MSBs: Risk and Rewards

Financial institutions often avoid serving money service businesses (MSBs) due to the regulatory risks they present. But MSBs also provide opportunities for fee income.

Just as importantly they provide important services to local communities, including to credit union members.

Jay Postma and Doug Dwyer of MSB Compliance provided guidance on servicing MSBs during a general session at the 2018 CUNA Bank Secrecy Act Certification Conference, presented with NASCUS, in Louisville, Ky.

Postma and Dwyer say it is a misconception that MSBs are underregulated.

“As with any industry, there are good apples and bad apples,” Postma says. "But we’ve worked with MSBs that are honest and hardworking. In all of those cases, it’s a matter of culture and compliance. The vast majority are embedded in the community and want to provide services just as your credit unions do.”

MSBs will pay a premium for banking services because they understand they are a higher risk. “If you will bank MSBs you can be selective as to who you bank, both by industry and by business,” Dwyer says.

“You are the gatekeeper, Postma adds.

Among the fee opportunities that MSBs offer are;

• Cash vault.
• Deposited items.
• Returns.
• Wire transfers.
• ACH.

Dwyer and Postma say credit unions should expect to make a significant investment of time and talent when entering the MSB market.

“Your regulators will rightly be suspect if you enter a new line of business without a clearly considered budget and business plan,” Postma says.

Investment and budget action Items include:

• Updated risk assessment policy.
• Staffing.
• Board training.
• Governance.
• BSA training and certification.
• Transaction monitoring.
• Negative news monitoring.

“If you’re contemplating getting into the business, just make sure you’re making the right investments,” Dwyer says. “That will gain the regulator’s confidence as well.”