Definition of an MSB
Non-bank financial institutions (NBFI) is a general term used to describe certain businesses offering various financial products and services to their customers. It has been in general use for many years and has no legal definition.
Unlike NBFI, the term “money services business” or “MSB” is a legal term defined by federal law and regulation. The definition came about in 1999 when the Secretary of the Treasury issued a ruling revising the regulatory definitions of certain non-bank financial institutions for purposes of the Bank Secrecy Act (BSA). These revised definitions were grouped into a separate category of financial institution called a “money services businesses” or “MSBs.”
A business that meets one or more of the definitions of a type of MSB is an MSB and must comply with BSA requirements applicable to it as an MSB, as a financial institution and as a specific type of MSB.
The capacities in which a business might be acting that could bring it within the definition of an MSB are:
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If your business is an MSB, then it must comply with the Bank Secrecy Act.
Of course, like most things in life, there are alternatives from which you can freely choose.
The first alternative to complying is to – either cease the activities that cause the business to be classified as an MSB OR impose restrictions on the size of certain financial transactions performed so as to no longer be an MSB. For any time during which the business performed activities of an MSB and was not in compliance though… it was not in compliance and is therefore potentially subject to civil and criminal penalties.
A business shouldn’t just quit MSB transactions cold turkey and take no other action though. That’s not really sufficient. Instead, the business should quit performing the MSB activities and also… document its decision through a corporate resolution, implement changes to its written policies and procedures, manage its affairs according to the new policies, and, finally, maintain documentation of those times when the company screws up and makes mistakes. Taking the additional steps can help to prove intent to no longer be an MSB and protect the business.
A second alternative is to simply ignore the compliance obligations of the business imposed by the Bank Secrecy Act.
That’s right! Just IGNORE it and hope nothing happens and it all amounts to a bunch of hew haw. Of course, that wouldn’t be a very intelligent business decision, would it? You had to be pretty intelligent and have a good work ethic to open your own business, so chances are you won’t be interested in this risky shortcut (to potential disaster).
Such a decision can subject the business, its OWNERS, and its EMPLOYEES to potential civil and criminal penalties. That means the government could penalize your business, its owners, and its employees financially. It also means that the business owners, management and employees could potentially lose their precious freedom and serve jail time in some circumstances. So, non compliance is really a very bad choice indeed.
Wouldn’t it be best to comply with the BSA requirements for MSBs? Information freely available on this website and also available at the Financial Crimes Enforcement Network sponsored website, www.MSB.gov, can help you to understand the requirements and comply.
The Money Services Business Bank Secrecy Act / Anti-Money Laundering Compliance Guide available for sale on this site’s Store pages includes detailed information, best practices, forms, and templates to help you comply with the BSA.