $1,000 for �exchanges� or $3,000 for �transmissions� Reference: 31 CFR 103.37(b)(3) and 103.33(f) Anti-Money Laundering Program Reference: 31 CFR 103.125

25. Examination Procedures(continued) Verify Compliance with Federal Laws: (continued) Suspicious Activity Reports (SARs) Reference: 31 CFR 103.20 (Form: TDF 90-22.56) Currency Transaction Reports (CTRs) Reference: 31 CFR 103.22 (Form: FinCEN 104)

26. Examination Procedures(continued) Verify Compliance with Federal Laws: (continued) Office of Foreign Assets Control Requirements Reference: 31 CFR PART 500 MSB Registration Requirement Reference: 31 CFR 103.41(a)(c), (Form: TDF 90-22.55)

27. Examination Procedures(continued) Assess Safety & Soundness: Minimum Net Worth Requirements Minimum Bonding Requirements Management Supervision

28. Examination Procedures(continued) Exit Meeting held with Management to Discuss Exam Findings License Holder is Issued an Overall Rating Based on Exam Findings

29. Examination Procedures(continued) License Holder is Issued Report of Examination Joint/Coordinated Exams Performed with Other MSB State Regulators For FY 2005 We Completed Eight Joint Exams

30. On-going Monitoring Quarterly Reporting: Required to file Financial Statements Required to file Transaction Volume

31. On-going Monitoring(continued) License Renewal: Required to Pay Annual Renewal and Assessment Fees Required to file Annual Renewal Application Must be able to Demonstrate Compliance with All Licensing Requirements

32. Texas New Money Services Act Effective date: September 1, 2005

33. Texas New Money Services Act Major Changes: Combines Chapters 152 & 153 of the Texas Finance Code into New Chapter 151 Expands the Department�s authority to �drill down� to the Authorized Delegate (Agent) level

34. Texas New Money Services Act(continued) Person - an individual or a legal entity [Sec.151.001(b)(17)] The Department will take a risk based approached to examining authorized delegates, but ultimate responsibility for authorized delegates compliance remains with the license holder.

35. Questions to ask a MSB Accountholder?

36. Questions to ask a MSB Accountholder What �type� of MSB Activity is this Account Used For? The answer will assist you with determining the proper documentation that you should request from the MSB

37. Questions to ask a MSB Accountholder? (continued) Is this Account only Used For Your MSB Activity?; or, Do You Plan on Using this Account for �non� MSB Activity? The answer will assist you in determining what is a �reasonable� amount of account activity

38. Documentation to Request if MSB Licensed with Department Copy of Current License Issued by the Department Copy of MSB registration form Copy of AML Program Copy of Independent Review of AML Program

39. Documentation to Request if Conducting MSB Activity as an �Authorized Delegate� Verification of the Principal�s License from the Department Copy of Delegate Agreement Copy of AML Program Copy of Independent Review of AML Program

40. Documentation to Request if Conducting MSB Activity as an �Authorized Delegate� (continued) Copy of MSB Registration Form If �Delegate� does not conduct any other MSB services outside of Delegate Agreement; then, Registration is NOT Required

41. How the DOB can help you? Check our website at www.banking.state.tx.us Make an open records request Talk to the examiners and check periodicals Call us (512) 475 -1322