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TEXAS DEPARTMENT OF BANKING FDIC BSA Seminar San Antonio, Texas May 24, 2005. Lynda Drake Director of Corporate Activities. Russell Reese Director of Special Audits Division. Presenters. Topics of Discussion. Overview of Department’s Licensing Requirements of Money Service Businesses (MSBs)
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TEXAS DEPARTMENT OF BANKINGFDIC BSA SeminarSan Antonio, TexasMay 24, 2005
Lynda Drake Director of Corporate Activities Russell Reese Director of Special Audits Division Presenters
Topics of Discussion • Overview of Department’s Licensing Requirements of Money Service Businesses (MSBs) • Overview of Department’s MSBs Examination Program • Recommended File Documentation for MSB Accounts
What is a MSB? • Currency Dealers or Exchangers • Check Cashers • Issuers of Traveler’s Checks, Money Orders or Stored Value Cards • Sellers or redeemers of Travelers Checks, Money Orders or Stored Value Cards; and, • Money Transmitters or Transporters
Which Activities Do We License? • Money Transmissions • Includes “face to face” transactions and “internet” transactions • Money Orders • Travelers Checks
Which Activities Do We License? • Currency Exchangers/Dealers • Currency Transporters • Stored Value Products – not issued by insured financial institutions
Which Activities Do We NOT License? • Check Cashers • Stored Value Products – issued by insured financial institutions or in a “closed” system • Agents of Check Sellers
Which Statutes Apply? • Chapter 152 – Check Sellers • Money Orders, Travelers Checks, Drafts • Electronic Transfers, ACH Transfers, Stored Value Products
Which Statutes Apply? • Chapter 153 – Currency Exchange, Transportation, or Transmission • Currency Exchangers/Dealers, Casa de Cambios • Currency Transporters • Currency Transmitters
Pending Legislation • HB 2218 • Combines both Chapters 152 and 153 of the Texas Finance Code • Will be Chapter 151
How Do I Know that My Customer is Appropriately Licensed? • Check the MSB website - http://www.msb.gov/guidance/msbstateselector.php • Check the DOB website - http://www.banking.state.tx.us/
What about Agents of Licensed Entities? • If Chapter 152, Agents are not Licensed • If Chapter 153, location should be Licensed • If Chapters 152 or 153 • Issuer Must be Licensed • Written Contract between the Agent and the Issuer
What are the Requirements for a License? • Qualifications & Eligibility • Minimum Net Worth • Sound Financial Condition and Practices • Current Status for Payment of Taxes and Fees • Principals must “Pass Muster” • Bonded/Secured • Registered with IRS as MSB or committed to Register
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 (153 only) • Clearing Bank Account Officer
What Checks are Made on an Applicant? (cont.) • Clearing Bank BSA/AML Officer • Check other State Regulators • DHS Check, if necessary • Check with other Texas State Agencies, if warranted • Conduct on-site Investigation, if warranted
What Checks are Run on a Principal? • DPS criminal check • DOB examiners • OFAC lists • Credit report • IRS (153 only) • FBI fingerprint check (153 only)
What Checks are Run on a Principal? (cont.) • DHS • Internet Search Firm • Other State or Federal Agencies • Personal Financial Statements
What Documents Do We Review? • Business Plan • AML Policy • Receipt • Contracts, if warranted
How the DOB can help You • Check our website –http://www.banking.state.tx.us • Watch your mail • Make an open records request • Talk to the examiners and check periodicals • Call us 512 475-1322
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
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 142 MSB license holders • Includes international companies (India) • Majority of Chapter 152 license holders headquarters are located outside of Texas
Examination Purpose • Assess compliance with State and Federal Statutes: • Focus is on Compliance Issues; and, • Safety and Soundness
Examination Procedures • Verify Compliance with State Laws: • Reporting Requirements • Quarterly Report Filings • Transaction Volume • Permissible Investments
Examination Procedures • Recordkeeping Requirements for Threshold Transactions • Same as Federal Requirements • Transaction Receipt Disclosures • Consumer Complaint Notice Posting
Examination Procedures • 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
Examination Procedures • Verify Compliance with Federal Laws (cont.) • 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)
Examination Procedures • Verify Compliance with Federal Laws (cont.) • 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)
Examination Procedures • Assess Safety & Soundness: • Minimum Net Worth Requirements • Minimum Bonding Requirements • Management Supervision
Examination Procedures • Exit Meeting held with Management to Discuss Exam Findings • License Holder is Issued an Overall Rating Based on Exam Findings
Examination Procedures • License Holder is Issued Report of Examination • Joint/Coordinated Exams Performed with Other MSB State Regulators • To date for FY 2005 We Have Completed Eight Joint Exams
On-going Monitoring • Quarterly Reporting: • Required to file Financial Statements • Required to file Transaction Volume
On-going Monitoring • 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 • Chapter 152 License Holders Must File Audited Financial Statements
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
Questions to ask a MSB Accountholder? (cont.) • 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
Documentation to Request if MSB Licensed with Department • Copy of Current License Issued by the Department • Copy of MSB registration form • Copy of most recent Department exam report • MSB must receive approval from the Commissioner to release exam report • Copy of AML Program • Copy of Independent Review of AML Program
Documentation to Request if Conducting MSB Activity as an “Agent” • Verification of the Principal’s License from the Department • Copy of Agent Agreement • Copy of AML Program • Copy of Independent Review of AML Program
Documentation to Request if Conducting MSB Activity as an “Agent” (cont.) • Copy of MSB Registration Form • If “Agent” does not conduct any other MSB services outside of Agent Agreement; then, Registration is NOT Required