TEXAS DEPARTMENT OF BANKING FDIC BSA Seminar San Antonio, Texas May 24, 2005

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TEXAS DEPARTMENT OF BANKINGFDIC BSA
SeminarSan Antonio, Texas May 24, 2005
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Presenters

• Lynda Drake
• Director of Corporate Activities

• Russell Reese
• Director of Special Audits Division

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Topics of Discussion

• Overview of Departments Licensing Requirements
  of Money Service Businesses (MSBs)
• Overview of Departments MSBs Examination Program
• Recommended File Documentation for MSB Accounts

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What is a MSB?

• Currency Dealers or Exchangers
• Check Cashers
• Issuers of Travelers Checks, Money Orders or
  Stored Value Cards
• Sellers or redeemers of Travelers Checks, Money
  Orders or Stored Value Cards and,
• Money Transmitters or Transporters

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Which Activities Do We License?

• Money Transmissions
• Includes face to face transactions and
  internet transactions
• Money Orders
• Travelers Checks

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Which Activities Do We License?

• Currency Exchangers/Dealers
• Currency Transporters
• Stored Value Products not issued by insured
  financial institutions

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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

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Which Statutes Apply?

• Chapter 152 Check Sellers
• Money Orders, Travelers Checks, Drafts
• Electronic Transfers, ACH Transfers, Stored
  Value Products

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Which Statutes Apply?

• Chapter 153 Currency Exchange, Transportation,
  or Transmission
• Currency Exchangers/Dealers, Casa de Cambios
• Currency Transporters
• Currency Transmitters

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Pending Legislation

• HB 2218
• Combines both Chapters 152 and 153 of the Texas
  Finance Code
• Will be Chapter 151

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How Do I Know that My Customer is Appropriately
Licensed?

• Check the MSB website - http//www.msb.gov/guidanc
  e/msbstateselector.php
• Check the DOB website - http//www.banking.state.t
  x.us/

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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

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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

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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

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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

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What Checks are Run on a Principal?

• DPS criminal check
• DOB examiners
• OFAC lists
• Credit report
• IRS (153 only)
• FBI fingerprint check (153 only)

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What Checks are Run on a Principal? (cont.)

• DHS
• Internet Search Firm
• Other State or Federal Agencies
• Personal Financial Statements

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What Documents Do We Review?

• Business Plan
• AML Policy
• Receipt
• Contracts, if warranted

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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

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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

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History

• Department has been performing exams on MSBs
  since the late 1980s
• 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

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Examination Purpose

• Assess compliance with State and Federal
  Statutes
• Focus is on Compliance Issues and,
• Safety and Soundness

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Examination Procedures

• Verify Compliance with State Laws
• Reporting Requirements
• Quarterly Report Filings
• Transaction Volume
• Permissible Investments

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Examination Procedures

• Recordkeeping Requirements for Threshold
  Transactions
• Same as Federal Requirements
• Transaction Receipt Disclosures
• Consumer Complaint Notice Posting

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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

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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)

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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)

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Examination Procedures

• Assess Safety Soundness
• Minimum Net Worth Requirements
• Minimum Bonding Requirements
• Management Supervision

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Examination Procedures

• Exit Meeting held with Management to Discuss Exam
  Findings
• License Holder is Issued an Overall Rating Based
  on Exam Findings

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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

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On-going Monitoring

• Quarterly Reporting
• Required to file Financial Statements
• Required to file Transaction Volume

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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

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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

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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

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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

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Documentation to Request if Conducting MSB
Activity as an Agent

• Verification of the Principals License from the
  Department
• Copy of Agent Agreement
• Copy of AML Program
• Copy of Independent Review of AML Program

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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

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Questions?