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Yesterday, the Financial Crimes Enforcement Network (FinCEN), issued a Notice of Proposed Rulemaking (NPRM), setting forth important changes to the definition of “money services business.” Comments on the proposed changes must be submitted to FinCEN on or before September 9, 2009.

Relevance to Financial Institutions

By amending the definitions of “money services business” and “financial institution,” FinCEN would change the number and types of companies subject to the Bank Secrecy Act. Financial institutions with customers in the “money services business” should consider the impact that the proposed changes would have for current customer due diligence practices.

Raising or Lowering $1,000 Threshold

Under the current definition, “money services business” includes an entity that engages in certain types of transactions totaling $1,000 for any one person in any one day, including check cashing, currency exchange, issuing or redeeming stored value cards. FinCEN is soliciting comment on whether to raise or lower this $1,000 threshold. If FinCEN raises the threshold, it is likely that fewer companies would be covered by the definition of “money services business.” This could result in cost savings for financial institutions, because they would likely have to perform extensive customer due diligence on fewer customers.

Inclusion of Foreign-Located Money Services Businesses

FinCEN is also proposing that a foreign-located business that meets the definition of “financial institution,” and which is conducting business within the United States, will be deemed a “domestic financial institution.” This change is potentially significant because previously unregulated foreign entities would be included in the definition of money services business, and would be subject to the reporting and record-keeping requirements of the Bank Secrecy Act (the Act). The change would mean that some money services businesses that access the US market through the Internet or a US-based bank account would be subject to the reporting and record-keeping requirements of the Act, even without a physical presence in the US.

Meaning of “Dealer in Foreign Exchange”

FinCEN is also proposing to amend the definition of “dealer in foreign exchange.” The proposed change would codify FinCEN’s position that any currency exchange taking place in the US could be subject to the recordkeeping and reporting provisions of the Act, even if the transaction does not involve US dollars.

Stored Value

In the NPRM, FinCEN solicits comments to assist it with a future rulemaking proposing a revised definition of stored value. Please contact us if you are interested in this issue.

A copy of the NPRM can be found on the FinCEN website or here.

For more information about the proposed changes, please contact:

Richard Coll

Rusty Conner

Andrew Eskin

James Kaplan

Megan Kraai

David Krohn

Michael Reed