Anti Money Laundering Compliance Program and Money Service Business (MSB)

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Effectively Fulfill Anti Money Laundering Compliance Program for Money Services Businesses with AML-TRACE

Effectively Fulfill Anti Money Laundering Compliance Program for Money Services Businesses with AML-TRACE

MSBs offer currency exchange and conversion services for companies worldwide. All financial institutions that convert or transmit money fall into the Money Services Business (MSB) classification. Though they provide services similar to banks, they are different from banks; MSBs offer more affordable and more variety of commercial products available to all who want to convert or transmit money.

Thus, Money Service Business covers several organizations that offer e-commerce, crowdfunding, and cryptocurrency products. MSBs include anything from traditional bureau de changes and post offices to the latest smartphone payment app. An MSB provides these services too:

  • Transmission (or representation) of money.
  • Cashing cheques payable to clients.
  • Offering payment services for bills–electricity, gas, or tax payments
  • Taking intermediary payments between a supplier and a payer via digital, telecommunication, and IT devices.
  • Providing a short-term loan to a customer, cash remittance to family members abroad, money for a holiday, or a facility to conduct business with a company located abroad. 
  • Emerging financial services, including cryptocurrencies, crowdfunding projects, or other online payments.

Money Service Business and Money Laundering: An Assessment

As far as currency conversion and money transmission are concerned, many criminal risks are associated with MSBs. These must follow strict compliance regulations about the state's anti money laundering and counter-terrorist legislation. 

So, the stakeholders must achieve a healthy balance between MSB and AML compliance. It all starts with the employees understanding how MSBs work. The Board of Directors must inform the employees about the relevant money laundering regulations that apply to the business.

Money Services Business and AML Compliance

Operating an MSB involves complying with a complex legislative environment and AML regulations. The specifics of AML obligations vary from one jurisdiction to another. But the one thing that stays the same is the development and implementation of an AML policy that corresponds to a company’s risk profile. Then, the firm also has reporting obligations to authorities. 

Potential Risks Associated with Money Service Businesses

The type and level of risk posed by an MSB depend on the scope and nature of the MSB operation. These businesses range from small independent businesses to large international money transmitters that offer financial services secondary to their primary business. For instance, a grocery store offering cheque cashing.

In general, when it comes to MSB and AML, larger MSBs present off-balance-sheet risks by generating huge transaction volumes that can overburden smaller credit unions. Those credit unions with only a few million dollars of assets may process billions of dollars worth of money services transactions.

In violation of the anti money laundering compliance program, some MSBs also become covers for drug cartels and terrorist groups. The state regulatory authorities are specifically concerned about the vulnerability of credit unions that don’t have adequate scale, compliance programs, and internal controls to perform the necessary due diligence on MSBs & manage high cash flow volumes.

Anti-money laundering regulations require MSBs to develop and implement an effective AML compliance program. One feature is ensuring that MSBs have the right processes for identifying and verifying customers and they're Know Your Customer (KYC) data.

How should policies be made in money service businesses against money laundering?

  • These policies must contain procedures that identify & flag potentially suspicious behavior. 
  • Besides, proper processes must be established for reporting illicit activity to the authorities concerned.
  • Firms should present themselves for independent audits to demonstrate AML compliance. 
  • As far as record-keeping is concerned, MSBs should keep records in an easy format to retrieve if there is an audit. Some record types should be held on file for around five years.

Role of KYC in MSB AML Compliance

Know Your Customer is an integral aspect of AML compliance. The process involves identifying and authenticating customers during the MSB customer onboarding process. In other words, clients are verified for who they claim to be. This helps the MSBs reduce fraud and criminal activity levels at the entry point.

AML-TRACE carries out a KYC process that identifies high-risk customers during their onboarding. The software also identifies suspicious transactions. But this is done after personally identifiable information is gathered from a client, including full name, address, and date of birth.

For the anti money laundering compliance program to be fully effective, the officials must collect official documents, including a driver’s license or passport. After verification, client information is run against official databases highlighting Politically Exposed Persons and any violators on the Sanctions List. This flags customers with the capacity or means for money laundering, terrorism funding, or other criminal activity.

Also, though MSBs are different from banks, their KYC requirements are very similar as part of Customer Due Diligence (CDD). The only difference is that banks are more likely to fulfill Enhanced Due Diligence (EDD) because of higher-value transactions. 

Besides, EDD is a more stringent verification procedure than KYC or CDD for money service businesses and money laundering. If an MSB completes high-value transactions or works with risky customers, they will also need to complete Enhanced Due Diligence procedures.

How does AML TRACE help?

Ideally, third-party verifiers conduct the verification process manually. This means it is expensive, slow, and laced with errors. AML TRACE is a one-time installation, automated software that automates the KYC process and fetches the data of thousands of customers within minutes. This speeds up customer verification and ensures rock-solid accuracy in MSB KYC.

The makers of AML TRACE at Smart Infotech have provided a fast and easily configurable compliance system for you to meet your AML regulatory obligations cost-effectively.

AML TRACE software adopts an enterprise-wide approach to managing KYC/EDD/CDD requirements right from initial onboarding until the culmination of a professional relationship with the customer. The software also carries out ongoing due diligence. As far as record-keeping is concerned. Logs are available for future reference.

Further, it also performs continuous transaction monitoring by automating risk scoring to help you achieve AML compliance. AML TRACE is the one-stop solution to carry out your anti money laundering compliance program effectively. Track customer transactions, reduce risks and protect your business against financial crime with AML TRACE software uae.