Money Service Businesses Roles, Issues & Challenges

1. Money Service BusinessesRoles, Issues & Challenges A New York State Perspective: Licensing, Supervision, and Examination For Discussion Purposes October 24, 2007

2. Money Service Businesses(MSBs) • Money Transmitters • Licensing & Supervision since 1964 • 72 Licensed Money Transmitters operating through over 25,000 agents • Employ 63,000 employees • In 2006, processed more that 90 million travelers checks, money orders, official checks and remittances with an aggregate face value of $104 billion in NYS alone For Discussion Purposes October 24, 2007

3. Money Service Businesses(MSBs) • Check Cashers • Licensing & Supervision since 1944 • 200+ check cashing companies operating through over 900 locations • Employing 4,000 people • In 2006, cashed more than 32 million checks with an aggregate face value of $17.0 billion For Discussion Purposes October 24, 2007

4. How the Industry is Configured • Banks • A money transmitter/check casher must still use a bank to enter the financial system • Money Transmitter/Check Casher • Licensed • Unlicensed • Agent • Agent of Licensed Money Transmitter • Agent of Unlicensed Money Transmitter • Customers • Regular remittance of $200-$300 used 8-10 times per year • To money launder funds For Discussion Purposes October 24, 2007

5. MSB Transaction Flow Chart For Discussion Purposes October 24, 2007

6. NYS Top Down Approach • Licensing & Supervision Standards • Licensing standards • Character & Fitness standards • Inclusive of a BSA/AML program at time of licensing • Supervision • Safety and Soundness Standards via FILM(S) rating, inclusive of “raising the bar” to give banks confidence in working with Money Transmitters/Check Cashers For Discussion Purposes October 24, 2007

7. NYS Top-Down Approach • Licensing Requirements (A sample): • Background report prepared by the NYS licensed investigator on every partner, officers, directors and substantial stockholders. • Management and supervisory experience in the MSB business. • Financial documentation: both corporate and personal information For Discussion Purposes October 24, 2007

8. NYS Top-Down Approach • Licensing Requirements: • BSA/AML Policies and Procedures – requires the basic elements of Section 352 of U.S.A. PATRIOT Act • Policies and procedures submitted for review • Designated compliance officer (with experience) • Training program identified • Understanding (via an affidavit) that an independent review will be conducted within one year. For Discussion Purposes October 24, 2007

9. NYS Top-Down Approach • Examinations at Licensee Level • Financial Condition • Safety and Soundness of the conduct of business • Policies of Management • Compliance with laws – BSA/AML • Whether Policies and Procedures are sufficient to control activities For Discussion Purposes October 24, 2007

10. NYS Top-Down ApproachExamination Procedures • Examinations of Licensee • Visitation within six months of operations, inclusive of BSA/AML implementation • Examination Frequency • Money Transmitters annually • Check Cashers once every two years For Discussion Purposes October 24, 2007

11. Rating System – ComponentsFILMS • Financial Condition • Internal Controls and Auditing • Legal and Regulatory Compliance • Management • (S) Systems and Technology Component/Composite ratings range from “1”-strong to “5” - unsatisfactory For Discussion Purposes October 24, 2007

12. NYS Top-Down ApproachExamination Procedures • BSA/AML Examination includes: • Four Elements of U.S.A. PATRIOT ACT Section 352 • Transaction Testing • MT: Visitation of sample selection of agents • Geographic concentration • Agents of multiple licensees • MT: Review of agent file documentation • Selection • Monitoring • Termination • CC: Transaction testing • with focus on completeness of recordkeeping and patterns of customer checks For Discussion Purposes October 24, 2007

13. Law Enforcement’sBottom-Up Approach • Dovetails very well with our Top-Down Approach • Identify patterns of activity at the “street level” that may be flowing through both licensed and unlicensed entities • Successful partnership to shut down unlicensed activity For Discussion Purposes October 24, 2007

14. Participants/Roles • Customers • Money Service Businesses • Banks • Regulators: • MSB and Bank regulators • State and Federal regulators • Law Enforcement For Discussion Purposes October 24, 2007

15. Issues • Clarity of the definition of MSB • Section 103.11 (uu): $1,000 single or aggregate transactions in one day • Knowing MSB regulatory framework • De-Banking of MSBs • Concentration of MSB account servicing within banking industry, inclusive of credit unions • Customer Awareness For Discussion Purposes October 24, 2007

16. Challenges • Evaluation of MSB Definition • Convergence of Regulatory Standards via Information-sharing • Concentrations within Banking Industry • Communication and Education of Industries (both Banking and MSB industries), regulators, and law enforcement • Consumer Education For Discussion Purposes October 24, 2007

17. Summary • Communication on various levels with various partners • The regulators, industries (banking & MSB), law enforcement • Importance of flow of information for clarification of guidance, supervision and examination for consistency of approach For Discussion Purposes October 24, 2007

18. Summary • Most important: • The banking and MSB industries have to continue to communicate with each other and with their respective regulators • We all share common goals: • Ensuring customers have access to financial services • Keeping the MSB industry viable and above ground. For Discussion Purposes October 24, 2007

19. Questions ???? For Discussion Purposes October 24, 2007