WASHINGTON—A Treasury executive expressed concern that too many financial institutions are terminating relationships with money service businesses (MSBs) as part of a broader “de-risking” strategy, at the expense of consumers.
It was a relationship with an MSB that led to a $300,000 fine against the $4-million North Dade Community CDCU in 2014. A CUToday.info report emphasized that as banks turn away MSBs, more MSBs are turning to credit unions.
Under Secretary for Terrorism and Financial Intelligence David S. Cohen told the Treasury Roundtable on Financial Access for Money Services Businesses, which included representatives of MSBs, that the Treasury is looking for ways to address MSB financial access and to clarify the department’s position relative to MSBs.
Cohen said the Treasury Department is seeking to foster a “vibrant and well-regulated market for MSBs – one in which legitimate customers can access convenient and secure financial services, and from which terrorists and criminals are turned away.”
“Getting this right is absolutely critical if we are to protect consumers, advance financial inclusion, support economic development, and uphold the integrity and transparency of the international financial system,” said Cohen.
During 2014, Cohen said MSBs filed 720,000 suspicious activity reports and 355,000 currency transaction reports, and have been active in providing transparency. He said MSBs are also playing an “increasing role in alleviating poverty and advancing prosperity across the globe. The World Bank estimates that by 2016, the global flow of remittances, made possible by just one type of MSB, will add up to $681 billion, with more than $500 billion of that going to developing countries.”
Nevertheless, despite the positives, said Cohen, the Treasury is concerned that certain MSBs can be “vulnerable” to abuse by money launderers and terrorist financiers, especially in remittances.
“But we believe emphatically that risks such as these can and should be managed, not simply avoided altogether – especially in light of the contributions MSBs make to the health of the international financial system and to the U.S. economy,” said Cohen. “We take very seriously concerns that banks have been indiscriminately terminating the accounts of all MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers.”
Cohen called those decisions part of a larger “de-risking” trend by FIs that runs counter to expectations that FIs assess risks on a consumer-by-consumer basis.
“And we have no problem with financial institutions that, after applying a risk-based approach to their decision-making, say “no” to some customers—in fact, that’s what we expect of them,” said Cohen. “A bank that terminates a relationship with a money transmitter because it reasonably determines that it cannot responsibly mitigate the customer’s illicit finance or other risk is to be applauded, not criticized.
“What we are concerned about, however, is the possibility that financial institutions are terminating or restricting an entire class of business relationships simply to avoid perceived regulatory risk, not in response to an assessment of the actual risk posed by individual MSBs,” he continued.
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