ALEXANDRIA, Va.—In the wake of a $300,000 fine to North Dade Community Development CU for significant Bank Secrecy Act (BSA) violations, NCUA is now providing guidance to CUs that create partnerships with money service businesses (MSBs).
The new guidance comes at the same time CUToday.info has published an investigation into just what are MSBs and the potential risks, and why credit unions can nevertheless find them attractive options as revenue streams.
In the case of the $4-million North Dade, based in Miami Gardens, Fla., it had partnered with 56 MSBs.
NCUA has issued a Letter to Credit Unions (14-CU-10) on working with MSBs and developed examiner guidance on evaluating credit unions that provide account services to MSBs.
According to NCUA estimates:
- The number of federally insured credit unions that report accounts provided to entities operating as MSBs is 240.
- The total number of accounts from federally insured credit unions provided to entities operating as MSBs is 1,485.
- The total dollar value (for federally insured credit unions) of accounts provided to entities operating as MSBs is $77 million.
One source observed that the NCUA numbers provide no indication of the amounts of money MSBs could be moving through credit unions, only MSB deposits on hand at the time of the estimates. The source indicated the size of money movement volume North Dade handled would be possible among the credit unions serving MSBs, and that key to large sums of money movement are CU relationships with large money transmitters doing business outside U.S. borders.
In the letter signed by Chairman Debbie Matz, NCUA states that “MSBs can expose credit unions to certain risks, and NCUA expects credit unions to consider, monitor, and mitigate those risks.”
Just as experts have explained to CUToday.info (see story at left), NCUA emphasized that the level and types of risk posed by an MSB depend on the nature and scope of the MSB operation.
NCUA states that “larger MSBs may present off-balance-sheet risks by generating significant transaction volumes that could overwhelm smaller credit unions. Credit unions with only a few million dollars of assets could end up processing billions of dollars’ worth of money services transactions. Some MSBs even raise heightened risks of money laundering for drug cartels and terrorist groups.”
The letter explains that NCUA and the Financial Crimes Enforcement Network (FinCEN) “are particularly concerned about the vulnerability of credit unions that do not have sufficient scale, internal controls and compliance programs to perform the necessary due diligence on MSBs and manage high volumes of cash flows.”
To mitigate risks in working with MSBs, NCUA said it expects credit unions to:
- Perform the required Customer Identification Program procedures.
- Confirm that member MSBs register with FinCEN.
- Confirm that member MSBs comply with state or local licensing requirements.
- Confirm the member MSBs’ agent status.
- Conduct a Bank Secrecy Act (BSA) / Anti-Money Laundering (AML) risk assessment to document the level of risk associated with the account and whether greater due diligence is necessary.
NCUA emphasized that CUs must assess the risks posed by each of the MSBs it works with and understand each MSB member’s business model and customer base. As was the case with North Dade, working with MSBs that have relationships with other MSBs adds a layer of complexity, the agency reminded.
Related
NCUA Discusses Case Of $4M CU, $1 Billion In Wires, And Compliance
FinCEN Fines $4-Million CU $300,000
MSBs: What Are They, How Did 1 CU Get So Involved, And What’s Coming?