Money Services Business (MSB)

A money services business (MSB) is an entity that deals in transmitting, converting, or exchanging money. While banks are technically MSBs, the term allows for a broader definition of financial institutions.

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“Money services business” is a legal term that is most commonly used in the context of Anti-Money Laundering (AML) compliance, distinguishing which businesses fall under the purview of legislation.

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Many non-traditional banks fall into this category, such as Fintechs like neobanks and cryptocurrency platforms. However, it’s broad enough to encompass services like money orders, traveler’s checks, and currency exchanges (both fiat and virtual).

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The exact definition of what a money services business is (or isn’t) varies between countries. 

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Generally, though, it refers to a business that must be regulated because its services include transferring or converting money. Traditional banks already fall into this category, but many other types of businesses do as well.

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Some common non-bank types of money services businesses include the following:

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• Foreign currency exchanges
• Check cashers
• Sellers, issuers, or redeemers of traveler’s checks, money orders, prepaid cards, etc. 
• Remittance services
• Post offices
• Bill payment services
• Peer-to-peer lending or equity-based crowdfunding platforms
• Digital eCommerce and payment processors
• Cryptocurrency exchanges (including fiat-to-crypto and vice-versa)

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The terms “money services business” and “money laundering” are, unfortunately, often linked. Since money laundering is intrinsically linked to the transfer and exchange of money, MSBs will always be a target of money launderers.

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The services MSBs provide typically involve cash, one-time transactions, or (more recently) cryptocurrencies, all of which are difficult to trace. That makes MSBs attractive to online fraudsters, organized criminal rings, and even terrorist groups.

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This is why, in most places in the world, money services businesses have strict AML requirements. Regulations differ between jurisdictions, but a money services business compliance program typically involves many of the following elements:

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• Training employees on how to properly follow AML requirements
• Designating an employee as a compliance officer
• Conducting an overall risk assessment of the business, based on its nature
• Performing Know Your Customer checks on clients to assess their risk profiles
• Monitoring transactions, paying especially close attention to high-value ones
• Filing suspicious activity reports (SARs) with regulatory authorities, when warranted
• Allowing for periodic independent reviews to maintain the program’s effectiveness

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Money Services Business Registration

One of the regulations in the US aimed at reducing money services business fraud is that all MSBs must register with the federal government’s Department of the Treasury. This requirement is enforced by the US Financial Crimes Enforcement Network (FinCEN).

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A new MSB in the US must complete FinCEN Form 107 (Registration of Money Services Business) and file it within 6 months of beginning operation. It is also required to refile this form every two years. In addition, it must keep a copy of the registration form – along with any supporting documentation – at a location inside the US for a period of at least five years.

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Again, different countries have different standards on what exactly does or doesn’t qualify as a money services business. To help you understand what does and doesn’t constitute an MSB, the following is a list of well-known companies that would be considered MSBs (at least in some countries).

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1. Western Union

Western Union began as a telegram and telecommunications company that also pioneered the technology behind wire money transfers. Though its telecom operations shut down in 2006, Western Union remains one of the largest money transfer companies in the world. It is often used by US immigrants to send money back to their families in their native countries. This makes it one of the most visible money services business examples.

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2. PayPal

PayPal is a digital payment processing service. It works by linking with a user’s financial accounts to create a digital pool of money. The money can then be used to pay at certain merchants (mostly eCommerce stores), or sent to another person’s PayPal account. This transfer capability, in particular, is why PayPal counts as a money services business.

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3. Coinbase

Coinbase is a large US-based money services business dealing in crypto. It allows for buying and selling over 17,000 cryptocurrencies in the user’s national currency. It also facilitates exchanging cryptocurrencies for each other, as well as sending amounts of cryptocurrency to other people. All of these conversion and transfer functions make Coinbase a money services business, even though the money in this case is virtual currencies.

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Partnering with MSBs can be a way for financial institutions to expand their available services and offer more convenience to customers. But in doing so, FIs should be aware that the nature of what MSBs do makes them more vulnerable to being used for financial crime. So it’s important to ensure that MSBs fully comply with the strict AML regulations they are typically subject to before doing business with them.

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Unit21’s platform includes compliance management tools that help financial institutions stay on top of regulatory compliance within their business networks. To learn more about what Unit21 can do, schedule a demo with us.

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